Microeconomic Theory
Mock Exam
Course Introduction
Microeconomic Theory provides a rigorous examination of the decision-making processes of individuals, firms, and markets. This course explores foundational concepts such as consumer choice, producer behavior, market structures (including perfect competition, monopoly, and oligopoly), as well as the role of prices and markets in resource allocation. Emphasis is placed on utility maximization, cost minimization, equilibrium analysis, and the implications of market failures. Students will develop analytical skills through the application of mathematical models, enabling a deep understanding of how microeconomic agents interact and how policy interventions can impact economic outcomes.
Recommended Textbook
Principles of Microeconomics 2nd Edition by Lee Coppock
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Chapter 1: Five Foundations of Economics
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Sample Questions
Q1) What is the indirect incentive in the unemployment insurance program?
A) Workers get paid when they are laid off.
B) Workers face an incentive to find a new job as quickly as possible.
C) Workers have a reduced incentive to find a new job until the insurance runs out.
D) Workers are paid all of their wages by the unemployment insurance program.
E) Workers on unemployment insurance are given training opportunities.
Answer: C
Q2) An economist is most capable of determining
A) how worker productivity affects the output of an economy.
B) psychological factors that contribute to worker productivity.
C) interior paint colors that boost business revenue.
D) which individuals are allowed to make decisions.
E) why some consumers prefer emeralds over diamonds.
Answer: A
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3
Chapter 2: Model Building and Gains From Trade
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Sample Questions
Q1) On the television show MythBusters,the hosts design experiments,collect data,and test theories based on popular myths.This is an example of
A) the scientific method.
B) economic growth.
C) gains from trade.
D) production possibilities.
E) absolute advantage.
Answer: A
Q2) Suppose a great plague wipes out half of the society's population.Which of the following graphs best depicts how this would affect the PPF?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
E) Graph E
Answer: D
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4
Chapter 3: The Market at Work: Supply and Demand
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Sample Questions
Q1) We are given the following supply and demand equations: Q<sub>D</sub> = 100 - 2P , Q<sub>S</sub> = 10 + P
a.What will be the quantity demanded at a price of $40?
b.What will be the quantity supplied at the price of $30?
c.What is the equilibrium price and equilibrium quantity?
Answer: a.The quantity demanded at the price of $40 would be 20.
b.The quantity supplied at the price of $30 would be 40.
c.The equilibrium price and equilibrium quantity is $30 and 40,respectively.This is determined by setting Q<sub>D</sub> =Q<sub>S</sub>,solving for P,and then plugging P back in to either Q<sub>D</sub> or Q<sub>S</sub> to determine the equilibrium quantity.
Q2) As more people migrated West during the gold rush,what happened to the demand curve in most western markets,holding all else constant?
A) The demand curve shifted to the right.
B) The demand curve shifted to the left.
C) There was no shift,but there was an increase in quantity demanded.
D) There was no shift,but there was a decrease in quantity demanded.
E) There was no shift,nor any increase or decrease in quantity demanded.
Answer: C
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Chapter 4: Elasticity
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Sample Questions
Q1) When the price of pencils increases from $1.50 to $2.50,there is an increase in quantity demanded of pens from 100 to 150.The cross-price elasticity of demand between pencils and pens is A) 1.25.
B) 0.50.
C) 0.40.
D) 0.80.
E) 0.75.
Q2) When the quantity demanded is less sensitive to a change in price,then the absolute value of the price elasticity of demand is A) smaller.
B) larger.
C) close to infinity.
D) close to 1.
E) unaffected by the change in sensitivity.
Q3) What would you expect the cross-price elasticity of demand to be for chips and salsa? Explain your answer.
Q4) Graph and explain the impact that time has on the price elasticity of demand for Barney's Baked Goods.
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Chapter 5: Market Outcomes and Tax Incidence
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Sample Questions
Q1) For any type of tax the government imposes
A) supply plus demand equals market price.
B) tax revenue plus deadweight loss equals total lost social welfare.
C) tax revenue plus market price equals deadweight loss.
D) deadweight loss plus economic distortion equals tax revenue.
E) total lost social welfare plus tax revenue equals deadweight loss.
Q2) A tax on milk would likely cause a decrease in the price of
A) ice cream.
B) cheese.
C) soymilk.
D) nondairy creamer.
E) breakfast cereal.
Q3) Use a figure with intersecting supply and demand curves to explain how a change in consumer incomes affects social welfare.
Q4) When looking at a supply and demand graph,you would find producer surplus
A) above the demand curve and below the supply curve.
B) below the demand curve and above market price.
C) to the right of equilibrium quantity and above market price.
D) above the demand curve and above the supply curve.
E) below market price and above the supply curve.
Page 7
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Chapter 6: Price Controls
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Sample Questions
Q1) Which of the following is an accurate statement about the consequence of a binding price floor?
A) Binding price floors do not allow sellers to receive a higher price if they sell the product in the legal market.
B) Binding price floors encourage the formation of a black market.
C) Binding price floors discourage the formation of a black market.
D) Binding price floors create a shortage of the product.
E) Binding price floors cause consumers to want to purchase more of the product in the legal market.
Q2) ________ is a real-life example of a price floor.
A) A minimum wage law
B) Rent control
C) A price gouging law
D) A black market price
E) A price
Q3) Why are the long-run consequences of a price control different from the short-run consequences of a price control? Be specific,and consider both price floors and price ceilings in your answer.
Q4) Distinguish between a shortage and scarcity.
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Chapter 7: Market Inefficiencies: Externalities and Public Goods
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Sample Questions
Q1) "A government that wants to correct for a positive internality must find a way to subsidize the production or consumption that moves equilibrium to the social optimum." Is this statement true or false? Explain.
Q2) When a negative externality exists,as in the case of pollution,the government may be able to restore the social optimum using three different solutions.Name them.
Q3) If the government implements a cap-and-trade system to reduce pollution in a particular industry, then the
A) supply curve shifts to the left.
B) supply curve shifts to the right.
C) demand curve shifts to the left.
D) demand curve shifts to the right.
E) supply curve and the demand curve shift to the left.
Q4) Which good is nonrival?
A) sharing a pizza with one's family
B) swimming in a public pool
C) driving in a city
D) listening to public radio
E) visiting the post office
Page 9
Q5) Explain why cap and trade is an efficient policy approach to reducing emissions.
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Chapter 8: Business Costs and Production
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Sample Questions
Q1) Assume that a firm hires an additional employee.If the marginal product for that employee is greater than for the previous employee hired,it must be because
A) the marginal product of labor is diminishing.
B) all workers are paid the same wage.
C) the workers all perform the exact same set of tasks.
D) there are gains from specialization.
E) all workers are not paid the same wage.
Q2) Lisette is the owner of a bakery that earns zero economic profit.Last year,her total revenue was $145,000,her rent was $12,000,her labor costs were $65,000,and her overhead expenses were $15,000.From this information,we know that her total explicit costs were
A) $80,000.
B) $92,000.
C) $15,000.
D) $77,000.
E) $53,000.
Q3) What determines the shape of the short-run cost curves?
Q4) What causes diseconomies of scale for a firm?
Q5) Why is the long-run average cost curve important to a firm?
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Chapter 9: Firms in a Competitive Market
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Sample Questions
Q1) If the short-run supply curve,the demand curve,and the long-run supply curve all intersect at the same point,firms will experience ________ economic profits,which means the price is ________ the minimum point on the average total cost curve.
A) positive; above B) zero; at C) negative; below D) negative; at E) zero; above
Q2) At the current level of output,the following data exists:
Price = $20
Marginal cost = $6
Average variable cost = $10
Average total cost = $13
What must be true at this level of output?
A) The firm should lower the price.
B) The firm should stay at the same level of output.
C) The firm should shut down.
D) The firm should increase output.
E) The firm should decrease output.
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11
Chapter 10: Understanding Monopoly
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Sample Questions
Q1) If cable companies were in a highly competitive market,we would expect
A) cable companies to make profits in the long run.
B) customers to be unhappy about their cable package options.
C) a company to be willing to sell specific channels as well as packaged options.
D) cable companies to force us to choose between buying a little more cable than we really need or going without cable altogether.
E) deadweight loss in the market.
Q2) Economies of scale exist
A) only for monopolists.
B) when long-run average total costs increase.
C) when long-run average total costs decrease.
D) when long-run average total costs are constant.
E) when governments create barriers to entry.
Q3) Both monopolies and competitive firms
A) are price takers.
B) are price makers.
C) face barriers to entry.
D) make long-run economic profits.
E) try to maximize profits.
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Page 12
Chapter 11: Price Discrimination
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Sample Questions
Q1) If the Varsity decides to practice price discrimination,what will be the amount of consumer surplus if it charges most customers $9 for a standard combo meal,but charges a reduced price of $8 for only those customers who show their student identification cards?
A) $0
B) $500
C) $1,000
D) $2,500
E) $5,000
Q2) Explain the relationship between price elasticity and price discrimination.
Q3) Perfect price discrimination occurs when a firm is able to
A) charge each buyer the highest price that he or she is willing to pay for the good.
B) identify at least two different groups of buyers.
C) determine the difference between a seller's reservation price and the buyer's reserve price.
D) prevent frequent reselling of its product.
E) determine the prices that should be charged to generate the largest amount of consumer surplus.
Q4) List and explain the conditions for price discrimination.
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Chapter 12: Monopolistic Competition and Advertising
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Sample Questions
Q1) One drawback to advertising might be that it could easily
A) raise costs but not increase demand.
B) raise revenue but not increase demand.
C) decrease revenue and raise demand.
D) decrease costs and decrease demand.
E) cause a monopolistically competitive firm to become a monopoly.
Q2) Compare and contrast monopolistic competition with monopoly.Be sure to explain what is similar for the two and what is different.
Q3) The entry of new firms into a monopolistically competitive industry causes the
A) market demand curve to shift right.
B) market demand curve to shift left.
C) existing firms' demand curve to shift right.
D) existing firms' demand curve to shift left.
E) market supply curve to shift left.
Q4) In the long run,both monopolistic competition and competitive markets result in
A) a wide variety of brand-name choices for consumers.
B) an inefficient allocation of resources.
C) zero economic profit for firms.
D) excess capacity.
E) insufficient capacity.
Page 14
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Chapter 13: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Airline Manufacturer A and Airline Manufacturer B are duopolists in their industry.Explain how the two firms could collectively benefit if they were to collude and form a cartel.Why might collusion be difficult?
Q2) In January,Home Depot offered a 10 percent-off coupon and Lowe's did not.In February,Lowe's offered a 10 percent-off coupon and Home Depot did not.In March,Home Depot offered a 10 percent-off coupon and Lowe's did not.It is likely that Home Depot and Lowe's are both playing the ________ strategy.
A) grim trigger
B) tit-for-two-tats
C) deterrence
D) tit-for-tat
E) mutually assured destruction
Q3) In the United States,________ laws prohibit collusion between rivals.
A) competitive arbitration
B) immigration
C) anticompetition
D) union
E) antitrust
Q4) How do switching costs increase a firm's market power?
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Chapter 14: The Demand and Supply of Resources
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Sample Questions
Q1) Which graph shows the substitution effect dominating the income effect of higher wages?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
E) Graph E
Q2) A firm is currently using two inputs: labor and capital.It rents equipment for $1,000,which produces a value of the marginal product of $5,000.It hires workers at $10 per hour,who produce a value of the marginal product of $100.The wages of workers rise by 20 percent and the rental price of capital increases by 25 percent.The firm should hire ________ labor and ________ capital.
A) more; more
B) more; less
C) the same amount of; the same amount of
D) less; more
E) less; less
Q3) Outsourcing from a strictly "lower cost of labor" viewpoint may not be successful.Explain how this result could occur.
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Page 16
Chapter 15: Income,inequality,and Poverty
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Sample Questions
Q1) The pay for journalists is quite varied.A top-tier journalist often receives a steady flow of assignments,such as two weekly columns,and so earns generous pay.A lower-tier journalist,however,often experiences sporadic work assignments with little to no pay.What economic theory explains this situation?
A) winner-take-all
B) in-kind transfers
C) efficiency wage
D) occupational crowding
E) compensating differentials
Q2) When workers of the same ability are not paid the same amount because of a group characteristic such as ethnic origin or age,we call this
A) efficiency wage theory.
B) wage discrimination.
C) compensating differential theory.
D) winner-take-all theory.
E) occupational crowding.
Q3) What are some limitations in the way the U.S.Census Bureau measures the poverty threshold?
Q4) Why is the minimum wage an ineffective means of reducing poverty?
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Chapter 16: Consumer Choice
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Sample Questions
Q1) Joanna is deciding between consuming Good X and Good Y.At her current level of consumption,her marginal utility per dollar for Good X is greater than the marginal utility per dollar for Good Y.To achieve the consumer optimum,Joanna needs to
A) consume more of Good Y until the marginal utility per dollar for Good Y is greater than the marginal utility for Good X.
B) consume more of Good X until the marginal utility per dollar for Good Y is greater than the marginal utility for Good X.
C) consume more of both Good X and Good Y until the marginal utility per dollar for Good Y is greater than the marginal utility for Good X.
D) consume more of Good X or less of Good Y until the marginal utility per dollar for Good X and Good Y is equal.
E) continue at her current level of consumption.
Q2) Draw the indifference curves for two goods that are perfect substitutes.
Q3) Explain a situation in which the real-income effect is not observed when the price of a good decreases.
Q4) Draw the indifference curves for two goods that are perfect complements.
Q5) Why is it necessary to engage in marginal thinking with more than two goods?
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Page 18
Chapter 17: Behavioral Economics and Risk Taking
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Sample Questions
Q1) For Ivett to be willing to play this game,Ivett would need to be ________.For Desiree to be willing to play this game,Desiree would need to be ________.
A) risk averse; risk averse
B) risk averse; risk neutral
C) risk neutral; a risk taker
D) a risk taker; risk neutral
E) a risk taker; risk averse
Q2) The television game show Let's Make a Deal provides a well-known example of the difficulties in assessing probabilities accurately.At the end of the show,the host,Monty Hall,asks the contestant to choose one of three curtains.Behind each curtain is one of three possible prizes: a car,a nice but less expensive item,or a worthless joke item.Suppose that Celine picks curtain 1.The host,who knows what is behind the curtains,opens a different one,say,curtain 3,which has a pen filled with bunny rabbits-the joke prize.The host then offers Celine the opportunity to switch her choice to curtain 2.If Celine would prefer the car over any other prize,should she switch? Does her probability of winning the car change if she switches to curtain 2?
Q3) Describe three characteristics of status quo bias.
Q4) Give some examples of how rationality is bounded in economic decision-making.
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Page 19
Chapter 18: Health Insurance and Health Care
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Sample Questions
Q1) When healthcare costs are paid for by
A) private insurance companies,the expenses are lower because the insurance company acts like a monopolist.
B) the government,the expenses are lower because the government acts like a monopolist.
C) the government through payroll taxes,the employer faces a disincentive to hire more workers.
D) the government,the expenses are higher because the government acts like a monopsonist.
E) private individuals,the expenses are higher because consumers are more responsive to the prices being charged.
Q2) Which graph best describes the demand for a heart transplant?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
E) Graph E
Q3) How do heroic end-of-life efforts represent a fundamental struggle in managing healthcare costs?
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Page 20
Chapter 19: International Trade
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Sample Questions
Q1) Based on the scenario,Karl's opportunity cost of one car is ________ truck(s).
A) one-quarter of a
B) one-half of a C) two
D) four
E) six
Q2) According to the table,in the year 2000,the real value of exports as a percentage of GDP was ________ and the real value of imports as a percentage of GDP was
A) 12.48; 15.45
B) 5.43; 6.12
C) 8.79; 10.68
D) 10.02; 13.82
E) 2.00; 1.30
Q3) Describe what the market effects on a good would be in the face of a quota,a tariff,and a complete ban on imports.
Q4) What has happened to the real value of world merchandise trade over the past 40 years? Why has this change happened?
Q5) What are some of the gains from trade?
Q6) Would consumers benefit more from a tariff or a quota on imports?
Page 21
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