Microeconomics Exam Practice Tests
Course Introduction
Microeconomics is the branch of economics that focuses on the behavior and decision-making processes of individual households, firms, and industries. The course explores how these units interact in various types of markets to allocate scarce resources, determine prices, and distribute goods and services. Key topics include the theory of supply and demand, consumer choice, production and costs, market structures such as perfect competition and monopoly, and the role of government intervention. Through analytical and graphical models, students gain a foundational understanding of how microeconomic principles drive everyday economic interactions and inform business and policy decisions.
Recommended Textbook
Microeconomic Theory Basic Principles and Extensions 10th Edition by Walter Nicholson
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17 Chapters
334 Verified Questions
334 Flashcards
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Chapter 1: Preferences and Utility
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12 Verified Questions
12 Flashcards
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Sample Questions
Q1) Indifference curves
A)are non-intersecting.
B)are contour lines of a utility function.
C)are negatively sloped.
D)all of these are correct.
Answer: D
Q2) If utility is given by \(U ( x , y ) = x ^ { 2 } + 2 x y + y ^ { 2 }\) ,this person's indifference curves are
A)parabolas.
B)hyperbolas.
C)concentric circles.
D)straight lines.
Answer: D
Q3) Which of the following utility functions represent the same preferences as \(U ( x , y ) = \sqrt { x \cdot y }\)
A) \(U ( x , y ) = 10 \sqrt { x y }\) .
B)U(x,y)= x . y.
C)U(x,y)= ln x + ln y.
D)All of these represent the same preferences.
Answer: D
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Chapter 2: Utility Maximization and Choice
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13 Verified Questions
13 Flashcards
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Sample Questions
Q1) If utility is given by \(U ( x , y ) = x ^ { 2 } + y ^ { 2 }\) and p<sub>x</sub> = 2,p<sub>y</sub> = 3,I = 50,this person will choose A)(10,10).
B)(15,6.67).
C)(25,0).
D)(0,50/3).
Q2) Suppose that at current consumption levels an individual's marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 2.Then the MRS (of soft drinks for hot dogs)-- that is,the number of hot dogs the individual is willing to give up to get one more soft drink-is A)5.
B)2.
C)1/2.
D)1/5.
Q3) An increase in an individual's income without changing relative prices will A)rotate the budget constraint about the X-axis.
B)shift the indifference curves outward.
C)shift the budget constraint outward in a parallel way.
D)rotate the budget constraint about the Y axis.
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Page 4
Chapter 3: Income and Substitution Effects
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19 Verified Questions
19 Flashcards
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Sample Questions
Q1) A decrease in demand is represented by
A)a shift outward of the entire demand curve.
B)a shift inward of the entire demand curve.
C)a movement along the demand curve in a southeasterly direction.
D)a movement along the demand curve in a northwesterly direction.
Q2) If the demand for a product is elastic,then a rise in price will
A)cause total spending on the good to increase.
B)cause total spending on the good to decrease.
C)keep total spending the same,but reduce the quantity demanded.
D)keep total spending the same,but increase the quantity demanded
Q3) If the compensated and Marshallian demand curves for a good intersect,at that point the Marshallian curve will be
A)flatter if this is a normal good.
B)steeper if this is a normal good.
C)flatter if this is an inferior good.
D)horizontal.
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Chapter 4: Demand Relationships Among Goods
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18 Verified Questions
18 Flashcards
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Sample Questions
Q1) Quasi-concavity of utility functions insures that with only two goods,these goods must be
A)gross substitutes.
B)gross complements.
C)net substitutes.
D)net complements.
Q2) With only two goods,x and y,if x and y are gross substitutes,a rise in p<sub>x</sub> must necessarily
A)increase spending in x.
B)reduce spending in x.
C)increase spending in y.
D)reduce spending in y.
Q3) The primary additional insight provided by expanding the theory of choice from two to three goods is that a pair of goods may now be
A)gross substitutes.
B)gross complements.
C)net substitutes.
D)net complements.
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6
Chapter 5: Uncertainty and Information
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16 Verified Questions
16 Flashcards
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Sample Questions
Q1) Risk aversion is best explained by A)timidness.
B)increasing marginal utility of wealth.
C)constant marginal utility of wealth.
D)decreasing marginal utility of wealth.
Q2) Which of the following utility functions exhibits constant absolute risk aversion?
A)U(W)= W.
B) \(U ( W ) = W - 0.5 W ^ { 2 }\)
C)U(W)= ln W.
D)U(W)= \(- e ^ { - W }\) .
Q3) Expected value is defined as
A)the profit on a fair bet.
B)the most likely outcome of a given experiment.
C)the outcome that will occur on average for a given experiment.
D)the relative frequency with which an event will occur.
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Chapter 6: Strategy and Game Theory
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Sample Questions
Q1) In a mixed-strategy Nash equilibrium,a player is willing to randomize because A)this confuses opponents.
B)he or she is indifferent between the actions in equilibrium.
C)the actions provide the same payoffs regardless of what the other player does.
D)he or she does not know what the other player is doing.
Q2) A Nash equilibrium is a set of strategies that are mutual A)best responses.
B)dominant strategies.
C)Pareto optima.
D)All of these answers are correct.
Q3) For an infinitely repeated game promising A per period with continuing cooperation,B for the one period gain from cheating and C per period for the non-cooperative solution (B > A > C)will have a subgame perfect Nash equilibrium in trigger strategies providing
A) > B/(A + C).
B) > (B - A)/(B - C).
C) > B/(A - C).
D) > A/(B + C).
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Chapter 7: Production Functions
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14 Flashcards
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Sample Questions
Q1) Graphically,the average productivity of labor is illustrated by
A)the slope of the total product curve at the relevant point.
B)the slope of the marginal productivity curve at the relevant point.
C)the negative of the slope of the marginal productivity curve at the relevant point.
D)the slope of the chord connecting the origin with the relevant point on the total output curve.
Q2) The production function \(q = \sqrt { k l }\)
A)exhibits constant returns to scale and constant marginal productivities for k and l.
B)exhibits diminishing returns to scale and diminishing marginal productivities for k and l.
C)exhibits constant returns to scale and diminishing marginal productivities for k and l.
D)exhibits diminishing returns to scale and constant marginal productivities for k and l.
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9
Chapter 8: Cost Functions
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Sample Questions
Q1) The input demand functions that can be derived from cost functions are referred to as "contingent" demand functions because the functions:
A)assume input costs are constant.
B)express input demand as a function of output.
C)depend on the assumption of profit maximization.
D)assume constant returns to scale in production.
Q2) For any given output level,a firm's long-run costs
A)are always greater than or equal to its short-run costs.
B)are usually greater than or equal to its short-run costs except in the case of diminishing returns to scale.
C)are always less than or equal to its short-run costs.
D)are usually less than or equal to its short-run costs except in the case of diminishing returns to scale.
Q3) The average fixed cost curve always has a negative slope because
A)marginal costs are below average fixed costs.
B)average variable costs exceed marginal costs.
C)total fixed costs always decrease.
D)total fixed costs do not change as output increases.
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10
Chapter 9: Profit Maximization
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32 Verified Questions
32 Flashcards
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Sample Questions
Q1) If the demand curve a firm faces shifts to the right,usually
A)it would be impossible to tell whether the marginal revenue curve shifts.
B)the marginal revenue curve would shift to the left.
C)the marginal revenue curve would shift to the right.
D)the marginal revenue curve would not shift.
Q2) If the wage rate rises,labor's share in the total costs of a production process
A)will increase.
B)will decrease.
C)may increase or decrease depending on the elasticity of demand for the product.
D)may increase or decrease depending on the ease of substitution of other inputs for labor.
Q3) Input demand functions that are calculated from profit functions differ from those calculated from cost functions because
A)they assume cost-minimization.
B)they hold output constant.
C)they assume output price is constant.
D)they assume output is set at its profit-maximizing level.
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Chapter 10: The Partial Equilibrium Competitive Model
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31 Verified Questions
31 Flashcards
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Sample Questions
Q1) Long-run producer surplus in a perfectly competitive industry accrues mainly to
A)suppliers of inputs with inelastic supply curves.
B)suppliers of inputs with elastic supply curves.
C)firms' owners.
D)marginal consumers.
Q2) Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves because
A)free entry implies that long-run profits will be zero no matter how much each firm produces.
B)firms seek maximum profits and to do so they must choose to produce where average costs are minimized.
C)firms maximize profits and free entry implies that maximum profits will be zero.
D)firms in the industry desire to operate efficiently.
Q3) The market demand curve for any good is
A)independent of individuals' demand curves for the good.
B)the vertical summation of individuals' demand curves.
C)the horizontal summation of individuals' demand curves.
D)derived from the firm's marginal cost of production.
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Chapter 11: General Equilibrium and Welfare
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24 Verified Questions
24 Flashcards
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Sample Questions
Q1) Each of the following factors might interfere with the efficiency of perfect competition except:
A)increasing returns to scale.
B)imperfect price information.
C)externalities.
D)diminishing returns to scale.
Q2) Suppose that the two persons in an exchange economy (A and B)have utility functions given by \(\begin{array} { l }
U _ { A } = x + 2 y \\
U _ { B } = \sqrt { x y }
\end{array}\) Along the contract curve,B's ratio of Y to X will be
A)2:1.
B)1:1.
C)1:2.
D)between 1:1 and 1:2.
Q3) Every allocation of goods in a one good world is efficient because A)MRSs are equalized.
B)there is enough to go around for everyone.
C)no one can be made better off without making someone else worse off.
D)it doesn't matter to whom an extra unit of the good is given.
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Chapter 12: Monopoly
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Sample Questions
Q1) Which of the following is not a technical barrier to entry in a monopolized market?
A)A patent.
B)Decreasing average cost.
C)A low cost method of production known only by monopolist.
D)Increasing returns to scale.
Q2) The principal difference between economic profits for a monopolist and for a competitive firm is that
A)monopoly profits create major problems of equity whereas competitive profits do not.
B)competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.
C)monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not.
D)monopoly profits are usually larger than competitive profits.
Q3) A monopoly's economic profits are represented by
A)(price minus marginal cost)times number of units sold.
B)(price minus average cost)times number of units sold.
C)(marginal revenue minus price)times number of units sold.
D)(marginal cost minus price)times number of units sold.
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Page 14
Chapter 13: Imperfect Competition
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21 Flashcards
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Sample Questions
Q1) Which of the following factors might explain why the long-run equilibrium number of firms can in some instances exceed the socially optimal number?
A)The appropriability effect (the increase in consumers surplus following entry is not "appropriated" by entrants).
B)The feedback effect (an increase in the number of firms increases the competitiveness of the market).
C)The business-stealing effect (entry reduces rival firms' profits,a social loss that entrants do not account for).
D)The ratchet effect (the more profits the entrants earn,the more the stockholders expect them to earn in the future).
Q2) Product differentiation complicates the study of oligopolies because such markets may not
A)be efficient.
B)have prices equal to marginal cost.
C)have free entry and exit.
D)obey the law of one price.
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15
Chapter 14: Labor Markets
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Sample Questions
Q1) The slope of an individual's "consumption-leisure" budget constraint is
A)24 hours minus the number of leisure hours.
B)total consumption divided by the wage rate.
C)the real wage rate.
D)the negative of the real wage rate.
Q2) A monopolist union that desired to maximize its total wage bill (w . l)would offer that quantity of labor for which
A)labor's marginal productivity is zero.
B)labor's wage falls to zero.
C)the quantity of labor hired is as great as possible given the firm's demand curve.
D)the marginal revenue from providing one more worker to the market is zero.
Q3) If a firm is a monopsonistic hirer of labor
A)its marginal expense for labor is greater than the market wage.
B)its marginal expense for labor is equal to the market wage.
C)its marginal expense for labor is less than the market wage.
D)it is a price taker in the labor market.
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Chapter 15: Capital and Time
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17 Flashcards
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Sample Questions
Q1) The present value of $1 payable in the future decreases
A)the higher r is and the sooner it is to be paid.
B)the lower r is and the sooner it is to be paid.
C)the higher r is and the longer time until it is paid.
D)the lower r is and the longer time until it is paid.
Q2) In a perfectly competitive market a firm's rental rate for a machine (v)will be given by: v = p(r + d)where r is the prevailing rate of interest and d is the depreciation rate.In this formula p represents
A)the present market price of the machine.
B)the initial purchase price of the machine (assuming this differs from its present market price.
C)the price of the firm's product.
D)the depreciated value of the machine.
Q3) A rise in interest rates leads to
A)an increase in the PDV of profits from owning a machine.
B)a decrease in the PDV of profits from owning a machine.
C)offsetting the effects on the costs and benefits of owning a machine.
D)no effect on either the costs or benefits of owning a machine.
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17
Chapter 16: Asymmetric Information
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Sample Questions
Q1) Which of the following illustrates adverse selection?
A)Individuals sometimes mistakenly buy defective cameras.
B)Individuals will not search for bargains for low cost items.
C)Individuals know a lot about their family health history when they buy insurance.
D)Individuals can choose whether to drive safely or not.
Q2) Which of the following is not a straightforward example of a (principal \(\rightarrow\) agent)relationship?
A)Homeowner \(\rightarrow\) real estate agent.
B)Shareholder \(\rightarrow\) manager.
C)Manager \(\rightarrow\) line employee.
D)Doctor \(\rightarrow\) patient.
Q3) When the monopoly insurer cannot observe the care taken by the insured party to avoid an accident,the most profitable contract for it
A)offers full insurance at a higher price than the full-information policy.
B)offers full insurance at a lower price than the full-information policy.
C)offers partial insurance at a higher price than the full-information policy.
D)offers partial insurance at a lower price than the full-information policy.
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Page 18
Chapter 17: Externalities and Public Goods
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Sample Questions
Q1) The "free-rider problem" of public goods refers to
A)individuals' refusal to pay taxes.
B)individuals' attempts to hide their preferences for collective goods and to avoid paying for them.
C)individuals' over?use of collective goods.
D)the inelasticity of individuals' demands for public goods.
Q2) Special interest groups often
A)represent broad questions of public interest.
B)pursue rent seeking behavior.
C)do not use lobbying techniques.
D)have no effect on the political process.
Q3) A nonexclusive good is a good which
A)is sold in various markets.
B)is impossible to keep people from enjoying the benefits the good provides.
C)is produced by a perfectly competitive firm.
D)is produced at the lowest possible cost.
Q4) Left to their own,private markets tend to
A)underallocate resources to public goods.
B)allocate the economically efficient amount of resources to public goods.
C)overallocate resources to public goods.
Page 19
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