Microeconomic Theory Exam Questions
Course Introduction
Microeconomic Theory explores the foundational principles that underpin individual and firm decision-making in markets. This course delves into key topics such as consumer behavior, production and cost analysis, market structures, and price determination. Students will learn to apply analytical tools to understand how markets allocate resources, how equilibrium is established, and how various factors can introduce inefficiencies or lead to market failure. Through mathematical and graphical analysis, the course equips students with the theoretical framework needed to assess real-world economic scenarios and policy outcomes.
Recommended Textbook
Microeconomics and Behavior 8th Edition by Robert H. Frank
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18 Chapters
901 Verified Questions
901 Flashcards
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Page 2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) Scarcity means that
A)People have unlimited wants
B)Everyone can not have all they want at a zero price
C)People try to be satisfied with what they have
D)People always respond to incentives
Answer: B
Q2) If everyone had unlimited wealth but limited time, then.
A)Scarcity would not exist
B)Scarcity would still exist
C)Economics would be irrelevant
D)One would need to study macroeconomics only
Answer: B
Q3) Which of the following statements could be considered a normative statement?
A)Food stamps are a good way to help low-income people to afford food.
B)Food stamps allow low-income people to buy more food.
C)Most low-income people use Food Stamps to buy food
D)A large portion of the government budget is used to provide Food Stamps to low-income people.
Answer: A
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Page 3
Chapter 2: Supply and Demand
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Sample Questions
Q1) Suppose the market for Mexican food in your neighborhood was in equilibrium.
a.Draw a diagram showing the demand and supply curve for Mexican food. Indicate the market equilibrium quantity and price in this market.
b.Suppose the government imposed a binding price ceiling in this market, with the goal of making Mexican food affordable to most residents. Add the price ceiling to your diagram, and then identify the quantity demanded and quantity supply in this market with the price ceiling.
c.Would the government be able to make Mexican food affordable to most people with the price ceiling? Explain your answer using the diagram you drew in part (b).
Answer: \[\text { Quantity of Mexican Food }\] 11ea72a4_6351_8024_9d1a_497456742490_TB3720_00_TB3720_00
Q2) Let demand be given by P = 20 - 3Q and supply by P = 5 + 2Q.Equilibrium quantity will be A)5
B)3
C)11
D)10
Answer: B
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Page 4
Chapter 3: Rational Consumer Choice
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Sample Questions
Q1) Say a consumer is choosing between red wine and white wine.The price of red wine is 20 and the price of white wine is 10.If the marginal rate of substitution is 1, and if red wine is on the horizontal axis then the consumer is purchasing:
A)Too much red wine
B)Too much white wine
C)Just the right amount of both goods
D)Purchasing more than what her income would allow
Answer: A
Q2) According to the text, gift giving in kind
A)Should happen more often if people were rational
B)Cannot be easily explained by the rational choice model
C)Happens only because people expect to get gifts in return
D)Always increase consumer welfare
Answer: B
Q3) I prefer 10 apples and 6 oranges to 9 apples and 3 oranges.This is an example of
A)Transitivity
B)Completeness
C)More is better
D)Convexivity
Answer: C
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Chapter 4: Individual and Market Demand
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Sample Questions
Q1) A horizontal demand curve is
A)Perfectly elastic
B)Perfectly inelastic
C)Unit elastic
D)Has elasticity of zero
Q2) The formula for elasticity is given by
A) \(\triangle Q/ Q / \Delta P /P\)
B)(Q/P)(slope)
C)(P/Q)(slope)
D)(Q/P)(1/slope)
Q3) In the graph above, as the consumer moves from indifference curve 1 to 3, his
A)Real income is rising and his nominal income is constant
B)Real income is falling, and his nominal income is rising
C)Real income is falling and nominal income is constant
D)Real and nominal income are falling, but he can buy more anyway
Q4) (Appendix) An income compensated demand curve
A)Is steeper than an ordinary demand curve for a normal good
B)Is flatter than an ordinary demand curve for an inferior good
C)Of a Giffin good will be negatively sloped
D)Is described accurately by all of the above statements
Page 6
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Chapter 5: Applications of Rational Choice and Demand
Theories
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Sample Questions
Q1) Suppose a bank will pay you a 10% interest rate on your deposits for 1 period.In this case you must sacrifice $10 of current consumption to finance
A)$9 of future consumption
B)$10 of future consumption
C)$11 of future consumption
D)$1 of future consumption
Q2) In a diagram, consumer surplus is always represented by the area:
A)between the demand curve and the supply curve
B)between the demand curve and the price
C)below the demand curve
D)above the demand curve
Q3) If you had a windfall of $5,000 in the present time period and you save some of it, your saving behavior would likely be due to the fact that
A)Your marginal utility of present income falls as your income goes up
B)The extra income changes the slope of your time preference indifference curves making then steeper
C)Your indifference curves for present and future income are vertical
D)Your indifference curves for present and future are horizontal
Q4) Use the following to answer the next two questions.
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Chapter 6: The Economics of Information and Choice
Under Uncertainty
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Sample Questions
Q1) For a signal between two adversaries to be credible, it must
A)Be verified by a third party
B)Be costly to fake or duplicate
C)Be part of a sequence of transactions
D)Have both a good news-bad news component
Q2) The general message of the full disclosure principle is that A)Information is costly to fake
B)Producers should offer lifetime warranties for low quality products
C)The lack of evidence that something resides in a favored category will often suggest that it belongs to a less favored one
D)Information is symmetric
Q3) Campus security has a bike check in that will guard your bike for $15 so there will be no risk of loss.Do you take the campus security deal?
Q4) Your bike is worth $100 and if you park it outside at school there is a 25% chance that it will be stolen.Your utility function for money is U = (money)<sup>2</sup>.Are you a risk taker?
Q5) Using the simple supply and demand model for the information market, show what the full disclosure principle does to the market.Start from an equilibrium point and apply the concept.
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Chapter 7: Explaining Tastes: The Importance of Altruism and
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Sample Questions
Q1) In this chapter, virtue can lead to material gain and therefore is an inevitable part of the social order.Evaluate this view of virtue or moral behavior.Is material gain a sufficient motive for morality? Is moral behavior based on more than the possibility for personal gain?
Q2) Suppose you have been assigned to complete a group project with one of your classmates.Each of you can choose to Shirk or Work.If one or more of you chooses to Work, the project is completed and provides each with extra credit valued at 4 payoff units each.The cost of completing the project is that 6 total units of effort (measured in payoff units) divided equally among all players who choose to Work and this is subtracted from their payoff.If both of you Shirk, then neither of you have to expend any effort but the project is not completed, giving each a payoff of 0.The teacher can only tell whether the project is completed and not which students contributed to it.What is the dominant strategy for you?
A)Work
B)Shirk
C)There is not dominant strategy
D)Work if your friend also work
Q3) Describe a situation in which you were a defector.Did your partners know you were a defector or did you fool them?
Page 9
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Chapter 8: Cognitive Limitations and Consumer Behavior
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Sample Questions
Q1) The Kahneman-Tversky value function provides a rationale for
A)Putting several Christmas gifts in one big box for your special friend
B)Paying cash rather than using a credit card
C)Requiring employees to take all their vacation days in two weeks rather than taking scattered days throughout the year
D)Car dealers offering rebates rather than a price reduction on a car
Q2) Bounded rationality effects people in more ways than simply expenditure patterns.Think of ways in which your behavior is bounded so that it appears irrational at times.Be careful not to lump together concepts that are discussed in Chapter 8 under other names.Is bounded rationality a good or bad thing in your view?
Q3) The Kahneman-Tversky value function is
A)Risk-averse in gains, risk-seeking in losses
B)Risk-seeking in gains, risk-averse in losses
C)Risk-averse in gains and losses
D)Risk-neutral in gains and losses
Q4) It has be said that people would never build a house if they had to go to the lumberyard and buy the framing lumber and each building material by the piece.Where did such a notion come from? Might it be true?
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Chapter 9: Production
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Sample Questions
Q1) In a typical production function the relevant factors of production are land, labor, capital, and
A)Raw materials
B)Technology
C)Entrepreneurship
D)Resources
Q2) In conceptual production functions, technological change is
A)Treated like an addition to the capital stock
B)Treated as a movement upward along a given production function
C)A factor that eliminates diminishing returns to a production function
D)Not considered and is therefore assumed to be constant in all deliberations
Q3) On this chapter quiz for this course you can study for up to four hours If you don't study at all you will get a 70.One hour would give you an 80, the second hour increased your score to 89, the third to 92.If you studied the fourth hour your score would be 87.In which hour did diminishing returns set in?
A)The first because the score was the lowest of the studying options
B)The second because your gain is less than the previous hour
C)The third because your score peaked there
D)The fourth because you had a drop in points in this hour
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Page 11
Chapter 10: Costs
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Sample Questions
Q1) If the total variable cost curve is a straight line then
A)The total cost curve will also be a straight line
B)The total cost curve may or may not be a straight line
C)The marginal cost function is downward sloping
D)The marginal cost function is upward sloping
Q2) Suppose you have the following values for a short-run production process: Q = 20, VC = 100, FC = 600 and MC = 40.Given this, we know that the:
A)Average cost curve must be increasing
B)Average cost curve must be decreasing
C)Marginal cost curve must be increasing
D)Marginal cost curve must be decreasing
Q3) The total fixed cost function
A)Is horizontal
B)Is U-shaped
C)Is an upward sloping line
D)Is a downward sloping line
Q4) If the total cost function is TC = 10Q<sup>3</sup> - 50Q<sup>2</sup> + 1000Q + 500, what is the equation for ATC
Q5) Why does the AVC reach its minimum before the ATC reaches its minimum?
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Chapter 11: Perfect Competition
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Sample Questions
Q1) If free entry and exit were not possible,
A)In the long run firms would lose money
B)In the long run firms would make money
C)In the long run firms would break even
D)It is impossible to tell what would happen without more cost and revenue information
Q2) What is the industry supply curve?
A)P = 500 + Q
B)P = 50 + 0.1Q
C)P = -500 + 10P
D)P = 50 + 10 Q
Q3) What is the equilibrium price and quantity produced by the industry as a whole?
Q4) In the long run, a tax placed on a perfectly competitive industry should
A)Increase the number of firms
B)Decrease the number of firms
C)Not affect the number of firms
D)One cannot tell
Q5) What is the price charged by each firm and what quantity will each firm produce?
Q6) What is the producer surplus for each firm?
Q7) How much profit is each firm making if fixed costs are $375 per firm?
Page 13
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Chapter 12: Monopoly
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Sample Questions
Q1) Which of the following is not true for a profit maximizing single-price monopolist in the long run?
A)It will make profit or break even
B)Price is greater than marginal revenue
C)Marginal revenue equals marginal cost
D)Demand is inelastic
Q2) A single-price monopolist with a positive marginal cost will maximize profit by producing where
A)Demand is price elastic
B)Demand is price inelastic
C)Demand is unit elastic
D)Any of the above may apply
Q3) Under rate of return regulation
A)Firms earn positive economic profits
B)Firms earn negative economic profits
C)Firms earn zero economic profits
D)Firms earn zero accounting profits
Q4) Explain why price discrimination solves the welfare loss problem of monopoly, but then describe the downside of solving the welfare loss problem this way.
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Chapter 13: Imperfect Competition: a Game-Theoretic Approach
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Sample Questions
Q1) When each company follows its dominant strategy the profits for each of the firms are equal to:
A)$2,499
B)$2,500
C)$2,000
D)$4,998
Q2) The unraveling problem in interdependent relationships arises from a situation in which
A)There is a known, finite number of future interactions
B)There is not a known, finite number of future interactions
C)Interactions suddenly and surprisingly cease
D)A recession hits an industry
Q3) If the duopolists in Problem 17 behave according to the Stackelberg Leader-Follower model, the equilibrium price and total quantity for the market will be
A)Q = 30, P = 60
B)Q = 60, P = 30
C)Q = 40, P = 50
D)Q = 45, P = 45
Q4) What price will the two Stackelberg firms charge?
Page 15
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Chapter 14: Labor
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Sample Questions
Q1) How many laborers will be hired and what will the wage be if both product and labor markets are perfect and the going wage is $18 per worker? ______
Q2) A monopsonist is a firm which
A)Is a "sole-buyer" in an input market
B)Faces a downward sloping demand curve for its output
C)Is a price taker in the labor market
D)Faces a horizontal demand curve for labor
Q3) If the MRP<sub>L</sub> is greater than the wage rate, and the supply of labor is horizontal, the firm will
A)Hire more labor
B)Hire less labor
C)Increase the wage paid
D)Not change its employment or wage practices
Q4) The hiring rule for the perfect competitor in the labor market is to choose that amount of labor for which the wage rate is exactly equal to
A)Marginal revenue from the sale of one more unit of output
B)The cost of capital
C)The value of the marginal product of labor, VMP<sub>L</sub>
D)MC
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Chapter 15: Capital
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Sample Questions
Q1) If the going interest rate went up to 10%, how much would you be willing to pay for the machine?
Q2) The quantity of loanable funds supplied by firms is
A)Independent of the interest rate
B)Positively related to the interest rate
C)Inversely related to the interest rate
D)Negatively related to the rate of return
Q3) Suppose you are deciding how much oil to pump from your oil well in the next two years.Other things equal, you will be more likely to pump more oil this year than next year if you expect:
A)A higher price for oil this year than next year
B)A lower price for oil this year than next year
C)Less demand for oil next year than this year
D)The same price of oil this year than next year
Q4) Explain in a paragraph why the quantity demanded for nonrenewable resources will be zero when the supply runs out.
Q5) If the machine cost $12,000 to purchase, should you buy it?
Q6) What is the present value of the income stream from the machine?
Q7) What is the maximum you should be willing to pay for the machine?
Page 17
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Chapter 16: Externalities Property Rights and the Coase
Theorem
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Sample Questions
Q1) If the both Peter and John could negotiate a settlement without transactions costs, how many phone calls would John end up making if he (John) had the rights to make any cell phones he liked at the coffee shop?
A)2
B)0
C)1
D)3
Q2) Propose a solution for the town that will lead to efficiency.
Q3) If the both Peter and John could negotiate a settlement without transactions costs, how many phone calls would John end up making if Peter had the rights to stop any cell phone calls from taking place at the coffee shop?
A)2
B)0 C)1 D)3
Q4) How much irritation is the most efficient amount for each person in the town to absorb?
Q5) Define in technical terms the tragedy of the commons.
Q6) What is the marginal cost to society when a bushel of leaves is burned?
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Chapter 17: Explaining Tastes: The Importance of Altruism and
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Sample Questions
Q1) Which of the following goods is nondiminishable?
A)Clean air
B)A free concert
C)The use of a lighthouse
D)National parks
Q2) Say 6 homogenous consumers have individual willingness to pay P = 20 - 4Q. If the marginal cost of providing Q is 6Q, the optimal amount of Q is:
A)2
B)4
C)6
D)0
Q3) What is the socially optimal output level?
Q4) The following is an example of a pure public good:
A)Yellowstone National Park
B)Clean Air
C)National Defense
D)Public Education
Q5) If you were able to increase the overall class grade point average above the 2.0 to a level of 2.5, what would you do to the distribution.
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Chapter 18: General Equilibrium and Market Efficiency
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Sample Questions
Q1) Graph the problem of Question 35 above and show the solution on the graph.
Q2) On the consumption contract curve
A)All indifference curves are crossing
B)All allocations are not Pareto optimal
C)There will be no further voluntary exchange
D)There will be further opportunities for exchange
Q3) According to the invisible hand theorem, as stated in the text
A)Non-market forces can prevent the markets from guiding consumers to the contract curve
B)An equilibrium produced by competitive markets will exhaust all gains from exchange
C)Government interaction is sometimes needed as an invisible hand to lead the economy toward efficiency
D)Even non-competitive markets are able to achieve Pareto efficient outcomes
Q4) If one is inside the production possibilities frontier
A)More of both goods can not be produced
B)The allocation is not Pareto optimal
C)No one could be made better off
D)The economy is producing beyond its potential
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