Introduction to Microeconomics
Test Preparation
Course Introduction
Introduction to Microeconomics explores the foundational principles governing individual and firm decision-making within various market structures. The course examines how scarce resources are allocated through the forces of supply and demand, the role of price mechanisms, and the impact of government intervention in markets. Topics include consumer behavior, production and costs, market equilibrium, elasticity, efficiency, and welfare analysis, providing students with analytical tools to understand how real-world economic decisions shape outcomes for households, businesses, and society.
Recommended Textbook
Microeconomics 1st Canadian Edition by R. Glenn Hubbard
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17 Chapters
2441 Verified Questions
2441 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.
A)True
B)False
Answer: True
Q2) When voluntary exchange takes place, both parties gain from the exchange.
A)True
B)False
Answer: True
Q3) Which of the following is not an example of an economic trade-off that a firm has to make?
A)whether it is cheaper to produce with more machines or with more workers
B)whether it is to outsource the production of a good or service
C)whether or not consumers will buy its products
D)whether it should produce more of its product
Answer: C
Q4) Optimal decisions are made at the point where marginal cost equals zero.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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151 Flashcards
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Sample Questions
Q1) Refer to Table 2.1.Assume Tomaso's Trattoria only produces pizzas and calzones.A combination of 36 pizzas and 30 calzones would appear
A)along Tomaso's production possibilities frontier.
B)inside Tomaso's production possibilities frontier.
C)outside Tomaso's production possibilities frontier.
D)at the horizontal intercept of Tomaso's production possibilities frontier.
Answer: C
Q2) What shape does a production possibilities frontier take if it displays increasing opportunity costs? What shape does a production possibilities frontier take if it displays constant opportunity costs? Which shape is most common in production situations? Why are both types presented in the text?
Answer: A production possibilities frontier which displays increasing opportunity costs is bowed out.A production possibilities frontier which displays constant opportunity costs is linear.A bowed out production possibilities frontier is most common in production situations.Linear production possibilities frontiers are much simpler to work with mathematically, while still demonstrating the key points of the model.
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) Which of the following would shift the supply curve for MP3 players to the right?
A)an increase in the price of a substitute in production
B)an increase in consumer income (assuming that all MP3 players are normal goods)
C)a decrease in the number of firms that produce MP3 players
D)a decrease in the price of an input used to produce MP3 players
Answer: D
Q2) If the quantity of donuts supplied is represented by the equation QS = -15 + 5P then the corresponding price of donuts is represented by the equation
A)P = 0.2QS + 3.
B)P = 5QS + 75.
C)P = QS - 7.5.
D)P = 15 - 0.5QS.
Answer: A
Q3) A change in supply is represented by a shift of the supply curve.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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127 Flashcards
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Sample Questions
Q1) In order to be binding, a price ceiling
A)must lie above the free market equilibrium price.
B)must lie below the free market equilibrium price.
C)must coincide with the free market equilibrium price.
D)must be high enough for firms to earn a profit.
Q2) The total amount of producer surplus in a market is equal to A)the difference between quantity supplied and quantity demanded.
B)the area above the market supply curve and below the market price.
C)the area above the market supply curve.
D)the area between the demand curve and the supply curve below the market price.
Q3) Lucinda buys a new GPS system for $250.She receives consumer surplus of $75 from the purchase.How much does Lucinda value her GPS system?
A)$75
B)$175
C)$250
D)$325
Q4) Rent control is an example of a price ceiling.
A)True
B)False
Q5) What is producer surplus? What does producer surplus measure?
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) In 2012, the Government of British Columbia enacted the final planned increase in its tax on gasoline.The goal of this program is to
A)reduce the quantity of greenhouse gases emitted in B.C.
B)eliminate all smog-forming ozone by the year 2020.
C)cap the amount of ozone emissions in B.C. and trade emissions-reducing technology to developing nations.
D)trade unused gasoline to other provinces in exchange for hydroelectric and solar power.
Q2) Which of the following is an example of a common resource?
A)a salmon farm pool in northern New Brunswick
B)impounded dogs in a dog pound
C)public health care services
D)sea otters in the coastal waters off the Queen Charlette Islands
Q3) When a negative externality exists, the private market produces
A)more than the economically efficient output level.
B)less than the economically efficient output level.
C)products at a low opportunity cost.
D)products at a high opportunity cost.
Q4) What is an externality?
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Firms estimate the price elasticity of demand for new products by conducting market experiments in which firms try different prices and observe the resulting change in quantity demanded.
A)True
B)False
Q2) The value of the price elasticity of supply depends primarily on how quickly firms can acquire inputs to increase quantity supplied when price increases.
A)True
B)False
Q3) Suppose the value of the price elasticity of supply is 4.What does this mean?
A)A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent.
B)A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent.
C)A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
D)For every $1 increase in price, quantity supplied increases by 4 units.
Q4) Explain the relationship between price elasticity of demand and total revenue.
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) One of the main sources of comparative advantage is internal economies.
A)True
B)False
Q2) Refer to Figure 7.3.With a quota in place, what is the quantity consumed in the domestic market and how much of this is supplied by domestic producers?
A)Domestic consumption equals 28 thousand kilograms of which 18 thousand kilograms are produced by domestic producers.
B)Domestic consumption equals 40 thousand kilograms of which 22 thousand kilograms are produced by domestic producers.
C)Domestic consumption equals 34 thousand kilograms of which 16 thousand kilograms are produced by domestic producers.
D)Domestic consumption equals 34 thousand kilograms of which 18 thousand kilograms are produced by domestic producers.
Q3) Protectionism refers to the use of trade barriers to shield domestic firms from foreign competition.
A)True
B)False
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Page 9
Chapter 8: Consumer Choice and Behavioral Economics
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154 Verified Questions
154 Flashcards
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Sample Questions
Q1) Arnold Kim began blogging about Apple products during his fourth year of medical school.Kim's Website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his Website, despite the nearly $200,000 he had invested in his education.In making his decision, Kim decided to ignore the money and time he spent on his education.Economists would say that Kim made a A)rational decision to ignore these sunk costs.
B)poor decision since he had already invested his time and money on his medical career.
C)poor decision since doctors are in greater demand than bloggers.
D)hasty decision by not waiting to recoup his financial investment before giving up his medical career.
Q2) In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change
A)income and hold everything else constant.
B)tastes and preferences and hold everything else constant.
C)the price of the product and hold everything else constant.
D)the price of a close substitute and hold everything else constant.
Q3) What is marginal utility and what is the law of diminishing marginal utility?
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10
Chapter 9: Technology, Production, and Costs
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169 Verified Questions
169 Flashcards
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Sample Questions
Q1) Maximizing the level of output for a given total cost of production
A)is equivalent to producing the profit maximizing output level.
B)is equivalent to minimizing cost for a given level of output.
C)necessitates using only relatively low-priced inputs.
D)will maximize total revenue.
Q2) If the marginal cost curve is below the average variable cost curve, then
A)average variable cost is increasing.
B)average variable cost is decreasing.
C)marginal cost must be decreasing.
D)average variable cost could either be increasing or decreasing.
Q3) A positive technological change which decreases the price of inputs Telus uses to provide mobile phone service will cause
A)Telus' average total cost curve and marginal cost curve to shift downward.
B)Telus' average total cost curve but not its marginal cost curve to shift downward.
C)Telus' marginal cost curve but not its average total cost curve to shift downward.
D)a movement downward along Telus' current average total cost curve.
Q4) Describe the relationship between marginal cost and average total cost.
Q5) Is it possible for technological change to be negative? If so, give an example.
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Chapter 10: Firms in Perfectly Competitive Markets
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) In the short run, if a firm shuts down it avoids its variable cost but not its fixed cost.
A)True
B)False
Q2) In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800,000 from this program.By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,
A)earning an economic profit in the long run is extremely easy.
B)earning an economic profit in the long run is extremely difficult.
C)it is impossible to earn an economic profit in either the short run or the long run.
D)economic profits are only earned in the long run.
Q3) If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.
A)True
B)False
Q4) Under what conditions should a competitive firm shut down in the short run?
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Page 12
Chapter 11: Monopolistic Competition
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants.You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce.What is likely to happen in the restaurant market in your hometown after you open?
A)Your competitors are likely to change their menus to make their products more similar to yours.
B)The demand curve facing each restaurant owner shifts to the right.
C)The demand curve facing each restaurant owner becomes more elastic.
D)While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic.
Q2) If a firm faces a downward-sloping demand curve,
A)the demand for its product must be inelastic.
B)it can control both price and quantity sold.
C)it must reduce its price to sell more units.
D)it will always make a profit.
Q3) Explain the differences between total revenue, average revenue, and marginal revenue.
Q4) What is the difference between the terms "marketing" and "advertising"?
Q5) What is the difference between zero accounting profit and zero economic profit?
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Chapter 12: Oligopoly: Firms in Less Competitive Markets
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130 Flashcards
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Sample Questions
Q1) Collusion
A)is rampant in perfect competition as all firms charge the same price.
B)reduces market concentration in an industry.
C)among firms is difficult to maintain because it eliminates long run economic profit.
D)is more difficult when there are many firms producing differentiated products in an industry.
Q2) Refer to Table 12.2.Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?
A)No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000.
B)No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game.
C)No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price.
D)Yes, the current situation is a Nash equilibrium.
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Page 14
Chapter 13: Monopoly and Antitrust Policy
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146 Verified Questions
146 Flashcards
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Sample Questions
Q1) Refer to Figure 13.2.Suppose the monopolist represented in the diagram above produces positive output.What is the price charged at the profit-maximizing/loss-minimizing output level?
A)$38
B)$54
C)$68
D)$75
Q2) In Hamilton, Ontario there are three very popular supermarkets: Superstore, Fortinos, and Sobeys.While Sobey's remains open twenty-four hours a day, Superstore and Fortinos close at 11 pm.Which of the following statements is true?
A)Sobeys is a monopoly all day because it produces a service that has no close substitutes.
B)Sobeys has a monopoly at midnight but not during the day.
C)Sobeys can ignore the pricing decisions of the other two supermarkets.
D)Sobeys probably has a higher markup to compensate for its higher cost of production.
Q3) How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?
Q4) Provide two examples of a government barrier to entry?
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Page 15
Chapter 14: The Markets for Labour and Other Factors of Production
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149 Flashcards
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Sample Questions
Q1) The firm's gain in profit from hiring another worker is
A)the marginal revenue product of the extra worker.
B)the difference between marginal revenue product and the wage of the worker.
C)the extra output of the extra worker.
D)the reduction in costs from hiring another worker.
Q2) A firm's labour demand curve is also its marginal revenue product curve.For both the perfectly competitive firm and the output price maker, the labour demand curve slopes downwards.However, there is a difference in the reasons why the labour demand curve slopes downwards.What is this difference?
Q3) How will an increase in population affect the labour market?
A)It will shift the market supply curve.
B)It will cause a decrease in the quantity of labour demanded.
C)It will increase the supply of jobs.
D)It will increase the opportunity cost of leisure.
Q4) Technological advancements that increase labour's productivity shift the labour supply curve to the right.
A)True
B)False
Q5) What is a compensating differential?
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Chapter 15: Public Choice, Taxes, and the Distribution of Income
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Refer to Figure 15.2.If the government imposes an excise tax of $1.00 on every unit sold, the consumer's burden of the tax
A)is greater under the more elastic supply curve S .
B)is greater under the less elastic supply curve S .
C)is greater under the less elastic supply curve S .
D)is the same under either supply curve because there is a single demand curve that captures buyers' market behavior.
Q2) Provincial governments get most of their operating funds from
A)transfers from the federal government and personal income taxes.
B)corporate taxes and personal income taxes.
C)taxes on products and personal income taxes.
D)investment income and taxes on products.
Q3) The government of Silverado raises revenue to operate the city's hospital, open to all residents, through a general income tax paid by its residents.This method of raising revenue is consistent with the benefits-received principle.
A)True
B)False
Q4) Describe the main factors economists believe cause inequality of income.
Q5) What is the relationship between market failure and government failure?
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Suppose the per-unit production cost of a book is $4.00 and the retail price is $32.If the book publisher sells books to a bookstore at a 40 percent discount, what is the amount of the publisher's markup per book? Assume that bookstores sell books at the retail price.
A)$12.80
B)$15.20
C)$19.20
D)$21.60
Q2) Refer to Figure 16.2.What is the price charged in the two markets?
A)price in the student market = price in the non-student market = P
B)price in the student market = price in the non-student market = Pb
C)price in the student market = Pd; price in the non-student market = P
D)price in the student market = Pc; price in the non-student market = P
Q3) Are sellers who practice arbitrage taking advantage of buyers?
Q4) Refer to Table 16.2.What is the total revenue received from both markets combined?
A)$30
B)$34
C)$68
D)$70
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Chapter 17: Firms, the Stock Market, and Corporate Governance
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137 Verified Questions
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Sample Questions
Q1) The profits a corporation keeps to finance future expansion are known as A)retained earnings.
B)preferred stock.
C)dividends.
D)capital gains.
Q2) What is a primary market?
A)a market where primary inputs like steel are sold
B)a market where you can sell any bonds you own as a private investor
C)a market where a newly issued claims are sold to initial buyers by the borrowing firm
D)a market where you can sell any stocks you own as a private investor
Q3) How much is a bond that pays $50 in coupon payments for 3 years and $1,000 at the end of the third year worth if the interest rate is 10%?
A)$876
B)$952
C)$1,045
D)$1,150
Q4) If you own a bond with a seven percent coupon rate and new bonds are paying five percent, what will happen to your bond's market price?
Page 19
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