Microeconomic Theory Solved
Exam Questions
Course Introduction
Microeconomic Theory delves into the foundational principles governing the decision-making processes of individuals, households, and firms within various market structures. The course explores concepts such as consumer behavior, production and cost analysis, market equilibrium, and different types of competition, including perfect competition, monopoly, and oligopoly. Students learn to analyze the allocation of resources, the formation of prices, and the impact of government interventions in markets, gaining a rigorous understanding of how microeconomic models inform real-world economic outcomes and policy decisions.
Recommended Textbook
Principles of Microeconomics 5th Edition by Robert Frank
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14 Chapters
1737 Verified Questions
1737 Flashcards
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Chapter 1: Thinking Like an Economist
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) During times of high unemployment,colleges often observe an increase in enrollment even if tuition remains unchanged.Why?
A) Students do not know about the decision pitfalls and go to college even though the net benefit is negative.
B) The opportunity cost of attending college is lower because students are less likely to have good full-time jobs.
C) The opportunity cost of attending college is higher because good jobs are harder to find.
D) The benefit of attending college is lower because college graduates are less likely to find jobs upon graduation.
Answer: B
Q2) The marginal benefit of an activity is the:
A) same as the total benefits of the activity.
B) total benefit divided by the level of the activity.
C) extra benefit associated with an extra unit of the activity.
D) total benefit associated with an extra unit of the activity.
Answer: C
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Page 3
Chapter 2: Comparative Advantage
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) The United States has a comparative advantage in producing books and movies because:
A) New York and Hollywood are the historic centers of book publishing and movie production.
B) wages for workers who print books and make movies are lower in the United States than elsewhere.
C) the English language is understood by many people all over the world.
D) the United States gives generous tax breaks to publishers and movie producers.
Answer: C
Q2) It was expected that consumers in _____ would benefit from reduced prices of goods that will be freely traded under the NAFTA.
A) Canada
B) the United States
C) China
D) Mexico
Answer: B
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Chapter 3: Supply and Demand
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) If the market for sport utility vehicles has excess supply,then one can say that:
A) supply is greater than demand.
B) quantity supplied is greater than quantity demanded.
C) demand is greater than supply.
D) quantity demanded is greater than quantity supplied.
Answer: B
Q2) When the supply of a good decreases,consumers will eventually:
A) decrease their demand.
B) increase their preferences for the good.
C) decrease their quantity demanded.
D) increase their quantity demanded.
Answer: C
Q3) If the demand for computers shifts to the right as consumers' incomes rise,computers are
A) inferior goods.
B) complement goods.
C) normal goods.
D) substitute goods.
Answer: C
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Page 5
Chapter 4: Elasticity
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Suppose that the short run price elasticity of demand for electricity is 0.03 and the long run price elasticity of demand is 1.2.One would classify the short run elasticity as being ___________ and the long run elasticity as being ____________.
A) elastic;elastic
B) elastic;inelastic
C) inelastic;unitary elastic
D) inelastic;elastic
Q2) Suppose that the price elasticity of supply for the Hope Diamond is zero.Therefore,the supply curve for the Hope Diamond is:
A) elastic.
B) perfectly inelastic.
C) unitary elastic.
D) perfectly elastic.
Q3) If the price elasticity of demand for a good equals one,then the demand for that good with respect to price,is:
A) elastic.
B) inelastic.
C) unitary elastic.
D) perfectly elastic.
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Chapter 5: Demand
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Assume that Dusty has $30 in income,the price of a loaf of bread is $1.50,and the price of a jar of peanut butter is $3.
If Dusty's income rises to $45,the rational spending rule would predict that Dusty will buy
A) more bread and less peanut butter.
B) more bread and more peanut butter.
C) less bread and more peanut butter.
D) more bread and the same amount of peanut butter.
Q2) The fact that the average price of a gallon of gasoline in England is much higher than the price in the U.S.would lead to which of the following predictions?
A) Average miles per gallon for new cars will be lower in England.
B) English drivers will tend to drive a greater average number of miles.
C) American drivers will tend to make fewer trips with more stops.
D) Large cars with poorer gas mileage will be less popular with consumers in England.
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Chapter 6: Perfectly Competitive Supply
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Which of the following would cause supply to shift to the left?
A) Wages rise.
B) Demand for the good falls.
C) The price of the good falls.
D) Expectations about future demand improve.
Q2) Acme Dynamite has $2000 of variable costs and $500 of fixed costs when its output is 250 units.It sells each unit for $25.
If the price of the product drops to $6 each,should this firm continue operation during the short run?
A) No,because Price is less than Average Total Cost.
B) Yes,because Price is greater than Average Variable Cost.
C) No,because Price is less than Average Variable Cost.
D) No,because Price is not greater than Average Total Cost.
Q3) If a perfectly competitive firm produces an output level where price is less than marginal costs,then the firm should:
A) raise its price.
B) reduce output to earn greater profits or smaller losses.
C) expand output to earn greater profits or smaller losses.
D) leave its output decision unchanged.
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Page 8
Chapter 7: Efficiency, Exchange, and the Invisible Hand in Action
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Which of the following would be an example of the rationing function of price?
A) Switching from a Ph.D.in economics to finance because finance salaries are higher
B) Bill Gates purchasing the Mona Lisa for $5 billion
C) A firm attempting to lower its explicit costs
D) Government price controls
Q2) The No Cash on the Table principle means unexploited opportunities:
A) never exist.
B) cannot be exploited for long.
C) can exist in equilibrium but rarely do.
D) always exist in equilibrium.
Q3) If you were to start your own business,your implicit costs would include:
A) rent that you have paid in advance for use of a building.
B) the opportunity cost of your time.
C) profit over and above normal profit.
D) interest that you pay on your business loans.
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9
Chapter 8: Monopoly, Oligopoly, and Monopolistic Competition
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) Compared with charging a single price,all else equal,imperfect price discrimination:
A) sometimes hurts customers with low ability to pay while benefiting wealthy customers.
B) always hurts all customers while increasing firm profits.
C) sometimes benefits customers with low ability to pay while reducing firm profits.
D) sometimes benefits customers with low ability to pay while increasing firm profits.
Q2) The demand curve for a perfectly competitive firm is __________ while the demand curve for a monopolist is __________.
A) perfectly elastic;downward-sloping
B) vertical;downward-sloping
C) perfectly elastic;perfectly inelastic
D) perfectly inelastic;perfectly elastic
Q3) You would expect to see more mail-in rebate coupons being offered at:
A) exclusive stores catering to the wealthy.
B) a luxury car dealership.
C) discount stores.
D) convenience stores.
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Page 10
Chapter 9: Games and Strategic Behavior
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) According to the textbook,one possible way of solving the commitment problem in the kidnapping game is for the victim to:
A) give the kidnapper a blank check.
B) promise never to reveal the kidnapper's identity.
C) offer to cut off one finger to show his sincerity.
D) do something illegal and allow the kidnapper to record it.
Q2) Cartels would be more stable if:
A) firms that cheat on the agreement could be legally punished.
B) firms that cheat on the agreement were better informed about the value of agreement.
C) demand for the output was more variable.
D) the cartel profit were higher than the profit each individual firm could earn without the cartel.
Q3) Most cartels end or cease to be effective because:
A) of enforcement of antitrust legislation.
B) of the incentive to cheat on the cartel agreement.
C) the dominant member firm buys out the other firms.
D) consumers discover the cartel agreement and buy instead from other firms.
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11
Chapter 10: Externalities and Property Rights
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) The major implication of the _______ is that individuals can solve many externalities if they can buy and sell the right to generate the externality.
A) Sherman Act
B) Coase Theorem
C) tragedy of the commons
D) prisoner's dilemma
Q2) Lunch in Jamie's dorm is an all-you-can-eat buffet,served from 11 a.m.until 1 p.m.By noon,the buffet is picked over,and by 12:30,there are very few popular items left.The garbage bins,though,are full of food.
Refer to the information given above.Over time,you would expect that students would:
A) stop eating so much at lunch because they would notice that it generates waste. B) start distributing themselves more evenly over the lunch hours to avoid long lines.
C) come earlier and earlier for lunch in order to have a better selection from which to choose.
D) be pickier in their selections from the buffet.
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Chapter 11: The Economics of Information
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) Two types of existing houses are for sale: ones with a cracked foundation and ones without.In all other respects,they are identical.Houses without cracked foundations are worth $200,000 while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack or $180,000.The frequency of solid foundations is 80%.Sellers know which type of house they have but buyers cannot detect a crack.No seller "must" sell his house in order to move and thus no one accepts anything less than its value. Usually,the seller of a home is legally required to disclose any and all defects in the home that they know to exist.This requirement helps
A) all buyers and sellers of homes with solid foundations.
B) only buyers regardless of the state of the foundation.
C) all buyers and all sellers.
D) only sellers regardless of the state of the foundation.
Q2) In markets with incomplete information,middlemen tend to __________ total economic surplus by __________.
A) reduce;raising price
B) reduce;giving misleading information
C) increase;raising price
D) increase;matching sellers with buyers with higher reservation prices
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Chapter 12: Labor Markets, Poverty, and Income Distribution
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) Pat works for a landscape contractor,generating gross revenues of $50 per hour.Non-labor variable costs total $10 per hour.Pat loves to garden,and would be willing to work for $15 per hour.Assume that the labor market is perfectly competitive. The difference between the net revenue generated by Pat and Pat's reservation price will eventually
A) be captured by Pat in the form of rent.
B) be captured by Pat's employer in the form of profit.
C) cause wages in the landscape market to fall to $15.
D) be split evenly between Pat and the landscape company.
Q2) The demand function curve for workers
A) is dependent on the demand for the product that they make.
B) is stable as there is no substitute for human labor.
C) shifts to the right when the population decreases.
D) shifts to the right when technology allows a firm to replace human labor with machines.
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Chapter 13: The Environment, Health, and Safety
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Suppose a treacherous stretch of road winds through Deadman's Canyon for 5 miles.A highway department study estimates that better lighting would reduce the traffic fatality rates as follows: \(\begin{array}{ccc} \text { Number of lights } & \text { Estimated deaths per year } & \text { Total installation cost (in millions) } \\
0 & 3 & \$ 0 \mathrm{~m} \\
1 & 2 & \$ 3 \mathrm{~m} \\
2 & 1.5 & \$ 7 \mathrm{~m} \\
3 & 1.2 & \$ 12 \mathrm{~m} \\
4 & 1 & \$ 18 \mathrm{~m} \\
5 & 0.9 & \$ 25 \mathrm{~m} \end{array}\)
Suppose that experts have estimated the statistical value of a life saved to be $8m.The marginal benefit of the third light installed is ____ and the marginal cost is ____.Therefore the third light ____ be installed.
A) $2.4m;$5m;should not
B) $8m;$5m;should
C) $300,000;$5m;should not
D) $500,000;$1m;should not
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Chapter 14: Public Goods and Tax Policy
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) A public good that would benefit Karen,Tammy,and Max has a one time installation cost of $900.These three voters must approve any tax plan by simple majority and all three will cast a vote. \[\begin{array} { | c | c | c | }
\hline \text { VOTER } & \text { RESERVATION PRICE } & \text { INCOME } \\
\hline \text { Kris } & \$ 100 & \$ 1000 \\
\hline \text { Taylor } & \$ 200 & \$ 5000 \\
\hline \text { Max } & \$ 700 & \$ 6000 \\
\hline \end{array}\]
Since the government does not know and cannot discover the voters' true reservation prices,it proposes a head tax of $300 per voter.The result of the referendum is
A) the tax passes and the public good is provided.
B) Max votes for the tax but Kris and Taylor vote against it and it fails.
C) Max votes for the tax,Kris votes against it but Taylor's vote is uncertain.
D) all three voters vote against the tax.
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