Microeconomic Theory
Exam Materials
Course Introduction
Microeconomic Theory explores the fundamental principles that govern the behavior of individuals and firms in allocating scarce resources. Students will examine concepts such as consumer choice, demand and supply, market equilibrium, production and cost analysis, and the functioning of various market structures including perfect competition, monopoly, monopolistic competition, and oligopoly. The course also covers the implications of market failures, the role of government intervention, and introduces game theory as a framework for analyzing strategic decision-making. By applying mathematical and graphical models, students gain a rigorous understanding of how microeconomic tools are used to predict and explain real-world economic phenomena.
Recommended Textbook
Microeconomics Principles and Applications 6th Edition by Robert E. Hall
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18 Chapters
2377 Verified Questions
2377 Flashcards
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Chapter 1: What Is Economics
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) How retail gasoline stations behave in a local market is an example of a macroeconomic issue.
A)True
B)False
Answer: False
Q2) Which of the following is the best example of physical capital used to produce a textbook?
A)the expertise and writing ability of the author
B)the ink used in the printing press
C)the printing press
D)the property on which the publisher's office is located
E)the time spent by editors reviewing the textbook
Answer: C
Q3) Macroeconomics focuses on the economy as a whole.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Scarcity, choice, and Economic Systems
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146 Flashcards
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Sample Questions
Q1) Combinations of goods on the production possibilities frontier
A)are unattainable without additional resources
B)can be produced using currently available resources and technology
C)reflect minimum normative value allocations
D)will meet society's needs but not its wants
E)are attainable only through international trade
Answer: B
Q2) In deciding to produce more agricultural goods and fewer manufactured goods,a society is addressing the question of
A)where on its production possibilities frontier to operate
B)what production methods should be used to produce goods and services
C)how will output be allocated among the individuals in the society
D)what prices will be charged for goods and services
E)the optimal degree of central planning
Answer: A
Q3) Every economic system requires a means for determining resource allocation. A)True
B)False
Answer: True
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) If two goods are often consumed together,they are
A)substitute goods
B)inferior goods
C)complementary goods
D)normal goods
E)unrelated goods
Answer: C
Q2) Which of the following markets is more likely to be local in nature?
A)automobiles
B)television sets
C)jewelry
D)clothing
E)potato chips
Answer: E
Q3) If the demand for new automobiles falls when income falls,automobiles are said to be normal goods.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) If an excise tax is imposed on shirts,
A)the number of shirts produced will exceed the number demanded
B)the number of shirts demanded will exceed the number supplied
C)the equilibrium market price will decrease
D)the amount consumers pay for each shirt will decrease
E)the net revenue producers receive from each shirt will decrease
Q2) Price floors and price ceilings
A)lead to the same prices and quantities that would be found in a competitive market
B)lead to technical efficiency
C)cause the demand curve to shift to the left
D)usually result from government intervention
E)cause the supply curve to shift to the right
Q3) A price floor on corn would have the effect of
A)creating a surplus regardless of the level at which the price floor is set
B)creating a surplus supply when the floor is above the equilibrium price
C)creating a shortage when the price floor is set below the equilibrium price
D)creating a shortage regardless of where the price floor is set
E)ensuring a more equitable distribution of the good among consumers
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6
Chapter 5: Elasticity
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Sample Questions
Q1) A local store noticed that when it increased the price of milk from $2.50 to $3.50 per gallon,it sold the same amount of milk per week (165 gallons).Since everything else remained the same,we would say the
A)demand for milk is perfectly elastic
B)demand for milk is elastic
C)demand for milk is perfectly inelastic
D)demand for milk is unitary elastic
E)law of supply does not apply in this situation
Q2) Demand is said to be price inelastic when the coefficient of price elasticity of demand is
A)greater than +1
B)between 0 and +1
C)zero
D)infinity
Q3) For a normal good,quantity demanded
A)increases as income rises,so the income elasticity of demand is positive
B)increases as income rises,so the income elasticity of demand is negative
C)falls as income rises,so the income elasticity of demand is positive
D)falls as income rises,so the income elasticity of demand is negative
E)remains unchanged as income rises,so the income elasticity of demand is zero
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Chapter 6: Consumer Choice
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Sample Questions
Q1) Suppose that Janis is maximizing her total utility from chairs and tables.If the marginal utility of the last table she purchased is 200 utils,and the prices of chairs and tables are $50 and $100,respectively,then the marginal utility of the last chair she purchased
A)is 100 utils
B)is 400 utils
C)is 200 utils
D)is 50 utils
E)cannot be determined without more information
Q2) Suppose that the price of a pizza is $10 and that the price of a blouse is $30.At her present level of consumption,Magda's ratio of marginal utility of pizza to marginal utility of blouses is 1/4.To maximize total utility,she should
A)buy more pizzas and fewer blouses
B)buy fewer pizzas and more blouses
C)continue to buy the same quantities of pizza and blouses
D)spend more time consuming pizza
E)spend more time buying blouses
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Chapter 7: Production and Cost
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Sample Questions
Q1) Last month,Sally spent $3,000 in repairing her old car.Now her car requires an additional $2,000 in repairs.She could get a comparable car for $2,500.She should
A)repair her car because the money she has already spent repairing the car ($3,000)exceeds the price of the new car ($2,500)
B)buy a new car because sunk costs should be ignored in decision making
C)buy a new car because the price of the new car ($2,500)is less than the total amount she would spend on her current car ($5,000)
D)repair her car since the cost of repairing it is lower than the cost of buying another car
E)repair the car or buy a comparable one because the opportunity costs are the same
Q2) Which of the following always decreases as output increases?
A)ATC
B)MC
C)AFC
D)TC
E)TVC
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Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) What can be said about the firm shown in Figure 8-2?
A)the firm faces a perfectly elastic demand curve
B)the firm will maximize profits at the point where the TR and TC curves intersect
C)if price rises,the TC curve will shift upward
D)if fixed costs rise,the TR curve will pivot upward
E)the firm faces a downward-sloping demand curve
Q2) If a firm enjoys a revenue of $500 from two units of output and $600 from three units of output,then its marginal revenue must be rising.
A)True
B)False
Q3) Whenever marginal cost exceeds marginal revenue,
A)profit declines if the firm reduces output
B)profit increases if the firm increases output
C)the firm should shut down
D)losses decrease if the firm increases output
E)profit declines if the firm increases output
Q4) Every firm is constrained by the demand curve for the product it produces.
A)True
B)False
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Chapter 9: Perfect Competition
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250 Flashcards
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Sample Questions
Q1) Which of the following is true regarding the cost curves faced by a firm?
A)when MC > ATC,AVC must be falling
B)when MC > AVC,ATC must be rising
C)when MC > ATC,ATC must be rising
D)MC and ATC are the same for a perfectly competitive firm
E)when MC is a horizontal line,price is constant
Q2) Profit per unit of output is
A)price minus average total cost
B)marginal revenue minus marginal cost
C)average total cost minus average variable cost
D)total revenue minus total cost
E)demand minus average variable cost
Q3) The model of perfect competition can be fruitfully used to analyze markets that don't perfectly fit the description of this market type.
A)True
B)False
Q4) In the long run,perfectly competitive firms typically do not earn any economic profit.
A)True
B)False
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Chapter 10: B:Perfect Competition
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Sample Questions
Q1) In perfect competition,technological advances will allow economic profits for A)all firms.
B)only the firm developing the new technology.
C)early adopters.
D)none of the firms,as the advance will be immediately adopted by all of them.
Q2) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Q3) One of the defining characteristics of a perfectly competitive market is A)both buyers and sellers are well informed about the market
B)a small number of buyers
C)high barriers to entry
D)a small number of buyers but a large number of sellers
E)buyers are better informed about the market than sellers
Q4) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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192 Flashcards
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Sample Questions
Q1) The total fixed cost in Figure 11-2 is
A)increasing as more is produced
B)decreasing as more is produced
C)larger than variable costs
D)less than $1,000
E)more than $1,000
Q2) If a monopolistically competitive firm raises its price,
A)quantity demanded falls to zero
B)quantity demanded declines,but not to zero
C)the market supply curve shifts outward
D)the market supply curve shifts inward
E)quantity demanded remains constant
Q3) Which of the following must be true in an oligopoly?
A)The firms produce a differentiated product.
B)There is one dominant firm in the market.
C)The firms are strategically interacting.
D)The market is international in scope.
E)There are no significant barriers to entry.
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13
Chapter 11: Monopoly
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214 Flashcards
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Sample Questions
Q1) The monopoly's marginal revenue curve
A)is equivalent to its demand curve
B)lies below its demand curve
C)is perfectly elastic
D)is perfectly inelastic
E)has a positive slope
Q2) Monopolies may earn zero economic profit because of
A)zero marginal cost
B)barriers to entry
C)patents and copyright laws
D)economies of scale
E)government price regulation
Q3) The monopoly represented in Figure 10-26 has constant marginal cost and no fixed costs.If the firm is a perfect price discriminator,economic profit will equal
A)the area PABP'
B)the area PACP'
C)the area TCQ**0
D)the area TCP'
E)zero
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Page 14
Chapter 12: Labor Markets
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Sample Questions
Q1) Three accountants can prepare 5 tax returns a day and four accountants can prepare 7 tax returns a day.If the marginal revenue product of hiring the fourth accountant is $300,then in a perfectly competitive product market the price of each tax return is
A)$250
B)$100
C)$300
D)$200
E)$150
Q2) Figure 12-9 shows the number of baseballs a manufacturer can produce per day with different quantities of labor.Each baseball sells for $5.If the wage rate is $380 per day,the firm
A)should hire two workers
B)should hire five workers
C)cannot justify hiring any workers
D)should hire four workers
E)should hire three workers
Q3) The wage rate is constant along a firm's labor demand curve.
A)True
B)False
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Chapter 13: B: Labor Markets
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Sample Questions
Q1) All else constant,the quantity of labor supplied is inversely related to the amount of training required for a job.
A)True
B)False
Q2) Teachers often earn less than truck drivers because
A)teachers could switch to trucking more easily than truckers could switch to teaching
B)trucking is a riskier occupation
C)truckers require greater education
D)teachers have more job mobility
E)trucking has a higher social status
Q3) In the long run,those who are hurt by the minimum wage are
A)employers in non-minimum wage industries
B)employers who have to pay more
C)consumers who have to pay more for goods
D)all of these
Q4) Less-risky professions tend to enjoy compensating wage differentials.
A)True
B)False
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Chapter 14: Capital and Financial Markets
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114 Flashcards
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Sample Questions
Q1) Which of the following factors would be considered by a fundamental analyst when predicting a firm's stock price?
A)recent changes in the stock's price
B)the knowledge and skills of the firm's current management
C)the marketing strategies of the firm's competitors
D)a "head and shoulders" shape in a line graph of the firm's stock price
E)both b and c
Q2) The supply curve for a particular bond is vertical.
A)True
B)False
Q3) In New York City,you need a license to drive a taxicab.Each license is valid for three years,and then it expires.The holder of a license can expect to earn $10,000 in profit each year.If the interest rate is 5 percent (0.05)per year,what is the value of a newly issued taxicab license? (Assume that each year's profit is received at the end of the year. )
A)$1,990.74
B)$10,000.00
C)$14,074.07
D)$27,232.48
E)$30,000.00
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Page 17
Chapter 15: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Producer surplus for a particular unit of a good is the price the seller receives for that unit minus the largest amount the seller would accept for it.
A)True
B)False
Q2) An efficient economy
A)is a fair economy
B)can only be a capitalist economy
C)is not necessarily a fair economy
D)would never experience air or water pollution
E)would not have a government sector
Q3) If an action creates more total benefits for gainers than total harm to losers,
A)that action would be a Pareto improvement.
B)taking that action would improve efficiency
C)the government should step in to take that action
D)a side payment exists that would make the action a Pareto improvement
E)any side payment would make the action inefficient
Q4) Economic efficiency requires all Pareto improvements to be made.
A)True
B)False
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Chapter 16: Governments Role in Economic Efficiency
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Sample Questions
Q1) Economies with poorly defined property rights are often inefficient because
A)individuals spend time trying to protect their resources
B)there are no voluntary exchanges
C)all exchanges are voluntary
D)there are no side payments
E)of the absence of free riders
Q2) Talking loudly in a library creates
A)a market for noise
B)a positive externality
C)a side payment
D)a public good
E)a negative externality
Q3) Using average cost pricing,regulators of a natural monopoly
A)force the firm's economic profit to zero
B)maximize the firm's economic profit
C)achieve Pareto efficiency
D)set price equal to cost where the LRATC curve crosses the demand curve
E)set price equal to marginal cost where the MC curve crosses the demand curve
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Chapter 17: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Mutually beneficial trade between two countries is possible only as long as
A)unit costs of production are the same no matter how many units are being produced
B)marginal costs rise as production increases
C)marginal costs are equal to average total costs
D)one country has an absolute advantage in the production of one good,while the other country enjoys a similar advantage in making another good
E)one country has a comparative advantage in the production of one good,while the other country enjoys a comparative advantage in making another good
Q2) Protectionism is
A)the belief that a nation's industries should be protected from foreign competition
B)the belief that a nation's consumers should be protected from foreign competition
C)based on the idea that economies of scale are important
D)consistent with absolute advantage,but not with comparative advantage
E)the favored approach of pro-trade groups
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