Microeconomic Theory Final Exam
Course Introduction
Microeconomic Theory provides a rigorous examination of how individuals, firms, and markets interact to allocate scarce resources. The course explores the foundational principles of consumer and producer behavior, utility maximization, cost minimization, and market equilibrium. It also delves into concepts such as elasticity, market efficiency, the effects of government intervention, and the analysis of competitive and non-competitive market structures. Through analytical tools and mathematical models, students gain insights into decision-making processes and the underlying mechanisms that drive supply and demand in various economic environments.
Recommended Textbook
Microeconomics 1st Canadian Edition by R. Glenn Hubbard
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17 Chapters
2441 Verified Questions
2441 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) Economists assume that individuals
A)behave in unpredictable ways.
B)will never take actions to help others.
C)prefer to live in a society that values fairness above all else.
D)are rational and respond to incentives.
Answer: D
Q2) By definition, economics is the study of
A)how to make money in the stock market.
B)how to make money in a market economy.
C)the choices people make to attain their goals, given their scarce resources.
D)supply and demand.
Answer: C
Q3) All of the following are part of an economic model except A)assumptions.
B)hypotheses.
C)data.
D)opinions.
Answer: D
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3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) The production possibilities frontier shows the ________ combinations of two products that may be produced in a particular time period with available resources.
A)minimum attainable
B)maximum attainable
C)only
D)equitable
Answer: B
Q2) Refer to Figure 2.11.Which two arrows in the diagram depict the following transaction: Dorian Gray hires "Wild Oscar," a professional portrait artist, to paint his picture.
A)J and M
B)K and G
C)K and M
D)J and G
Answer: B
Q3) The basis for trade is comparative advantage, not absolute advantage.
A)True
B)False
Answer: True
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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159 Verified Questions
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Sample Questions
Q1) Refer to Figure 3.1.A decrease in the price of the product would be represented by a movement from
A)A to B.
B)B to A.
C)D to D .
D)D to D .
Answer: A
Q2) Explain the difference between a normal good and an inferior good.
Answer: A normal good is something for which the demand increases when income rises and the demand decreases when income falls.An inferior good is something for which the demand decreases when income rises and the demand increases when income falls.
Q3) In a perfectly competitive market, there are ________ buyers and ________ sellers.
A)many; few
B)few; many
C)many; many
D)few; few
Answer: C
Page 5
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Figure 4.4.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $3, what changes in the market would result in an economically efficient output?
A)The price would increase, the quantity supplied would decrease, and the quantity demanded would increase.
B)The quantity supplied would increase, the quantity demanded would decrease and the equilibrium price would increase.
C)The price would increase, the demand would decrease and the supply would increase.
D)The price would increase, the quantity demanded would decrease and the quantity supplied would increase.
Q2) Refer to Figure 4.2.What area represents producer surplus at a price of P ?
A)A + B
B)B + D
C)A + B + C
D)A + B + C + D + E
Q3) One result of a tax is an increase in economic efficiency.
A)True
B)False
Page 6
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) Refer to Figure 5.4.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?
A)PE
B)the value of the area QBBEQE
C)PE × QE
D)the value of the area BEF
Q2) What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?
Q3) If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered
A)external costs.
B)transaction costs.
C)marginal benefits.
D)social costs of the pollution.
Q4) Refer to Figure 5.3.The size of marginal external benefits can be determined by
A)the demand curve D .
B)D + D at each output level.
C)D - D at each output level.
D)the demand curve D .
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose the price elasticity of demand for cigarettes is -0.4.Health Canada decides to regulate tobacco production, which increases the price of cigarettes and causes the quantity of cigarettes demanded to decrease by 25 percent.What is the percentage increase in price which would lead to the 25 percent decrease in quantity demanded? If the price elasticity was -4, what would be the percentage increase in price?
Q2) Total revenue equals
A)price per unit times quantity sold.
B)price per unit times quantity supplied.
C)price per unit times change in quantity sold.
D)change in price per unit times quantity sold.
Q3) If at a price of $50, Ghani sells 20 hand-made leather cell-phone covers but at a price of $60, zero units are sold.Based on this information, the demand for his cell-phone covers is
A)elastic or perfectly inelastic.
B)elastic or perfectly elastic.
C)unit-elastic.
D)perfectly inelastic.
Q4) What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) The main purpose of most tariffs and quotas is to
A)raise revenue for the government.
B)reduce the prices consumers pay for goods and services.
C)reduce the foreign competition that domestic firms face.
D)improve the quality of goods and services imported into the country.
Q2) An economic principle that explains why countries produce different goods and services is
A)absolute advantage.
B)trade as a percentage of GDP.
C)comparative advantage.
D)NAFTA.
Q3) Refer to Figure 7.1.Under autarky, the deadweight loss is
A)$0.
B)$15.
C)$30.
D)$40.
Q4) Protectionism refers to the use of trade barriers to shield domestic firms from foreign competition.
A)True B)False
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Chapter 8: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Molly received an autographed poster of Nazem Kadri for her 21st birthday.Her friend Helga offered her $50 for the poster, but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged or destroyed.Explain this inconsistency in Molly's behavior.
Q2) The law of diminishing marginal utility states that
A)eventually total utility falls as more of a good is consumed, other things constant.
B)the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.
C)the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant.
D)when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.
Q3) What is a Giffen good?
Q4) A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good is equal.
A)True
B)False
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Chapter 9: Technology, Production, and Costs
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Sample Questions
Q1) Refer to Table 9.1.Diminishing marginal returns sets in when the ________ worker is hired.
A)2nd
B)3rd
C)4th
D)None of the above; the production function displays increasing marginal returns.
Q2) The formula for total fixed cost is
A)TFC = TC + TVC.
B)TFC = TVC - TC.
C)TFC = TC/TVC.
D)TFC = TC - TVC.
Q3) Average variable cost can be calculated using any of the formulas below except A)TVC/Q.
B)(TC - FC)/Q.
C) (TC - FC)/ Q.
D)(TC/Q)- AFC.
Q4) As output increases, average fixed cost gets smaller and smaller.
A)True
B)False
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Chapter 10: Firms in Perfectly Competitive Markets
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153 Flashcards
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Sample Questions
Q1) If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is
A)the minimum efficient scale.
B)where maximum economic profit is earned by producers.
C)where firm profit is large enough to finance research and development.
D)one which guarantees economic profit.
Q2) Refer to Figure 10.8.Consider a typical firm in a perfectly competitive industry that makes short-run profits.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?
A)Panel A
B)Panel B
C)Panel C
D)Panel D
Q3) Refer to Figure 10.5.If the market price is $20, what is the average profit at the profit-maximizing quantity?
A)$5
B)$6
C)$9
D)$20
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Page 12
Chapter 11: Monopolistic Competition
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140 Flashcards
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Sample Questions
Q1) Some of the advantages Netflix had over companies like Blockbuster and Wal-Mart in successfully competing in the mail order DVD rental business include all of the following except
A)a quick turnaround of mailing out the customer's next DVD once the previous one was returned.
B)an extensive system of storefront operations where customers could rent DVDs in person.
C)an efficient system of processing DVDs returned from customers.
D)a national system of warehouses allowing for quick customer delivery.
Q2) According to a Wall Street Journal article, hhgregg has differentiated itself from its competition, particularly from large chain stores such as Best Buy,
A)by charging lower prices.
B)by providing better customer service.
C)by selling inferior products.
D)by offering discounts for cash sales.
Q3) Explain the differences between total revenue, average revenue, and marginal revenue.
Q4) What is the difference between zero accounting profit and zero economic profit?
Q5) What is the difference between the terms "marketing" and "advertising"?
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Chapter 12: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) An oligopolist's demand curve is
A)identical to that of a perfect competitive firm.
B)identical to that of a monopolistically competitive firm.
C)vertical on a price quantity diagram.
D)unknown because a response of firms to price changes by rivals is uncertain.
Q2) List the competitive forces in the five competitive forces model.
Q3) The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.
A)True
B)False
Q4) Suppose we want to use game theory to analyze how an oligopolist selects its optimal price.The cells of the payoff matrix show
A)the profit that each producer can expect to earn by pursuing a single strategy.
B)the profit that each producer can expect to earn from every combination of strategies by the firms in the market.
C)the strategy that a firm must pursue to earn various levels of profit.
D)the expected profits of rival firms.
Q5) Explain why OPEC is caught in a prisoner's dilemma?
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Chapter 13: Monopoly and Antitrust Policy
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Sample Questions
Q1) Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's, a Taco Bell and a Kentucky Fried Chicken.Using a broad definition of a monopoly, Joe has a monopoly.
A)True
B)False
Q2) Why does a monopoly cause a deadweight loss?
A)because it does not produce some output for which marginal benefit exceeds marginal cost
B)because it appropriates a portion of consumer surplus for itself
C)because it increases producer surplus at the expense of consumer surplus
D)because it does not produce some output for which demand exceeds supply
Q3) The Competition Bureau will prevent a merger from taking place if
A)the merger will prevent or reduce competition substantially.
B)the merger will prevent or reduce competition in the slightest.
C)the merger will result in higher profits for the merged firms.
D)the merger will increase market concentration.
Q4) A monopoly is defined as a firm that has the largest market share in an industry.
A)True
B)False
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Chapter 14: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) Technological advancements that increase labour's productivity shift the labour supply curve to the right.
A)True
B)False
Q2) There are 27 Canadian Interuniversity Sport football teams.As the value of a Canadian Interuniversity Sport football team increases, the equilibrium wage (salary)paid to head coaches ________ and the equilibrium quantity of head coaching positions ________.
A)increases; increases B)increases; remains the same.
C)increases; decreases D)remains the same; decreases
Q3) The income effect of a wage decrease examines the effect of the decrease in wage income on a worker's ability to purchase goods and services.
A)True
B)False
Q4) What are the five most important variables that cause the market demand curve for labour to shift?
Q5) What is a monopsony?
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Chapter 15: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) If the marginal tax rate is greater than the average tax rate, the tax structure is described as regressive.
A)True
B)False
Q2) In Canada
A)the income tax system has little or no impact on the distribution of income.
B)the after-tax income distribution of income is more equal than the before-tax distribution.
C)once a person is in poverty, it is very difficult for a person to get out of poverty.
D)the degree of income mobility is relatively low.
Q3) Rapid economic growth tends to increase the degree of income mobility.
A)True
B)False
Q4) Refer to Table 15.5.A tax exemption is granted for the first $10,000 earned per year.Suppose you earn $75,000.
a.What is the amount of taxes you will pay?
b.What is your average tax rate?
c.What is your marginal tax rate?
Q5) Explain the effect of price elasticities of supply and demand on tax incidence.
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Many book publishers use cost-plus pricing to establish prices for some of their books.Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?
Q2) Refer to Figure 16.4.Suppose the firm represented in the diagram decides to act as a monopolist and charge a single price.What is the profit maximizing quantity produced and what is the price charged?
A)Q = 240 units; P = $28
B)Q = 320 units; P = $24
C)Q = 480 units; P = $16
D)Q = 560 units; P = $12
Q3) Cost-plus pricing is a reasonable way to determine the optimal price when
A)marginal cost and average cost are roughly equal.
B)fixed cost and variable costs are roughly equal.
C)fixed costs vary.
D)fixed costs are high.
Q4) Under what circumstances will the law of one price hold, and when might it not hold?
Q5) What three conditions must hold for a firm to successfully price discriminate?
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Chapter 17: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He is considering setting up his business as a sole proprietorship.What is one advantage to Jeremy of setting up his business as a sole proprietorship?
A)As a sole proprietor, Jeremy would face limited liability.
B)As a sole proprietor, Jeremy would have the ability to share risk with shareholders.
C)As a sole proprietor, Jeremy would have both ownership and control over the business.
D)All of the above would be advantages of setting up his business as a sole proprietorship.
Q2) The present value of $300 received 5 years in the future would be calculated as which of the following when the interest rate is 5%?
A)300/(1.5)
B)300/(1.05)
C)300 × 1.5 × 5
D)5)05/300
Q3) A decrease in liabilities will reduce a firm's net worth.
A)True
B)False
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