Microeconomic Theory Exam Questions
Course Introduction
Microeconomic Theory explores the foundational principles that govern the decision-making behavior of individual consumers, firms, and markets. The course examines concepts such as demand and supply, consumer choice, production and cost analysis, market structures (perfect competition, monopoly, oligopoly, and monopolistic competition), and the role of government intervention. Through analytical models and real-world applications, students develop a deep understanding of resource allocation, price formation, and efficiency, equipping them with the tools necessary to assess and predict outcomes in diverse economic environments.
Recommended Textbook
Microeconomics 4th Australian Edition by Glenn Hubbard
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16 Chapters
3337 Verified Questions
3337 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) ________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.
A)Competition
B)Voluntary exchange
C)Equity
D)A centrally planned economy
Answer: A
Q2) A grocery store sells a bag of potatoes at a fixed price of $2.30.Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?
A)Marginal revenue
B)Gross earnings
C)Pure profit
D)Marginal costs
Answer: A
Q3) Optimal decisions are made at the point where marginal cost equals zero.
A)True
B)False
Answer: False
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Chapter 2: Choices and Trade-Offs in the Market
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) Refer to Table 2.8.If the two countries specialise and trade, who should export guitars?
A)There is no basis for trade between the two countries.
B)Ireland
C)Scotland
D)They should both be exporting guitars.
Answer: B
Q2) In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it cannot benefit by trading with the other country.
A)True
B)False
Answer: False
Q3) If additional units of a good could be produced at an increasing opportunity cost, the production possibility frontier would be linear.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) Blu-ray players were introduced to the market in 2006, and new technology has allowed for the cost of manufacturing the players to decline significantly since the initial introduction.How did this change in technology affect the market for Blu-ray players?
A)The new technology caused an increase in the supply of Blu-ray players and a decrease in price of Blu-ray players.
B)The new technology caused an increase in the supply of Blu-ray players and an increase in price of Blu-ray players.
C)The new technology caused a decrease in the demand for Blu-ray players.
D)The new technology caused an increase in the quantity of Blu-ray players supplied.
Answer: A
Q2) An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant.
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) For each pair of items below, determine which product would have the higher price elasticity of demand (in absolute value).
a.Blood pressure medicine for someone who has high blood pressure and the purchase of Clairol hair colouring product
b.A new Ford Fusion or a tank of gas for your current car
c.A Seiko watch or watches in general
Q2) Assume that the price elasticity of demand for petrol is -0.06.If the government tax causes the price of petrol to increase by 50 per cent, what will be the decrease in the quantity of petrol demanded?
A)0)5 per cent
B)3)0 per cent
C)8)33 per cent
D)50 per cent
Q3) Most food products have low income and price elasticities of demand.
A)True
B)False
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Chapter 5: Economic Efficiency, Government Price Setting and Taxes
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187 Flashcards
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Sample Questions
Q1) Refer to Figure 5.1.What is Arnold's benefit from consuming the fourth burrito?
A)$0.
B)$1.00.
C)$2.50.
D)$3.00.
Q2) Refer to Figure 5.3.At the equilibrium price of $15, consumers are willing to buy 80 metrics of tiger shrimp.Is this an economically efficient quantity?
A)No, the marginal benefit of the 80th unit exceeds the marginal cost of the 80th unit.
B)Yes, because marginal cost is zero at the 80th unit.
C)Yes, because $15 is the price where the marginal benefit is equal to the marginal cost.
D)No, the marginal cost of the 80th unit exceeds the marginal benefit of the 80th unit.
Q3) Rent control is an example of a price ceiling.
A)True
B)False
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Chapter 6: Consumer Choice and Behavioural Economics
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254 Flashcards
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Sample Questions
Q1) A Giffen good could be either a normal good or an inferior good.
A)True
B)False
Q2) A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.
A)True
B)False
Q3) Explain the concept of network externalities.
Q4) The demand curve for a Giffen good is
A)non-linear but downward sloping.
B)vertical.
C)upward sloping.
D)nonexistent.
Q5) The demand curve for a luxury good is upward sloping.
A)True
B)False
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Chapter 7: Technology Production and Costs
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301 Flashcards
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Sample Questions
Q1) Refer to Figure 7.11.Constant returns to scale
A)occur for output rates greater than 5000 picture frames.
B)occur between 5000 and 20 000 picture frames per month.
C)occur between 10 000 and 20 000 pictures frames per month.
D)will shift the long-run average cost curve downward.
Q2) What are economies of scale? What are diseconomies of scale?
Q3) In a diagram showing the average total cost and average variable cost curves, the minimum point of the average total cost is
A)at the same level of output as the minimum point of the average variable cost.
B)at a higher level of output than the minimum point of the average variable cost.
C)at a lower level of output than the minimum point of the average variable cost.
D)at the same level of output as the maximum of the total product curve.
Q4) In the long run, the relevant cost is total cost.
A)True
B)False
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Chapter 8: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if
A)his Shoppe's total revenue exceeds his fixed cost.
B)his Shoppe's total revenue exceeds his variable cost.
C)his Shoppe's total revenue exceeds his implicit costs.
D)his Shoppe's total revenue exceeds his capital costs.
Q2) Refer to Table 8.1.If the market price of each camera case is $8, the firm's total revenue is
A)$2400
B)$3200
C)$4000
D)$4800
Q3) Which of the following is a characteristic of an oligopolistic market structure?
A)There are few dominant sellers.
B)Each firm sells a unique product.
C)It is easy for new firms to enter the industry.
D)Each firm need not react to the actions of rivals.
Q4) In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.
A)True
B)False
Page 10
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Chapter 9: Monopoly Markets
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Sample Questions
Q1) 'Being the only seller in the market, the monopolist can choose any price and quantity it desires.' Evaluate this statement: Is it true or false? Explain your answer.
Q2) To have a monopoly in an industry there must be
A)barriers to entry so high that no other firms can enter the industry.
B)a patent or copyright giving the firm exclusive rights to sell a product for 20 years.
C)an inelastic demand for the industry's product.
D)a public franchise, making the monopoly the exclusive legal provider of a good or service.
Q3) Producers in perfect competition receive a smaller producer surplus than a monopoly producer.
A)True
B)False
Q4) The airline industry routinely engages in price discrimination across time.
A)True
B)False
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Chapter 10: Monopolistic Competition: The Competitive
Model in a More Realistic
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Sample Questions
Q1) Which of the following is a disadvantage of trademarking a firm's product?
A)A trademark differentiates a firm's product.
B)A trademark conveys information about the product to the public.
C)A trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name.
D)A trademark does not affect demand for the firm's product.
Q2) Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets, firms
A)produce at the minimum point of their average total cost curves.
B)produce where price equals marginal cost.
C)break even.
D)produce where price equals marginal revenue.
Q3) Monopolistically competitive firms achieve allocative efficiency but not productive efficiency.
A)True
B)False
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12
Chapter 11: Oligopoly: Markets With Few Competitors
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Sample Questions
Q1) How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?
Q2) Why does a prisoner's dilemma lead to a non-cooperative equilibrium?
A)Because each player had agreed before the game started to minimise the harm that he can inflict on the other players
B)Because each player is uncertain how other players will play the game
C)Because players must choose from a limited number of non-dominant strategies
D)Because each rational player has a dominant strategy to play a certain way regardless of what other players do
Q3) Producing a differentiated product occurs in which of the following industries?
A)Oligopoly, monopolistic competition and perfect competition
B)Monopolistic competition only
C)Oligopoly only
D)Monopolistic competition and oligopoly
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13
Chapter 12: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) All else equal, a decrease in the supply of labour will shift the labour supply curve to the left and decrease the equilibrium wage.
A)True
B)False
Q2) If it is difficult for a firm to attribute the output it produces to a particular worker, then
A)its employees are likely to form a union.
B)a commission system of compensation will be preferable to a salary system.
C)a salary compensation system will be preferable to a commission system.
D)a piece-rate system of compensation will be preferable to a salary system.
Q3) What does a decrease in the wage rate cause?
A)an increase in the quantity of labour demanded.
B)a rightward shift of the firm's labour demand curve.
C)a leftward shift of the firm's labour demand curve.
D)a decrease in labour's productivity.
Q4) If the substitution effect of a wage increase dominates the income effect, the labour supply curve has a positive slope.
A)True
B)False
Page 14
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Chapter 13: Comparative Advantage and the Gains From International Trade
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) Selling a product at a price below its cost is known as dumping.
A)True
B)False
Q2) Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Denmark consume?
A)270
B)900
C)930
D)1200
Q3) What are domestically produced goods and services sold to other countries?
A)Capital outflow.
B)Exports.
C)Imports.
D)Transfer payments.
Q4) Between 1960 and 2010, Australia's imports increased from approximately
A)15% of GDP to 20% of GDP.
B)10% of GDP to 18% of GDP.
C)24% of GDP to 30% of GDP.
D)35% of GDP to 50% of GDP.
Q5) What is autarky?
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.
A)True
B)False
Q2) Governments grant patents to encourage
A)research and development on new products.
B)competition.
C)low prices.
D)firms to form public enterprises.
Q3) Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection.
A)True
B)False
Q4) Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others.
A)True
B)False
Q5) What is adverse selection?
Q6) What is moral hazard?
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Chapter 15: Externalities, Environmental Policy and Public Goods
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212 Verified Questions
212 Flashcards
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Sample Questions
Q1) Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem,
A)an efficient solution can be reached only if property rights are assigned to the victims of the pollution.
B)an efficient solution can be reached only if property rights are assigned to the polluters.
C)an efficient solution can be reached regardless of the initial assignment of property rights.
D)government intervention is critical to reach an efficient solution.
Q2) Refer to Figure 15.2.What is the efficient output level?
A)Q<sub>d</sub>
B)Q<sub>b</sub>
C)Q<sub>a</sub>
D)Q<sub>b</sub> - Q<sub>d</sub>
Q3) The 'tragedy of the commons' refers to the phenomenon where A)individuals are free riders.
B)people overuse a common resource.
C)people do not internalise an externality.
D)there is rivalry in consumption.
Page 17
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) What is the difference between the poverty line and the poverty rate?
Q2) Refer to Figure 16.1.Of the tax revenue collected by the government, the portion borne by producers is represented by the area
A)B + C.
B)F + G.
C)E + H.
D)B + C + F + G.
Q3) How would the elimination of a sales tax affect the market for a product that had been subject to the tax?
A)The demand for the product would rise and the equilibrium price would fall by the amount of the tax.
B)The equilibrium price for the product would fall by less than the amount of the tax.
C)The reduction in government revenue from the tax would be made up by an increase in property taxes.
D)The supply of the product would become more elastic.
Q4) A Lorenz curve summarises the information provided by a Gini coefficient.
A)True
B)False
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