Microeconomic Analysis
Solved Exam Questions
Course Introduction
Microeconomic Analysis delves into the decision-making processes of individuals, households, and firms in the allocation of scarce resources. The course explores foundational concepts such as demand and supply, market equilibrium, consumer choice, production theory, and cost analysis. Emphasis is placed on the theories underpinning market structures including perfect competition, monopoly, and oligopoly along with an analysis of market failures and the role of government interventions. Quantitative and graphical tools are utilized throughout to cultivate analytical skills necessary for evaluating real-world economic issues at the micro-level.
Recommended Textbook Microeconomics 9th Edition by William Boyes
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Page 2
Chapter 1: Economics: The World Around You
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Sample Questions
Q1) According to the text,human beings are self-interested,not selfish.This means:
A)people are never selfish.
B)people never act in a spiteful or belligerent manner.
C)people never act in a fit of rage.
D)people contribute to charities and otherwise help others.
E)people care only about themselves and their families.
Answer: D
Q2) The statement,"All Americans should be entitled to public health care," made by a politician would be considered a:
A)positive statement.
B)macroeconomic statement.
C)microeconomic statement.
D)normative statement.
E)model.
Answer: A
Q3) If you agree that government should use a lottery to raise funds for improving education,you are using normative analysis.
A)True
B)False
Answer: True
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Chapter 2: Choice, opportunity Costs, and Specialization
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Sample Questions
Q1) Bob and Bill can make 16 toys each if they devote 8 working hours in a day.Further,Bob can repair 4 cars and Bill can repair 2 cars,if they devote 8 working hours in a day.What is the opportunity cost of repairing one car to Bob?
A)10 toys
B)8 toys
C)16 toys
D)12 toys
E)4 toys
Answer: E
Q2) There is no cost of using your own savings in your business.
A)True
B)False
Answer: False
Q3) An economy's PPC illustrates the extent to which the economy consumes what it produces.
A)True
B)False
Answer: False
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Chapter 3: Markets, Demand and Supply, and the Price System
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Sample Questions
Q1) A price floor is the minimum price that consumers have to pay.
A)True
B)False Answer: True
Q2) If demand increases and supply decreases,then equilibrium price must decrease,but equilibrium quantity is indeterminate.
A)True
B)False Answer: False
Q3) Refer to Table 3.4.In the market represented by this table,at equilibrium:
A)the market price is $5 per unit.
B)there is a surplus of 900 units.
C)there is a shortage of 900 units.
D)900 units are traded at a price of $3 per unit.
E)the market price is $1 per unit and the quantity traded is 500 units.
Answer: D
Q4) When a market is in surplus,there is pressure for the price to move upward.
A)True
B)False Answer: False
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Chapter 4: The Market System and the Private and Public Sector
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Sample Questions
Q1) Refer to Figure 4.2.Suppose households reduce saving to $7,000.Everything else held constant,consumption spending must now be:
A)$18,000.
B)$22,500.
C)$28,000.
D)$32,000.
E)$38,000.
Q2) If a corporation cannot pay its debts,creditors cannot seek payment from shareholders' personal wealth.
A)True
B)False
Q3) According to Scenario 4-1,country A has net exports of:
A)$18 million.
B)$8 million.
C)$13 million.
D)$9 million.
E)$6 million.
Q4) An enterprise that has only one shareholder does not constitute a corporation. A)True B)False
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Chapter 5: Elasticity: Demand and Supply
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Sample Questions
Q1) If the price elasticity of supply is zero,the supply curve is a horizontal line parallel to the quantity axis.
A)True
B)False
Q2) When product A is a good substitute for product B,the cross-price elasticity of demand for products A and B will be _____.
A)unity
B)negative
C)positive
D)decreasing
E)increasing
Q3) The point elasticity is a measure of the sensitivity of consumers to a larger price change - a range from one price to another.
A)True
B)False
Q4) The actual or chronological time for the short and the long run does not vary from industry to industry.
A)True
B)False
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Chapter 6: Consumer Choice
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Sample Questions
Q1) The law of diminishing marginal utility states that:
A)the marginal utility of the last unit consumed of any good is less than the marginal utility of all other products consumed.
B)as more of a good or service is consumed,ceteris paribus,its marginal utility relative to the marginal utility of other products increases.
C)as more of a good or service is consumed,its marginal utility decreases.
D)as more of a good or service is consumed,its marginal utility relative to other products remains the same.
E)the marginal utility of all products consumed must be equal.
Q2) Marginal utility is total utility divided by the number of units consumed. A)True
B)False
Q3) Refer to Figure 6.3.The consumer prefers _____ to _____.
A)A; C
B)B; A
C)B; D
D)D; E
E)I<sub>1</sub>; I<sub>2</sub>
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Chapter 7: Supply: The Costs of Doing Business
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Sample Questions
Q1) If a company is producing at a level of output at which the long-run average-total-cost curve reaches a minimum,the company:
A)is experiencing economies of scale.
B)is at minimum efficient scale.
C)is experiencing increasing returns to scale.
D)will shut down.
E)is experiencing diseconomies of scale.
Q2) Suppose that the total fixed cost of producing five sailboats is $4,000,total variable cost is $4,000,and the total cost of producing six sailboats is $10,000.The marginal cost of the sixth sailboat is:
A)$2,000.
B)$4,000.
C)$8,000.
D)$10,000.
E)$6,000.
Q3) The long-run average total cost curve connects the lowest cost for each level of output given by the short run average total cost curves.
A)True
B)False
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Page 9
Chapter 8: Profit Maximization
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Sample Questions
Q1) A firm wishing to maximize profits will produce at the level of output where:
A)marginal cost is equal to zero.
B)its total-cost curve intersects its total-revenue curve.
C)costs are at a minimum.
D)total revenue exceeds total cost by the largest amount.
E)marginal revenue exceeds marginal cost by the greatest amount.
Q2) Assume that the marginal revenue curve intersects the rising portion of the marginal cost curve at 100 units of output.At this output level,a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400.If the price of the product is $8 per unit,the firm should produce:
A)zero units of output.
B)less than 100 units of output.
C)100 units of output.
D)more than 100 units of output.
E)200 units of the output.
Q3) When the average revenue falls,marginal revenue also falls and is less than the average revenue.
A)True
B)False
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Page 10
Chapter 9: Perfect Competition
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Sample Questions
Q1) For a perfectly competitive firm in the short run,which of the following statements is true?
A)A price above minimum average variable cost,but below average total cost will produce an economic profit.
B)A price below minimum average variable cost will cause the firm to shut down.
C)Marginal cost is parallel to the axis showing quantity of output.
D)Price is always greater than marginal revenue.
E)Every firm contributes a significant amount to the total market output.
Q2) Graphically,consumer surplus is the area:
A)above the equilibrium price and below the demand curve.
B)below the equilibrium price and above the supply curve.
C)above the equilibrium price and below the supply curve.
D)below the equilibrium price and above the demand curve.
E)above the equilibrium price and above the supply curve.
Q3) In Figure 9.1,the firm's profit is equal to the area:
A)OIWR.
B)JKEF
C)OKET
D)LMNG
E)OJFS
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Chapter 10: Monopoly
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Sample Questions
Q1) What price will the profit-maximizing firm described in Table 10.3 charge,if the firm is earning a positive economic profit?
A)$1,500
B)$1,400
C)$1,350
D)$1,300
E)$1,550
Q2) According to Figure 10.8,the profit maximizing price of the monopolist is: A)0.
B)P<sub>4.</sub>
C)P<sub>3.</sub>
D)P<sub>2.</sub>
E)P<sub>1.</sub>
Q3) The efficiency loss that occurs when a market is monopolized is known as:
A)a deadweight loss.
B)a monopoly loss.
C)an economic loss.
D)an X-loss.
E)a capital loss.
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Page 12
Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) According to Figure 11.1,the firm:
A)0 and 0.
B)H and D.
C)I and A.
D)J and C.
E)J and E.
Q2) According to Figure 11.1,the profit-maximizing firm is making an average:
A)profit on each unit produced equal to the distance BG.
B)loss on each unit produced equal to the distance BG.
C)profit on each unit produced equal to the distance CE.
D)loss on each unit produced equal to the distance DG.
E)loss on each unit produced equal to the distance AC.
Q3) The condition under which a cartel can maintain its stability is that:
A)the barriers to entry should be relaxed.
B)an identical product should be produced by the colluding firms.
C)there should be a large number of firms in the market.
D)there should be legal barriers to share agreements.
E)the products of the colluding firms should be highly differentiated.
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13
Chapter 12: Antitrust and Regulation
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Sample Questions
Q1) What is the total societal surplus prior to regulation described in Figure 12.2?
A)Area 0FGQ<sub>1</sub>.
B)Area BEP<sub>1</sub>.
C)Area CEP<sub>1</sub>.
D)Area FGEP<sub>1</sub>.
E)Area BEC.
Q2) The Justice Department of the U.S.classifies the industries on the basis of the Herfindahl index as:
A)below 500: highly competitive; 500-1000: moderately competitive; above 1000: highly concentrated.
B)below 1000: highly competitive; 1000-1500: moderately competitive; above 1500: highly concentrated.
C)below 500: highly competitive; 500-1500: moderately competitive; above 1500: highly concentrated.
D)below 1000: highly competitive; 1000-1800: moderately competitive; above 1800: highly concentrated.
E)below 1500: highly competitive; 1500-2000: moderately competitive; above 2000: highly concentrated.
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Chapter 13: Market Failures, Government Failures, and Rent Seeking
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Sample Questions
Q1) The government should subsidize the production of goods which generate a positive externality.
A)True
B)False
Q2) According to Figure 13.2:
A)both points a and b are socially efficient.
B)both points a and b are inefficient.
C)point a represents the social equilibrium,whereas point b represents the private equilibrium.
D)point a represents the private equilibrium,whereas point b represents the social equilibrium.
E)when external costs are zero,the socially efficient output level is equal to 0Q<sub>s</sub> units.
Q3) When the government imposes a tax on production of a commodity:
A)production will invariably increase.
B)the cost of production increases,so the supply curve shifts to the left.
C)the benefits of consumption increases,so the demand curve shifts to the right.
D)there is no change in demand or supply.
E)both the demand and supply curves shift to the right.
Page 15
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Chapter 14: Resource Markets
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Sample Questions
Q1) An automobile manufacturer uses land,labor,capital,and entrepreneurial ability to produce cars and trucks.If the price of trucks increases,the automobile manufacturer would not _____.
A)pay a lower wage rate to labor
B)increase truck production
C)hire more workers
D)increase capital used in production
E)increase land used in production
Q2) If the market price of the product that employs labor in production increases:
A)the marginal product of labor increases.
B)the demand curve for labor shifts to the left.
C)the price of labor decreases.
D)the marginal revenue product of labor increases.
E)the supply curve of labor shifts to the left.
Q3) The buyers and sellers in a resource market are:
A)household and firms respectively.
B)banks and farmers respectively.
C)households and land owners respectively.
D)firms and household respectively.
E)exporters and importers respectively.
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Chapter 15: The Labor Market
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Sample Questions
Q1) The U.S.government has time and again raised the minimum wage to:
A)ensure that the skilled workers make a decent living.
B)increase the elasticity of labor supply.
C)earn greater tax revenue.
D)ensure that the unskilled workers make a decent living.
E)safeguard the interests of the employers.
Q2) A college student's choice of a major and an occupation reflects:
A)what each college student expects wage inflation to be in the future.
B)a lack of information on the part of the students.
C)a lack of proper education and vocational training.
D)the return on investment in human capital.
E)the opportunity costs each college student faces.
Q3) When white males resist to share responsibilities with members of a minority group,it is termed as:
A)employer prejudice.
B)consumer prejudice
C)worker prejudice.
D)statistical discrimination.
E)occupational segregation.
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Page 17
Chapter 16: Capital Markets
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Sample Questions
Q1) When the price of a stock rises significantly higher than that can be justified by the dividends the firm can be expected to pay in future,a(n) _____ is said to have occurred.
A)stock market crash
B)arbitrage
C)stock market bubble
D)bull run
E)short sale
Q2) A stock index measures the:
A)change in dividend payments of a group of stocks.
B)fluctuation in the price earning ratio of each share.
C)change in the trading volume in the stock exchange.
D)price movements of a group of stocks.
E)change in the number of enlisted companies.
Q3) Which of the following factors led to the housing bubble in the U.S.in 2006?
A)Increased amount of lending to subprime borrowers
B)Decreased money supply by Federal Reserve
C)Future expectation about downward movement of prices of the houses
D)Federal Reserve raised the market rate of interest
E)Increase in the supply of houses
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Page 18
Chapter 17: The Land Market and Natural Resources
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Sample Questions
Q1) Lack of well-defined ____ may cause market failures.
A)fiscal policies
B)public transportation systems
C)private property rights
D)interest rates
E)monetary policies
Q2) An increase in economic rent is simply a transfer from the buyer to the seller without any change in quantity.Identify the underlying assumption.
A)Quantity supplied remains unchanged even when economic rent increases.
B)Quantity supplied is positively related to economic rent.
C)The relation between quantity supplied and economic rent is indeterminate for nonrenewable resources.
D)Bargaining power of buyers is greater than sellers.
E)Consumer surplus is a positive function of economic rent.
Q3) A fisherman will catch and sell all the fishes in his pond in response to a substantial increase in the price of the fish even if he wishes to remain in the fishing business.
A)True
B)False
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19
Chapter 18: Aging, Social Security and Health Care
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Sample Questions
Q1) The existence of new drugs reduces the demand for drugs as they are highly expensive.
A)True
B)False
Q2) The bulk of the cost of hospital care is borne by third-parties.Such third-parties are:
A)relatives and friends.
B)financial institutions.
C)insurance companies.
D)voluntary organizations.
E)employers.
Q3) Medicare is a federal program that provides health care for: A)women.
B)victims of AIDS,child abuse,and drug addiction.
C)the elderly and disabled.
D)the homeless.
E)poor families who could not otherwise obtain health care.
Q4) The social security tax proceeds are often used to purchase government bonds.
A)True
B)False
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Chapter 19: Income Distribution,Poverty and Government Policy
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Sample Questions
Q1) The income variation across the countries is the result of differential rates of economic growth being experienced by them.
A)True
B)False
Q2) Refer to Table 19.2.Which of the tax policies is an example of a proportional tax?
A)Alpha
B)Gamma
C)Eta
D)Beta
E)Delta
Q3) According to Figure 19.1,which of the following is true?
A)Line OXB is the line of perfect income inequality.
B)Curve OYB represents a less equal distribution of income than curve OZB.
C)Line AB represents a society in which wealth is shared equally among individuals.
D)Line OXB is the line of perfect income equality.
E)Line AB represents a society in which 50 percent of the population receives all the income.
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Page 21
Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) Refer to Table 20.1.Which of the following statements is true?
A)India has an absolute advantage in the production of cloth.
B)India has an absolute advantage in the production of both wheat and cloth.
C)The U.S.has an absolute advantage in the production of wheat but not cloth.
D)The U.S.has an absolute advantage the production of cloth but not wheat.
E)The U.S.has an absolute advantage in the production of both wheat and cloth.
Q2) According to Table 20.1,the opportunity cost of producing cloth in the U.S.equals:
A)2 units of wheat.
B)half a unit of wheat.
C)3 units of wheat.
D)one-third of a unit of wheat.
E)6 units of wheat.
Q3) Based on Scenario 20.2,which of the following terms of trade would benefit both countries?
A)1 pound of cocoa is equal to 0.10 bushels of corn
B)1 pound of cocoa is equal to 2 bushels of corn
C)1 pound of cocoa is equal to 1 bushels of corn
D)1 pound of cocoa is equal to 0.5 bushels of corn
E)1 pound of cocoa is equal to 1.5 bushels of corn
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Page 22
Chapter 21: International Trade Restrictions
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Sample Questions
Q1) Steel producers in the United States observe that foreign sales of U.S.steel has drastically declined due to stringent trade policies adopted by the foreign governments and unfair treatment of U.S.steel exports in foreign countries.The lobbying efforts of such loss making U.S.steel manufacturers induces the domestic government to restrict the entry of imported steel and help stimulate the sales of domestically produced steel.Which of the following is most similar to the example mentioned above?
A)A tariff imposed by the government to stimulate domestic production of a high-technology good with positive spillover effects
B)A tariff imposed by the government on the import of cotton textiles because it is an infant industry in the domestic country
C)An import tariff applied against a foreign monopoly supplying the domestic market
D)Taxes imposed by the government on an import competing industry that generates a negative production externality
E)Reciprocal tariffs introduced by the government of Mexico on tobacco imports from Brazil in retaliation to unfair treatment of Mexican tobacco exports to the latter
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Chapter 22: Exchange Rates and Financial Links Between Countries
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Q1) If the official gold value of the Australian dollar changes from 470 Australian dollars per ounce to 493 Australian dollars per ounce,we can say that the Australian dollar has appreciated in value.
A)True
B)False
Q2) The World Bank obtains the funds it lends by:
A)selling bonds on the international bond market.
B)selling bonds to countries it has loaned funds to.
C)collecting each country's annual membership fee or quota.
D)levying a small tax on every foreign exchange conversion worldwide.
E)depending on voluntary subsidies from member nations.
Q3) A reserve currency is a currency that is:
A)used exclusively to settle domestic debts.
B)specifically designed for use by commercial banks to settle accounts.
C)held only by bureaucrats.
D)used to settle international debts by private corporations.
E)held by governments to facilitate foreign exchange market interventions.
Q4) An increase in the demand for rubles causes the ruble to appreciate.
A)True
B)False
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