Introduction to Microeconomics
Test Preparation
Course Introduction
Introduction to Microeconomics explores the foundational principles that govern individual and firm decision-making in market environments. This course covers core concepts such as supply and demand, market equilibrium, elasticity, consumer behavior, production and costs, different types of market structures, and the role of government in the economy. Students will gain analytical tools to understand how prices are determined, how resources are allocated, and how various economic agents interact within various market frameworks, providing a basis for further study in economics and applications to real-world economic issues.
Recommended Textbook Microeconomics 7th Edition by R. Glenn Hubbard
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18 Chapters
4654 Verified Questions
4654 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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240 Verified Questions
240 Flashcards
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Sample Questions
Q1) Suppose that to increase sales of hybrid vehicles, auto manufacturers are offering large cash incentives.This is an example of a macroeconomic topic.
A)True
B)False
Answer: False
Q2) All centrally planned economies
A)have been political dictatorships.
B)started out as market economies.
C)began as mixed economies.
D)have become mixed economies.
Answer: A
Q3) What is meant by the statement that "optimal decisions are made at the margin"?
Answer: In economics, the word "marginal" means "extra" or "additional." Economists reason that the optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost, so optimal decisions are made at the point where the extra benefit received from an activity is equal to the extra cost associated with that activity.
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3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Table 2-7.What is Fred's opportunity cost of making a unicycle?
A)1/3 of a pogo stick
B)3 pogo sticks
C)1/2 of a unicycle
D)1.3 pogo sticks
Answer: B
Q2) Refer to Figure 2-1.Point C is
A)technically efficient.
B)unattainable with current resources.
C) inefficient in that not all resources are being used.
D)is the equilibrium output combination.
Answer: B
Q3) Refer to Figure 2-14.Identify the two arrows in the diagram that depict the following transaction: Myrna earns $450 for working at HempHill's Drug Store.
A)J and M
B)K and G
C)K and M
D)J and G
Answer: A
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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242 Verified Questions
242 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) Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve.As a result
A)both the equilibrium price and quantity of MP3 players will increase.
B)the equilibrium price of MP3 players will increase; the equilibrium quantity may increase or decrease.
C)the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will increase.
D)the equilibrium price of MP3 players will decrease; the equilibrium quantity may increase or decrease.
Answer: A
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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208 Verified Questions
208 Flashcards
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Sample Questions
Q1) What is producer surplus? What does producer surplus measure?
Q2) You are given the following market data for apples.
Demand is represented by: P = 12 - 0.01Q
Supply is represented by: P = 0.02Q where P= price per bushel, and Q=quantity.
a.Calculate the equilibrium price and quantity.
b.Suppose the government guaranteed producers a price of $10 per bushel.What would be the effect on quantity supplied? Provide a numerical value.
c.By how much would the $10 price change the quantity of apples demanded? Provide a numerical value.
d.Would there be a shortage or surplus of apples?
e.What is the size of this shortage or surplus? Provide a numerical value.
Q3) Refer to Table 4-3.The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear.If the market price of cowboy hats is $50, producer surplus is A)$0.
B)$4.
C)$62.
D)$138.
Page 6
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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262 Verified Questions
262 Flashcards
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Sample Questions
Q1) Refer to Figure 5-7.The marginal cost of reducing pollution curve is the same curve as
A)the supply of pollution reduction curve.
B)the demand for pollution reduction curve.
C)the negative externality curve.
D)the value of pollution reduction curve.
Q2) If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.
A)True
B)False
Q3) Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of
A)a transactions cost.
B)a Pigovian tax.
C)a Pigovian subsidy.
D)the Coase Theorem.
Q4) An externality refers to economic events outside a market.
A)True B)False
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) A supply curve that is vertical
A)is perfectly elastic.
B)is perfectly inelastic.
C)is impossible.
D)has an elasticity equal to 1.
Q2) Suppose Pump-U-Up lowers the price of its gym membership by 10 percent and as a result, Sweat-It-Out experienced a 16 percent decline in its gym membership.What is the value of the cross-price elasticity between the two gym memberships?
A)-1.6
B)-0.625
C)0.625
D)1.6
Q3) Assume that you own a small boutique hotel.In an attempt to raise revenue, you reduce your rates by 20 percent.However, your revenue falls.What does this indicate about the demand for your boutique hotel rooms?
A)Boutique hotel rooms are inferior goods.
B)Demand is inelastic.
C)The demand curve for your hotel rooms is vertical.
D)Demand is elastic.
Page 8
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Chapter 7: The Economics of Health Care
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171 Verified Questions
171 Flashcards
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Sample Questions
Q1) The overall mortality rate in the United States has remained fairly constant for the past 35 years.
A)True
B)False
Q2) A majority of people in the United States have private health insurance.
A)True
B)False
Q3) All of the following are part of the "regulation of health insurance" provision of the Patient Protection and Affordable Care Act (ACA)except
A)individuals with pre-existing medical conditions are able to acquire health insurance.
B)all policies must provide coverage for dependant children up to age 26.
C)lifetime dollar maximums on coverage are prohibited.
D)limits on the size of deductibles and on waiting periods before coverage takes effect have been eliminated.
Q4) In a market with positive externalities, the market equilibrium price will be less than the efficient equilibrium price.
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) A corporation's management
A)owns the corporation.
B)hires the board of directors.
C)is liable for the corporation's debts.
D)operates and controls a corporation in its day-to-day activities.
Q2) If you own a $1,000 face value bond with one year remaining to maturity and a five percent coupon rate and new bonds are paying 12 percent, what is the most you can get for your old bond?
A)$1,120
B)$1,000
C)$937.50
D)impossible to determine without additional information
Q3) If you purchase a share of stock from your friend who initially purchased the stock three years ago, your purchase of the stock represents a transaction in the secondary financial market.
A)True
B)False
Q4) How can a corporation's board of directors and its managers try to reduce the principal-agent problem?
Q5) Define a corporation.
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Chapter 9: Comparative Advantage and the Gains From International Trade
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188 Verified Questions
188 Flashcards
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Sample Questions
Q1) Refer to Table 9-6.With trade, what is the total gain in hat production?
A)150 hats
B)300 hats
C)400 hats
D)650 hats
Q2) An agreement negotiated by two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is called
A)a non-tariff trade barrier.
B)an export quota.
C)an import quota.
D)a voluntary export restraint.
Q3) In 1930, the U.S.government attempted to help domestic firms that were harmed by the Great Depression by
A)establishing the General Agreement on Tariffs and Trade (GATT).
B)passing the Smoot-Hawley Tariff.
C)establishing the World Trade Organization (WTO).
D)passing the North American Free Trade Agreement (NAFTA).
Q4) Distinguish between a voluntary export restraint and a quota.
Q5) What is autarky?
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Chapter 10: Consumer Choice and Behavioral Economics
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304 Verified Questions
304 Flashcards
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Sample Questions
Q1) If preferences are transitive, indifference curves
A)intersect at the equilibrium consumption bundle.
B)intersect at the optimum consumption bundle.
C)intersect where the marginal rate of substitution for each indifference curve is equal. D)do not intersect.
Q2) Professor Parallax chooses two students in his economics class, Jasmine and Cassandra, to participate in the ultimatum game.He chooses Jasmine to be the allocator and Cassandra to be the recipient.He gives Jasmine $50 and as the allocator, she gets to decide how to split the money with Cassandra.If Cassandra decides to accept the amount allocated to her by Jasmine, both students get to keep the money.If Cassandra decides to reject her allocation, neither student gets to keep the money.How much will each student end up with if each student acts as if fairness is important? How much will each student end up with if only Cassandra acts as if fairness is important? How much will each student end up with if neither student cares about fairness?
Q3) Describe the demand curve for a Giffen good.
Q4) List three reasons why the demand for a product will often increase if the product is endorsed by a celebrity.
Q5) Explain the concept of network externalities.
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Chapter 11: Technology, Production, and Costs
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327 Verified Questions
327 Flashcards
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Sample Questions
Q1) If a firm experiences positive technological change, it is able to produce more output using the same inputs.
A)True
B)False
Q2) Firms in different countries that face different input prices may produce the same good using different combinations of inputs, even though they have access to the same technology.
A)True
B)False
Q3) Which of the following is an implicit cost of production?
A)the loss in the value of capital equipment due to wear and tear
B)the salary you pay yourself for running your business
C)the utility bill paid to water, electricity, and natural gas companies
D)the interest you pay your mother for the money she loaned you to start your business
Q4) In the long run, the relevant cost is total cost.
A)True
B)False
Q5) Is it possible for technological change to be negative? If so, give an example.
Q6) What is an isocost line? What is the slope of an isocost line?
Page 13
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Chapter 12: Firms in Perfectly Competitive Markets
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297 Verified Questions
297 Flashcards
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Sample Questions
Q1) Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?
A)P - ATC
B)(P - ATC)× Q
C)(P × Q)- TC
D)P - TC
Q2) If a firm shuts down in the short run, its maximum loss equals the amount of its fixed cost.
A)True
B)False
Q3) A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000.If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.
A)True
B)False
Q4) What is meant by the term "long-run competitive equilibrium"?
Q5) Why are individual buyers and sellers in perfect competition called price takers?
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Page 14
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) One way by which firms differentiate their products is to try to anticipate changes in consumer tastes and adapt their products to fit those changed tastes.
A)True
B)False
Q2) Is a monopolistically competitive firm allocatively efficient?
A)No, because it does not produce at minimum average total cost.
B)Yes, because it produces where marginal cost equals marginal revenue.
C)No, because price is greater than marginal cost.
D)Yes, because price equals average total cost.
Q3) If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?
A)Demand decreases and becomes less elastic.
B)Demand decreases and becomes more elastic.
C)Demand increases and becomes less elastic.
D)Demand increases and becomes more elastic.
Q4) How might a monopolistically competitive firm continually earn economic profit greater than zero?
Q5) What is the difference between the terms "marketing" and "advertising"?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC)might serve to deter entry of a potential competitor.
Q2) The equilibrium in the prisoner's dilemma is a Nash equilibrium.
A)True
B)False
Q3) Refer to Figure 14-4.In a real world situation involving Rainbow Writer and Odeon, what scenario below might permit Rainbow Writer to rationally refuse an offer from Odeon of $40 per copy of the software package?
A)Odeon is also negotiating with FastWrite, Rainbow Writer's chief rival.
B)Odeon's competitors are also interested in bundling Rainbow Writer's software.
C)Odeon hires a software developer to begin developing its own proprietary engraving software.
D)Odeon is considering new distribution outlets for its products.
Q4) Refer to Table 14-1.Is there a dominant strategy for AirPorter and if so, what is it?
A)No, its outcome depends on what LimoZeenz does.
B)Yes, AirPorter should offer the mid-week discount.
C)Yes, AirPorter should not offer the mid-week discount.
D)Yes, AirPorter's dominant strategy is to collude with LimoZeenz.
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Page 16
Chapter 15: Monopoly and Antitrust Policy
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279 Verified Questions
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Sample Questions
Q1) The first important federal law passed to regulate monopolies in the United States was the
A)Cellar-Kefauver Act.
B)Clayton Act.
C)Federal Trade Commission Act.
D)Sherman Act.
Q2) In evaluating the degree of economic efficiency in a market, we can state that the size of the deadweight loss in a market will be smaller
A)the greater the difference between marginal cost and price.
B)the smaller the difference between marginal cost and average total cost.
C)the smaller the difference between marginal cost and price.
D)the greater the difference between marginal cost and average revenue.
Q3) A patent or copyright is a barrier to entry based on
A)ownership of a key necessary raw material.
B)large economies of scale as output increases.
C)government action to protect a producer.
D)widespread network externalities.
Q4) How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Price discrimination is a rational strategy for a profit-maximizing firm when
A)it is possible to engage in arbitrage across market segments.
B)it is not possible to segment consumers into identifiable markets.
C)there is no opportunity for arbitrage across market segments.
D)firms want to increase the amount of consumer surplus received by its customers.
Q2) Refer to Table 16-3.If Julie charges $10 per hour, what is the value of the consumer surplus received by Dawn?
A)$2
B)$10
C)$12
D)$22
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
Q4) What is odd pricing? Why do some merchants use odd pricing?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Which of the following statements about commission systems of compensation is false?
A)They increase the risk to workers because sometimes output declines for reasons not connected to the worker's effort.
B)During sluggish periods, an employer's payroll expenses will decline along with sales.
C)If workers are paid on the basis of the number of units produced, they may become less concerned about quality.
D)The lack of income stability will induce the more productive workers to leave in search of more secure employment.
Q2) As nonunion construction workers replace a unionized work force, the average wage in the construction sector is likely to rise.
A)True
B)False
Q3) The application of economic analysis to human resources issues is called personnel economics.
A)True
B)False
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Page 19
Chapter 18: Public Choice, Taxes, and the Distribution of Income
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258 Verified Questions
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Sample Questions
Q1) Which of the following is not an example of rent-seeking behavior?
A)competition for subsidies
B)lobbying the government to impose tariffs on certain imported products
C)competition for the exclusive right to import a product
D)engaging in aggressive advertising that slams a competitor's product
Q2) The corporate income tax is ultimately paid by all of the following except A)owners of the corporation.
B)the corporation's debtors in the form of lower rates of return on the corporation's bonds.
C)customers in the form of higher prices.
D)employees in the form of lower wages.
Q3) What is the difference between the voting paradox and the Arrow impossibility theorem?
Q4) The average tax rate is calculated as
A)total income divided by the total tax paid.
B)the change in total tax paid divided by the change in income.
C)total tax paid divided by total income.
D)the change in income divided by the change in total tax paid.
Page 20
Q5) Describe the main factors economists believe cause inequality of income.
Q6) What is rent seeking and how is it related to regulatory capture?
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Page 21