Microeconomics for Business
Chapter Exam Questions
Course Introduction
Microeconomics for Business provides students with a foundational understanding of how individuals and firms make decisions in competitive markets, focusing on the allocation of scarce resources and the role of prices. The course covers core topics such as supply and demand, elasticity, consumer behavior, production and costs, market structures, pricing strategies, and the impact of government intervention. Emphasis is placed on real-world business applications and decision-making, enabling students to analyze market dynamics and optimize outcomes within various economic environments.
Recommended Textbook
Microeconomics 2nd Edition by Dean Karlan
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Page 2
Chapter 1: Economics and Life
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Sample Questions
Q1) A car dealer advertises free satellite radio for one year with the purchase of a new car.This is an example of:
A) bait and switch.
B) marginal sales.
C) an incentive.
D) voluntary exchange.
Answer: C
Q2) Making a decision "on the margin" involves comparing:
A) additional benefits against additional costs.
B) total benefits against total costs, which include benefits and costs from past decisions.
C) sunk costs against opportunity costs.
D) the most benefit you could expect to get without considering costs.
Answer: A
Q3) Applying for a loan in five-person groups is an example of:
A) family and friends lending.
B) party of five lending.
C) group responsibility.
D) trade-off.
Answer: C
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Chapter 2: Specialization and Exchange
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Sample Questions
Q1) The concepts of specialization and gains from trade can be applied to:
A) international trade.
B) why globalization has expanded recently.
C) consumer decisions.
D) household decisions.
Answer: D
Q2) We say that a country completely specializes in production when it spends all of its resources producing:
A) a particular good.
B) those goods it has an absolute advantage in producing.
C) only what other countries need.
D) what it can make more of than anyone else.
Answer: A
Q3) When a country is producing goods and services efficiently it:
A) is producing at a point on or below its production possibilities frontier.
B) is getting the most output by using all its available resources.
C) has unemployed workers.
D) is able to reach a point beyond its production possibilities frontier.
Answer: B
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Page 4
Chapter 3: Markets
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Sample Questions
Q1) Perfectly competitive markets are:
A) the most common type of market in our economy.
B) hard to find in a real world setting.
C) made up principally by consumer goods.
D) typically found in industrial sectors of our economy.
Answer: B
Q2) If producers incorrectly set the price of their product too low a:
A) shortage will result and consumers will bid the price down to equilibrium.
B) surplus will result and excess goods in inventory will signal the producers to lower their prices.
C) shortage will result and consumers will bid the price up to equilibrium.
D) surplus will result and excess goods in inventory will signal the producers to restrict output until sales increase.
Answer: C
Q3) Oliver just brought home a new kitten.We could expect Oliver's demand for:
A) cat toys, a complementary good, to increase.
B) cat toys, a complementary good, to decrease.
C) dog toys, a substitute good, to increase.
D) dog toys, a substitute good, to decrease.
Answer: A
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Chapter 4: Elasticity
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Sample Questions
Q1) Suppose when the price of coffee beans goes from $1 to $1.20 per pound,production increases from 90 million pounds of coffee beans to 110 million pounds per year.Using the mid-point method,the percentage change in quantity supplied is:
A) 20 percent
B) 18 percent
C) 0.6
D) 6.0
Q2) Suppose a decrease in price increases quantity demanded from 8 to 12.Using the mid-point formula,the percentage change in quantity demanded is:
A) 0.1, and is elastic.
B) 40 = 400 percent.
C) 0.40 = 40 percent.
D) 0.40 = 40 percent
Q3) A good with an income elasticity of 0.4 is:
A) a luxury good.
B) a normal good.
C) an inferior good.
D) a substitute good.
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6
Chapter 5: Efficiency
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Sample Questions
Q1) Assume there are three hardware stores,each willing to sell one standard model hammer in a given time period.House Depot can offer their hammer for a minimum of $7.Lace Hardware can offer the hammer for a minimum of $10.Bob's Hardware store can offer the hammer at a minimum price of $13. Given the scenario described,if the market price of hammers increased from $9 to $12,total producer surplus would increase by:
A) $1.
B) $3.
C) $5.
D) $7.
Q2) If Claire's reservation price on a sweater is $37,which of the following prices would she have to observe in the market in order to buy a sweater?
A) $37.01
B) $38.00
C) $37.00
D) Claire would not buy a sweater at any of these prices.
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Chapter 6: Government Intervention Microeconomics
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Sample Questions
Q1) When a tax is placed on sellers:
A) sellers always bear a higher incidence than buyers.
B) buyers always bear a higher incidence than sellers.
C) the effect on the price buyers pay and sellers receive is the same as a tax on buyers.
D) None of these is true.
Q2) A price ceiling is:
A) a legal maximum price.
B) a legal minimum price.
C) a legal maximum quantity that can be sold at a particular price.
D) a legal minimum quantity that can be sold at a particular price.
Q3) Positive analysis:
A) is the best way to analyze a policy.
B) leads to the best solutions.
C) is the only way to analyze a policy.
D) examines if the policy actually accomplished its goals.
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Chapter 7: Consumer Behavior
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Sample Questions
Q1) Howard has just smoked a cigarette.If he chooses to smoke a second one:
A) he will experience a drop in total utility.
B) he is not acting rationally.
C) he will derive less marginal utility from it than his first.
D) None of these is true.
Q2) Which of the following statements is true about individuals and utility?
A) Individuals seek to maximize utility.
B) Individuals seek to maximize their income, not utility.
C) Individuals will either minimize or maximize utility depending on the situation.
D) Individuals rarely try to maximize their utility.
Q3) Johnny spends his day doing a variety of activities; he spends the morning exercising and doing yard work,reads in the afternoon,and hosts a dinner party in the evening.Economists would say his choice to do a variety of activities instead of spending all of his time on one activity illustrates the concept of:
A) tastes and preferences
B) budget constraints
C) diminishing marginal utility
D) income effect
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Chapter 8: Behavioral Economics: A Closer Look at Decision Making
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Sample Questions
Q1) Behavioral economists recommend mechanisms to help people actually do things they say they want to do but often don't.Such mechanisms are often called
A) savings rates.
B) charitable donations.
C) self-control.
D) commitment devices.
Q2) Economists believe that people who force themselves to always eat everything on their plate at a restaurant,regardless of how full they might feel,likely do so because:
A) they gain negative utility from insulting the chef.
B) they overvalue the opportunity costs of their health and time involved with eating food they don't really want.
C) they include the sunk cost of their meals in making their decision.
D) they undervalue the true benefit of eating too much.
Q3) Undervaluing of opportunity cost sometimes occurs because:
A) the opportunity cost is easy to visualize.
B) the benefit is difficult to visualize.
C) the opportunity cost is hard to visualize.
D) opportunity cost is just theoretical.
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Chapter 9: Game Theory and Strategic Thinking
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Sample Questions
Q1) In real life,people's behavior is constrained by:
A) laws of nature.
B) legislated rules of society.
C) costs of various actions.
D) All of these are rules that constrain people's behavior.
Q2) In games:
A) there is only one strategy associated with each outcome.
B) there are several strategies that can achieve a single goal.
C) all strategies followed in one particular game should all be similar in order to be successful.
D) if one person's strategy is wildly different from those of others, he will typically come in first or last.
Q3) In the real world,wage negotiations typically do not drag on for years:
A) because the company can simply offer the split that would eventually occur if the two sides played all the rounds.
B) because neither a company nor employees can afford to not work for that long.
C) unless the employees play an ultimatum game using a union to negotiate.
D) None of these statements is true.
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11
Chapter 10: Information
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Sample Questions
Q1) A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:
A) statistical discrimination.
B) signaling.
C) mandating that information be shared.
D) All of these are ways the government deals with information asymmetry.
Q2) A job candidate refusing to take a drug test for a potential employer is an example of:
A) screening.
B) building a reputation.
C) signaling.
D) principles-based behavior.
Q3) The "lemons" problem is used to explain the concept of:
A) complete information.
B) adverse selection.
C) moral hazard.
D) produce markets.
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Page 12
Chapter 11: Time and Uncertainty
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Sample Questions
Q1) Suppose Jack and Kate are at the town fair and are choosing which game to play.The first game has a bag with four marbles in it-1 red marble and 3 blue ones.The player draws one marble from the bag; if it is red,they win $20 and if it is blue,they win $1.The second game has a bag with 10 marbles in it-1 red,4 blue,and 5 green.The player draws one marble from the bag; if it is red,they win $20; if it is blue,they win $5; and if it is green,they win $1.Both games cost $5 to play.What is the probability of drawing a red marble in each game?
A) 10 percent in both games
B) 10 percent in the first game and 25 percent in the second game
C) 25 percent in the first game and 10 percent in the second game
D) 25 percent in both games
Q2) In the context of insurance,everyone typically has to pay a higher premium because of:
A) risk pooling.
B) diversification.
C) risk aversion.
D) adverse selection.
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Page 13
Chapter 12: The Costs of Production
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Sample Questions
Q1) Suppose Winston's annual salary as an accountant is $60,000,and his financial assets generate $4,000 per year in interest.One day,after deciding to be his own boss,he quits his job and uses his financial assets to establish a consulting business,which he runs out of his home.To run the business,he outlays $8,000 in cash to cover all the costs involved with running the business,and earns revenues of $150,000.What are Winston's accounting profits?
A) $78,000
B) $142,000
C) $138,000
D) $150,000
Q2) Accounting profits can tell a business _______________________,and economic profits can tell a business ______________________.
A) if it is making money with this venture; if it can make more money with a different venture
B) if it can make more money with a different venture; if it is making money with this venture
C) if it is a profitable business; if it can be any more profitable
D) if it can be any more profitable; if it is profitable
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Page 14
Chapter 13: Perfect Competition
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Sample Questions
Q1) In reality,the long-run supply curve tends to be:
A) perfectly elastic.
B) perfectly inelastic.
C) upward sloping.
D) downward sloping.
Q2) An example of a standardized good is:
A) cereal.
B) iron.
C) soda.
D) pizza.
Q3) Firms in perfectly competitive markets who wish to maximize profits should produce:
A) more as long as marginal cost is greater than marginal revenue.
B) less as long as marginal cost is less than marginal revenue.
C) at the level where marginal cost equals marginal revenue.
D) All of these are true.
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Chapter 14: Monopoly
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Sample Questions
Q1) A market in which a single firm can produce,at a lower cost than multiple firms,the entire quantity of output demanded is called:
A) diseconomies of scale.
B) government intervention.
C) a natural monopoly.
D) price gouging.
Q2) The equilibrium price and quantity in a monopoly market:
A) is efficient.
B) is the same as a perfectly competitive market.
C) causes a loss of total surplus.
D) causes no welfare costs.
Q3) To avoid subsidies,the government should cap the price for natural monopolies at their:
A) marginal cost.
B) average total cost.
C) average variable cost.
D) fixed cost.
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Chapter 15: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) When firms are faced with repeating games,such as the prisoner's dilemma,they:
A) are more likely to collude.
B) are less likely to collude.
C) will tend to act more like perfectly competitive firms.
D) will be more likely to renege on agreements.
Q2) The price effect is smaller when there:
A) are fewer firms.
B) are more firms.
C) is more demand.
D) is less demand.
Q3) The process of entry and exit into a monopolistically competitive market continues until:
A) profits are zero.
B) long-run equilibrium is reached.
C) price is equal to average total cost.
D) All of these statements are true.
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Chapter 16: The Factors of Production
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Sample Questions
Q1) If Donald receives a pay raise and the income effect outweighs the price effect on his labor supply decisions,he will work:
A) more hours.
B) less hours.
C) the same amount.
D) less hours initially but eventually work more.
Q2) A firm deciding how many hours to hire can be represented:
A) with an individual labor-supply curve.
B) in the market labor-supply curve.
C) with an individual labor-demand curve.
D) in the market labor-demand curve.
Q3) In the capital market,the rental price is what a:
A) producer pays to use a factor of production for a certain period or task.
B) producer pays to gain permanent ownership of a factor of production.
C) consumer pays to use labor or land services for a certain period or task.
D) consumer pays to gain permanent ownership of a factor of production.
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Chapter 17: International Trade
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Sample Questions
Q1) Actions that reduce trade restrictions and promote free trade are often referred to as:
A) trade liberalization.
B) trade protectionism.
C) free trade politicism.
D) autarky.
Q2) A country is likely to have a comparative advantage in a land-intensive activity if it has a:
A) lot of land relative to its population.
B) large population relative to its landmass.
C) higher opportunity cost of producing technology.
D) large amount of capital equipment relative to its population.
Q3) The World Trade Organization (WTO)is an international organization designed to:
A) monitor and enforce trade agreements, while also promoting free trade.
B) monitor and enforce world banking policies, and lending between nations.
C) provide a forum for all nations to have discussion on various international issues of concern.
D) international governing body that is the final arbiter of all world trade.
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Chapter 18: Externalities
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Sample Questions
Q1) When negative externalities are present in a market,it means that:
A) private costs are less than social costs.
B) private costs are less than external costs.
C) social costs are less than external costs.
D) external costs are equal to social costs.
Q2) A Pigovian tax imposed on consumers ___________ the price,and if the same tax were imposed on producers,it would _____________ the price.
A) increases; decrease
B) decreases; increase
C) increases; increase
D) decreases; decrease
Q3) Efficiency is reached by allocating resources to those who have the greatest willingness to pay for them.This can be achieved in a market where a negative externality is present by:
A) taxing consumers.
B) giving consumers a subsidy.
C) place a quota at the efficient level.
D) All of these will achieve efficiency.
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20
Chapter 19: Public Goods and Common Resources
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Sample Questions
Q1) The free rider problem is caused by the:
A) nonexcludability of a good leading to the undersupply of it.
B) incentive to oversupply the good since it is nonrival in consumption.
C) "rivalness" in consumption of a good leading to the overconsumption of that good.
D) "rivalness" in consumption of a good leading to the undersupply of it.
Q2) When a good is excludable:
A) one person's consumption prevents or decreases others' ability to consume it.
B) it is possible for sellers to prevent its use by those who have not paid for it.
C) consumers have a perception of scarcity of that good.
D) the government has specific import policies limiting its supply.
Q3) A smart phone would be considered:
A) a common resource.
B) a private good.
C) a public good.
D) an artificially scarce good.
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Chapter 20: Taxation and the Public Budget
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Sample Questions
Q1) A progressive tax:
A) takes the same percentage of taxes from income from all taxpayers.
B) requires those with low incomes to pay a smaller percentage of their income than high-income people.
C) is levied so that low-income taxpayers pay a greater proportion of their income toward taxes than high-income taxpayers.
D) taxes everyone the same amount, regardless of their income.
Q2) A lump-sum tax is:
A) a head tax.
B) the most efficient form of taxation.
C) a tax that charges the same amount to each taxpayer.
D) All of these statements are true.
Q3) FICA,the tax that supports Medicare and Social Security,is generally:
A) proportional.
B) progressive.
C) regressive.
D) a flat tax that adjusts with inflation.
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Chapter 21: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) The international poverty line at $1.90 a day at purchasing power parity means that in each country the poverty line is the amount that will allow you to buy a basket of goods equivalent to what $1.90 would buy:
A) in the United States.
B) in the richest of the countries that uses the index.
C) in the poorest of the countries that uses the index.
D) in the average economy of all the countries that use the index.
Q2) In the United States,the official poverty line is based on:
A) the price of housing.
B) the price of clothing.
C) the price of food.
D) the average income of the lowest quartile of income earners.
Q3) The region with the highest percentage of people who live on less than $1.90 a day is:
A) sub-Saharan Africa.
B) South Asia.
C) China.
D) None of these is true.
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Chapter 22: Political Choices
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Sample Questions
Q1) To have an ideal voting system in place,if a group is voting on option X versus option Y,this decision should not depend on any information or preference about another unconnected option,Z.In other words,which of the following criteria must be present in the voting system?
A) Independence of irrelevant alternatives
B) Transitivity
C) No dictator
D) Unanimity
Q2) Compared to two-party systems,proportional-representation systems are thought to:
A) lead to more centrist policies.
B) offer a wider variety of platforms among which voters can choose.
C) create unwieldy combinations of policies within one platform.
D) be much less efficient and lead to very few compromises when voting.
Q3) Research has shown that the chances of one vote making a difference in an election is:
A) 0.001 %.
B) 0.10 %.
C) 0.01 %.
D) 99.999 %.
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Chapter 23: Public Policy and Choice Architecture
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Sample Questions
Q1) Jim,an avid biker,broke his leg last year and will never be able to use his bike again.He was offered $100 for it last year,but Jim refused to sell it,insisting it was worth more.A year later,he's offered only $75 for it,but Jim still refuses to sell it.Jim's behavior could be explained by:
A) limited processing power.
B) the endowment effect.
C) status quo bias.
D) substitution effect.
Q2) When considering choice architecture,a nudge:
A) allows participants to choose among only choices that are good for them. B) can sometimes accomplish public policy goals in a less expensive way than traditional methods.
C) presents choices that are similar to participants' ideal choices, but are slightly better than them.
D) is a deliberate push by choice architect to get all people to behave a certain way.
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