Microeconomic Theory Exam Preparation Guide
Course Introduction
Microeconomic Theory explores the fundamental principles that govern individual decision-making within an economy, focusing on consumers, firms, and markets. The course examines how rational agents allocate scarce resources, respond to incentives, and interact in various market structures such as perfect competition, monopoly, and oligopoly. Key topics include consumer theory, production and cost functions, utility maximization, profit maximization, market equilibrium, and the effects of government intervention. Emphasis is placed on mathematical models and graphical analysis to rigorously analyze economic behavior and outcomes.
Recommended Textbook
Microeconomics 21st Edition by Campbell McConnell
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28 Chapters
7043 Verified Questions
7043 Flashcards
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Page 2
Chapter 1: Limits, Alternatives, and Choices
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398 Verified Questions
398 Flashcards
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Sample Questions
Q1) Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates A) distorted priorities.
B) opportunity costs.
C) increasing opportunity costs.
D) productive efficiency.
Answer: B
Q2) The negative slope of the production possibilities curve is a graphical way of indicating that
A) any economy "can have its cake and eat it too."
B) to produce more of one product, we must do with less of another.
C) the principle of increasing opportunity costs applies to only parts of the economy. D) consumers buy more when prices are low than when prices are high.
Answer: B
Q3) Purposeful behavior implies that everyone will make identical choices.
A)True
B)False
Answer: False
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Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) Which of the following guides sensible decisions regarding the management of business risk in a market system?
A) the profit and loss system
B) the "invisible hand"
C) taxes and subsidies
D) consumer sovereignty
Answer: A
Q2) In a market system, employees and suppliers
A) are usually shielded from risk, but at the cost of not sharing in the profits of the firm.
B) are usually shielded from risk and share in the profits of the firm.
C) are generally subject to as much risk as firm owners but get to share in the profits.
D) bear as much risk as firm owners but don't get to share in the profits.
Answer: A
Q3) Market economies use capital goods because they improve productive efficiency.
A)True
B)False
Answer: True
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Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) Which of the following goods would most probably be an inferior good?
A) French wines
B) generic beer
C) theater tickets
D) steak
Answer: B
Q2) In cases where sellers have a fixed number of units of a product to sell, the supply curve will be horizontal.
A)True
B)False
Answer: False
Q3) A television station reports that the price of coffee has increased and the quantity traded in the market has decreased. This situation would be caused by a(n)
A) increase in demand.
B) increase in supply.
C) decrease in demand.
D) decrease in supply.
Answer: D
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Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) The amount of revenue that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called
A) production costs.
B) producers' supply.
C) producer surplus.
D) surplus production.
Q2) When the marginal benefit of an output exceeds the marginal cost,
A) production of that output should be increased, in order to achieve efficiency.
B) production of that output should be decreased, in order to achieve efficiency.
C) increasing the production of that output would increase the deadweight loss.
D) reducing the production of that output would reduce efficiency losses.
Q3) Which of the following would be an example of a moral hazard problem?
A) a person in poor health who purchases life insurance
B) a person who is taxed on the purchase of a carton of cigarettes
C) a person who purchases auto insurance and then drives more recklessly
D) a person who receives a subsidy from the Federal government to insulate a home
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Chapter 5: Governments Role and Government Failure
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Sample Questions
Q1) Monetary policy refers to the government's attempt at smoothing business cycles through the use of changes in
A) tax rates.
B) interest rates.
C) wage rates.
D) government spending.
Q2) The reason why, under majority voting and consistent voter preferences, the median voter's choice will tend to predominate is because
A) the median voter has the strongest preferences compared to the other voters.
B) most voters strongly prefer the median view.
C) extreme voters on either side of the median would prefer the median over the opposite extreme.
D) voters' preferences are bell-shaped, with most of them falling on the median.
Q3) Government fiscal policy involves changing which of the following?
A) interest rates
B) taxes and government spending
C) regulations on business
D) the amount of money in circulation
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Chapter 6: Elasticity
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Sample Questions
Q1) If the demand for a product increases proportionately faster than the increase in consumers' incomes, then the income elasticity of demand for the product is A) zero.
B) greater than zero.
C) less than zero.
D) equal to 1.
Q2) We would expect the cross elasticity of demand between dress shirts and ties to be A) positive, indicating normal goods.
B) positive, indicating complementary goods.
C) negative, indicating substitute goods.
D) negative, indicating complementary goods.
Q3) If a firm's demand for labor is elastic, a union-negotiated wage increase will A) necessarily be inflationary.
B) cause the firm's total payroll to increase.
C) cause the firm's total payroll to decline.
D) cause a shortage of labor.
Q4) An income elasticity coefficient of 1.8 means the product is a normal good.
A)True
B)False
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Chapter 7: Utility Maximization
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Sample Questions
Q1) Increases in product prices shift the consumer's
A) budget line to the right.
B) budget line to the left.
C) indifference curves to the left.
D) indifference curves to the right.
Q2) The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is
A) 26 units of utility.
B) 6 units of utility.
C) 8 units of utility.
D) 38 units of utility.
Q3) A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish.
A)True
B)False
Q4) Indifference analysis assumes that utility is numerically measurable.
A)True
B)False
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Chapter 8: Behavioral Economics
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Sample Questions
Q1) Which of the following cognitive biases refers to people's tendency to attribute their successes to personal ability and effort, and failures to forces outside their control?
A) overconfidence effect
B) confirmation bias
C) self-serving bias
D) hindsight bias
Q2) Automatic payroll deductions help people to fight their time inconsistency problem with regards to saving.
A)True
B)False
Q3) Prospect theory is based on behavioral economists' understanding of how people
A) react to good things (or gains) and bad (or losses).
B) make predictions about their future income.
C) search for job prospects or business prospects.
D) behave under stressful conditions.
Q4) The dictator and ultimatum games reveal that fairness and concern for others motivate people's behavior.
A)True
B)False
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Chapter 9: Businesses and the Costs of Production
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Sample Questions
Q1) Which of the following is not a source of economies of scale?
A) learning-by-doing
B) labor specialization
C) use of larger machines
D) inelastic resource supply curves
Q2) Diseconomies of scale stem primarily from the difficulties in managing and coordinating a large-scale business enterprise.
A)True
B)False
Q3) Which of the following represents a long-run adjustment?
A) A farmer uses an extra dose of fertilizer on his corn crop.
B) Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.
C) A steel manufacturer cuts back on its purchases of coke and iron ore.
D) A supermarket hires four additional clerks.
Q4) Which of the following is correct?
A) There is no relationship between MP and MC.
B) When AP is rising, MC is falling, and when AP is falling, MC is rising.
C) When MP is rising, MC is rising, and when MP is falling, MC is falling.
D) When MP is rising, MC is falling, and when MP is falling, MC is rising.
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Chapter 10: Pure Competition in the Short Run
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Sample Questions
Q1) The fast-food restaurant industry in a large city would be an example of which market model?
A) monopolistic competition
B) pure competition
C) pure monopoly
D) oligopoly
Q2) In the short run, a purely competitive firm will earn a normal profit when
A) P = AVC.
B) P > MC.
C) that firm's MR = market equilibrium price.
D) P = ATC.
Q3) Economists use the term imperfect competition to describe
A) all industries that produce standardized products.
B) any industry in which there is no nonprice competition.
C) a pure monopoly only.
D) those markets that are not purely competitive.
Q4) In pure competition, the industry demand curve is infinitely price elastic.
A)True
B)False
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Chapter 11: Pure Competition in the Long Run
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Sample Questions
Q1) When new firms enter a purely competitive industry, the market supply curve will shift to the left.
A)True
B)False
Q2) An upward-sloping long-run supply curve indicates a constant-cost industry.
A)True
B)False
Q3) Resources are efficiently allocated when production occurs at that output level where price
A) equals marginal cost.
B) equals marginal revenue.
C) is greatest over average cost.
D) is equal to average total cost.
Q4) The long-run supply curve for a competitive, decreasing-cost industry is downward-sloping.
A)True B)False
Q5) Creative destruction entails both costs as well as benefits to society. A)True
B)False
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Chapter 12: Pure Monopoly
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Sample Questions
Q1) Price discrimination will result in consumers with more elastic demand purchasing more of the good than when a single price is charged to all consumers in the market.
A)True
B)False
Q2) The gains to monopolists from exercising market power
A) exceed the losses to consumers in monopoly markets, resulting in a net gain to society.
B) equal the losses to consumers in monopoly markets, resulting in no net change for society.
C) are less than the losses to consumers in monopoly markets, resulting in a net loss to society.
D) create smaller deadweight losses than occur in purely competitive industries.
Q3) A nondiscriminating monopolist will find that marginal revenue
A) exceeds average revenue or price.
B) is identical to price.
C) is sometimes greater and sometimes less than price.
D) is less than average revenue or price.
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Chapter 13: Monopolistic Competition
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Sample Questions
Q1) The monopolistically competitive seller maximizes profit by producing at the point where
A) total revenue is at a maximum.
B) average costs are at a minimum.
C) marginal revenue equals marginal cost.
D) price equals marginal revenue.
Q2) The Herfindahl index is a measure of the degree of product differentiation in an industry.
A)True
B)False
Q3) The entry of more firms into a monopolistically competitive market tends to increase the excess capacity of firms in the industry in the long run.
A)True
B)False
Q4) As firms exit from a monopolistically competitive industry in the long run, the remaining firmsâ profits will begin to rise.
A)True
B)False
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Page 15
Chapter 14: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Which two market structures tend to be more commonly observed in the real world?
A) pure competition and pure monopoly
B) pure competition and monopolistic competition
C) pure monopoly and monopolistic competition
D) monopolistic competition and oligopoly
Q2) All other things equal, the larger the number of firms in an oligopolistic industry, the more difficult it is for those firms to collude.
A)True
B)False
Q3) Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000. Most likely, this industry would achieve
A) both productive efficiency and allocative efficiency.
B) allocative efficiency but not productive efficiency.
C) neither productive efficiency nor allocative efficiency.
D) productive efficiency but not allocative efficiency.
Q4) A Nash equilibrium can only occur in repeated games.
A)True
B)False
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16
Chapter 15: Technology, Rd, and Efficiency
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Sample Questions
Q1) Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20 per labor unit; and price paid for raw materials = $8 per raw-material unit. The firm improves its production process so that it can produce 3,000 units of output by combining its fixed capital with 100 units of labor and 500 units of raw materials. What are the total cost and average cost of producing the 3,000 units of output?
A) TC = $4,000; ATC = $2.00
B) TC = $8,000; ATC = $3.00
C) TC = $10,000; ATC = $3.33
D) TC = $15,000; ATC = $6.00
Q2) Which would be a good example of a successful introduction of a new product?
A) McDonald's McLean burger
B) Microsoft Windows
C) Kodak disc cameras
D) New Coke by Coca-Cola
Q3) The introduction of the iPhone by Apple is an example of a(n)
A) invention.
B) innovation.
C) diffusion.
D) infusion.
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Page 17
Chapter 16: The Demand for Resources
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Sample Questions
Q1) Other things equal, we would expect the labor demand curve of a monopolistic seller to
A) decline more rapidly than that of a purely competitive seller.
B) decline less rapidly than that of a purely competitive seller.
C) decline at the same rate as that of a purely competitive seller. D) be more elastic than that of a purely competitive seller.
Q2) If a 10 percent wage increase in a particular labor market results in a 5 percent decline in employment in that market, labor demand is A) unit-elastic.
B) elastic.
C) inelastic.
D) perfectly elastic.
Q3) If MP<sub>x</sub><sub> </sub>> MP<sub>y</sub>, a firm should hire more x and less y.
A)True
B)False
Q4) The demand for a resource will shift left if the price of a substitute resource decreases.
A)True
B)False
Page 18
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Chapter 17: Wage Determination
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Sample Questions
Q1) Marginal resource cost refers to the
A) increase in total revenue resulting from the sale of the extra output of one more worker.
B) price at which additional units of a resource can be hired in an imperfectly competitive resource market.
C) increase in total cost resulting from producing one more unit of output.
D) amount by which a firm's total resource cost increases as the result of hiring one more unit of the resource.
Q2) Which of the following is not a major common topic of collective bargaining?
A) union status
B) product marketing
C) grievance procedures
D) seniority and job security
Q3) A union might increase the demand for the labor services of its members by
A) decreasing the demand for the product it is producing.
B) decreasing the prices of complementary inputs.
C) decreasing the prices of substitute inputs.
D) increasing the prices of complementary inputs.
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19
Chapter 18: Rent, Interest, and Profit
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Sample Questions
Q1) "Present value" refers to the
A) value today of a specific amount of money to be received in the future.
B) current value of money held in a bank account.
C) amount to which some current amount of money will grow over time.
D) interest rate specified when a loan contract is signed.
Q2) Capitalist income (corporate profits, interest, and rent) has
A) declined sharply since 1900 because of the growing strength of labor unions.
B) remained approximately constant since 1900.
C) increased significantly because of rising rents.
D) fallen since 1900 because of the declining importance of corporations.
Q3) Which of the following resources is a "free and nonreproducible gift of nature"?
A) labor
B) entrepreneurship
C) capital
D) land
Q4) "Proprietor's income" refers to income received by A) corporate executives.
B) owners of small, unincorporated enterprises.
C) workers hired by small businesses.
D) interns in businesses.
Page 20
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Chapter 19: Natural Resource and Energy Economics
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Sample Questions
Q1) Data from the U.S. Environmental Protection Agency on per capita trash generation in the United States indicate that since 1990 it has
A) increased moderately.
B) continually decreased.
C) more or less leveled off.
D) sharply increased.
Q2) Taking into account infant and child mortality, the total fertility rate that is necessary to keep a country's population from falling over time is
A) less than 1 birth per woman per lifetime.
B) equal to about 1 birth per woman per lifetime.
C) equal to about 1.5 births per woman per lifetime.
D) slightly more than 2 births per woman per lifetime.
Q3) Studies by economists indicate that economic growth and rising living standards are good for the environment because, as societies get richer, they tend to spend more on things that improve environmental quality.
A)True
B)False
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21
Chapter 20: Public Finance: Expenditures and Taxes
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Sample Questions
Q1) Approximately what percentage of the federal government's tax revenues are generated from personal income taxes (in 2015)?
A) 75 percent
B) 28 percent
C) 33 percent
D) 47 percent
Q2) If government levies a tax or fee on hunting licenses and uses the resulting revenue for wildlife stocking programs, this would be an example of
A) a progressive tax.
B) a regressive tax.
C) the ability-to-pay principle of taxation.
D) the benefits-received principle of taxation.
Q3) The total amount of U.S. tax revenue needed to finance the public sector
A) has been a declining percentage of the domestic output in this century.
B) equals about 40 percent of domestic output.
C) equals about 15 percent of domestic output.
D) is larger today, as a percentage of total output, than in 1960.
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22
Chapter 21: Antitrust Policy and Regulation
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Sample Questions
Q1) A conglomerate merger is a merger between firms at different stages of the production process of a product, such as a merger between a flour milling company and a baking company.
A)True
B)False
Q2) The Occupational Safety and Health Administration is mainly involved in
A) industrial regulation.
B) social regulation.
C) antitrust regulation.
D) public utility regulation.
Q3) Which of the following is characteristic of a regulated natural monopoly?
A) extensive economies of scale
B) the wasteful duplication of capital facilities in the event of competition
C) the provision of an essential service
D) all of these
Q4) The Sherman Act of 1890 outlawed
A) monopoly pricing and foreign trade.
B) price discrimination and monopoly profits.
C) restraint of trade and monopolization.
D) foreign trade and monopolization.
Page 23
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Chapter 22: Agriculture: Economics and Policy
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Sample Questions
Q1) (Consider This) Which of the following has been an effect of the U.S. government's ethanol program?
A) Prices for crops such as soybeans and sorghum have fallen dramatically.
B) Prices for beef, pork, and chicken have risen.
C) Water use has declined, as corn is a less water-intensive crop.
D) All of these effects have resulted from the ethanol program.
Q2) The agricultural price support program in the United States has resulted in
A) declining average farm income.
B) surpluses of price-supported farm commodities.
C) shortages of price-supported farm commodities.
D) a gradual migration of people from farms to cities.
Q3) (Last Word) The U.S. sugar program
A) decreases the domestic price of sugar.
B) requires import quotas or tariffs on foreign sugar.
C) increases the export earnings of other sugar-producing countries.
D) aids developing countries that produce sugar.
Q4) Agriculture is overcrowded because of absolute and relative increases in the size of farm employment.
A)True
B)False
Page 24
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Chapter 23: Income Inequality, Poverty, and Discrimination
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Sample Questions
Q1) The unequal distribution of wealth among households in the United States is one of the causes of income inequality.
A)True
B)False
Q2) The crowding model of discrimination suggests that
A) women and selected minorities are systematically excluded from high-paying occupations and crowded into low-paying occupations, decreasing their wages and reducing domestic output.
B) employers having high discrimination coefficients will be crowded out by nondiscriminating employers in the long run.
C) firms will base hiring decisions on group averages, rather than on individual characteristics and productivity.
D) occupational segregation is largely the result of freely made rational choices of women and minorities.
Q3) The Gini ratio, or Gini coefficient, is a measure of the
A) inflationary gap.
B) recessionary gap.
C) number of households that are classified as being poor.
D) degree of income inequality.
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Page 25
Chapter 24: Health Care
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Sample Questions
Q1) Health savings accounts (HSAs), implemented by the 2003 Medicare law,
A) are only available to those enrolled in Medicare.
B) allow workers to accumulate untaxed dollars for payment of qualified medical expenses.
C) are criticized because they require workers to "use it or lose it" each year; workers are not allowed to accumulate balances over time.
D) can only be used to pay for prescription drugs.
Q2) Studies in industrially advanced nations indicate that a 3 percent increase in incomes will generate a
A) 1 percent increase in the amount of health care demanded.
B) 1.5 percent increase in the amount of health care demanded.
C) 3 percent increase in the amount of health care demanded.
D) 6 percent increase in the amount of health care demanded.
Q3) There is a consensus among economists that the amount of resources allocated to the health care industry is optimal.
A)True
B)False
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Chapter 25: Immigration
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Sample Questions
Q1) A recent estimate of the fiscal burden on state and local government for low-skilled immigrant households is nearly
A) $10 billion annually.
B) $30 billion annually.
C) $50 billion annually.
D) $100 billion annually.
Q2) A nation can maximize the net benefits from immigration by
A) contracting immigration until the extra welfare cost for taxpayers is zero.
B) expanding immigration until its marginal benefits equal its marginal costs.
C) expanding immigration, because it benefits society with a greater supply of products and increased demand for them.
D) contracting immigration, because the benefits are minor and it reduces the wage rates of domestic workers.
Q3) Compensating wage differentials
A) refer to the wage premium given to domestic-born workers.
B) refer to the wage premium necessary to attract illegal immigrant workers.
C) discourage illegal immigrants from entering low-wage labor markets.
D) will attract U.S. workers to undesirable jobs if the differential over less unpleasant work is sufficiently high.
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Page 27
Chapter 26: International Trade
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Sample Questions
Q1) In the real world, specialization is rarely complete because
A) nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.
B) production possibilities curves are straight lines rather than curves bowed outward as viewed from the origin.
C) one nation's imports are necessarily another nation's exports.
D) international law prohibits monopolies.
Q2) Import quotas on products will reduce the quantity of the imported products and A) decrease the price to the consumers.
B) increase the price to the consumers.
C) will not affect the price to the consumers.
D) increase the total quantity of the product consumed.
Q3) The Trade Adjustment Assistance Act of 2002 focused mainly on assisting
A) U.S. firms to establish export markets around the world.
B) other nations to become familiar with, and adjust to, U.S. products.
C) workers displaced by imports or plant relocations abroad.
D) businesses who wish to globalize and compete in the world market.
Q4) Economists prefer free trade to tariffs and prefer tariffs to import quotas.
A)True
B)False
Page 28
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Chapter 27: The Balance of Payments, Exchange Rates, and Trade Deficits
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Sample Questions
Q1) If a Japanese importer could buy $1,000 U.S. for 122,000 yen, the rate of exchange for one dollar would be
A) 8.19 yen.
B) 122 yen.
C) 820 yen.
D) 1,220 yen.
Q2) When a government buys or sells foreign exchange in the foreign exchange market in order to alter the supply or demand for currency and push the exchange rate in a desired direction, this is known as
A) monetary policy.
B) an inflationary peg.
C) sterilization.
D) a currency intervention.
Q3) The current system of exchange rates can best be described as
A) freely fluctuating exchange rates.
B) managed floating exchange rates.
C) rigidly fixed exchange rates.
D) an adjustable peg system.
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Chapter 28: The Economics of Developing Countries
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Sample Questions
Q1) Capital flight from the DVCs may be caused by
A) a fear of government privatization efforts.
B) slow domestic inflation.
C) low rates of domestic taxation.
D) risks of severe fluctuations in exchange rates.
Q2) For DVC per capita incomes to rise, birth rates must first be reduced. This statement describes the
A) human capital view of population growth.
B) traditional view of population growth.
C) capricious universe view.
D) demographic transition view of population growth.
Q3) Per capita income in the United States in 2014 was how many times greater than that in China?
A) 3 times
B) 12 times
C) 7.5 times
D) 17 times
Q4) Most of the DVCs of the world are located in Western Europe.
A)True
B)False
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