Microeconomics Exam Materials
Course Introduction
Microeconomics is the branch of economics that studies individual economic units such as households, firms, and markets, focusing on how they make decisions to allocate limited resources. The course covers fundamental concepts such as supply and demand, elasticity, consumer behavior, production costs, market structures (perfect competition, monopoly, monopolistic competition, and oligopoly), and the role of government in addressing market failures. Through theoretical models and real-world examples, students develop a strong foundation in analyzing and interpreting economic phenomena at the micro-level, equipping them with tools for understanding how various factors influence prices, output, and resource distribution within an economy.
Recommended Textbook
Microeconomics Theory and Applications 11th Edition by Edgar K. Browning
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1890 Flashcards
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Chapter 1: An Introduction to Microeconomics
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Sample Questions
Q1) Candies are on the vertical axis and pretzels are on the horizontal axis.Both goods command a positive price in the market place.The indifference curves are shaped such that the marginal rate of substitution increases rather than decreases.At equilibrium,the consumer will:
A)consume both pretzels and candy in the ratio of their prices.
B)consume only pretzels or only candy.
C)consume both pretzels and candy in the ratio of their marginal utilities.
D)consume equal amounts of pretzels and candy.
Answer: B
Q2) The diminishing marginal rate of substitution along an indifference curve is reflected by its _____.
A)constant slope
B)concavity
C)positive slope
D)convexity
Answer: D
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3
Chapter 2: Supply and Demand
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Sample Questions
Q1) If income of an individual increases from $20,000 to $30,000 and the quantity of X demanded _____,then X is a(n)_____
A)increases;normal good B)increases;inferior good
C)decreases;normal good D)decreases;luxury good
Answer: A
Q2) The equilibrium price of houses in the San Francisco Bay Area has risen dramatically in recent years because:
A)there has been an enormous increase in demand.
B)there has been an enormous increase in supply.
C)there has been an enormous increase in quantity demanded.
D)there has been an enormous increase in quantity supplied.
Answer: A
Q3) Identify the black market that can emerge from rent controls.
A)Rationing
B)Subletting
C)Leasing
D)Licensing
Answer: B
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Chapter 3: The Theory of Consumer Choice
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Sample Questions
Q1) Which of the following can be categorized as a sunk cost of a firm?
A)The retirement benefit provided to the workers
B)The investment on a research project that failed to take-off
C)The higher wages paid to workers for working extra hours
D)The value of the closing stock of inventory
Answer: B
Q2) Theory A is considered to be better than Theory B if:
A)the assumptions of B are more realistic than the assumptions of A.
B)A takes into consideration more facts than B.
C)A predicts or explains a certain phenomenon better than B.
D)A uses more mathematics than B.
Answer: C
Q3) Choosing a combination of goods represented by a point inside the production possibilities frontier indicates:
A)that resources are not scarce.
B)that resources are scarce.
C)rational behavior.
D)irrational behavior.
Answer: D
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Page 5
Chapter 4: Individual and Market Demand
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Sample Questions
Q1) In an effort to deter alcohol consumption by youths,raising the legal age for alcohol consumption causes a _____ the demand curve for alcohol,while raising the federal per unit tax on alcohol would cause a _____ the demand curve.
A)movement along;leftward shift of
B)rightward shift of;movement along C)leftward shift of;movement along D)movement along;rightward shift of
Q2) With respect to the ordinary least-squares technique of estimating an equation, "best fitting" means that the estimated equation line will:
A)be as straight as possible.
B)pass through the minimum number of the observed data points as possible.
C)be as close as possible to the observed data points.
D)maximize the sum of the distances between the estimated line and observed data points.
Q3) A market demand curve for a commodity may be obtained by:
A)dividing the total quantity demanded by all consumers by the price level.
B)dividing the total price paid by the consumers by the number of consumers.
C)adding the prices along individual demand curves for given quantities.
D)adding the quantities along individual demand curves for given prices.
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Page 6
Chapter 5: Using Consumer Choice Theory
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Sample Questions
Q1) In the model of inter-temporal choice,will a person who initially consumes exactly their income in each period have more or less current consumption after a decrease in the interest rate?
Q2) Which of the following is a consequence of subsidizing consumers using a per-unit excise subsidy for the purchase of some good or service as opposed to a lump-sum payment of an equal amount?
A)Consumers will not necessarily be better off according to their own preferences.
B)The deadweight loss from over-consumption of the good or service is avoided.
C)Consumers will move to a higher indifference curve.
D)Consumers' purchase decisions will be based on their true valuation of the good.
Q3) In Figure 5-1,the total cost incurred by the government on the lump-sum transfer is given by _____.
A)CE
B)BF
C)CH
D)BJ
Q4) (
A)How is insurance similar to an individual's diversified portfolio?
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Page 7
Chapter 6: Exchange, Efficiency, and Prices
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Sample Questions
Q1) When the marginal rates of substitution for two consumers differ:
A)the indifference curves of the consumers are tangent.
B)mutually beneficial trade cannot take place.
C)consumers' bargaining skills will determine their position on the contract curve.
D)trade will benefit one of the consumers and harm the other consumer.
Q2) Assume that Jeff and Jane both consume only two goods,burgers and soft drinks.Jeff is willing to trade three soft drinks for one more burger,while Jane is willing to trade only two soft drinks for one more burger.Under these conditions:
A)Jeff should trade soft drinks for burgers.
B)Jeff would be willing to trade,but Jane would not.
C)Jeff should trade burgers for soft drinks.
D)Jane would be willing to trade,but Jeff would not.
Q3) When the marginal rates of substitution [MRSs] for a given distribution of goods differ for two parties,which of the following is incorrect?
A)Mutually beneficial trade is possible.
B)Indifference curves are intersecting.
C)The efficient outcome is unique.
D)Trade can make at least one party better off.
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Chapter 7: Production
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Sample Questions
Q1) What is meant by technological efficiency in production?
A)Using the latest available technology in production
B)Producing the maximum possible output from given inputs
C)Using the least number of inputs in production
D)Minimizing the cost of production
Q2) Refer to Table 7-1.What is the average product of labor when four units of labor are used?
A)10
B)14
C)42
D)33
Q3) In Figure 7-2,a firm would choose to operate _____ on the total product curve.
A)between O and A
B)at point E
C)between B and D
D)between D and E
Q4) What factors give rise to increasing returns to scale and decreasing returns to scale?
Q5) (
A)What are the characteristics of isoquants?
Page 9
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Chapter 8: The Cost of Production
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Sample Questions
Q1) (
A)Consider a firm which produces baseball bats using wood and workers.On a graph with capital (wood)on the vertical axis and labor (workers)on the horizontal axis,draw an isoquant and isocost line such that the firm is minimizing the total cost of producing Q<sub>1</sub> baseball bats.Let this initial point be profit-maximizing.
Q2) Ben decides to expand his ice cream store so he can begin selling sub sandwiches.He spends $20,000 in preparing his new sandwich shop.His marginal cost of selling sub sandwiches is $3 and he estimates that he can sell 10,000 subs for $6 each.He soon learns of a nearby store that is now selling identical subs for $3.50 each.Ben should:
A)quit selling subs since his average total cost of selling subs is greater than the $3.50 price he would now have to charge.
B)sell subs for $3.50 each,considering the $20,000 to be a sunk cost and ignoring it.
C)sell subs as long the price he receives exceeds his average fixed costs of selling subs. D)lower his price to $5 to cover his average total cost of selling subs.
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Chapter 9: Profit Maximization in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 9-4.Given that the market price is $P,the firm will be operating at a loss of _____.
A)TBOV
B)RZOA
C)KTVP
D)GKPS
Q2) Refer to Figure 9-3.At the profit-maximizing level of output:
A)the firm is earning economic profit.
B)profits per unit are the highest.
C)profit equals ZC.
D)costs exceed revenue.
Q3) The short-run supply curve for a competitive industry is upward-sloping because:
A)firms must pay more for inputs as more are hired./firms must incur higher costs the more inputs they hire.
B)the efficiency of the variable inputs decreases as more such inputs are employed in production.
C)new firms enter the industry as product prices increase.
D)of the law of diminishing marginal utility.
Q4) Derive the first-order and second-order conditions for perfect competition.
Page 11
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Chapter 10: Using the Competitive Model
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Sample Questions
Q1) The area under the supply curve represents _____.
A)the variable cost of producing the good or service
B)the fixed cost of producing the good or service
C)the marginal value to the firm from producing the good or service
D)the total revenue earned by the firm from selling the good or service
Q2) Is the outcome of a competitive market efficient? Explain with the help of a graph.
Q3) Explain how entry restrictions imposed on taxis by a city affects fares and profits of licensed taxi owners as demand increases over time.
Q4) Restrictions on entry in the taxicab market tends to benefit _____ the most.
A)the government
B)original recipients of medallions
C)current taxicab drivers
D)taxicab passengers
Q5) For an excise tax which causes output in a market to fall to zero:
A)the tax revenue and deadweight loss are both zero.
B)the tax revenue is positive but there is no deadweight loss.
C)the deadweight loss is equal to the total surplus before the tax.
D)the deadweight loss is equal to the producer's surplus.
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Chapter 11: Monopoly
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Sample Questions
Q1) Refer to Figure 11-6.When the firm operates as a profit-maximizing monopolist as compared to a perfectly competitive firm,producer surplus changes by _____.
A)-ABC
B)P''ABP
C)-AFBG
D)P''ACP
Q2) Given the profit function = R - C,derive a monopolist's profit-maximizing price and quantity.
Q3) Refer to Table 11-2.At the profit-maximizing output,the price elasticity of demand
A)is elastic
B)is inelastic
C)is unit elastic
D)cannot be determined without more information
Q4) Refer to Figure 11-5.A fall in price will increase total revenue _____.
A)between the points C and F
B)between the points E and A
C)between the points A and F
D)at point G
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Chapter 12: Product Pricing With Monopoly Power
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Sample Questions
Q1) The efficiency gains from peak-load pricing depend largely upon:
A)the amount of regulation in the market.
B)the ability of users to cut back on consumption during peak periods.
C)the pricing strategy followed by the firm in the past.
D)the productivity of the inputs used in producing the output.
Q2) Which of the following is true of a price discriminating monopolist employing a two-part tariff on consumers having different demands?
A)They earn less profit than the non-price discriminating monopolists.
B)They supply an output which is higher than the non-price discriminating monopoly output.
C)They set a price that is higher than the non- price discriminating monopoly price.
D)They set an entry fee which is more than the total consumer surplus.
Q3) We would expect price discrimination to be most successful in the market for: A)haircuts.
B)DVD's.
C)cars.
D)jeans.
Q4) What is a two-part tariff? Make up a numerical example to support your definition.
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Page 14
Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Product differentiation and a certain degree of monopoly power are characteristics of:
A)perfectly competitive firms.
B)monopolistically competitive firms.
C)monopoly markets.
D)monopsony markets.
Q2) Assume that there are only three sellers in the aluminium industry each producing identical aluminium sheets.Given that these three firms own all the known sources of aluminium,the _____ model of the market is most applicable to the aluminium industry.
A)oligopoly
B)monopoly
C)dominant firm model
D)monopolistic competition
Q3) The demand curve facing a monopolistically competitive firm is downward-sloping because:
A)substitutes for the good are easily available.
B)the firm produces homogeneous products.
C)there is only one seller in the market.
D)the price/marginal-cost markup is zero.
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Page 15
Chapter 14: Game Theory and the Economics of Information
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Sample Questions
Q1) Assume that two firms are engaged in a pricing rivalry and attempt collusion.If each firm knows that the pricing game will last for a finite number of periods,and the collusion contract is not enforceable,then they will have an incentive to:
A)cheat in every period.
B)cheat in alternate periods.
C)cheat in every period but the first.
D)cheat in every period but the last.
Q2) Advertising is profitable for a firm when:
A)it increases search costs for the consumers of the firm's product.
B)it raises the price of the good being advertised.
C)it makes the demand for the firm's product more inelastic.
D)it reduces the barriers to the entry of new firms.
Q3) A prisoner's dilemma equilibrium is:
A)identical to the monopolistically competitive equilibrium.
B)a Nash equilibrium.
C)not a dominant-strategy equilibrium.
D)the same as the perfectly competitive equilibrium.
Q4) Compare the benefits and the costs of advertising.
Q5) Define adverse selection and moral hazard and give examples of each.
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Chapter 15: Using Noncompetitive Market Models
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Sample Questions
Q1) Refer to Figure 15-2.Since there is a positive deadweight loss from monopoly,which of the following statements must be true?
A)The gain in producer surplus should not exceed $450.
B)The loss in total surplus should be lesser than or equal to $300.
C)The loss in consumer surplus should not exceed $600.
D)The gain in total surplus should exceed the loss in consumer surplus.
Q2) Refer to Table 15-3.When the concept of iterated dominance is used,Abbott and Costello will:
A)not arrive at a unique pricing strategy.
B)use the medium-pricing strategy.
C)use the high-pricing strategy.
D)use the low-pricing strategy.
Q3) The value of the difference between price and marginal cost is a measure of profit per unit only if:
A)marginal cost equals marginal revenue.
B)marginal cost equals average revenue.
C)average cost is greater than marginal revenue.
D)average cost equals marginal cost.
Q4) Define and illustrate iterated dominance and commitment strategy.
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Chapter 16: Employment and Pricing of Inputs
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Sample Questions
Q1) The monopsonist's marginal input cost is greater than its average input cost because:
A)the firm must increase the price it is willing to pay,to increase employment of an input.
B)the monopsonist does not have discretion over the price of the input.
C)the marginal revenue product of labor increases as the number of workers hired increases.
D)the monopsonist faces a downward-sloping input demand curve.
Q2) Which of the following is true of an input that is hired by firms in several industries in the long run?
A)The price of the input is higher in the industry where demand for the input is higher.
B)The price of the input is higher in the industry where the elasticity of demand for the input is higher.
C)The price of the input will remain the same across all the industries.
D)The price of the input will be higher in the industry that has a large number of firms.
Q3) Using calculus,show the profit-maximizing employment of inputs for an output market monopoly.
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18
Chapter 17: Wages, Rent, Interest, and Profit
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Sample Questions
Q1) As a result of the income effect of a higher wage,hours of work will:
A)increase due to a lower opportunity cost of leisure time.
B)fall due to a higher real income enabling greater leisure time.
C)increase due to a higher real income eliciting greater leisure time.
D)fall due to a lower opportunity cost of leisure time.
Q2) Economic rent accrues to:
A)owners of monopsony firms.
B)owners of monopoly firms
C)consumers in competitive markets.
D)suppliers in input markets.
Q3) What does the height of the demand curve in a labor market represent?
A)The value of output produced by an incremental worker
B)The increase in revenue from the sale of an additional unit of output
C)The marginal cost of hiring an additional worker
D)The payment made to an individual worker
Q4) The more inelastic the labor supply curve:
A)the smaller the economic rent as a percentage of total wage payment.
B)the larger the economic rent as a percentage of total wage payments.
C)the more responsive the supply of labor to a change in wage.
D)the more responsive the supply of labor to the price of the final good.
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Chapter 18: Using Input Market Analysis
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Sample Questions
Q1) What is the long run effect of a pay-as-you-go Social Security program on the gross domestic product [GDP] of a country?
Q2) Provide a self-interested explanation for why labor unions spend a lot of time and money lobbying for increases in minimum wage mandates and for legislated "living wage" ordinances even though their members earn far more than the proposed wages.
Q3) Suppose the firms in a competitive industry form a cartel to reduce the price of one of the inputs they purchase.Which of the following will result from this collusive behavior?
A)The firms will employ fewer units of the input whose price they want to reduce.
B)The firms will substitute other inputs for the input whose price they want to reduce.
C)The price of the firms' final product will increase.
D)The firms will be able to earn lower profits.
Q4) A cartel agreement between input buyers would try to:
A)make the supply curve of their product more elastic.
B)shift their demand curve for labor to the right.
C)replicate monopsony and reduce input prices.
D)replicate monopoly and increase prices.
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Page 20
Chapter 19: General Equilibrium Analysis and Economic Efficiency
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Q1) Assume that the clothing (C)market is a monopoly but perfect competition prevails in the market for food (F).Which of the following is true in this context?
A)The price ratio of clothing and food equals the ratio of their marginal costs.
B)The price ratio of clothing and food is greater than the ratio of their marginal costs.
C)The price ratio of clothing and food is less than the ratio of their marginal costs.
D)The price ratio of clothing and food equals unity.
Q2) Which of the following statements about the welfare frontier is incorrect?
A)Some of the points on the welfare frontier are efficient.
B)The welfare frontier is downward sloping.
C)Any point on the welfare frontier is preferred to any point inside it.
D)the marginal rate of substitution [MRS] is equal to the marginal rate of transformation [MRT] at all points on the welfare frontier.
Q3) If the labor market is perfectly competitive:
A)the equilibrium wage will be equal to the minimum wage.
B)the rate of unemployment will be zero.
C)the wage rate will be the same in all the industries.
D)the demand for labor will be perfectly inelastic.
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Page 21
Chapter 20: Public Goods and Externalities
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Q1) In Figure 20-1,if the government levies a tax of $8 per unit of output,then:
A)the marginal social benefit will exceed the marginal social cost and the good will be underproduced.
B)marginal social benefit will not exceed the marginal social cost and the good will not be overproduced.
C)marginal social benefit will exceed the marginal social cost and the good will be overproduced.
D)marginal social cost will exceed the marginal social benefit and the good will be overproduced.
Q2) From Figure 20-2,we can conclude that to help the market attain the efficient level of output,the government should:
A)provide a subsidy of $8 per unit to the producer.
B)impose a tax of $4 per unit of production.
C)provide a subsidy of $3 per unit to the producer.
D)impose a tax of $3 per unit of production.
Q3) Explain with the help of a suitable real life example how common resources are depleted if property rights are not ensured?
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