Microeconomic Theory
Textbook Exam Questions
Course Introduction
Microeconomic Theory delves into the foundational principles that govern individual and firm behavior in markets, exploring how scarce resources are allocated through the mechanisms of supply and demand. The course covers essential topics such as consumer choice, production and cost functions, market structures (perfect competition, monopoly, and oligopoly), and the role of prices in resource allocation. Students will analyze decision-making strategies under various market conditions, examine the effects of government intervention, and utilize mathematical tools and graphical models to predict and explain economic outcomes at the micro level.
Recommended Textbook
Microeconomics 9th Edition by William Boyes
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Chapter 1: Economics: The World Around You
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Sample Questions
Q1) When a presidential candidate with a Ph.D.in economics makes a statement about what should be done to balance the budget,he or she is making a:
A)normative statement.
B)positive statement.
C)microeconomic statement.
D)statement that is objective.
E)statement of fact.
Answer: A
Q2) An economic approach used to search out answers to questions about the real world depends on the principles of:
A)scarcity and rational self-interest.
B)cost and benefit.
C)public good and private good.
D)economic good and economic bad.
E)self-interest and selfishness.
Answer: A
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Chapter 2: Choice, opportunity Costs, and Specialization
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Sample Questions
Q1) Specialization and trade do not allow individuals,firms,or even nations to acquire goods that lie beyond their production capabilities.
A)True
B)False
Answer: False
Q2) Refer to Figure 2.2.If there is an increase in the education level of the population,graph(s) _____ best illustrate(s) what will happen to the production possibilities curve [PPC].
A)A
B)B
C)C
D)A and C
E)A and B
Answer: C
Q3) Gains from trade can be realized if each country specializes in its comparative advantage good.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Markets, Demand and Supply, and the Price System
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Sample Questions
Q1) Consider the market described by Table 3.4.Identify the correct statement.
A)The law of demand is violated
B)The law of supply is violated
C)There is no equilibrium
D)At $5 per unit,people will purchase 400 units
E)At $2 per unit,people will purchase 900 units
Answer: D
Q2) The term barter refers to exchanges made:
A)only with the use of money.
B)without the use of money.
C)outside the U.S.economy.
D)only in underdeveloped countries.
E)within countries in a monetary union.
Answer: B
Q3) Empirical evidence suggests that more digital cameras are being sold today than one year ago,and the selling price has decreased.The probable reason for this could have been an increase in supply.
A)True
B)False
Answer: True
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Chapter 4: The Market System and the Private and Public Sector
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Sample Questions
Q1) Which of the following situations is an example of creative destruction?
A)An aspiring fashion designer acting as a part-time model in fashion shows
B)Farm workers moving to technologically advanced industrial sector after undergoing proper training
C)An old residential building demolished for constructing a new shopping mall and multiplex
D)A garment manufacturer reducing production to recover its losses
E)An athlete serving as a brand ambassador for Nike
Q2) Balance in international trade suggests that:
A)a trade surplus exists.
B)there is a net flow of goods and services from foreign countries to domestic firms.
C)a trade deficit exists.
D)domestic firms buy more foreign products than they sell.
E)the value of net exports is zero.
Q3) The government sector sells resource services to households and buys goods and services from firms.
A)True
B)False
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Chapter 5: Elasticity: Demand and Supply
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Sample Questions
Q1) If firms have to change their production techniques in order to change the quantities they supply,they can respond less in a year to a price change than they could in a month.
A)True
B)False
Q2) If the demand for cream cheese produced by a dairy is perfectly elastic,then what will be the shape of the demand curve faced by the dairy?
A)The demand curve will be vertical
B)The demand curve will be horizontal
C)The demand curve will be upward sloping
D)The demand curve will be downward sloping
E)The demand curve will be concave
Q3) By measuring the price elasticity of demand in terms of percentage changes,economists are able to compare the way consumers respond to changes in the prices of different products.
A)True
B)False
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Chapter 6: Consumer Choice
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Sample Questions
Q1) A consumer is in equilibrium when:
A)his or her marginal utility derived from each good is maximized.
B)each dollar spent on each item provides more and more satisfaction.
C)each dollar spent on each item provides less and less satisfaction.
D)the last dollar spent on each item provides the same additional satisfaction as that dollar would if spent on any other item.
E)his or her average utility for each item is the same.
Q2) Refer to Figure 6.3.What combinations of X and Y are attainable by the consumer?
A)All combinations that lie on or above I<sub>2</sub>
B)All combinations that lie above I<sub>1</sub>
C)All combinations that lie below I<sub>3</sub>
D)All combinations that lie on or below the budget line.
E)Only the combination of 10 units of good X and 15 units of good Y
Q3) According to Table 6.2,marginal utility is negative _____.
A)for any number of avocados
B)up to five avocados
C)only for one or two avocados
D)only after five avocados are consumed
E)only after the first avocado is consumed
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Page 8
Chapter 7: Supply: The Costs of Doing Business
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Sample Questions
Q1) If short-run average total costs are rising in the oil tanker industry,it implies that economies of scale exist in that industry.
A)True
B)False
Q2) When average total cost is minimum,it is:
A)equal to average variable cost.
B)greater than marginal cost.
C)equal to average fixed cost.
D)equal to marginal cost.
E)less than marginal cost.
Q3) Refer to Table 7.2.If the production of 2 extra units (units 11 and 12) increases total cost by $162,then:
A)the marginal cost of the twelfth unit will be $162.
B)the total cost of producing 12 units will be $894.
C)the average variable cost of producing 11 units is $732.
D)the average total cost of producing 12 units is $61.
E)the thirteenth unit will have to go up in price.
Q4) The average fixed cost continues to decline with expansion of output.
A)True
B)False
Page 9
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Chapter 8: Profit Maximization
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Sample Questions
Q1) Refer to Table 8.3.The economic profit of Max Computers is:
A)$1,000 million.
B)-$4,000 million.
C)$10,000 million.
D)-$5,000 million.
E)$5,000 million.
Q2) Refer to Figure 8.3.If the firm maximizes profits at 120 units of the output,calculate the firm's marginal revenue.
A)$35
B)$40
C)$55
D)$4,200
E)Cannot be determined from the information given.
Q3) A monopolist faces the least price elastic demand curve because:
A)the consumers have only one place to buy the good.
B)the monopolist produces a standardized product.
C)the monopolist undertakes a huge expenditure to produce the product.
D)the monopolist supplies an insignificant portion of the market.
E)the monopolist produces an absolutely necessary good having close substitutes.
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Page 10
Chapter 9: Perfect Competition
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Sample Questions
Q1) The permanent shut down point of a perfectly competitive firm in the long run is:
A)the minimum point of the AVC curve.
B)the minimum point of the MC curve.
C)the minimum point of the AR curve.
D)the minimum point of the ATC curve.
E)the minimum point of the AFC curve.
Q2) At an output level above the profit-maximizing one for a perfectly competitive firm,a reduction in output will:
A)reduce total revenue more than total cost.
B)reduce total cost more than total revenue.
C)increase total revenue more than total cost.
D)increase total cost more than total revenue.
E)decrease total revenue and total cost by the same amount.
Q3) A perfectly competitive firm decides to shut down if:
A)the price falls below the average-total-cost.
B)average revenue falls below the average-variable-cost.
C)the price falls below the marginal cost.
D)the average revenue curve lies below the marginal cost curve.
E)the total revenue is less than total cost.
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Page 11
Chapter 10: Monopoly
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Sample Questions
Q1) In Figure 10.9,what is the consumer surplus at the profit-maximizing levels of output and price?
A)JNM
B)0JNV
C)HMQ
D)0HQX
E)JHQN
Q2) Which of the following is an industry without significant barriers to entry?
A)Electricity generation
B)Natural gas distribution
C)Cable television provision
D)Corn farming
E)Postal services
Q3) A monopolist earns only normal profits in the long run.
A)True
B)False
Q4) As a perfectly competitive firm produces at the point where price equals marginal cost,it has no supply curve,only a supply point.
A)True
B)False
Page 12
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The Gulf Cartel and Sinaloa Cartel are the two major cartels in illegal drug trade in Mexico.Although,each of these cartels are better off sharing the market,they have an incentive to try to take the entire market.In which of the following ways is cheating among these cartel members dealt with in this region?
A)Through government taxation policy
B)Through legally enforceable contracts
C)Through restrictions on the supply of inputs used by the firms
D)Through output quota and price ceiling
E)Through violence and drug wars
Q2) Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost.If the price falls further the firm should suspend its operations.
A)True
B)False
Q3) Since only a few firms dominate the oligopoly market,cutthroat competition does not exist.
A)True
B)False
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Chapter 12: Antitrust and Regulation
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Sample Questions
Q1) In an antitrust lawsuit,which of the following parties is entitled to receive treble damages?
A)The Antitrust Division of the Justice Department
B)The Federal Trade Commission
C)Private plaintiffs
D)Defendants
E)The Department of Labor
Q2) A Herfindahl index of 5,000 would indicate:
A)a monopoly.
B)a duopoly (two firms) with equal shares.
C)an oligopoly with three firms.
D)a monopolistically competitive industry.
E)a perfectly competitive market.
Q3) According to Figure 12.2,the total clean up cost after the regulation is:
A)area 0FIQ<sub>2</sub>.
B)area 0FGQ<sub>1</sub>.
C)area BEC.
D)area BEP<sub>1</sub>.
E)area BEGF.
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Page 14
Chapter 13: Market Failures, Government Failures, and Rent Seeking
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Sample Questions
Q1) Under a marketable permit system,if the government reduces the quantity of permits,the price of each permit will increase.
A)True
B)False
Q2) Which of the following is true of a public good?
A)The demand curve for a public good is clearly defined because each consumer consumes the same quantity of the good.
B)The demand curve for a public good is clearly defined because each individual pays the same price.
C)The demand curve for a public good may not exist because individuals can consume the good without being forced to pay a market price for the good.
D)The supply curve of a public good may not exist because individuals can consume the good without being forced to pay a market price for the good.
E)The supply curve of a public good is perfectly elastic as a small increase in the price leads to an infinite increase in the supply of the good.
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Chapter 14: Resource Markets
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Sample Questions
Q1) In the market for resources,demand and supply:
A)do not behave in the same way as demand and supply in product markets.
B)behave in exactly the same way as demand and supply in product markets.
C)curves usually don't intersect at equilibrium.
D)are both controlled by firms.
E)are both controlled by households
Q2) Why is the marginal revenue product curve of a factor negatively sloped?
A)Additional revenue generated from an additional unit of a factor remains constant as more resources are hired.
B)Additional revenue generated from an additional unit of a factor declines as more resources are hired.
C)Additional revenue generated from an additional unit of a factor usually becomes zero as more resources are hired.
D)Additional revenue generated from an additional unit of a factor increases as more resources are hired.
E)Additional revenue generated from an additional unit of a factor doubles every time new resources are hired.
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Chapter 15: The Labor Market
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Sample Questions
Q1) Economic theory suggests that the consumer-prejudice explanation for discrimination means that consumers will have to pay more to be served by employees of a specific group.
A)True
B)False
Q2) A compensating wage differential is a wage difference attributable to the difference in the marginal productivity of workers.
A)True
B)False
Q3) Refer to Figure 15.1.When wage rate increases from W<sub>3</sub> to W<sub>5</sub>:
A)quantity of labor supplied increases from Q<sub>1</sub>to Q<sub>4</sub>.
B)quantity of labor supplied decreases from Q<sub>5</sub> to Q<sub>2</sub>.
C)quantity of labor supplied increases from Q<sub>2</sub> to Q<sub>4</sub>.
D)quantity of labor supplied decreases from Q<sub>4</sub> to Q<sub>2</sub>.
E)quantity of labor supplied increases from Q<sub>1</sub> to Q5<sub>4</sub>.
Q4) An example of human capital is the purchase of a computer to help accountants.
A)True
B)False
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Chapter 16: Capital Markets
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Sample Questions
Q1) If both demand for and supply of capital increases by equal amounts,then the equilibrium price of capital goes up,and the equilibrium quantity of capital increases.
A)True
B)False
Q2) The price of stock is determined by:
A)the demand for the good produced by the firm.
B)the number of shares of a firm's stock that is available.
C)the performance of the stock market.
D)the performance of the Federal Reserve.
E)the demand for and supply of a company's shares.
Q3) Which of the following describes the relationship between bond prices and bond yields?
A)There is a positive relationship between the yield and the price.
B)Every 1% increase in the bond price results in a 2% increase in the yield.
C)When the bond price is greater than the annual interest,yield is greater than one.
D)Bond price divided by the bid price is equal to the yield.
E)There is an inverse relationship between the yield and the price.
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Chapter 17: The Land Market and Natural Resources
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Sample Questions
Q1) Unproductive actions designed to increase income or wealth are known as:
A)transfer search.
B)incorporation.
C)profit seeking.
D)income search.
E)rent seeking.
Q2) If a nonrenewable resource is used more in the current period,the return on saving the resource for future falls.
A)True
B)False
Q3) In the market for hardwood,everything else held constant,if the rate of interest increases:
A)the price of the hardwood will fall today.
B)the lumberjacks will harvest fewer trees today.
C)prices of boats and furniture will increase in the present period.
D)the lumberjacks will harvest all the trees leaving nothing for the future.
E)the price of the hardwood will fall in the future.
Q4) Privatization of common property leads to overexploitation of natural resources.
A)True
B)False
Page 19
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Chapter 18: Aging, Social Security and Health Care
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Sample Questions
Q1) Medical care in the United States is not only expensive but also technologically backward than other nations.
A)True
B)False
Q2) Why is health care considered to be an economic good and is subject to the laws of economics?
A)Health care at times can be obtained even without paying a price for it.
B)Health care is easily available.
C)The supply of health care is greater than its demand.
D)Health care is a social good available at subsidized rates to the poor.
E)Supply of health care is scarce compared to its demand.
Q3) What is the effect of the aging population on the price of health care?
A)The supply of health care rises,but the price remains constant.
B)The demand for health care falls,and the price declines.
C)The demand for health care rises,and the price increases.
D)The supply of health care rises,and the price increases.
E)The demand for health care rises,but price remains constant.
Q4) The social security tax proceeds are often used to purchase government bonds.
A)True
B)False
Page 20
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Chapter 19: Income Distribution,Poverty and Government Policy
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Sample Questions
Q1) Which of the following transfer programs in the U.S.is funded by a national tax but administered by state governments?
A)Social security
B)Veterans' Administration Benefit program
C)Unemployment insurance
D)Food stamps
E)National Guard activities
Q2) Markets can function efficiently only when the private property rights are completely suspended and every resource in the economy is a commonly owned resource.
A)True
B)False
Q3) The measures of absolute poverty:
A)are inversely related to the degree of income equality in a country.
B)are directly related to the degree of income equality in a country.
C)depend on the prosperity of the poorest 50 percent of population.
D)determine the degree of income inequality.
E)are completely independent of the degree of income inequality.
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Page 21
Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) The theory of comparative advantage is based on:
A)absolute opportunity costs.
B)relative opportunity costs.
C)total costs of production.
D)total costs,including transportation costs.
E)a comparison of marginal cost with average variable costs.
Q2) We know that industrial countries tend to trade with other industrial countries.This pattern counters the:
A)preference theory of comparative advantage.
B)factor abundance theory of comparative advantage.
C)concept of intraindustry trade.
D)product life cycle theory of comparative advantage.
E)human skills theory of comparative advantage.
Q3) Developing countries can be expected to have a comparative advantage in industries requiring a relatively large amount of skilled labor.
A)True
B)False
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22
Chapter 21: International Trade Restrictions
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Sample Questions
Q1) One important unintended consequence of the Smoot-Hawley Tariff Act was to:
A)lessen the severity of the Great Depression by increasing exports.
B)provide the federal government with an effective tool for exercising monetary policy.
C)increase the efficiency of domestic automobile production.
D)increase the severity of the Great Depression by causing other countries to retaliate,and thus leading to a decline in exports.
E)increase the U.S.government budget deficit by $15 million.
Q2) In Figure 21.3,what are the equilibrium price and quantity in the absence of trade?
A)$8,50 gallons
B)$12,35 gallons
C)$8,35 gallons
D)$4,20 gallons
E)$16,50 gallons
Q3) A limit on the dollar worth of oranges imported into the United States is an example of a quantity quota.
A)True
B)False
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Chapter 22: Exchange Rates and Financial Links Between Countries
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Q1) A permanent shift in the foreign exchange market supply and demand curves such that the fixed exchange rate is no longer an equilibrium rate is referred to as:
A)permanent devaluation.
B)speculative disequilibrium.
C)permanent revaluation.
D)speculative equilibrium.
E)fundamental disequilibrium.
Q2) The gold standard fixes the:
A)future price of gold in terms of silver.
B)price of gold in terms of international currencies.
C)future price of silver in terms of gold.
D)money supply in terms of paper currency.
E)past exchange rate and the future exchange rate.
Q3) Demand for U.S.dollars by speculators is likely to increase if the dollar is expected to depreciate in the near future.
A)True
B)False
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