Introduction to Microeconomics Test Bank

Course Introduction

Introduction to Microeconomics provides students with a foundational understanding of how individuals, firms, and governments make choices regarding the allocation of scarce resources. This course explores key concepts such as supply and demand, market equilibrium, elasticity, consumer behavior, production and costs, and the various market structures from perfect competition to monopoly. Through real-world examples and analytical tools, students will learn to evaluate how markets function, what causes market failures, and the impact of government policies on economic outcomes. The course equips students with analytical skills essential for interpreting everyday economic issues and making informed decisions.

Recommended Textbook Microeconomics 7th Edition by R. Glenn Hubbard

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18 Chapters

4654 Verified Questions

4654 Flashcards

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Chapter 1: Economics: Foundations and Models

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240 Verified Questions

240 Flashcards

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Sample Questions

Q1) Refer to Table 1-3.What is Santiago's marginal benefit if he decides to stay open for an extra two hours instead of one hour?

A)$40

B)$50

C)$120

D)$190

Answer: B

Q2) Suppose a town can earn an additional $10,000 per year in revenue if it installs a red-light camera at its busiest intersection.At what additional cost would installing this camera not be considered economically rational?

Answer: If the additional cost of the red-light camera exceeds $10,000 per year, the decision would not be economically rational.

Q3) Scarcity is a problem that will eventually disappear as technology advances. A)True

B)False

Answer: False

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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System

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Sample Questions

Q1) Refer to Figure 2-4.Consider the following events:

A.an increase in the unemployment rate

B.general technological advancement

C.a decrease in consumer wealth

Which of the events listed above could cause a movement from X to V?

A)a only

B)a and b only

C)b and c only

D)a, b, and c

Answer: A

Q2) An example of a factor of production for Dell is

A)stock issued by Dell.

B)the computers exported by Dell.

C)corporate bonds sold by Dell.

D)a worker hired by Dell.

Answer: D

Q3) The basis for trade is comparative advantage, not absolute advantage.

A)True

B)False

Answer: True

Page 4

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Chapter 3: Where Prices Come From: the Interaction of

Demand and Supply

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242 Flashcards

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Sample Questions

Q1) Assume that cotton is a normal good.Which of the following would cause both the equilibrium price and equilibrium quantity of cotton to increase?

A)an increase in consumer income

B)a drought that sharply reduces cotton output

C)a decrease in consumer income

D)unusually good weather that results in a bumper crop of cotton

Answer: A

Q2) In 2004, hurricanes damaged a large portion of Florida's orange crop.As a result of this, many orange growers were not able to supply fruit to the market.If, following the hurricane, the price remained at its pre-hurricane level, we would expect to see

A)a surplus of oranges.

B)the quantity demanded equal to the quantity supplied.

C)a shortage of oranges.

D)an increase in the demand for oranges.

Answer: C

Q3) A change in supply is represented by a shift of the supply curve.

A)True

B)False

Answer: True

Page 5

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

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Sample Questions

Q1) Refer to Figure 4-4.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9, what changes in the market would result in an economically efficient output?

A)The price would decrease, the quantity supplied would decrease, and the quantity demanded would increase.

B)The quantity supplied would increase, the quantity demanded would decrease, and the equilibrium price would decrease.

C)The price would decrease, the demand would increase, and the supply would decrease.

D)The price would increase, the quantity demanded would decrease, and the quantity supplied would increase.

Q2) Refer to Figure 4-7 which shows the market for vitamins.Suppose the government imposes a price ceiling of P .How will the price ceiling affect the quantity supplied, quantity demanded, and quantity exchanged?

Q3) If the demand curve for a product is vertical, any tax increase on the product is paid for entirely by the consumer.

A)True

B)False

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Chapter 5: Externalities, Environmental Policy, and Public Goods

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262 Flashcards

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Sample Questions

Q1) Which of the following is an example of the U.S.government's use of a "command-and-control" approach to reducing pollution?

A)In 1990 Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010.

B)The U.S. government imposed a tax on electric utilities to reduce damages from acid rain.

C)The government issued electric utilities tradable emission allowances in order to reduce emissions of nitrogen oxide.

D)In the 1980s the U.S. government required the installation of catalytic converters to reduce emissions from all new automobiles.

Q2) Refer to Figure 5-7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

A)PF

B)the value of the area QBBEQE

C)PF × QE

D)the value of the area BEF

Q3) What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

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Chapter 6: Elasticity: the Responsiveness of Demand and Supply

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Sample Questions

Q1) The price elasticity of supply for umbrellas is 2.Suppose you're told that following a price increase, quantity supplied increased by 30 percent.What was the percentage change in price that brought this about?

A)60 percent

B)15 percent

C)6.7 percent

D)impossible to determine without additional information

Q2) In 2016, Philadelphia imposed a tax of 1.5 cents per ounce on sweetened beverages, and PepsiCo indicated that its sales in Philadelphia fell by 40 percent after the tax took effect.If the price of PepsiCo's sweetened beverages in Philadelphia increased by 32 percent following the implementation of the tax, then demand for sweetened beverages in Philadelphia would be

A)elastic.

B)inelastic.

C)unit elastic.

D)perfectly inelastic.

Q3) Define the economic concept of elasticity.

Q4) What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

Page 8

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Chapter 7: The Economics of Health Care

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Sample Questions

Q1) In 2017, health care's share of gross domestic product in the United States

A)had returned to its 1995 level.

B)had declined to only 6.5 percent.

C)was about three times as high as it was in 1965.

D)reached a level of 75 percent.

Q2) Automobile insurance companies have a problem with people who buy insurance and then drive recklessly or take less care to avoid losses after being insured.In other words, the automobile insurance market is subject to A)asymmetric information.

B)market signaling.

C)moral hazard.

D)adverse selection.

Q3) What is the main difference between a single-payer health care system and socialized medicine?

Q4) If consumers paid the full price of medical services instead of using health insurance and third-party payers to cover part of the cost, the quantity of medical services provided would increase.

A)True

B)False

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Chapter 8: Firms, the Stock Market, and Corporate Governance

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261 Verified Questions

261 Flashcards

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Sample Questions

Q1) What is the primary difference between a sole proprietorship and a partnership?

A)Proprietorships have unlimited liability while partnerships have limited liability.

B)Partnerships can issue stocks and bonds while proprietorships cannot.

C)Partnerships have more owners than do proprietorships.

D)There is no real difference between the two types of firms.

Q2) In 2002, the Enron Corporation was accused of falsifying information regarding liabilities on Enron's balance sheets, thereby

A)increasing Enron's assets on the balance sheet.

B)reducing Enron's profit on the balance sheet.

C)increasing Enron's net worth on the balance sheet.

D)reducing Enron's net income on the income statement.

Q3) During 2007, many "subprime" and "Alt-A" borrowers began to default on their mortgages.Describe "subprime" and "Alt-A" borrowers.

Q4) Economic profit is the difference between a firm's revenue and its opportunity costs.

A)True

B)False

Q5) What is a firm's balance sheet?

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Chapter 9: Comparative Advantage and the Gains From International Trade

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188 Flashcards

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Sample Questions

Q1) In the United States, imports and exports make up more than half of GDP.

A)True

B)False

Q2) What is a tariff?

Q3) Refer to Figure 9-2.Without the tariff in place, the United States consumes

A)9 million pounds of rice.

B)15 million pounds of rice.

C)31 million pounds of rice.

D)42 million pounds of rice.

Q4) Refer to Table 9-3.Select the statement that accurately interprets the data in the table.

A)Bryce has an absolute advantage in making candles and soap.

B)Tina has an absolute advantage in making candles and soap.

C)Neither Bryce nor Tina has an absolute advantage in making candles.

D)Neither Bryce nor Tina has an absolute advantage in making soap.

Q5) Distinguish between a voluntary export restraint and a quota.

Q6) The trade model described in the text demonstrates that countries can expand consumption by specializing in the production of goods and services in which they have a comparative advantage.In reality we do not see complete specialization in production.State three reasons why this is case.

Page 11

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Chapter 10: Consumer Choice and Behavioral Economics

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304 Flashcards

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Sample Questions

Q1) Suppose Barry is maximizing his utility from consuming used paperback novels and audio books.The price of a used novel = $4 and the price of an audio book = $8.If the marginal utility of the last novel was 32 units of utility (utils)what was the marginal utility of the last audio book purchased?

A)2 utils

B)12 utils

C)16 utils

D)64 utils

Q2) If Joey Kobayashi experiences diminishing marginal utility from eating hot dogs then A)his total utility from eating hot dogs is negative. B)the marginal utility from the next hot dog Joey eats will be negative. C)the additional satisfaction he receives from eating another hot dog will be less then the satisfaction he received from his eating his last hot dog.

D)Joey is maximizing the marginal utility per dollar he receives from eating hot dogs.

Q3) What is a Giffen good?

Q4) Why might network externalities result in products that contain inferior technologies?

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Chapter 11: Technology, Production, and Costs

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327 Flashcards

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Sample Questions

Q1) The typical shape of an isoquant is

A)convex towards the origin.

B)concave towards the origin.

C)linear and downward sloping.

D)linear and upward sloping.

Q2) Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain.

Q3) Vipsana's Gyros House sells gyros.The cost of ingredients (pita, meat, spices, etc.)to make a gyro is $2.00.Vipsana pays her employees $60 per day.She also incurs a fixed cost of $120 per day.What is Vipsana's total cost per day when she does not produce any gyros and does not hire any workers?

A)$0

B)$2

C)$60

D)$120

Q4) If, after hiring the 6th worker, a firm's output falls, then the marginal product of the 6th worker is negative.

A)True

B)False

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Chapter 12: Firms in Perfectly Competitive Markets

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297 Flashcards

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Sample Questions

Q1) Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled A represent?

A)total variable cost

B)profit

C)total fixed cost

D)total revenue

Q2) Which of the following statements is correct?

A)Economic profit takes into account all costs involved in producing a product.

B)Accounting profit is not relevant in preparing the firm's financial statement.

C)Economic profit always exceeds accounting profit.

D)Accounting profit is the same as economic profit.

Q3) A firm will break even when

A)P = ATC.

B)P > ATC.

C)P < AVC.

D)P = AVC.

Q4) Use a graph to show the demand, AVC, ATC, MC, and MR curves of a firm that should temporarily shut down in the short run.Identify the shutdown point on the graph.

Q5) Under what conditions should a competitive firm shut down in the short run?

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Chapter 13: Monopolistic Competition: the Competitive

Model in a

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272 Verified Questions

272 Flashcards

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Sample Questions

Q1) Refer to Table 13-4.Victoria's profit-maximizing output is where

A)total profit equals $3.

B)marginal revenue and marginal cost both equal $4.

C)marginal revenue and marginal cost both equal $3.

D)marginal cost is at its minimum value.

Q2) Refer to Figure 13-14.It is possible to lower the average cost of production by expanding output beyond Q to Q .Why wouldn't a firm expand its output to Q ?

A)The firm wants to maximize accounting profit rather than economic profit.

B)The firm would suffer an economic loss at Q while it would break even at Q .

C)The firm's marginal revenue would be negative at Q .

D)Demand is not sufficient for consumers to buy Q .

Q3) One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

Q4) For productive efficiency to hold,

A)price must equal the marginal cost of the last unit produced.

B)price must equal marginal revenue of the last unit sold.

C)the average variable cost must be minimized in production.

D)the average total cost must be minimized in production.

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Chapter 14: Oligopoly: Firms in Less Competitive Markets

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Sample Questions

Q1) For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite, the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

A)ownership of a key input

B)a government-imposed barrier

C)a patent on the manufacture of aluminum

D)economies of scale

Q2) What is the dominant strategy in the prisoner's dilemma?

A)Each prisoner confesses because this is the rational action to pursue.

B)Do nothing in the hope that the other prisoner will also do nothing.

C)Do not confess because the other prisoner will most likely confess.

D)There is no dominant strategy.

Q3) The breakfast cereal industry has a four-firm concentration ratio of 80 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

Q4) Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota.

Q5) Explain why OPEC is caught in a prisoner's dilemma?

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Chapter 15: Monopoly and Antitrust Policy

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Sample Questions

Q1) Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not.Why is this so?

A)because Microsoft is large enough to hire the best people in the field

B)because Microsoft could potentially lose sales if it sets prices indiscriminately C)because the wealthy corn farmer is a price maker who sets his price independently of the market price, but Microsoft's optimal output depends on the price it selects D)because unlike Microsoft, the wealthy corn farmer is probably a monopolist

Q2) Refer to Figure 15-15.Why won't regulators require that Erickson Power produce the economically efficient output level?

A)because there is insufficient demand at that output level

B)because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit

C)because Erickson Power will earn zero profit

D)because Erickson Power will sustain persistent losses and will not continue in business in the long run

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Chapter 16: Pricing Strategy

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Sample Questions

Q1) Bubba's Hula Shack Bar and Bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of A)arbitrage.

B)two-part tariff pricing.

C)price discrimination.

D)odd pricing.

Q2) Refer to Table 16-3.If Julie charges $10 per hour, how many hours of pet sitting services will be purchased and by whom?

A)2 hours (1 hour by Cara and 1 hour by Dawn)

B)1 hour by Cara only

C)1 hour by Dawn only

D)3 hours (1 hour each by Arun, Bernice, and Cara)

Q3) Refer to Figure 16-6.If Sensei acts as a single-price monopolist, his profit-maximizing price is ________ and the number of classes sold is ________.

A)P ; Q

B)P ; Q

C)P ; Q

D)P ; Q

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Chapter 17: The Markets for Labor and Other Factors of Production

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Sample Questions

Q1) Along an upward-sloping labor supply curve, as the wage rate increases, the opportunity cost of leisure ________, causing individuals to supply a ________ quantity of labor.

A)increases; greater B)increases; lower C)decreases; greater D)remains constant, constant

Q2) a.What are the two effects of an increase in the wage rate on an individual's labor supply decision? Briefly explain each effect.

b.Explain how a labor supply curve could be backward bending.

Q3) The market price of a factor of production that is in fixed supply is determined only by demand.

A)True

B)False

Q4) An increase in the price of grape juice causes an increase in the marginal revenue product of labor used to produce grape juice.

A)True

B)False

Q5) What is personnel economics?

Page 20

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Chapter 18: Public Choice, Taxes, and the Distribution of Income

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Sample Questions

Q1) The largest source of revenue for the federal government of the United States is from A)tariffs collected on imported goods.

B)property taxes imposed on private property.

C)sales taxes on items purchased for consumption.

D)individual income taxes.

Q2) When the demand for a product is more elastic than the supply,

A)consumers pay the majority of the tax on the product.

B)consumers pay the entire tax on the product.

C)firms pay the majority of the tax on the product.

D)firms pay the entire tax on the product.

Q3) A proportional tax is a tax for which people with lower incomes

A)pay a higher percentage of their incomes in tax than do people with higher incomes.

B)pay a lower percentage of their incomes in tax than do people with higher incomes.

C)pay the same percentage of their incomes in tax as do people with higher incomes.

D)pay the same amount of taxes as people with higher incomes pay.

Q4) What is the difference between the poverty line and the poverty rate?

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