Microeconomic Theory Test Preparation
Course Introduction
Microeconomic Theory delves into the foundational principles that govern individual and firm decision-making in markets. The course explores concepts such as consumer behavior, production and cost functions, market structures (including perfect competition, monopoly, and oligopoly), and the ways in which equilibrium is achieved in various market settings. Emphasis is placed on mathematical modeling and analytical reasoning to understand how resources are allocated, how prices are determined, and the impact of government intervention on efficiency and welfare. The course provides students with the tools to analyze real-world economic problems and prepares them for advanced study or application of economic analysis in professional settings.
Recommended Textbook
Foundations of Microeconomics 7th Edition by Robin Bade
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20 Chapters
5301 Verified Questions
5301 Flashcards
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Chapter 1: Getting Started
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347 Verified Questions
347 Flashcards
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Sample Questions
Q1) A positive statement
i.makes a statement about how the world operates.
ii.is a true statement.
iii.can be tested against the facts.
A) i and ii
B) i and iii
C) ii and iii
D) i, ii and iii
E) i only
Answer: B
Q2) Which of the following statements best describes the study of economics?
Economics studies how
A) to organize production so that scarcity does not occur.
B) firms make profits.
C) we make choices in the face of scarcity.
D) to create incentives so that scarcity does not exist.
E) businesses reach decisions.
Answer: C
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Page 3
Chapter 2: The USand Global Economies
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Sample Questions
Q1) Describe the circular flow of the economy by discussing the two markets where households and firms meet.
Answer: Firms and households meet in two markets: the goods market and the factors market.In the goods markets,households buy the goods and services that firms sell.In this market,households give firms money in exchange for the goods and services.In the factors market,households sell the services of the factors of production to firms,which buy the services of these factors.In the factors market,firms pay households money in exchange for the productive resources.Hence households earn their incomes in the factors market and spend their incomes in the goods market.And firms earn their revenue in the goods market and pay their costs in the factors market.
Q2) The largest component of federal government spending is for
A) national defense.
B) Medicare and Medicaid.
C) education.
D) prisons.
E) interest on the national debt.
Answer: B
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Page 4
Chapter 3: The Economic Problem
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Sample Questions
Q1) Robinson Crusoe divides his time between catching fish and gathering fruit.Part of his production possibilities frontier is given in the above table.Mr.Crusoe,while lonesome,is efficient and always stays on his PPF.Mr.Crusoe is consuming 20 pounds of fish.Then he decides to slowly become a vegetarian and decrease his consumption of fish to 9 pounds.This decision means that Mr.Crusoe will
A) incur an opportunity cost of 9 pounds of fruit.
B) incur an opportunity cost of 20 pounds of fish.
C) be able to enjoy a gain of 9 pounds of fruit.
D) incur an opportunity cost of 99 pounds of fruit.
E) incur an opportunity cost of 9 pounds of fish.
Answer: C
Q2) The table above gives the production possibilities frontier for two countries,Anaconda and Bear.The opportunity cost of moving from ________ is greater for ________.
A) point A to point B; Anaconda
B) point B to point A; Bear
C) point D to point E; Bear
D) point E to point D; Bear
E) any point to any other point; Bear
Answer: C
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Chapter 4: Demand and Supply
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334 Flashcards
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Sample Questions
Q1) Suppose the current price of a pound of steak is $6 per pound and the equilibrium price is $9 per pound.What takes place?
A) There is a shortage, so the price falls and quantity demanded increases.
B) There is a surplus, so the price falls and quantity demanded increases.
C) There is a shortage, so the price rises and quantity demanded decreases.
D) There is a shortage, so the price rises and quantity demanded increases.
E) There is a shortage, so the price falls and quantity demanded decreases.
Q2) In the figure above,a price of $35 per dozen roses results in
A) a shortage.
B) equilibrium.
C) a surplus.
D) upward pressure on the price of roses.
E) an eventual rightward shift of the demand curve and/or leftward shift of the supply curve.
Q3) The law of supply states that,other things remaining the same, A) demand increases when supply increases.
B) if the price of a good increases, firms buy less of it.
C) if the price of a good increases, the quantity supplied increases.
D) as people's income increase, the supply of goods increases.
E) if the price of a good increases, the supply increases.
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Chapter 5: Elasticities of Demand and Supply
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342 Flashcards
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Sample Questions
Q1) Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative.
Q2) When the percentage change in the quantity demanded equals the percentage change in price,then demand is
A) inelastic.
B) unit elastic.
C) elastic.
D) irrelevant.
E) undefined.
Q3) Suppose the Oakland Raiders football team increases their season ticket prices and total revenue from ticket sales falls,but not to zero.This fact means that the demand for Raiders tickets is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Q4) If a good has only a few,poor substitutes,is its demand elastic or inelastic?
Q5) What effect does a price hike have on the total revenue of the producers?
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) In the figure above,the equilibrium market price is $20.The producer surplus is shown by the area
A) A.
B) B.
C) A + B.
D) A ÷ B.
E) A - B.
Q2) The figure above shows the supply curve for soda.The market price is $1.00 per soda.The ________ price that must be offered so that the 10,000th soda is produced is ________.
A) minimum; $0.50
B) minimum; $1.00
C) maximum; $0.50
D) maximum; $1.00
E) minimum; more than $0.50 but less than $1.00
Q3) What approach to fairness argues in favor of government policies that redistribute income so that there is more equality of income?
Q4) What is consumer surplus?
Q5) Why does the marginal benefit curve have a negative slope?
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Chapter 7: Government Actions in Markets
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248 Flashcards
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Sample Questions
Q1) A black market for housing exists because of a rent ceiling.The rent for housing in the black market is
A) the same as the equilibrium rent.
B) lower than the ceiling rent.
C) somewhere between the ceiling rent and the maximum rent a tenant is willing to pay.
D) somewhere between zero and the equilibrium rent.
E) not defined because the market is not legal.
Q2) The figure above illustrates the current market for apartments in Washington,D.C.
a.If the local government imposes a price ceiling of $1,500 per month,is there a shortage? If so,how much? If not,why not?
b.If the local government imposes a price ceiling of $900 per month,is there a shortage? If so,how much? If not,why not?
Q3) Explain why a price floor set below the equilibrium price is ineffective.
Q4) The table above gives the demand and supply schedules for the housing market in a small town.If a rent ceiling of $600 a month is imposed,what is the quantity demanded,the quantity supplied,and the shortage of housing?
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Page 9
Chapter 8: Taxes
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Sample Questions
Q1) Vertical equity implies that i.tax rates should be equal for all tax payers.
ii.people with higher income should pay more in taxes.
iii.people with higher incomes should pay a lower average tax rate.
A) i only
B) ii only
C) iii only
D) i and ii
E) ii and iii
Q2) To calculate the revenue government receives when a tax is imposed on a good,multiply the
A) pre-tax equilibrium price by the pre-tax quantity.
B) after-tax equilibrium price by the after-tax quantity.
C) tax by the pre-tax quantity.
D) tax by the after-tax quantity.
E) after-tax equilibrium price by the after-tax quantity and then subtract the pre-tax equilibrium price multiplied by the pre-tax quantity.
Q3) Suppose the government decides to tax salt.The demand for salt is inelastic and the supply is quite elastic.Who bears most of the tax incidence and pays most of this tax?
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Page 10
Chapter 9: Global Markets in Action
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281 Flashcards
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Sample Questions
Q1) Which of the following is the national security argument against free trade?
A) A country must protect industries that produce defense equipment and armaments.
B) A country must protect new industries to give them a chance to mature before facing foreign competition.
C) A country must protect firms from dumping by foreign companies.
D) A country must protect its consumers from foreign influences.
E) A country must preserve its jobs.
Q2) The above figure shows the U.S.market for wheat.Without international trade,producer surplus is equal to ________.
A) area B + area C + area E + area F
B) area A
C) area B + area C +area D + area E + area F
D) area E + area F
E) area A + area B + area C + area D
Q3) How does the United States attempt to compensate losers from lower trade restrictions?
Q4) How do exports affect sellers' producer surplus?
Q5) How do exports affect buyers' consumer surplus?
Q6) What is dumping?
Page 11
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Chapter 10: Externalities
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301 Flashcards
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Sample Questions
Q1) The figure above shows an education market in which the government is providing households with vouchers.In total,how much do the schools receive for a student?
A) $4,000
B) $8,000
C) $12,000
D) $16,000
E) $20,000
Q2) An external benefit is a benefit from a good or service that someone other than the ________ receives.
A) seller of the good or service
B) government
C) foreign sector
D) consumer
E) market maker
Q3) If the production of a good creates an external cost,is the supply curve the same as the marginal social cost or the same as the marginal private cost curve or both?
Q4) Discuss the difference between a private cost and a social cost.
Q5) What do we mean by "property rights" and why are they important?
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) The marginal benefit of a public good is the
A) sum of the marginal benefits of all the individuals at each quantity.
B) marginal benefit of the individual person who places the lowest value on the good, multiplied by the number of people in the economy.
C) marginal benefit of the individual person who places the highest value on the good, multiplied by the number of people in the economy.
D) benefit of the last person's consumption.
E) average of the marginal benefits of all the individuals at each quantity.
Q2) The tendency of political parties to propose identical policies which appeal to the maximum number of voters is referred to as the principle of A) maximum differentiation.
B) minimum differentiation.
C) minimum marginal utility.
D) maximum returns.
E) agreement.
Q3) What is an individual transferable quota (ITQ)?
Q4) "The problem with a common resource is that no one gets to use the resource." Comment on the preceding assertion.
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Page 13
Chapter 12: Markets with Private Information
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103 Flashcards
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Sample Questions
Q1) In the used car market with warranties,the equilibrium is a ________ and there is
A) pooling equilibrium; inefficiency, partly because of oversupply of good cars
B) pooling equilibrium; inefficiency, partly because of oversupply of lemons (poor quality used cars)
C) separating equilibrium; no inefficiency
D) separating equilibrium; inefficiency, partly because of oversupply of lemons (poor quality used cars)
E) pooling equilibrium; no inefficiency
Q2) The figures show the expenditures per person on health care and the efficiency of the health care system in 8 different nations.The United States is bar ________ in expenditures per person and is bar ________ in efficiency index.
A) A; A
B) B; A
C) A; D
D) E; E
E) D; B
Q3) What is the missing insurance market in health care? Why don't private markets provide this insurance?
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Page 14
Chapter 13: Consumer Choice and Demand
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295 Flashcards
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Sample Questions
Q1) Suppose the quantity of burgers is measured on the horizontal axis and the quantity of bags of French fries is measured on the vertical axis.The marginal rate of substitution for burgers is
A) the ratio of burgers consumed to bags of fries consumed.
B) the ratio of bags of fries consumed to burgers consumed.
C) the rate at which a person is willing to give up burgers to get more bags of fries while staying on the same indifference curve.
D) the rate at which a person is willing to give up bags of fries to get more burgers while staying on the same indifference curve.
E) the number of burgers consumed minus the number of bags of fries consumed.
Q2) The slope of the budget line represents an opportunity cost because,moving along the line,
A) income is increasing.
B) income is decreasing.
C) additional income must be earned in order to purchase more of one good.
D) a consumer must give up some of one good in order to get more of the other.
E) it is possible to consume more of both goods.
Q3) Describe the consumer equilibrium in the indifference curve/budget line model.
Q4) How are total utility and marginal utility related?
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Chapter 14: Production and Cost
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Sample Questions
Q1) The long run is defined as
A) any time after six months.
B) any time after one year.
C) the period of time when all resources are fixed.
D) the period of time when most (more than 50 percent) resources are variable.
E) the period of time when all resources are variable.
Q2) The short run is a time period during which
A) some of the firm's resources are fixed.
B) all of the firm's resources are fixed.
C) all of the firm's resources are variable.
D) the fixed cost equals zero.
E) the firm cannot increase its output.
Q3) The above table gives some production and cost information for Flaming Fernando's,a restaurant that sells Fiery Frijoles.What is the average variable cost of producing 1,000 frijoles?
A) $1
B) $2
C) $3
D) $3,000
E) More information is needed to determine the answer.
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Chapter 15: Perfect Competition
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Sample Questions
Q1) Shama is producing candles in a perfectly competitive market.When she produces 500 candles,her total cost is $250.If she produces one additional candle,her total cost increases to $260.In order to maximize her profit,she should produce the additional candle
A) if the market price for a candle is $12.
B) only if the market price exceeds $260 for a candle.
C) only if the market price exceeds $250 for a candle.
D) if the market price for a candle exceeds $0.50.
E) if her price exceeds her average total cost.
Q2) In a perfectly competitive market,one farmer's barley is
A) completely different from another farmer's barley.
B) a perfect substitute for another farmer's barley.
C) a monopolized product in that farmer's local market.
D) a monopolized product in the national market.
E) slightly different from another farmer's barley.
Q3) What is the relationship between the price,P,and the average total cost,ATC,for a firm in perfect competition that makes an economic profit? That makes zero economic profit? That incurs an economic loss?
Q4) Why are perfectly competitive ranchers in Montana price takers?
Q5) When will new firms enter a perfectly competitive market? When does entry stop?
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Chapter 16: Monopoly
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Sample Questions
Q1) The figure above shows the demand,marginal revenue,and marginal cost curves for Paul's Parrot Pillows,a single-price monopoly producer of pillows stuffed with parrot feathers.When Paul maximizes his profit,he produces ________ pillows per hour.
A) 1,000
B) 3,000
C) 4,000
D) 0
E) 2,000
Q2) What is an average cost pricing rule? Why do regulatory agencies use it for natural monopolies?
Q3) The long-run average cost curve of a natural monopoly
A) is positively sloped until it crosses the demand curve.
B) intersects the demand curve while it is negative sloped.
C) intersects the demand curve while it is positively sloped.
D) is the natural monopoly's supply curve.
E) is the same as the natural monopoly's demand curve.
Q4) Why will a profit-maximizing,single-price monopoly NEVER produce the amount of output that maximizes its total revenue?
Q5) What potential problem is there with rate of return pricing?
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) Which of the following is correct?
A) Monopoly has a four-firm concentration ratio of 100.
B) Perfect competition has a four-firm concentration ratio near zero.
C) Monopolistic competition has a four-firm concentration ratio of more than 40.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Q2) The absence of barriers to entry in monopolistic competition means that in the long run firms
A) make an economic profit.
B) make zero economic profit.
C) incur an economic loss.
D) make either an economic profit or zero economic profit.
E) make either zero economic profit or incur an economic loss.
Q3) Firms in monopolistic competition have demand curves that are
A) horizontal.
B) vertical.
C) downward sloping.
D) upward sloping.
E) U-shaped.
Q4) What is the Herfindahl-Hirschman Index and what does it measure?
Page 19
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Chapter 18: Oligopoly
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Sample Questions
Q1) The prisoners' dilemma game
A) shows that prisoners are better off if they cooperate.
B) shows it is easy to cooperate.
C) has an equilibrium in which both prisoners are made as well off as possible.
D) would have the same outcome even if the prisoners can communicate and cooperate.
E) has an equilibrium in which one prisoner is made as well off as possible and the other prisoner is made as worse off as possible.
Q2) A cartel is
A) another name for a firm in an oligopoly.
B) a collusive agreement among a number of firms.
C) a government body that regulates an industry.
D) an antitrust law.
E) a type of regulation that focuses on quantities rather than price.
Q3) Does an oligopoly produce the efficient quantity of output or does it create a deadweight loss? Do the firms want to produce the efficient quantity of output? Explain your answer.
Q4) "Because firms in an oligopoly are so large,they do not need to consider each other's actions." Is the previous statement correct or incorrect? Explain your answer.
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Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) Robotic technology is a substitute for labor in many manufacturing processes.If the price of robotic technology decreases and the scale of the firm's production does not change,there is
A) a decrease in the demand for labor.
B) an increase in the demand for labor.
C) no change in the demand for labor.
D) an increase in the supply of labor.
E) a decrease in the supply of labor.
Q2) The above figure represents the market for teenage workers at fast-food restaurants in Kansas City.
a.What is the equilibrium wage rate and employment?
b.Describe the market at a wage rate of $6 per hour.
c.Describe the market at a wage rate of $12 an hour.
d.How would an increase in the number of young,married college graduates,who tend to eat at fast-food restaurants,affect the figure,the equilibrium wage rate,and employment?
Q3) Why is the supply of an nonrenewable natural resource perfectly elastic?
Q4) Why might an individual decrease the quantity of labor he or she supplies when the wage rate increases? Briefly explain your answer.
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Chapter 20: Economic Inequality
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Sample Questions
Q1) The above table shows the distribution of income in two imaginary countries,Alpha and Beta.
a.What does the table tell you about the second 20 percent group in each country?
b.Calculate the cumulative percentage for both countries.
c.Interpret the cumulative percentage for the third 20 percent group in both countries.
Q2) A ________ has a constant tax rate regardless of the level of income.
A) regressive tax
B) progressive tax
C) state tax
D) proportional tax
E) subsidy tax
Q3) High-skilled workers earn more than low-skilled workers in part because the high-skilled workers have
A) a higher value of marginal product.
B) a lower value of marginal product.
C) better health.
D) fewer deductions.
E) a greater supply than do low-skilled workers.
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