Introductory Microeconomics
Textbook Exam Questions
Course Introduction
Introductory Microeconomics provides students with a foundational understanding of how individuals, firms, and governments make decisions regarding the allocation of scarce resources. The course covers essential topics such as supply and demand, market equilibrium, consumer and producer behavior, elasticity, the theory of the firm, and the impact of market structures on outcomes. Emphasis is placed on real-world applications of microeconomic principles to help students analyze current economic issues and policy debates. Through a combination of theoretical frameworks and graphical analysis, this course equips students with the analytical tools required to interpret and evaluate economic phenomena at the micro level.
Recommended Textbook
Microeconomics 5th Edition by Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) When voluntary exchange takes place,neither party gains from the exchange.
A)True
B)False
Answer: False
Q2) A college must decide if it wants to offer more adult literacy classes.This decision involves answering the economic question of "for whom to produce."
A)True
B)False
Answer: True
Q3) The machines workers have to work with are considered
A) human capital.
B) physical capital.
C) entrepreneurship.
D) financial capital.
Answer: B
Q4) Scarcity is a problem that will eventually disappear as technology advances.
A)True
B)False
Answer: False
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Chapter
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Q1) Refer to Table 2-1.Assume Tomaso's Trattoria only produces pizzas and calzones.A combination of 24 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: A
Q2) An organization of producers that limits the amount of a good produced is known as a
A) free market organization.
B) guild.
C) collective.
D) co-op.
Answer: B
Q3) What is a circular flow diagram and what does it demonstrate?
Answer: A circular flow diagram is a model that illustrates how participants in markets are linked.It shows who supplies and purchases factors of production and who supplies and purchases goods and services.
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) For each of the following pairs of products state which are complements,which are substitutes,and which are unrelated.
a.Blu-ray discs and video-on-demand
b.Fiat 500 and Mini Cooper S
c.Toothpaste and toothbrush
d.Popcorn and snowboards
e.Razors and razor blades
Answer: a.Substitutes
b.Substitutes
c.Complements
d.Unrelated
e.Complements
Q2) 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
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) A tax is efficient if it imposes a large excess burden relative to the tax revenue it raises.
A)True
B)False
Q2) Refer to Table 4-2.The table above lists the highest prices five consumers are willing to pay for a theater ticket.If the price of one ticket falls from $25 to $10
A) only three tickets will be sold.
B) consumer surplus decreases from $24 to $12.
C) consumer surplus increases from $0 to $31.
D) everyone will buy a ticket.
Q3) Refer to Figure 4-1.If the market price is $1.00,what is the maximum number of burritos that Arnold will buy?
A) 1
B) 2
C) 3
D) 4
Q4) If marginal benefit is greater than marginal cost,output is inefficiently high.
A)True
B)False
6
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?
A) The equilibrium in the market is not efficient; the marginal benefit from electricity is greater than the marginal social cost.
B) A deadweight loss occurs; at equilibrium the additional social cost of production is greater than the additional benefit to consumers.
C) The equilibrium in the market is not efficient; because of the cost of the acid rain, economic efficiency would be greater if more electricity were produced.
D) The equilibrium in the market is not efficient; consumer surplus is equal to producer surplus.
Q2) When there is a positive externality
A) the private benefit received by consumers is greater than the external benefit.
B) the social benefit received by consumers is greater than the private benefit.
C) the private benefit received by consumers is greater than the private cost.
D) the private benefit received by consumers is greater than the social benefit.
Q3) How does a negative externality in production reduce economic efficiency?
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Q1) Suppose the governor of California has proposed increasing toll rates on California's toll roads,and has presented two possible scenarios to implement these increases.Following are projected data for the two scenarios for the California toll roads:
Scenario 1: Toll rate in 2012: $10.00.Toll rate in 2016: $22.50
For every 100 cars using the toll roads in 2012,only 81.6 cars will use the toll roads in 2016. Scenario 2: Toll rate in 2012: $10.00.Toll rate in 2016: $17.50
For every 100 cars using the toll roads in 2012,only 96.2 cars will use the toll roads in 2016.
a.Using the midpoint formula,calculate the price elasticity of demand for Scenario 1 and Scenario 2.
b.Assume 10,000 cars use California toll roads every day in 2012.What would be the daily total revenue received for each scenario in 2012 and in 2016?
c.Is demand under Scenario 1 and under Scenario 2 price elastic,inelastic,or unit elastic.Briefly explain.
(For above questions,assume that nothing other than the toll change occurs during the time frame listed that would affect consumer demand.)
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Refer to Figure 7-1.The efficient equilibrium price is
A) $30.
B) $25.
C) $20.
D) <$20.
Q2) Economists who support market-based reforms for health care believe that increased competition among providers of health care would ________ costs and ________ economic efficiency.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q3) Of the following,which has most likely contributed the most to the rapid rise in health care costs in the United States?
A) the cost of malpractice insurance
B) the cost to treat uninsured patients
C) slow growth in labor productivity in health care
D) the cost of malpractice lawsuit settlements
Q4) What is moral hazard?
Q5) Why might a young,healthy person choose not to buy health insurance?
Page 9
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) A firm's accounting profit is also its
A) economic profit.
B) income statement.
C) net income.
D) statement of liabilities.
Q2) Who controls a sole proprietorship?
A) stockholders
B) bondholders
C) the owner
D) all of these
Q3) When a business is set up as a sole proprietorship,the owner of the business faces limited liability.
A)True
B)False
Q4) As a business type,corporations ________ in the United States.
A) earn the majority of revenues
B) are the most common
C) are the least common
D) are subject to the fewest taxes
Q5) What is the difference between retained earnings and dividends?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) Economists believe the most persuasive argument for protectionism is to protect infant industries.But the argument has a drawback.What is this drawback?
A) Governments always make the level of protection for infant industries too high.
B) Governments are usually too impatient and do not allow protection to remain in place long enough to allow industries to be competitive in international markets.
C) Governments usually use tariffs, rather than quotas, to protect infant industries in order to collect tariff revenue. (Quotas do not result in government revenue).
D) Protection lessens the need for firms to become productive enough to compete with foreign firms; this often results in infant industries never "growing up."
Q2) The ability of a firm or country to produce a good or service at a lower opportunity cost than other producers is called absolute advantage.
A)True
B)False
Q3) How have U.S.imports and exports,as a fraction of GDP,changed from 1970 to the present?
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Chapter 10: Consumer Choice and Behavioral Economics
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Q1) Refer to Figure 10-3.Best friends Laurel and Hardy both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above what can you conclude about their movie preferences?
A) They have identical movie preferences.
B) Hardy enjoys romantic comedies more than Laurel.
C) Hardy enjoys science fiction movies more than Laurel.
D) The diagrams do not provide any information about relative preferences.
Q2) Refer to Figure 10-6.A change in the price of candy only is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) none of the above panels.
Q3) Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.
A) Giffen goods; luxury goods
B) the income effect; the substitution effect
C) the ultimatum game; the dictator game
D) network externalities; the endowment effect
Q4) Describe the demand curve for a Giffen good.
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Chapter 11: Technology, production, and Costs
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Q1) Refer to Figure 11-18.Starting from point e,a movement along the isocost to point f
A) decreases the total cost of production but not output.
B) increases the total cost of production and decreases output.
C) decreases both the total cost of production and output.
D) decreases output but not the total cost of production.
Q2) The rules of accounting generally require that ________ costs be used for purposes of keeping a company's financial records and for paying taxes.These costs are sometimes called ________ costs.
A) economic; legal
B) real; explicit
C) total; economic
D) explicit; accounting
Q3) If a firm experiences diminishing returns its marginal product must be negative. A)True
B)False
Q4) The marginal cost curve is U-shaped because of the law of increasing opportunity costs.
A)True B)False
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) If in a perfectly competitive industry,the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue
A) the industry supply will not change.
B) new firms are attracted to the industry.
C) some existing firms will exit the industry.
D) firms are breaking even.
Q2) For a given quantity,the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.
A)True
B)False
Q3) Refer to Table 12-1.What is the fixed cost of production?
A) $0
B) $500
C) $1,000
D) It cannot be determined.
Q4) Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down.
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) Arturo runs a Taco Bell franchise.He is selling 250 Gordita Supremes per week at a price of $2.75.If he lowers the price to $2.70,he will sell 251 Gordita Supremes.What is the marginal revenue of the 251st Gordita Supreme? If selling the extra Gordita Supreme adds $0.20 to Arturo's costs,what will be the effect on his profit from selling 251 Gordita Supremes instead of 250?
Q2) If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.
A)True
B)False
Q3) Refer to Table 13-3.What are the profit-maximizing/loss-minimizing output level and price?
A) Q=0 (firm should not produce)
B) Q=3; P=$18
C) Q=4; P=$17
D) Q=5; P=$16
Q4) Explain the significance of brand management to a firm that has differentiated its product.Comment specifically on the importance of obtaining a trademark.
Page 15
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Q1) A cooperative equilibrium results when firms
A) choose the best strategy regardless of what other players do.
B) choose the strategy that maximizes the total game payoff.
C) choose the strategy that minimizes the payoff to other players.
D) choose a strategy by random chance.
Q2) The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.
A)True
B)False
Q3) Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.
A)True
B)False
Q4) If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.
A)True
B)False
Q5) How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?
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Chapter 15: Monopoly and Antitrust Policy
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Q1) U.S.antitrust laws are designed to prohibit monopolization and encourage competition.Why,then,does the government erect barriers to entry and create monopoly power by granting firms patents?
Q2) BHP Billiton is a Canadian company that owns mines in Canada that
A) produce nickel. After World War II, BHP Billiton began to compete with another Canadian firm, the International Nickel Company. This competition eventually ended International Nickel's monopoly in this market.
B) produces bauxite, the mineral needed to produce aluminum. BHP Billiton began to mine bauxite after World War II. This competition eventually ended the Aluminum Company of America (ALCOA)'s monopoly in this market.
C) produces coal. Until World War II, BHP Billiton had a monopoly on coal in Canada. D) produce diamonds.
Q3) Refer to Figure 15-15.Erickson Power is a natural monopoly because
A) it is a power company and all power companies are natural monopolies.
B) average total cost is still declining when it intersects demand.
C) of its continually declining marginal revenue curve as output rises.
D) its marginal cost lies entirely below its long-run average cost.
Q4) Identify two ways by which the government controls monopolies?
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Chapter 16: Pricing Strategy
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Q1) Which of the following describes two-part tariff pricing?
A) A firm charges two different prices for the same good.
B) An importer has to pay a tax at the nation's borders, and a sales tax when the good is sold.
C) A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased.
D) A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car, a plasma television or a suite of furniture.
Q2) A firm's efforts to increase profit by price discrimination can be undermined by
A) arbitrage by buyers.
B) consumer ignorance.
C) differences in elasticity of demand.
D) seller market power.
Q3) Which of the following is a necessary condition for successful price discrimination?
A) The seller must possess market power.
B) The buyer must possess market power.
C) Transaction costs must be zero.
D) Buyers must have identical inelastic demands.
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) A reason why a perfectly competitive firm's demand for labor curve slopes downward is that
A) each additional unit of labor hired is less efficient than previously hired units.
B) in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns.
C) the extra cost of hiring additional units of labor increases as a firm hires more units of labor.
D) the firm's demand curve for the product that uses labor is downward sloping.
Q2) A firm's demand for labor curve is also called its
A) marginal revenue product of labor curve.
B) marginal factor cost of labor curve.
C) marginal valuation curve.
D) marginal benefit of labor curve.
Q3) The market price of a factor of production that is in fixed is determined only by demand.
A)True
B)False
Q4) What is the signaling hypothesis of education?
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Chapter 18: Public Choice,taxes,and the Distribution of Income
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Q1) A tax is efficient if
A) individuals with the lowest incomes pay proportionately lower taxes than individuals with the highest incomes.
B) it is based on profits earned and not on wages.
C) it encourages saving and investment.
D) it imposes a small excess burden relative to the revenue it raises.
Q2) Suppose $1 billion is available in the budget and Congress is considering allocating the funds to one of the following three alternatives:
a.subsidies for education
b.research on Alzheimer's
c.increased border security
If voters prefer a to b and b to c,then if preferences are transitive,
A) they should prefer a to c.
B) they should prefer c to a.
C) they should be indifferent between a and c.
D) it is not always possible to rank voters' preferences between a and c.
Q3) In 2012,which type of tax raised the most revenue for the U.S.federal government? Which type of tax raised the most revenue for state and local governments?
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