Microeconomic Analysis Test Questions
Course Introduction
Microeconomic Analysis delves into the study of individual economic units, including consumers, firms, and markets, to understand how they make decisions concerning the allocation of limited resources. The course explores concepts such as consumer behavior, production and cost theory, market structures, game theory, and the role of government in correcting market failures. Emphasis is placed on applying analytical tools and mathematical models to examine demand and supply, pricing strategies, and the impact of market changes on equilibrium outcomes, providing students with a foundation for advanced economic analysis and policy evaluation.
Recommended Textbook
Microeconomics 3rd Edition by R. Glenn Hubbard
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3331 Verified Questions
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Chapter 1: Economics Foundations and Models
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Sample Questions
Q1) Making 'how much' decisions involves
A) calculating the total benefits of the activity and determining if you are satisfied with that amount.
B) calculating the total costs of the activity and determining if you can afford to incur that expenditure.
C) calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity.
D) determining the additional benefits and the additional costs of that activity.
Answer: D
Q2) If it costs Danitra $225 to create 4 necklaces and $275 to create 5 necklaces, then $50 is the marginal cost of producing the 5th necklace.
A)True
B)False
Answer: True
Q3) What is voluntary exchange?
Answer: Voluntary exchange is a situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
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Chapter 2: Choices and Trade - Offs in the Market
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Sample Questions
Q1) Refer to Figure 2-5. If the economy is currently producing at point E, what is the opportunity cost of moving to point D?
A) 13 thousand hammers
B) 10 thousand hammers
C) 8 thousand wrenches
D) 0 wrenches
Answer: C
Q2) A decrease in the unemployment rate may be represented as a movement from a point on the production possibility frontier to a point outside the frontier.
A)True
B)False
Answer: False
Q3) The points outside the production possibility frontier are
A) efficient.
B) attainable.
C) inefficient.
D) unattainable.
Answer: D
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Chapter 3: Where Prices Come Frome : The Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D<sub>2</sub> and S<sub>1</sub> (point C). Which of the following changes would cause the equilibrium to change to point B?
A) a positive change in the technology used to produce apples and a decrease in the price of oranges, a substitute for apples
B) an increase in the wages of apple workers and an increase in the price of oranges, a substitute for apples
C) an increase in the number of apple producers and a decrease in the number of apple trees as a result of disease
D) a decrease in the wages of apple workers and an increase in the price of oranges, a substitute for apples
Answer: B
Q2) Market equilibrium occurs where supply equals demand.
A)True
B)False
Answer: False
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Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) In recent years, the prices of new domestically produced cars have been falling. Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel. This information suggests that the cross-price elasticity between new cars and used cars, and the cross-price elasticity between new cars and bus travel are negative.
A)True
B)False
Q2) Consider the following pairs of items: a. shampoo and conditioner
B. iPhones and earbuds
C. a laptop computer and a desktop computer
D. beef and pork
E. air-travel and weed killer
Which of the pairs listed will have cross-price elasticity of zero?
A) a and b only
B) c only, since most people cannot do without computers
C) e only
D) none of the pairs listed
Q3) Most food products have low income and price elasticities of demand.
A)True
B)False
Page 6
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Chapter 5: Economic Efficiency , Government Price Setting and Taxes
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Sample Questions
Q1) If the price of chewing gum is represented by equation P = 25 - 0.5 Q<sub>D</sub>, then the corresponding quantity of chewing gum demanded is represented by the equation
A) Q<sub>D</sub> = 2P - 0.5.<sub> </sub>
B) Q<sub>D</sub> = 0.5P + 25.<sub> </sub>
C) Q<sub>D</sub> = 50 -2P.<sub> </sub>
D) Q<sub>D</sub> = -5 + 10P.
Q2) Refer to Table 5-4. Suppose that the quantity of labour demanded decreases by 80 000 at each wage level. What are the new free market equilibrium hourly wage and the new equilibrium quantity of labour?
A) W = $8.50; Q = 550 000
B) W = $12.50; Q = 630 000
C) W = $9.50; Q = 570 000
D) W = $9.50; Q = 590 000
Q3) What area on a supply and demand graph represents consumer surplus?
Q4) Refer to Table 5-4. If a minimum wage of $11.50 is mandated, there will be a A) shortage of 20 000 units of labour. B) surplus of 20 000 units of labour.
C) shortage of 40 000 units of labour. D) surplus of 40 000 units of labour.
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Chapter 6: Concumer Choice and Behavioural Economics
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Sample Questions
Q1) Refer to Figure 6-7. If the consumer has $240 to spend on DVDs and CDs, what is the price of a DVD if the budget constraint is BC<sub>1</sub>?
A) $10
B) $20
C) $24
D) $40
Q2) One reason university students do not study enough to get high grades is that they are unrealistic about their future behaviour.
A)True
B)False
Q3) Which of the following does not explain why consumers buy products that many other consumers are already buying?
A) technology
B) the satisfaction people derive by being viewed as 'fashionable'
C) cost-effective way to gather information about a product
D) differences in tastes and preferences
Q4) An increase in income results in an outward shift of an indifference curve.
A)True
B)False
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Chapter 7: Technology , Production and Costs
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Sample Questions
Q1) In the long run
A) the firm's fixed costs are greater than its fixed costs in the short run.
B) all of the firm's costs are explicit costs; there are no implicit costs of production.
C) the firm is more profitable than it is in the short run.
D) all of the firm's costs are variable costs.
Q2) Red Stone Creamery currently hires 5 workers. When it added a 6th worker, its output actually fell. Which of the following statements is true?
A) The marginal product of the sixth worker must be negative.
B) The average product of the sixth worker is negative.
C) The sixth worker is not as skilled as the fifth worker.
D) The total product becomes negative.
Q3) Are the costs of utilities always fixed, always variable, or can they be both? Briefly explain.
Q4) Implicit costs can be defined as
A) accounting profit minus explicit cost.
B) the nonmonetary opportunity cost of using the firm's own resources.
C) the deferred cost of production.
D) total cost minus fixed costs.
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Page 9
Chapter 8: Firms in Perfectly Compitive Markets
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Sample Questions
Q1) Refer to Figure 8-8. The firm's short-run supply curve is its
A) marginal cost curve.
B) marginal cost curve from b and above.
C) marginal cost curve from c and above.
D) marginal cost curve from d and above.
Q2) To maximise profit, a firm will produce the level of output where MR = MC. If a firm actually makes a profit depends on the relationship of price to average total cost. What are the three possible relationships between price and average total cost that determine if a firm will make a profit, experience a loss, or break even?
Q3) Refer to Figure 8-7. At price P<sub>2</sub>, the firm would
A) lose an amount equal to its fixed cost.
B) lose an amount more than fixed cost.
C) lose an amount less than fixed cost.
D) break even.
Q4) In long-run competitive equilibrium, the perfectly competitive firm produces where price equals minimum average total cost.
a. What is this efficiency criterion called?
b. How does it benefit consumers?
Q5) Under what conditions should a competitive firm shut down in the short run?
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Chapter 9: Monopoly Markets
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Sample Questions
Q1) To maximise profit, a monopolist will produce and sell a quantity such that for the last unit sold, marginal revenue equals marginal cost, and will charge a price given by the demand curve at that output level.
A)True
B)False
Q2) Refer to Figure 9-7. Use the figure above to answer the following questions.
a. What is the profit-maximising quantity and what price will the monopolist charge?
b. What is the total revenue at the profit-maximising output level?
c. What is the total cost at the profit-maximising output level?
d. What is the profit?
e. What is the profit per unit (average profit) at the profit-maximising output level?
f. If this industry was organised as a perfectly competitive industry, what would be the profit-maximising price and quantity?
Q3) A public franchise gives the exclusive right to produce a product for 20 years from the date the product is invented.
A)True
B)False
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Chapter 10: Monopolistic Competition : The Competitive Model
in More Realistic Setting
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Sample Questions
Q1) Refer to Figure 10-17. Suppose the firm is currently producing Q<sub>f</sub> units. What happens if it increases its output to Q<sub>g</sub><sub> </sub>units?
A) Its average cost of production will fall and its profit will rise.
B) It will be taking advantage of economies of scale and will be able to lower the price of its product.
C) It will move from a zero profit situation to a profit situation
D) It will move from a zero profit situation to a loss situation
Q2) Refer to Figure 10-4. What is the area that represents the total fixed cost of production?
A) 0P<sub>1</sub>aQ<sub>a</sub>
B) P<sub>0</sub>adP<sub>3</sub>
C) P<sub>1</sub>bdP<sub>3</sub>
D) That information cannot be determined from the graph.
Q3) The key characteristics of a monopolistically competitive market structure include A) few sellers.
B) sellers selling similar but differentiated products.
C) high barriers to entry.
D) sellers acting to maximise revenue.
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Chapter 11: Oligopoly : Firms in Less Competitve Markets
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Sample Questions
Q1) The profit-maximising level of output and the profit-maximising price for an oligopolist cannot be calculated when we don't know
A) what the concentration ratio for the oligopolist's industry is.
B) what the minimum efficient scale in the oligopolist's industry is.
C) the demand curve and the marginal revenue curve of the oligopolist.
D) the type of barrier to entry that exists in the oligopolist's industry.
Q2) Marginal revenue for an oligopolist is
A) identical to the demand for the firm's product.
B) difficult to determine because the firm's demand curve is typically unknown.
C) downward sloping beneath the firm's demand curve.
D) horizontal on a price-quantity diagram.
Q3) The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called
A) game theory.
B) oligopoly.
C) competitive analysis.
D) strategic analysis.
Q4) 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 12: The Market for Labour and Other Factors of Production
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Sample Questions
Q1) The market demand curve for labour
A) is determined by adding up the quantity of labour demanded by each firm at each wage, holding constant the other variables that affect the willingness of firms to hire workers.
B) is the same as the market demand curve for the product labour produces because it is a derived demand.
C) is determined by adding up the demand for labour by each firm at each wage, holding constant the other variables that affect the willingness of firms to hire workers.
D) is perfectly inelastic because there is a finite number of workers in the market for labour.
Q2) As more output is produced, the marginal product of labour declines
A) because of the law of diminishing returns.
B) if firms reduce the wage paid to labour.
C) if the firm's output supply curve is inelastic.
D) because the firm's marginal revenue declines.
Q3) In equilibrium, what determines the price of capital and what determines the price of natural resources?
Q4) What is a compensating differential?
Page 14
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Chapter 13: International Trade
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Sample Questions
Q1) Many people assume that if child workers in developing countries weren't working in factories, they would be in school. In fact, children in developing countries
A) split their time evenly between work and school.
B) usually have few good alternatives to work.
C) are only allowed to work if they have attended school up to age 15.
D) who work are relatively rare, as most do attend school full time.
Q2) Distinguish between a voluntary export restraint and a quota.
Q3) The selling of a product for a price below its cost of production is called
A) fair competition.
B) dumping.
C) unfair competition.
D) operating at a loss.
Q4) Refer to Table 13-2. Select the statement that accurately interprets the data in the table.
A) Sarita has a comparative advantage in baking pies.
B) Gabriel has a comparative advantage in baking cakes.
C) Sarita has a comparative advantage in baking pies and baking cakes.
D) Sarita has a comparative advantage in baking cakes.
Q5) What is the difference between imports and exports?
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) The efficient output level of a public good occurs where the A) greatest number of free riders occurs.
B) marginal cost of producing the last unit is equal to the marginal benefit realised by consumers.
C) total cost of production is affordable.
D) marginal cost of production is at its lowest.
Q2) If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production, and consumer surplus plus producer surplus is maximised, then
A) maximum deadweight loss occurs.
B) economic efficiency is achieved.
C) profits are maximised.
D) costs are minimised.
Q3) Which of the following is an example of a common resource?
A) elephants in the wild
B) lions in a zoo
C) a university education
D) public transportation
Q4) What is rent seeking and how is it related to regulatory capture?
Q5) Why might a young, healthy person choose not to buy health insurance?
Page 16
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Chapter 15: Externalities , Environmental Policy and Public Goods
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Sample Questions
Q1) What does the phrase 'internalising an external cost' mean?
A) limiting the extent to which domestic firms can outsource production
B) prohibiting economic activities that create externalities
C) forcing producers to factor into their production costs the cost of the externalities created in the production of their output
D) finding a way to address cross-border pollution
Q2) Refer to Figure 15-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?
A) (P<sub>2</sub>-<sub> </sub>P<sub>1</sub>) per ton of output
B) (P<sub>2</sub>-<sub> </sub>P<sub>0</sub>) per ton of output
C) (P<sub>1</sub>-<sub> </sub>P<sub>0</sub>) per ton of output
D) P<sub>1</sub> per ton of output
Q3) Which of the following would result in a positive externality?
A) A local government establishes a price ceiling on rental apartments.
B) An electric utility burns coal that causes acid rain.
C) Medical research results in a cure for malaria.
D) McDonald's adds new fat-free items to its menu.
Q4) How does a public good differ from a quasi-public good? In your answer give an example of each type of good.
Page 17
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) Refer to Figure 16-1. The sales tax revenue collected by the government is represented by the area
A) B + C.
B) F + G.
C) E + H.
D) B + C + F + G.
Q2) If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is
A) regressive.
B) proportional.
C) progressive.
D) unfair.
Q3) 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.
Q4) What is meant by 'tax incidence'?
Q5) What is the difference between the poverty line and the poverty rate?
Page 18
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