Microeconomics for Business Practice Questions
Course Introduction
Microeconomics for Business examines the fundamental principles of microeconomic theory and their practical application in business decision-making. The course explores concepts such as supply and demand, consumer behavior, production and costs, market structures, pricing strategies, and the impact of government regulation. Through real-world case studies and analytical tools, students learn to evaluate how individual consumers and firms interact within markets, optimize resource allocation, and make informed decisions to maximize profitability and efficiency in a competitive environment.
Recommended Textbook
Foundations of Microeconomics 7th Edition by Robin Bade
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5301 Verified Questions
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Page 2
Chapter 1: Getting Started
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Sample Questions
Q1) To show how a variable ________,we typically use a ________.
A) relates to another variable; time series graph
B) relates to another variable; pie chart
C) changes over time; time series graph
D) changes over time; cross section graph
E) changes over time; cross time chart
Answer: C
Q2) All economic questions and problems arise from
A) the fact that society has more than it needs.
B) turmoil in the stock market.
C) the unequal distribution of income.
D) a society's wants exceeding what its scarce resources can produce.
E) the difference between self-interest and social interest.
Answer: D
Q3) What is a positive statement? Give an example.
Answer: A positive statement addresses "what is" and can be tested.An example of a positive statement is "An increase in the price of gasoline decreases the quantity of gasoline demanded."
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3
Chapter 2: The USand Global Economies
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Sample Questions
Q1) Which of the following is<u>NOT</u>shown explicitly in the circular flow model?
A) the governments' purchases in the goods market
B) the taxes the governments collect from households
C) the governments' interaction with firms
D) the legal system
E) the transfers the governments make to households
Answer: D
Q2) As the circular flow model points out,a choice that households make is how
A) many resources a firm will hire.
B) many goods and services are produced.
C) many goods and services are purchased.
D) much labor is hired.
E) much the government will collect in taxes and how much the government will spend on transfer payments.
Answer: C
Q3) What is meant by the term "human capital"?
Answer: Human capital refers to the skills people possess.These skills help increase the quality of labor.Human capital can be increased through education,on the job training,and experience.The knowledge and skill gained from these improvements are called human capital.
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Chapter 3: The Economic Problem
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Sample Questions
Q1) If Toni has an absolute advantage in both sewing and ironing when compared to Tom,then
A) they might benefit from trading, but we need more information to determine in which task they should specialize.
B) neither Toni nor Tom can benefit from trading with each other.
C) Toni should specialize in sewing, and Tom should specialize in ironing.
D) Toni cannot benefit from trading with Tom, but Tom can benefit from trading with Toni.
E) Tom cannot benefit from trading with Toni, but Toni can benefit from trading with Tom.
Answer: A
Q2) The figure above illustrates a small country's production possibilities frontier.Moving from point A to point B,the per unit opportunity cost of a tablet is ________ per tablet.
A) 2 computers
B) 4/3 of a computer
C) 100 computers
D) 1/2 of a computer
E) 1 tablet
Answer: A
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5
Chapter 4: Demand and Supply
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Sample Questions
Q1) The above figure shows the market for laptops.Which of the following shifts the supply curve from S to S ?
A) an increase in the cost of hard drives
B) a decrease in the price of laptops
C) an increase in the number of laptop manufactures and sellers
D) an increase in the price of laptops
E) an increase in the productivity of the workers manufacturing laptops
Q2) The phrase "a change in demand" most directly implies a
A) movement along a demand curve.
B) movement along the price curve.
C) change in the quantity demanded of a good.
D) shift of the demand curve.
E) movement along the quantity curve.
Q3) People come to expect that the price of a gallon of gasoline will rise next week.As a result,
A) today's supply of gasoline increases.
B) today's demand for gasoline increases.
C) the price of a gallon of gasoline falls today.
D) next week's supply of gasoline decreases.
E) today's demand for gasoline and today's supply of gasoline do not change.
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Chapter 5: Elasticities of Demand and Supply
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Sample Questions
Q1) The price of a bag of pretzels rises from $2 to $3 and the quantity demanded decreases from 100 to 60.What is the price elasticity of demand?
A) 1.0
B) 1.25
C) 40.0
D) 20.0
E) 0.80
Q2) Suppose the San Francisco 49ers lower ticket prices by 15 percent and as a result the quantity of tickets demanded increases by 10 percent.This set of results shows that San Francisco 49ers tickets have
A) an inelastic demand.
B) an elastic demand.
C) a unit elastic demand.
D) an inelastic supply.
E) an elastic supply.
Q3) The income elasticity of demand for movies in the United States is 3.41.If people's incomes decrease by 1 percent,what is the decrease in the quantity of movies demanded?
Q4) What factors determine the size of the price elasticity of demand?
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) Suppose Jennifer derives $100 in marginal benefits from her first skiing trip and $80 from her third trip.Her marginal benefit from her second trip is likely to be A) more than $100.
B) between $100 and $80.
C) between $79 and $51.
D) less than $51.
E) some amount that cannot be calculated without additional information.
Q2) The figure above shows the supply curve for soda.The market price is $1.00 per soda.The producer surplus from the 20,000th soda is A) $0.00.
B) $0.50.
C) $1.00.
D) more than $1.00.
E) None of the above answers is correct.
Q3) If the price of a visit to Sea World exceeds the marginal cost of the visit by $13,a producer surplus exists for Sea World." Is this statement true or false?
Q4) Explain how the invisible hand delivers an efficient market outcome.
Q5) What is the "invisible hand"?
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Chapter 7: Government Actions in Markets
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Sample Questions
Q1) When a rent ceiling is ________,consumer surplus and producer surplus shrink,a deadweight loss ________,and resources are lost in search activity and evading the rent ceiling law.
A) inefficient; arises
B) inefficient; disappears
C) efficient; arises
D) efficient; disappears
E) nonexistent; arises
Q2) The demand and supply schedules for pizza are in the table above.A price ceiling of $4 per slice results in
A) a surplus of 20 slices of pizza.
B) a shortage of 20 slices of pizza.
C) a shortage of 40 slices of pizza.
D) a shortage of 60 slices of pizza.
E) neither a shortage nor a surplus.
Q3) In the housing market,if a rent ceiling of $600.00 is imposed when the equilibrium rent is $500.00,why will nothing change?
Q4) What is a price support program in an agricultural market? Explain its impact on a market.
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Chapter 8: Taxes
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Sample Questions
Q1) Consider the two principles of fair taxation,the benefits principle and the ability-to-pay principle.
A) Both state that people should pay taxes according to the benefits they receive from public services.
B) Both state that people should pay taxes according to how easily they can bear the burden.
C) Both are based on horizontal equity.
D) Both present conflicting ideas on the fairness of taxes.
E) Both are based on vertical equity.
Q2) The above figure shows the market for gourmet ice cream.In effort to reduce obesity,government places a $2 tax per gallon on suppliers in this market,shifting the supply curve from S to S .The total tax revenue is equal to
A) $400,000.
B) $800,000.
C) $500,000.
D) $200,000.
E) More information is needed to determine the total tax revenue.
Q3) What is the marginal tax rate? Average tax rate? Can these rates ever differ?
Q4) What is the difference between vertical equity and horizontal equity?
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Chapter 9: Global Markets in Action
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Sample Questions
Q1) Suppose the world price of a shirt is $10.If the United States imposes a tariff of $5 a shirt,then the price of a shirt in the
A) United States falls to $5.
B) United States rises to $15.
C) world falls to $5.
D) world rises to $5.
E) world rises to $15
Q2) The above figure shows the U.S.market for wheat.When there no international trade,the U.S.price of wheat is ________ per ton and the U.S.equilibrium quantity is ________ tons.
A) $14; 300,000
B) $14; 500,000
C) $16; 500,000
D) $16; 300,000
E) $16; 700,000
Q3) How does a quota affect the consumer surplus and the producer surplus from the imported good? Is the overall economy helped or harmed by quotas? Briefly explain your answers.
Q4) What is dumping?
Q5) How do imports affect buyers' consumer surplus?
Page 11
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Chapter 10: Externalities
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Sample Questions
Q1) Pell grants are money given to students attending college.Pell grants are most closely similar to
A) public provision of a good.
B) private subsidies given to producers of a good.
C) vouchers given to consumers of a good.
D) property rights assigned to consumers of a good.
E) a subsidy given to the producer of a good.
Q2) Describe some of the external benefits associated with education.What can government do to encourage production of the efficient amount of education?
Q3) What is the biggest problem of using government actions such as taxes and pollution charges to control external costs?
A) insufficient legal power to enforce the controls
B) obtaining enough data to determine how much the tax or pollution charge will be
C) In some situations, there is no known way to control the external costs.
D) political lobbying and voter disagreement
E) The Coase theorem points out that taxes and pollution charges work only in the short run and not in the long run.
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) For a common resource,efficiency requires that the ________ equals the
A) marginal private benefit; marginal private cost
B) marginal social benefit; marginal private cost
C) marginal social benefit; marginal social cost
D) marginal external benefit marginal external cost
E) marginal social benefit; marginal external cost
Q2) A private good is ________ and ________.
A) rival; excludable
B) rival; nonexcludable
C) nonrival; excludable
D) nonrival; nonexcludable
E) scarce; expensive
Q3) To hunters,deer in the woods are an example of a
A) public good.
B) private good.
C) common resource.
D) public resource.
E) natural monopoly.
Q4) What is the free-rider problem and with what is it associated?
Page 13
Q5) What are the differences between public goods and private goods?
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Chapter 12: Markets with Private Information
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Sample Questions
Q1) In the insurance market,moral hazard and adverse selection are the result of A) poorly functioning markets.
B) government intervention.
C) private information.
D) treachery.
E) a separating equilibrium.
Q2) In an insurance market,moral hazard exists chiefly because of
A) economies of scale.
B) adverse selection.
C) diseconomies of scale.
D) private information.
E) public information.
Q3) The private market ________ health care because it sometimes ________ those with pre-existing conditions and because health care has ________ benefits.
A) underprovides; includes; external
B) underprovides; excludes; external
C) overprovides; includes; external
D) overprovides; excludes; internal
E) underprovides; includes; internal
Q4) What role does moral hazard play in the market for health care?
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Chapter 13: Consumer Choice and Demand
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Sample Questions
Q1) One reason why the price of diamonds is so high is because the
A) marginal utility of diamonds is zero.
B) marginal utility of diamonds is high.
C) marginal utility of diamonds is low.
D) total utility of diamonds is low.
E) total utility of diamonds is high.
Q2) Reb buys fishing lures and steaks.If his budget increases,the maximum number of fishing lures he can purchase ________ and the maximum number of steaks he can purchase ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Q3) The budget line is the boundary between
A) preferred and nonpreferred consumption combinations.
B) affordable and unaffordable consumption combinations.
C) goods and bads.
D) income and expenditure.
E) income and consumption.
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Chapter 14: Production and Cost
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Sample
Questions
Q1) The above table gives some production and cost information for Flaming Fernando's,a restaurant that sells Fiery Frijoles.What is the average total cost of producing 4,500 frijoles?
A) $2
B) $225
C) $9,000
D) $8,000
E) More information is needed to determine the answer.
Q2) Suppose that a firm earned $500,000 in total revenue.At the same time,it incurred labor costs of $200,000; economic depreciation of $50,000; normal profit of $75,000; interest paid to the bank of $25,000; and used other factors of production that cost $100,000.The economic profit earned by the firm equals
A) $275,000.
B) $175,000.
C) $50,000.
D) $200,000.
E) $500,000.
Q3) What is the relationship between the marginal product of labor and the marginal cost?
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Page 16
Chapter 15: Perfect Competition
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Sample Questions
Q1) Under which of the following conditions will a profit-maximizing perfectly competitive firm shut down in the short run?
A) when it is making a normal profit
B) whenever its marginal cost is less than its marginal revenue
C) when the price is less than its minimum average variable cost
D) whenever its total cost is greater than its total revenue
E) when the price is less than its minimum average total cost
Q2) In a perfectly competitive industry,when a firm is producing so that its total revenue equals its total cost,the firm is
A) making an economic profit.
B) incurring an economic loss.
C) making zero economic profit.
D) definitely not maximizing its profit.
E) None of the above answers is correct because the relationship between total revenue and total cost has nothing to do with the firm's profit or loss.
Q3) What are the four types of markets? Give a brief description of each type.
Q4) "Perfectly competitive firms have total control over the price they set for their product." Explain why the previous statement is correct or incorrect.
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Page 17
Chapter 16: Monopoly
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Sample Questions
Q1) Price cap regulation is defined as regulation that
A) imposes a price ceiling on the regulated firm.
B) encourages firms to exaggerate costs to increase profits.
C) uses marginal cost pricing to ensure efficient output.
D) uses average cost pricing to ensure costs are covered.
E) is essentially the same as rate of return regulation.
Q2) A single-price monopoly
A) must practice price discrimination.
B) can lower its price for only a few select consumers if it wants to increase its sales.
C) will set its price equal to a consumer's willingness to pay.
D) must lower the price for all customers if it wants to increase its sales.
E) is able to raise its price as high as it wants and consumers must still buy from it because it is a monopoly.
Q3) Compared to a similar perfectly competitive industry,a single-price monopoly
A) creates a deadweight loss and decreases economic profit.
B) produces more output.
C) creates a deadweight loss and decreases consumer surplus.
D) is more efficient because there is no wasteful competition.
E) sets a lower price because there is less competition.
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Page 18
Chapter 17: Monopolistic Competition
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Sample Questions
Q1) If a monopolistically competitive seller's marginal cost is $3.56,the firm will increase its output if
A) its marginal revenue is less than $3.56.
B) its marginal revenue is equal to $3.56.
C) its marginal revenue is more than $3.56.
D) average total cost is less than $3.56.
E) Both answers A and D are correct.
Q2) The marginal revenue curve facing a monopolistically competitive firm
A) lies on its demand curve.
B) lies above its demand curve.
C) lies below its demand curve.
D) is equal to its price curve.
E) is parallel to its demand curve.
Q3) For a monopolistically competitive firm,the demand curve
A) is a horizontal line.
B) has a positive slope.
C) is vertical.
D) has a negative slope.
E) is the same as the marginal revenue curve.
Q4) Why are selling costs high in monopolistic competition?
Page 19
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Chapter 18: Oligopoly
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Sample Questions
Q1) Which of the following is (are)prohibited if it substantially lessens competition or creates a monopoly?
i.price discrimination
ii.tying arrangements
iii.exclusive dealing
A) i only
B) ii only
C) ii and iii
D) iii only
E) i, ii, and iii
Q2) Which of the following provisions requires a firm to buy all of a particular item from a single firm?
A) tying arrangement
B) requirements contracts
C) exclusive dealing
D) territorial confinement
E) quantity discrimination
Q3) Does section 2 of the Sherman Act make it a felony to "attempt" to monopolize an industry,or must the attempt succeed before it is a felony?
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Page 20
Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) Over time,the actual (not expected)price of a nonrenewable natural resource
A) falls.
B) rises.
C) stays the same.
D) could rise, fall, or stay the same.
E) first rises and then falls.
Q2) The four factors of production that produce goods and services are
A) labor, capital, profits, and entrepreneurship.
B) money, labor, rent, and profit.
C) labor, capital, land, and entrepreneurship.
D) wages, interest, rent, and profit.
E) wages, prices, quantities, and employment.
Q3) Oil is an example of
A) a nonrenewable natural resource.
B) a renewable natural resource.
C) physical capital.
D) a resource for which the true value cannot be measured.
E) a resource with a perfectly inelastic demand.
Q4) If the quantity of capital supplied exceeds the quantity of capital demanded,what takes place?
21
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Chapter 20: Economic Inequality
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Sample Questions
Q1) Looking at the Lorenz curves for income distribution in all the world's nations,we would find that
A) some nations have Lorenz curves that lie above the 45° line, other nations have Lorenz curves that lie below the 45° line, but no nation has a Lorenz curve that lie on the 45° line.
B) all nations have Lorenz curves that lie above the 45° line.
C) all nations have Lorenz curves that lie below the 45° line.
D) some nations have Lorenz curves that lie above the 45° line, other nations have Lorenz curves that lie below the 45° line, and still other nations have a Lorenz curve that lies on the 45° line.
E) None of the above answers is correct.
Q2) The rates of return on high school and college educations have
A) not been estimated, but are assumed to be high.
B) been estimated as negative, but these are still good options for most.
C) been estimated at 50 percent per year.
D) been estimated at between 5 to 10 percent per year.
E) been estimated to be essentially zero.
Q3) What is the difference between wealth and income?
Q4) What is "human capital" and why is it considered an investment?
Q5) Which is distributed more equally: income or wealth?
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