Microeconomic Theory Exam Review
Course Introduction
Microeconomic Theory explores the foundational principles governing individual and firm decision-making in the marketplace. The course covers topics such as consumer behavior, production and cost analysis, market structures, pricing strategies, and the role of government intervention. Through rigorous analysis and mathematical modeling, students learn how supply and demand determine prices and quantities, how markets allocate resources efficiently under various competitive conditions, and how externalities and public goods influence economic outcomes. The course is essential for understanding how micro-level choices impact broader economic systems and for forming the analytical tools necessary for advanced economic study.
Recommended Textbook
Microeconomics 9th Edition by William Boyes
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Page 2
Chapter 1: Economics: The World Around You
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) Which of the following is considered to be the basic economic problem across all countries of the world?
A)Inflation
B)Unemployment
C)Poverty
D)Scarcity
E)Wage disparity
Answer: D
Q2) Both microeconomic and macroeconomic theories:
A)clearly state the public policies that should be undertaken to avoid or solve a particular problem under consideration.
B)deal with the aggregate.
C)deal with what ought to be as opposed to what is.
D)are forms of positive economics.
E)deal with individual entities in an economy.
Answer: D
Q3) Purified bottled water is an example of a free good.
A)True
B)False
Answer: False
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Chapter 2: Choice, opportunity Costs, and Specialization
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Sample Questions
Q1) Refer to Figure 2.2.If there is an increase in the effectiveness of pesticides,which of the following graph(s) will represent(s) the resulting shift in the production possibilities curve [PPC]?
A)Graph A
B)Graph B
C)Graph C
D)Graph A and B
E)Graph B and C
Answer: B
Q2) Refer to Table 2.5 and identify the correct statement.
A)Norway has an absolute advantage in butter production.
B)Sweden has a comparative advantage in ham production.
C)Norway has an absolute advantage in ham production.
D)Trade is not possible between these two nations.
E)It would be advantageous for Sweden to trade with Norway.
Answer: E
Q3) The marginal cost of producing a commodity increases because of specialization.
A)True
B)False
Answer: True
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Chapter 3: Markets, Demand and Supply, and the Price System
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98 Flashcards
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Sample Questions
Q1) A market survey conducted by an electronics manufacturer reported a year on year growth in the sale of television sets,along with an increase in the selling price.Which of the following could be a likely cause for this situation?
A)A decrease in supply
B)An increase in demand
C)A decrease in demand
D)An exception to the law of demand
E)An increase in supply
Answer: B
Q2) Assume that the supply curve for tomatoes is upward sloping.If the price per pound increases from $0.99 to $1.89,a greater quantity of tomatoes will be supplied to the market.
A)True
B)False Answer: True
Q3) An example of barter is voluntary work at an old-age home.
A)True
B)False
Answer: False
Page 5
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Chapter 4: The Market System and the Private and Public Sector
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Sample Questions
Q1) The United States is the largest consumer and importer of grains and other agricultural output in the world.
A)True
B)False
Q2) In 2009,combined government spending in the U.S.economy was about:
A)$50 billion.
B)$500 billion.
C)$12,163 billion.
D)$5,000 billion.
E)$2,012 billion.
Q3) A household consists of only related family members like a father,mother,and children and not unrelated members like two students sharing a rented apartment.
A)True
B)False
Q4) Annual expenditures by the federal government exhibited an upward trend,rising from $3 billion in 1930 to more than $1 trillion in 2010.
A)True
B)False
Page 6
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Chapter 5: Elasticity: Demand and Supply
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Sample Questions
Q1) An inferior good or service is any good or service for which:
A)an increase in price causes an increase in the quantity demanded.
B)a decrease in price causes an increase in demand.
C)an increase in price causes a decrease in the quantity demanded.
D)an increase in the amount consumed causes a decrease in marginal utility.
E)an increase in income causes a decrease in demand.
Q2) If the demand for cream cheese produced by a dairy is perfectly elastic,then what will be the shape of the demand curve faced by the dairy?
A)The demand curve will be vertical
B)The demand curve will be horizontal
C)The demand curve will be upward sloping
D)The demand curve will be downward sloping
E)The demand curve will be concave
Q3) Income elasticity of demand is expected to be _____.
A)relatively high for necessities
B)positive for most products
C)relatively low for luxuries
D)negative for most products
E)zero for most products
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Page 7
Chapter 6: Consumer Choice
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142 Flashcards
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Sample
Questions
Q1) Which of the following statements concerning income and substitution effects is nottrue?
A)Income and substitution effects cause the demand curve to slope downward.
B)When the price of a good falls,real purchasing power increases and consumers can purchase more of all goods.
C)The substitution effect describes the situation where more of a good whose price has fallen is purchased and less of all other goods is purchased.
D)A price decrease of one good cannot cause the income effect.
E)Income and substitution effects are related to diminishing marginal utility and consumer equilibrium.
Q2) Refer to Table 6.3.The marginal utility of the fourth unit of B is _____ utils.
A)5
B)4
C)3
D)-2
E)1
Q3) Individuals behave so as to maximize their utility.
A)True
B)False
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Page 8
Chapter 7: Supply: The Costs of Doing Business
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Economies and diseconomies of scale are the reasons why short-run average total cost decreases and then increases.
A)True
B)False
Q2) If a firm doubles its resources and generates an output level which is more than double,it is said to be experiencing:
A)economic fluctuations.
B)recession.
C)diseconomies of scale.
D)increasing marginal returns to a factor.
E)economies of scale.
Q3) Refer to Figure 7.1.Compute the total cost of producing 4 units of the output.
A)$64.
B)$72.
C)$80.
D)$84.
E)$90.
Q4) In the long run,total cost is equal to total fixed cost at an output of zero.
A)True
B)False
Page 9
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Chapter 8: Profit Maximization
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Sample Questions
Q1) According to the information in Scenario 8.2,how much accounting profit did the firm make last year?
A)$112 million
B)$30 million
C)$20 million
D)-$20 million
E)$2 million
Q2) Suppose that at a given level of output,a perfectly competitive firm charges a price of $12 and has average total costs of $10.If its economic profit is $20,000,then it must be producing:
A)40,000 units of output.
B)20,000 units of output.
C)30,000 units of output.
D)10,000 units of output.
E)50,000 units of output.
Q3) The daily vegetable market is an example of oligopoly.
A)True
B)False
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Chapter 9: Perfect Competition
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Sample Questions
Q1) When the perfectly competitive firm's demand curve lies above its average total cost curve,the firm incurs an economic loss at that level of output.
A)True
B)False
Q2) Refer to Figure 9.2.Compute the profit earned by the firm at the profit-maximizing level of output.
A)$300
B)$450
C)$700
D)$500
E)$350
Q3) A perfectly competitive firm's supply curve is the portion of the:
A)TC curve that lies above the TR curve.
B)MR curve that lies above the MC curve.
C)AFC curve that lies above the AR curve.
D)AVC curve that lies above the ATC curve.
E)MC curve that lies above the AVC curve.
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Chapter 10: Monopoly
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Sample Questions
Q1) Which of the following is an industry without significant barriers to entry?
A)Electricity generation
B)Natural gas distribution
C)Cable television provision
D)Corn farming
E)Postal services
Q2) The price charged by a monopolist is the point on the demand curve that corresponds to the output where marginal revenue equals marginal cost.
A)True
B)False
Q3) Refer to Table 10.5.How would a price-discriminating monopolist allocate his or her product between market X and market Y if marginal cost is $40 in both markets?
A)4 units in market X; 1 unit in market Y
B)3 units in market X; 2 units in market Y
C)2 units in market X; 3 units in market Y
D)Nothing in market X; 5 units in market Y
E)5 units in market X; nothing in market Y
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) In the short run,a monopolistically competitive firm:
A)can earn only a normal profit.
B)will produce at the point where marginal revenue is greater than marginal cost,in order to maximize profits.
C)will produce at the point at which price equals minimum ATC to maximize profits.
D)will be able to enter another monopolistically competitive industry.
E)will shut down temporarily if price is less than AVC.
Q2) Which of the following is true of a successful cartel?
A)A successful cartel offers consumers the lowest possible price for a product.
B)A successful cartel minimizes profits for its members.
C)A successful cartel behaves as a monopolist in the market.
D)A successful cartel produces a quantity greater than that produced in a competitive market.
E)A successful cartel is always stable.
Q3) Strategic behavior occurs when a firm takes a particular strategy without considering the policies of its rivals.
A)True
B)False
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13
Chapter 12: Antitrust and Regulation
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Sample Questions
Q1) Although the GATT was supported by most of the countries of the world,yet global trade shrank during the close of the last decade.This was due to:
A)growing suspicion among the nations of the world.
B)hyperinflation in the major economies of the world.
C)the recession which began in 2007.
D)political turmoil in the Asian countries.
E)the desire among the major players to dominate the international market.
Q2) One necessary step in demonstrating monopolistic behavior is to define the market.In this process defendants would:
A)claim that the market was not in equilibrium.
B)want the market defined as narrowly as possible.
C)deny that a market existed.
D)assert that the market was not stable.
E)want the market defined as broadly as possible.
Q3) Antitrust policies are a set of measures which are taken to liberate the economy from unnecessary governmental controls.
A)True
B)False
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Chapter 13: Market Failures, Government Failures, and Rent
Seeking
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121 Flashcards
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Sample Questions
Q1) Moral hazard is the term used to describe the situation in which:
A)a consumer may buy a low-quality product.
B)consumers receive a lower price because of a mistake on the part of the clerk.
C)a consumer is being compensated for a defective product.
D)people may change their behavior after they have signed a contract or agreed to a specified behavior.
E)people want to change their behavior after they have signed a contract or agreed to a specified behavior but are unable to do so.
Q2) Social cost is negative in case of a negative externality.
A)True
B)False
Q3) When negotiation is costly,it makes a difference where liability is placed in terms of reaching an efficient solution to a negative externality problem.
A)True
B)False
Q4) A market in which adverse selection occurs is often called a lemons market.
A)True
B)False
Page 15
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Chapter 14: Resource Markets
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112 Flashcards
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Sample Questions
Q1) Consider a perfectly competitive firm that can raise its output by 2 units by hiring an additional unit of capital.If the cost of hiring this additional unit of capital is $4 and the market price of the good is $1,the firm will certainly hire this unit of capital.[Hint: MRP = MP ´ MR]
A)True
B)False
Q2) The greater the elasticity of supply of a resource the greater is its economic rent. A)True B)False
Q3) A monopolist hiring labor in a perfectly competitive resource market is faced with a:
A)perfectly elastic demand curve for labor.
B)horizontal marginal factor cost curve.
C)perfectly inelastic demand curve for labor.
D)perfectly inelastic supply curve of labor.
E)positively sloped marginal factor cost curve.
Q4) Burger King has a direct demand for the cheese which it uses in its burgers. A)True B)False
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Page 16
Chapter 15: The Labor Market
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117 Flashcards
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Sample Questions
Q1) Which of the following refers to human capital?
A)Money spent by business to acquire labor
B)The acquired skill and productivity of workers
C)The plant and equipment used with labor
D)Money spent on education.
E)Money that workers save
Q2) Which of the following reasons will most likely explain why discrimination that is notrelated to personal prejudice can occur?
A)A desire to avoid associating with certain groups of people
B)A lack of communication skills of workers seeking jobs
C)A lack of information
D)A lack of proper technical expertise
E)Too many people applying for the same job
Q3) Supporters of comparable worth claim that market correctly allocates the workers in their best paid works.
A)True
B)False
Q4) An example of human capital is the purchase of a computer to help accountants.
A)True
B)False
Page 17
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Chapter 16: Capital Markets
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100 Flashcards
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Sample Questions
Q1) If the price of company's stock is expected to fall in the future,then people holding such shares will have an incentive to get rid of them.
A)True
B)False
Q2) Notes are debt securities which have a maturity period of:
A)0-5 years.
B)10-15 years.
C)0-1 year.
D)10-20 years.
E)1-10 years.
Q3) An investment that has the same features,such as risk and ease of selling,as the investment being considered is referred to as a(n):
A)equivalent investment.
B)comparable investment.
C)twin investment.
D)dual investment.
E)duplication investment.
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Chapter 17: The Land Market and Natural Resources
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Sample Questions
Q1) Because there is a finite supply of a nonrenewable resource:
A)it has inadequate substitutes.
B)any use of that resource today will leave less available for tomorrow.
C)such resources are replenished faster than they are consumed.
D)the government subsidizes the extraction of such resources.
E)any use of that resource today means the value of the resource in the future will be less.
Q2) When does the entire earning of a resource comprise of economic rent?
A)When the supply curve of the resource is relatively elastic
B)When the supply curve of the resource is horizontal
C)When the supply curve of the resource is vertical
D)When the supply curve of the resource is relatively inelastic
E)When the supply curve of the resource is a ray through the origin
Q3) When natural resources are commonly owned,the exhaustion of these resources are evenly spread over current and future periods.
A)True
B)False
Q4) Privatization of common property leads to overexploitation of natural resources.
A)True
B)False
Page 19
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Chapter 18: Aging, Social Security and Health Care
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Sample Questions
Q1) Refer to Figure 18.4.If the third-party system now induces those people to avail medical care who were earlier not willing to avail it,the demand curve AD would:
A)shift inward.
B)become perfectly elastic.
C)become vertical.
D)remain unchanged.
E)shift outward.
Q2) The bulk of the cost of hospital care is borne by third-parties.Such third-parties are:
A)relatives and friends.
B)financial institutions.
C)insurance companies.
D)voluntary organizations.
E)employers.
Q3) The social security tax proceeds are often used to purchase government bonds. A)True
B)False
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Chapter 19: Income Distribution,Poverty and Government Policy
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Sample Questions
Q1) The greater the negative income tax imposed on a family,greater is the family's incentive to earn more.
A)True
B)False
Q2) Which of the following is an example of in-kind transfer?
A)Social security benefits
B)Food stamps
C)Disability pensions
D)Unemployment compensations
E)Earned income tax credit
Q3) Refer to Table 19.2.Which of the following tax policies is regressive by nature?
A)Alpha
B)Beta
C)Gamma
D)Delta
E)Eta
Q4) Economic stagnation and recession result in unemployment and poverty.
A)True
B)False
Page 21
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Chapter 20: World Trade Equilibrium
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112 Flashcards
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Sample Questions
Q1) Countries tend to export different goods and services because of:
A)differences in their comparative advantages.
B)differences in tastes and technological needs.
C)differences in income.
D)similarities in resource endowment.
E)differences in the exchange rates.
Q2) If Japan has a comparative advantage over Canada in the production of computers,which of the following must be true?
A)Supply of unskilled labor in Japan is higher than that in Canada.
B)Japan incurs a lower input cost in the production of computers.
C)Japan incurs a higher input cost in the production of computers.
D)Japan has a lower opportunity cost in the production of computers.
E)Japan has a higher opportunity cost in the production of computers.
Q3) According to Table 20.2,what is the opportunity cost of 1 unit of food in Australia?
A)Half a unit of computer
B)6 computers
C)2 computers
D)One-sixth of a unit of computers
E)1 computer
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Page 22
Chapter 21: International Trade Restrictions
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Sample Questions
Q1) The infant industry argument is that:
A)those industries that produce products for infants should be protected.
B)protectionism will provide consumers with lower prices.
C)protectionism should be used to create a level playing field for the domestic firms to compete with foreign firms.
D)protectionism promotes complete specialization in the country on the basis of comparative advantage.
E)new industries should be protected from foreign competition until they have had adequate time to develop.
Q2) The most successful free trade agreements achieve all of the following goals,except:
A)benefiting exporters by increasing exports to member countries.
B)ensuring that production occurs on the basis of comparative advantage.
C)benefiting consumers by making a wider variety of goods available at a lower price.
D)stimulating trade creation to allow the benefits of trade to be realized.
E)protecting domestic industries from foreign competition.
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23
Chapter 22: Exchange Rates and Financial Links Between Countries
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132 Flashcards
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Sample Questions
Q1) The exchange rate affects the trade in goods and services between California and NewYork.
A)True
B)False
Q2) Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.
A)True
B)False
Q3) A decrease in the price of a currency in terms of another under a flexible exchange rate regimeis called:
A)capital flight.
B)depreciation.
C)revaluation.
D)devaluation.
E)currency adjustment.
Q4) Other things equal,the higher the deviations from purchasing power,the lesser will be the arbitrage opportunities.
A)True
B)False
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