Microeconomic Theory Final Exam
Course Introduction
Microeconomic Theory explores the fundamental principles that govern individual decision-making and the allocation of scarce resources. The course examines key concepts such as consumer choice, producer behavior, market structures, and general equilibrium, using mathematical tools to analyze how consumers and firms interact within various market settings. Topics also include the role of information and uncertainty in economic decisions, the impact of government policies on market outcomes, and welfare analysis. By the end of the course, students will develop a rigorous understanding of microeconomic modeling and acquire the analytical skills necessary to evaluate economic scenarios and policy implications.
Recommended Textbook
Microeconomics Student Value 4th Edition by
R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) One example of human capital is the amount of savings that you have.
A)True
B)False
Answer: False
Q2) In 2010,Smileytown consumed 50,000 tubes of toothpaste.In 2011,toothpaste consumption rose to 62,000 tubes.Calculate the percentage change in toothpaste consumption.
A)12%
B)16.42%
C)19.35%
D)24%
Answer: D
Q3) As recently as 2002,________ medical practices were owned by doctors as by hospitals,and by 2008,________ medical practices were owned by doctors as by hospitals.
A)less than half as many; less than one-quarter as many
B)more than three times as many; less than half as many
C)more than half as many; more than five times as many
D)less than one-third as many; more than half as many
Answer: B
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Chapter
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Q1) Refer to Table 2-1.Assume Dina's Diner only produces sliders and hot wings.A combination of 40 sliders and 25 hot wings would appear
A)along Dina's production possibilities frontier.
B)inside Dina's production possibilities frontier.
C)outside Dina's production possibilities frontier.
D)at the vertical intercept of Dina's production possibilities frontier.
Answer: B
Q2) Carmelita can perform either a combination of 35 manicures and 70 pedicures or a combination of 50 manicures and 45 pedicures.If she now performs 35 manicures and 70 pedicures,what is the opportunity cost of performing an additional 15 manicures?
A)5 pedicures
B)20 pedicures
C)25 pedicures
D)45 pedicures
Answer: C
Q3) The basis for trade is absolute advantage,not comparative advantage.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Several studies have shown promising links between green tea consumption and cancer prevention.How does this affect the market for green tea?
A)The quantity of green tea demanded increases because of a change in tastes in favor of green tea.
B)The green tea demand curve shifts to the right because of a change in tastes in favor of green tea.
C)The green tea demand curve shifts to the left because this new information will increase the price of green tea.
D)The quantity of green tea demanded decreases because this new information will increase the price of green tea.
Answer: B
Q2) An ________ is represented by a rightward shift of the demand curve while an ________ is represented by a movement along a given demand curve.
A)increase in demand; decrease in demand
B)increase in demand; increase in quantity demanded
C)decrease in demand; decrease in quantity demanded
D)increase in quantity demanded; increase in demand
Answer: B
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Q1) The minimum wage is an example of
A)a subsidy for low-skilled workers.
B)a price floor.
C)a price ceiling.
D)a black market.
Q2) Refer to Figure 4-10.Suppose the market is initially in equilibrium at price P<sub>1</sub> and now the government imposes a tax on every unit sold.Which of the following statements best describes the impact of the tax? For demand curve D<sub>1</sub>
A)the producer bears a smaller share of the tax burden if the supply curve is S<sub>2</sub>.
B)the producer bears a smaller share of the tax burden if the supply curve is S<sub>1</sub>.
C)the producer's share of the tax burden is the same whether the supply curve is S<sub>1</sub> or S<sub>2</sub>.
D)the producer bears the entire burden of the tax if the supply curve is S<sub>2</sub> and the consumer bears the entire burden of the tax if the supply curve is S<sub>1</sub>.
Q3) What is deadweight loss? When is deadweight loss equal to zero?
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) The efficient level of paper production will occur where the A)marginal private benefit from consuming paper is equal to the marginal social cost of production.
B)marginal social benefit from consuming paper is equal to the marginal social cost of production.
C)the economically efficient level of the output of paper is equal to the economically efficient level of inputs.
D)production of paper no longer produces negative externalities.
Q2) All else equal,if the government decides to impose a tax on potato chips,the equilibrium quantity of potato chips would ________ and the equilibrium price of potato chips would ________.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease
Q3) If transactions costs are low,private bargaining will always result in an efficient solution to the problem of externalities.
A)True
B)False
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Q1) For a given demand curve,will there be a greater loss of economic efficiency from a binding price floor when supply is elastic or inelastic? Illustrate your answer with a demand and supply graph.In your graph you must show two supply curves,one elastic and the other inelastic.
Q2) The income elasticity of demand measures
A)the responsiveness of quantity demanded to changes in income.
B)how a consumer's purchasing power is affected by a change in the price of a product.
C)the percentage change in the price of a product divided by the percentage change in consumer income.
D)the income effect of a change in price.
Q3) Refer to Table 6-5.What is the most distinctive feature of the supply curve?
A)The supply curve is perfectly inelastic.
B)The supply curve is horizontal.
C)The supply curve is upward sloping.
D)The supply curve is perfectly elastic.
Q4) Explain the concepts of cross-price elasticity of demand and income elasticity of demand.What do positive and negative values indicate for each of these demand elasticities
Q5) Briefly explain the economic concept of elasticity.
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Chapter 7: The Economics of Health Care
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Q1) How do adverse selection and moral hazard affect the market for insurance?
Q2) Pricing insurance policies is made difficult because buyers have more information than sellers.This difficulty is an example of
A)moral hazard.
B)adverse selection.
C)asymmetric information.
D)the free rider problem.
Q3) Briefly describe the types of health care systems in Canada,Japan,and the United Kingdom.
Q4) Health problems prevent people from working harder,which can lower a country's total income.This indicates that in effect,health problems
A)are a primary cause of price decreases.
B)increase the incentive to work.
C)shift country's production possibilities frontier inward.
D)decrease consumer surplus.
Q5) The overall mortality rate in the United States has declined for the past 30 years.
A)True
B)False
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Q1) The volatility of a stock's market price is indicated by
A)the highest stock price and the lowest stock price over the previous year.
B)the price of newly issued shares compared to the price of previously issued shares.
C)the difference between the stock's selling price and its asking price.
D)the stock's price-earnings ratio.
Q2) How is a stock's price-earnings ratio found?
A)by dividing the dividend by the closing price of the stock
B)by dividing the dividend by the firm's earnings per share
C)by dividing current market price of the stock by the firm's earnings per share
D)by subtracting the firm's earnings per share from the closing price of the stock
Q3) Traditionally,Wall Street investment banks had been organized as partnerships,but by 2000 they had converted to being publicly traded corporations.As partnerships,the principle-agent problem is ________,but as publicly traded corporations,the principal-agent problem is often ________.
A)increased; more severe
B)increased; less severe
C)reduced; more severe
D)reduced; less severe
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) It is difficult to determine if foreign companies are selling their products for prices below their costs of production because
A)the true costs of production are difficult to calculate.
B)the firms have no legal obligation to reveal this information.
C)costs are calculated in the firms' local currencies.
D)domestic taxes increase the firms' costs but it is difficult to determine the incidence of these taxes.
Q2) Once an industry becomes established in a certain area firms that locate in that area gain advantages over firms located elsewhere,leading to lower costs of production.Economists refer to the lower costs that result from increases in the size of an industry in a certain area as
A)external economies.
B)positive externalities.
C)strategic advantages.
D)technological change.
Q3) What are terms of trade?
Q4) How does the U.S.federal government assist workers who have lost their jobs due to international trade?
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Chapter 10: Consumer Choice and Behavioral Economics
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Q1) Terence has $50 per week to spend on Subway sandwiches and milkshakes.The price of a Subway sandwich is $5 and the price of a milkshake is $4.He buys 6 sandwiches and 5 milkshakes.The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24.Which of the following is true?
A)He is not maximizing his utility and should buy more milkshakes.
B)He is maximizing his utility.
C)He is not maximizing his utility and should buy more Subway sandwiches.
D)He is not maximizing his utility because he is not spending all of his income.
Q2) Economists have noted that businesses of a certain type tend to congregate geographically,attracting workers with skills in those fields.This,in turn,lures more firms seeking employees with those skills.Some examples include commercial banking,software development,and the automobile industry.What mechanism is at work here? Briefly explain how the mechanism works to the advantage of employers and employees.
Q3) Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.
A)True
B)False
Q4) Explain the concept of network externalities.
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Chapter 11: Technology, production, and Costs
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Q1) An avocado orchard employs five full-time workers.Currently,the average product of labor is 120 pounds of avocados per day.The orchard hires a 6th full-time worker and his marginal product is 150 pounds of avocados.The average product of the six workers will now be
A)more than 120 pounds.
B)less than 120 pounds.
C)equal to 120 pounds.
D)less than the marginal product of labor.
Q2) Which of the following statements is false?
A)Marginal cost will equal average total cost when marginal cost is at its lowest point.
B)When marginal cost is less than average total cost,average total cost will fall.
C)When marginal cost is greater than average total cost,average total cost will rise.
D)Marginal cost will equal average total cost when average total cost is at its lowest point.
Q3) If average total cost is falling marginal cost must also be falling.
A)True
B)False
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) Which of the following statements is true?
A)A long-run competitive equilibrium can only be achieved in constant-cost industries.
B)When an industry achieves a long-run competitive equilibrium,industry output will not change in the future.
C)A long-run competitive equilibrium outcome is not economically efficient.
D)When an industry reaches a long-run competitive equilibrium,the typical firm in the industry breaks even.
Q2) Refer to Figure 12-4.Suppose the firm produces 4,000 units.What does the shaded area labeled A represent?
A)total variable cost
B)profit
C)total fixed cost
D)total revenue
Q3) If a firm's total variable cost exceeds its total revenue,the firm should stop production by shutting down temporarily.
A)True
B)False
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) To maximize their profits and defend those profits from competitors,monopolistically competitive firms must
A)lobby government to erect barriers to entry in their industries.
B)limit foreign competition in their markets by encouraging the government to impose tariffs and other trade restrictions.
C)differentiate their products.
D)achieve economies of scale.
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) For the monopolistically competitive firm,
A)Price (P)= Marginal Revenue (MR)= Average Revenue (AR).
B)P = MR > AR.
C)P = AR > MR.
D)P > MR = AR.
Q4) What is meant by "excess capacity"? How does it relate to consumer utility?
Page 15
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Q1) Refer to Table 14-5.Which of the following is true?
A)Power Fuel's dominant strategy is to select a low price.
B)Brawny Juice's dominant strategy is to select a high price.
C)Power Fuel does not have a dominant strategy.
D)Brawny Juice does not have a dominant strategy.
Q2) Refer to Table 14-1.Does Baine have a dominant strategy and if so,what is it?
A)Yes,Baine should increase its advertising budget.
B)Yes,Baine should keep its advertising budget as is.
C)There are two dominant strategies: if Alistair increases its advertising budget,then Baine's best bet is to keep its budget the same but if Alistair does not increase its spending then Baine should raise its advertising budget
D)No,there is no dominant strategy.
Q3) Refer to Table 14-5.If the firms cooperate,what prices will they select?
A)Both firms will select a low price.
B)Brawny Juice will select a high price,Power Fuel a low price.
C)Both firms will select a high price.
D)Brawny Juice will select a low price,Power Fuel a high price.
Q4) Firms in an oligopoly are said to be interdependent.What does this mean?
Q5) Most economists are concerned about entry barriers.Why is this so important to them?
16
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Chapter 15: Monopoly and Antitrust Policy
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Q1) A monopolist's demand curve is the same as the marginal revenue curve for the product.
A)True
B)False
Q2) Why are laws aimed at regulating monopolies called "antitrust" laws?
A)The rise of large firms (e.g.,Standard Oil)in the late 1800s in the United States caused consumers to lose trust in private business.
B)"Trust" was a word in Old English that meant monopoly in the Middle Ages.Therefore,"antitrust" is a term that means "against monopoly."
C)In the late 1800s,firms in several industries formed trusts; the firms were independent but gave voting control to a board of trustees.Antitrust laws were passed to regulate these trusts.
D)In the late 1800s,firms in several industries formed trusts; they were called "trusts" because when corporate officials were questioned about their business they would clam that business was good for the country and that they should trusted.
Q3) Explain whether a monopoly that maximizes profit will also be maximizing revenue and production.
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Chapter 16: Pricing Strategy
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Q1) If a firm knew every consumer's willingness to pay and could prevent arbitrage it could charge every consumer a different price.This practice is known as
A)first-degree exploitation,or perfect price discrimination.
B)maximization of producer surplus,or perfect price discrimination.
C)first-degree price discrimination,or perfect price discrimination.
D)first-degree transfer of consumer surplus,or perfect price discrimination.
Q2) Many golf courses charge members an annual membership fee as well as a fee each time they golf.One reason for this is
A)golf courses do not want their members to overuse their fairways.Charging for each round of golf played reduces fairway maintenance costs.
B)charging both fees allows the courses to transfer more consumer surplus into profit than charging only an admission fee.
C)charging both fees allows the courses to transfer more producer surplus into profit than charging only an admission fee.
D)research has shown that charging both fees increases the likelihood that golfers will renew their memberships.
Q3) Are restaurant coupons a form of price discrimination? Why or why not?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) The market supply curve for labor is
A)derived from the market supply curve for the output produced with labor.
B)perfectly inelastic if leisure is an inferior good.
C)determined by adding up the quantity of labor supplied by each worker at each wage,holding constant all other variables that affect the willingness of workers to supply labor.
D)determined by adding up the wages each worker is willing to work for at a given quantity supplied,holding constant all other variables that affect the willingness of workers to supply labor.
Q2) The benefit to the firm from hiring one additional worker is called the
A)marginal revenue product of labor.
B)marginal revenue.
C)marginal profit.
D)total revenue.
Q3) Companies often find it to be more profitable to use a commission or piece-rate system of compensation rather than a salary system,yet many firms continue to pay their workers salaries.List three reasons why a firm would choose a salary system of compensation.
Q4) Why are there superstar baseball players but no superstar chiropractors?
Page 19
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Q1) U.S.taxpayers spend many hours during the year maintaining records for tax purposes and preparing their income tax returns.This administrative cost
A)is part of the deadweight loss of taxation.
B)is equal to the value of consumer surplus associated with the income tax system.
C)can be claimed as a deduction on income tax returns.
D)is larger for individuals in the lowest income quintile than for individuals in the highest income quintile.
Q2) A Lorenz curve summarizes the information provided by a Gini coefficient. A)True
B)False
Q3) All Gini coefficients must lie between 0 and 1.The lower the value,
A)the more unequal the income distribution.
B)the closer the income distribution is to being equal.
C)the greater the degree of poverty.
D)the lower the degree of poverty according to the federal government's definition of poverty.
Q4) What is meant by "tax incidence"?
Q5) What is rent seeking and how is it related to regulatory capture?
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