Mathematical Microeconomics
Exam Bank
Course Introduction
Mathematical Microeconomics explores the fundamental principles of microeconomic theory using mathematical tools and formal analysis. Topics typically include consumer and producer theory, duality, equilibria in competitive markets, and the analysis of market failures such as externalities and public goods. Students learn to use calculus, optimization methods, and basic game theory to derive and analyze economic models, deepening their understanding of how individuals and firms make decisions and how markets operate under various conditions. Emphasis is placed on clarity, logical reasoning, and the ability to translate economic problems into mathematical language.
Recommended Textbook Microeconomics 2nd Edition by Daron
Acemoglu
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Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) ________ is the study of how individuals,households,governments,and firms make choices and how those choices affect prices,the allocation of resources,and the well-being of other agents.
A) Cost-benefit analysis
B) Microeconomics
C) Macroeconomics
D) Empiricism
Answer: B
Q2) Which of the following statements is true?
A) All rational economic agents attempt to maximize their income.
B) A rational consumer makes his decisions depending on what the majority chooses.
C) A budget constraint is an economic tool that quantifies the trade-off between the consumption of two goods.
D) A trade-off refers to the exchange of goods between economic agents through the barter system or mutual exchange.
Answer: C
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Chapter 2: Economic Methods and Economic Questions
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Q1) Does correlation always imply causation? Why or why not? Explain with the help of real-life examples.
Answer: No,correlation does not always imply causation.Both causation and correlation study the relationship between two or more variables and are therefore often mistaken for each other.Correlation means that there is a mutual relationship between two variables; as one variable changes,the other changes as well.Correlation between two variables does not necessarily imply that one causes the other.Correlation just looks at the strength of association between two variables,whereas causation occurs when one variable directly affects the other variable through a causal relationship.For example,if the use of some new packaging material improves the shelf life of bread,it represents a causal relationship.In contrast,if someone claims watching violent movies increases crime rates in a country,it is not necessarily a causal relationship.However,some degree of correlation may exist between both.
Q2) ________ occurs when the direction of cause and effect is mixed up in a study.
A) Adverse causality
B) Reverse causality
C) Omitted variable bias
D) Limited information bias
Answer: B
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Page 4
Chapter 3: Optimization: Doing the Best You Can
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Sample Questions
Q1) Refer to the scenario above.If the opportunity cost of time increases to $60 per hour,renting which apartment will minimize Ryan's total cost every month?
A) 2
B) 3
C) 4
D) 5
Answer: D
Q2) If the net benefit of Project A is $10 and that of Project B is $12,which of the following statements is true?
A) An individual can optimize by choosing Project A.
B) An individual can optimize by choosing Project B.
C) Switching from Project A to Project B reduces the net benefit by $2.
D) Switching from Project A to Project B increases the net benefit by $1.2.
Answer: B
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Chapter 4: Demand, supply, and Equilibrium
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Q1) What are the key features of a perfectly competitive market?
Q2) Refer to the scenario above.If the price of Gatorade decreases from $4.00 per bottle to $3.50 per bottle,what is consumer C's change in quantity demanded?
A) No increase
B) Increase of 1 bottle
C) Increase of 2 bottles
D) Increase of 4 bottles
Q3) Which of the following factors is likely to lead to an increase in the quantity demanded of pens?
A) A fall in the price of pens
B) A fall in the price of paper
C) A rise in the incomes of all consumers
D) A fall in the incomes of all consumers
Q4) In a perfectly competitive market,situations of surplus or shortage of a good
A) can exist simultaneously
B) are permanent phenomena
C) exist until the government or any ruling authority intervenes
D) self-correct due to the competitive nature of the market
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Chapter 5: Consumers and Incentives
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Q1) Define the following terms:
a)Indifference curve
b)Utility
Q2) If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis,a consumer's budget constraint ________.
A) pivots rightward without a change in the intercept on the horizontal axis
B) pivots leftward without a change in the intercept on the horizontal axis
C) shifts to the right
D) shifts to the left
Q3) Refer to the figure above.What is the gain in the market-wide consumer surplus when the price of calculators changes from $6 per unit to $3 per unit?
A) $565
B) $580
C) $950
D) $1,050
Q4) Using an example of a bundle of two goods,graphically illustrate the substitution effect and the income effect if the price of any one good falls.
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Chapter 6: Sellers and Incentives
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Q1) Refer to the figure above.At A,the market is ________.
A) in the long-run equilibrium, and each firm in the market earns zero economic profit
B) in the long-run equilibrium, and each firm in the market earns positive economic profit
C) in the short-run equilibrium, and each firm in the market earns zero economic profit
D) in the short-run equilibrium, and each firm in the market earns positive economic profit
Q2) A firm is said to be a price taker if it ________.
A) can affect the market price of a good by changing its supply
B) sells as much of any good as it wants at the prevailing market price
C) consults the government before fixing the prices of its goods and services
D) is not free to enter a new market or exit from a market
Q3) Refer to the table above.What is the average total cost of producing 160 units of the good?
A) $0.50
B) $0.93
C) $1.44
D) $2
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Chapter 7: Perfect Competition and the Invisible Hand
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Sample Questions
Q1) Refer to the tables above.How many units does each buyer buy,and how many units does each seller sell at the equilibrium?
A) Buyer 1: 2 units, Buyer 2: 2 units, Buyer 3: 2 units; Seller 1: 2 units, Seller 2: 3 units
B) Buyer 1: 2 units, Buyer 2: 1 unit, Buyer 3: 2 units; Seller 1: 3 units, Seller 2: 2 units
C) Buyer 1: 1 unit, Buyer 2: 2 units, Buyer 3: 2 units; Seller 1: 2 units, Seller 2: 3 units
D) Buyer 1: 2 units, Buyer 2: 1 unit, Buyer 3: 2 units; Seller 1: 2 units, Seller 2: 3 units
Q2) Which of the following is likely to happen if the government imposes a price control at $60,when the demand curve shifts to D ?
A) There will be a shortage of 15 units of the good in the market.
B) There will be a surplus of 15 units of the good in the market.
C) There will be a shortage of 10 units of the good in the market.
D) There will be a surplus of 10 units of the good in the market.
Q3) Are the concepts of equity and efficiency different? Why or why not?
Q4) Define a Pareto efficient outcome.Does it ensure equity? Explain with an example.
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Chapter 8: Trade
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Q1) Refer to the figure above.Point E represents a situation that ________.
A) is currently unattainable and can be expected to remain so
B) will be attainable only if there is economic growth
C) results from inefficient use of resources or failure to use all available resources
D) has a higher opportunity cost than do points on the boundary itself
Q2) Refer to the scenario above.________ has absolute advantage in doing Econ homework assignments,and ________ has absolute advantage in writing lab reports.
A) Meryl; Meryl
B) Steve; Steve
C) Steve; Meryl
D) Meryl; Steve
Q3) The underlying motivation for trade,relies on one simple principle.What is it?
A) Trade creates employment.
B) Trade allows total production to be maximized.
C) Trade will increase the profit for firms.
D) Trade maximizes the opportunity costs.
Q4) How are the domestic sellers and buyers of a good affected if a country starts importing the good?
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Page 10
Chapter 9: Externalities and Public Goods
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Q1) The citizens of a country often refuse to pay voluntarily for national defense because
A) national defense is a common pool resource
B) nobody can be excluded from being defended by the state
C) all citizens do not derive equal satisfaction from national defense
D) national defense is rival in consumption
Q2) Private solutions to externalities are most effective if ________.
A) the transaction costs associated with bargaining are low
B) the transaction costs associated with bargaining are high
C) property rights are not defined clearly
D) a large number of people are affected by the externalities
Q3) A concert in a crowded auditorium is ________ in consumption.
A) non-excludable and non-rival
B) excludable but non-rival
C) excludable and rival
D) non-excludable but rival
Q4) When does the marginal social cost of producing a good exceed the marginal private cost of producing it?
Q5) When does a private solution to a negative externality fail to allocate resources efficiently?
Page 11
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Chapter 10: The Government in the Economy: Taxation and Regulation
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Sample Questions
Q1) ________ is generated from taxing profits earned by firms.
A) Excise tax
B) Sales tax
C) Corporate income tax
D) Payroll tax
Q2) Refer to the scenario above.Suppose that,after the price ceiling is imposed,buyers reduce their reservation values by $1.50 because now they take into account the opportunity cost of waiting in line.The loss of social surplus due to the price ceiling and the fall of buyers' reservation values is ________.
A) $12.00
B) $8.00
C) $7.00
D) $5.00
Q3) Corporate income tax in the United States is mainly collected by the ________ and accounts for roughly ________ of the total tax revenue.
A) federal government; 10 percent
B) federal government; 30 percent
C) state and local governments; 10 percent
D) state and local governments; 30 percent
Page 12
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Chapter 11: Markets for Factors of Production
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Q1) Refer to the table above.If the rental price of machines is $140 per day,how many machines should the firm rent?
A) 2
B) 3
C) 4
D) 5
Q2) If workers are optimizing their total benefit,they will consume leisure until their ________.
A) marginal product of labor equals their wage
B) value of marginal product of labor equals their wage
C) marginal cost of leisure equals their wage
D) marginal benefit of leisure equals their wage
Q3) Refer to the scenario above.Lydia contends that the increase in female labor force participation was caused by a change in tastes for working among women in the United States after World War II.According to Lydia,________.Explain your answer.
A) quantity supplied of labor increased
B) labor supply increased
C) quantity demanded of labor increased
D) labor demand increased
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Page 13
Chapter 12: Monopoly
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Q1) U)S.Code Title 18 § 1696 states
Whoever establishes any private express for the conveyance of letters or packets,or in any manner causes or provides for the conveyance of the same by regular trips or at stated periods over any post route which is or may be established by law,or from any city,town,or place to any other city,town,or place,between which the mail is regularly carried,shall be fined not more than $500 or imprisoned not more than six months,or both .
The Code of Federal Regulation (CFR)Title 39 Section 310.2 states
It is generally unlawful under the Private Express Statutes for any person other than the Postal Service in any manner to send or carry a letter on a post route or in any manner to cause or assist such activity.Violation may result in injunction,fine or imprisonment or both and payment of postage lost as a result of the illegal activity
Under these laws,the U.S.Postal Service ________.
A) has a monopoly power over private express mail
B) has a comparative advantage over private express mail
C) competes in an oligopoly market for private express mail
D) competes in a monopolistic competition against other private express mail carriers
Q2) In practice,price discrimination is never perfect.Why?
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Chapter 13: Game Theory and Strategic Play
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Sample Questions
Q1) Refer to the scenario above.Are there any Nash equilibria?
A) Yes, Hayley and Jack both choose to go to the Mets game
B) Yes, Hayley chooses to go to the MoMA and Jack chooses to go to the Mets game
C) Yes, Hayley and Jack both choose to go to the MoMA
D) (A) and (C)
Q2) Refer to the scenario above.If a < 3,then ________ form a Nash equilibrium.
A) low efforts by both workers
B) high efforts by both workers
C) low effort by Jim and high effort by Janis
D) high effort by Jim and low effort by Janis
Q3) Refer to the table above.What is the equilibrium of this game?
A) John and Trevor both choose Red.
B) John and Trevor both choose Yellow.
C) John chooses Red and Trevor chooses Yellow.
D) There is no dominant strategy equilibrium in this game.
Q4) What is a zero-sum game? Explain with an example.
Q5) How does a dominant strategy equilibrium occur in a simultaneous-move game?
Q6) When does a game have a first-mover advantage?
Q7) Why do some people tip generously at restaurants to which they never plan to return?
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Chapter 14: Oligopoly and Monopolistic Competition
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Q1) One way to test whether a market is competitive is to see if the price ________ when more firms enter the market.
A) falls
B) stays the same
C) rises
D) changes by the reciprocal of the total number of firms
Q2) Which of the following helps prevent firms in the United States from forming collusive agreements?
A) The low demand faced by colluding firms
B) The antitrust policy of the government
C) The high rate of corporate income taxes
D) The low profit earned by firms after colluding
Q3) Oligopolists merge to ________.
A) increase market supply
B) increase market demand
C) increase market power
D) reduce prices
Q4) How does the exit of firms from a monopolistically competitive market affect the demand curves faced by the existing firms?
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Chapter 15: Trade-Offs Involving Time and Risk
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Q1) If a sum of $15,000 is borrowed at 13 percent for 1 year,the interest paid by the borrower is ________.
A) $750
B) $1,000
C) $1,950
D) $5,500
Q2) Refer to the scenario above.What is the probability of picking a green ball from the box?
A) 12.83 percent
B) 16.67 percent
C) 24.75 percent
D) 32.35 percent
Q3) Refer to the scenario above.If the individual places her bet on ten pockets,her likelihood of winning is ________ percent.
A) 5
B) 10
C) 20
D) 25
Q4) Define utility.What are individual units of utility called?
Q5) Define the discounted value of a future payment.
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Chapter 16: The Economics of Information
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Q1) Health insurance companies often charge high premiums because they expect to attract ________.
A) high-risk individuals
B) risk-averse individuals
C) low-income individuals
D) risk-neutral individuals
Q2) You decide to carry a letter of recommendation from your college professor to your first interview.This is an example of ________.
A) sniping
B) signaling
C) hedging
D) speculating
Q3) A textile manufacturing unit faces low productivity due to the workers shirking responsibilities.Which of the following is a possible solution that would increase the productivity of the workers?
A) The provision of a low real wage
B) The provision of a low nominal wage
C) The provision of minimum wages
D) The provision of efficiency wages
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Chapter 17: Auctions and Bargaining
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Q1) Isabella is participating in a first-price auction for a house.If there are five other bidders and her maximum willingness to pay for the house is $60,000,what is her optimal bidding strategy?
Q2) In a first-price auction,________.
A) bidders submit their bids privately
B) bidders place their bids one after another publicly
C) bidders know one another's bids
D) bidders bid above their willingness to pay
Q3) Refer to the scenario above.Alex should place a bid of ________.
A) $187.50
B) $200.50
C) $225
D) $250
Q4) One assumption that economists often make while determining the outcome of a Dutch auction is that the bidders are ________.
A) risk neutral
B) risk averse
C) risk seekers
D) rent seekers
Q5) What is the reason for the popularity of auctions among consumers?
Page 19
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Chapter 18: Social Economics
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Sample Questions
Q1) Refer to the scenario above.This is an example of ________.
A) a zero-sum game
B) a trust game
C) an ultimatum game
D) the prisoners' dilemma
Q2) Refer to the scenario above.If Joseph prefers more money to less,________.
A) he will not accept any offer made by Phillip
B) he will always accept any offer made to him
C) Phillip will offer the lowest possible amount to Joseph
D) he will accept the offer only if Phillip pays him an equal share of the money
Q3) In economics,________ refers to a preference for equal outcomes in a target population.
A) randomness
B) rationalism
C) fairness
D) liberalism
Q4) Why is the equilibrium in a trust game socially inefficient?
Q5) Under what circumstances will the equilibrium in a trust game be efficient?
Q6) Why do individuals decide to herd?
Q7) Differentiate between the two types of altruism.
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