Microeconomics Pre-Test Questions
Course Introduction
Microeconomics is the branch of economics that studies individual decision-makers within the economy, such as households, firms, and markets. It explores how these entities interact, make choices regarding resource allocation, and respond to changes in prices, incentives, and constraints. Key topics include supply and demand, consumer behavior, production and cost theory, market structures (like competition and monopoly), and the role of government intervention. Through microeconomic analysis, students learn to understand and predict outcomes in various market settings, providing a foundation for more advanced economic studies and real-world problem-solving.
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Microeconomics 12th Edition by Michael Parkin
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Chapter 1: What Is Economics
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Q1) What does the slope of the line shown in the above figure equal?
Answer: The slope equals the change in variable on the y-axis divided by the change in the variable on the x-axis, or (5 - 10)/(60 - 100) = 0.125.
Q2) In the above figure, when income is zero, household expenditures equal
A) 0.
B) $1000.
C) $4000.
D) $8000.
Answer: D
Q3) Entrepreneurs do all of the following EXCEPT
A) organize labor, land, and capital.
B) come up with new ideas about what and how to produce.
C) bear risk from business decisions.
D) own all the other resources used in the production process.
Answer: D
Q4) If two points on a line are x = 2, y = 5 and x = 7, y = 10, what is the slope of this line?
Answer: The slope equals the change in the y-variable divided by the change in the x-variable. So, the slope equals (10 - 5)/(7 - 2) = (5)/(5) = 1.00.
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Chapter 2: The Economic Problem
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Q1) In 2012, Country X and Country Y had the same production possibilities, illustrated in the figure above. Country X chose to produce at point A, while country Y chose to produce at point B. In 2018, most likely, Country X will be at point such as ________ while Country Y will be at point such as ________.
A) A; B
B) B; A
C) N; Q
D) Q; N
Answer: C
Q2) In the above figure, at point a what is the opportunity cost of producing one more audio tape?
A) 1 video tape per audio tape
B) 2 video tapes per audio tape
C) 14 video tapes per audio tape
D) There is no opportunity cost.
Answer: A
Q3) Property rights facilitate the development of trade.
A)True
B)False
Answer: True
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Chapter 3: Demand and Supply
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Q1) In the above figure, a change in quantity supplied with unchanged supply is represented by a movement from
A) point a to point e.
B) point b to point a.
C) point e to point c.
D) point b to point e.
Answer: B
Q2) If the demand curve for bottled water shifts rightward and the supply curve of bottled water shifts leftward, the equilibrium
A) price of bottled water definitely increases.
B) price of bottled water definitely decreases.
C) quantity of bottled water definitely increases.
D) quantity of bottled water definitely decreases.
Answer: A
Q3) If the price is above the equilibrium price, then there is a
A) surplus, and market forces will operate to lower price.
B) surplus, and market forces will operate to raise price.
C) shortage, and market forces will operate to lower price.
D) shortage, and market forces will operate to raise price.
Answer: A
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Chapter 4: Elasticity
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Q1) If the elasticity of supply is 4, a 10 percent increase in the price of a good leads to a
A) 40 percent increase in the quantity of supply.
B) 4 percent decrease in the quantity demanded.
C) 2.5 percent increase in the quantity supplied.
D) 2.5 percent decrease in the quantity demanded.
Q2) The income elasticity of demand for restaurant meals is 1.61. So
A) if income increases by 16.1 percent, the quantity demanded of restaurant meals will increase by 10 percent.
B) if income increases by 10 percent, the quantity demanded of restaurant meals will increase by 16.1 percent.
C) restaurant meals are an income elastic normal good.
D) Both answers B and C are correct.
Q3) If the cross elasticity of demand between coffee and tea is positive, an increase in the price of tea will shift the demand curve for A) tea rightward.
B) tea leftward.
C) coffee rightward.
D) coffee leftward.
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Chapter 5: Efficiency and Equity
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Q1) The value of one more unit of a good or service is its marginal benefit.
A)True
B)False
Q2) One of the problems associated with the utilitarianism is that it does not recognize that
A) taxing those with higher incomes results in less work effort.
B) each individual receives a different marginal benefit from a dollar's worth of income.
C) equity is achieved when there is no poor and no rich.
D) similar individuals should be treated the same.
Q3) At the current level of output, the marginal social cost of tennis balls is greater than the marginal social benefit. Then
A) more than the efficient quantity of tennis balls is being produced.
B) there is excess demand for tennis balls.
C) firms producing tennis balls must be earning negative profit.
D) too few tennis balls are being produced.
Q4) One of the obstacles to efficiency is monopoly.
A)True
B)False
Q5) What is producer surplus?
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Chapter 6: Government Actions in Markets
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Q1) You are in the business of producing and selling hamburgers, french fries, pizza, and ice cream. The mayor plans to impose a tax on one of these products. Based on the elasticities in the above table, as a profit-minded business person who seeks to avoid taxes whenever possible, which good would you most prefer to have taxed?
A) hamburgers
B) pizza
C) French fries
D) ice cream
Q2) Suppose the local government places a sales tax on hotel rooms and that the demand for these rooms is elastic while the supply is perfectly inelastic. The tax incidence is such that the tax will be paid by
A) only the consumers.
B) equally by the consumers and the producers.
C) only the producers.
D) the taxpayers.
Q3) In a diagram, illustrate the case of a price ceiling that affects the market's price and quantity.
Q4) Do rent ceilings result in any deadweight loss?
Q5) Discuss the inefficiencies created by a price floor.
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Chapter 7: Global Markets in Action
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Q1) An import quota is
A) a tariff that is a fixed percentage of the price of a good.
B) a tariff that is a fixed dollar amount per unit of a good.
C) an agreed upon price for a good to be imported at a specified future date.
D) a restriction that specifies the maximum amount of a good that may be imported.
Q2) The gains from free trade are enjoyed by a ________ number of people and the costs of free trade are imposed by ________ number of people.
A) small; large
B) large; small
C) small; small
D) large; large
Q3) In the figure above, international trade ________ consumer surplus in the United States by ________.
A) increases; $320 million
B) decreases; $192 million
C) increases; $192 million
D) decreases; $320 million
Q4) Define comparative advantage and discuss its role in international trade.
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Chapter 8: Utility and Demand
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Q1) The total benefit that a person receives from the consumption of goods and services is called
A) total utility.
B) marginal utility.
C) marginal cost.
D) opportunity cost.
Q2) Which of the following occur when a person maximizes utility? I. The marginal utility of each good bought is equal.
II) The highest level of utility is attained.
III) All of a person's budget is spent.
A) I and II
B) I and III
C) II and III
D) I, II and III
Q3) A behavioral economist will explain Tom's donation to charity by saying that Tom is displaying ________.
A) the endowment effect
B) bounded rationality
C) bounded self-interest
D) bounded will power
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Chapter 9: Possibilities, Preferences, and Choices
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Q1) At the best affordable point, consumers equate their marginal rates of substitution to A) their money income.
B) their real income.
C) relative prices.
D) relative quantities.
Q2) In the above figure, as Brendan's income rises his consumption bundle moves from point A to point B. This implies that for Brendan, compact discs are ________ good and haircuts are ________ good.
A) a normal; an inferior
B) a normal; a normal
C) an inferior; an inferior
D) an inferior; a normal
Q3) What is a household's real income?
Q4) Which two goods will most likely have indifference curves that are straight lines?
A) blue and red balloons
B) left and right shoes
C) pizza and hair spray
D) beef and chicken
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Chapter 10: Organizing Production
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Q1) Suppose the four-firm concentration ratio for an industry is 10 percent. This value indicates ________. If the four-firm concentration ratio for another industry is 95 percent, this value indicates ________.
A) the industry is competitive; the industry has very little competition
B) the industry has very little competition; the industry is very competitive
C) the industry has firms worldwide; the industry is concentrated in one country
D) the HHI will be high; the HHI will be low
Q2) The average return for supplying entrepreneurial ability is the entrepreneur's A) accounting profit.
B) normal profit.
C) explicit profit.
D) economic profit.
Q3) If Quick Auto Service increases the size of its shop, enabling it to purchase cost-saving capital equipment so that the cost of servicing a car falls, this would be an example of
A) economies of scope.
B) economies of scale.
C) monitoring.
D) increasing transactions costs.
Q4) What is an incentive system?
Page 12
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Chapter 11: Output and Costs
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Q1) Based on the data in the above table, at what level of output does the marginal cost start to rise at Jefferson's Cleaners?
A) 45 suits per day
B) 47 suits per day
C) 74 suits per day
D) 85 suits per day
Q2) Some of the cost curves for Ike's Ice Cream Kitchen are given in the above figure. At which of the following levels of output does the marginal product of labor equal the average product of labor?
A) at 0 gallons
B) at 10 gallons
C) at 40 gallons
D) at 60 gallons
Q3) Based on the above figure of the costs at Barney's Bagel Bakery, at which level of output will diminishing marginal returns first occur?
A) at 1 bagel
B) at 500 bagels
C) at 2000 bagels
D) at 3000 bagels
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Chapter 12: Perfect Competition
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Q1) Using the above figure, of the prices below, which price enables a perfectly competitive firm to earn the maximum economic profit?
A) $4 per unit.
B) $10 per unit.
C) $12 per unit.
D) $16 per unit.
Q2) In the above figure, if the price is $4 per unit, how many units will a profit maximizing perfectly competitive firm produce?
A) 0
B) 5
C) 20
D) 30
Q3) The above table shows the total cost schedule for a perfectly competitive firm. The market price is $250 per unit. Complete the table.
Q4) Entry by competitive firms decreases the market price, while exit by competitive firms increases the market price. Explain why firms enter or exit an industry and why these price changes occur.
Q5) Describe how economic losses are eliminated in a perfectly competitive industry.
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Chapter 13: Monopoly
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Q1) In the case of a perfectly price-discriminating monopoly, there is no
A) transfer of consumer surplus to the producer.
B) deadweight loss.
C) producer surplus.
D) economic profit.
Q2) If the natural monopoly shown in the figure above is unregulated, then it will charge a price of
A) $2.
B) $4.
C) $5.
D) $6.
Q3) Which of the following is TRUE of a natural monopoly?
A) Its long-run average cost curve slopes upward as it intersects the demand curve.
B) Economies of scale exist to only a very low level of output.
C) Economies of scale allow one firm to supply the entire market at the lowest possible cost.
D) The firm is not protected by any barrier to entry.
Q4) Why will a profit-maximizing, single-price monopolist NOT produce the amount of output that maximizes its total revenue?
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Chapter 14: Monopolistic Competition
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Q1) Which of the following statements is CORRECT for a monopolistically competitive firm in the short run?
A) Its total revenue is maximized.
B) Its total fixed cost is 0.
C) Its marginal cost is equal to its marginal revenue.
D) Its price is equal to its marginal cost.
Q2) Advertising by firms in monopolistic competition
A) provides consumers with no useful information.
B) does not occur.
C) can persuade customers that product differentiation exists.
D) wastes resources because the entry of rivals forces firms to be price takers.
Q3) La Super Rica is a taco stand in Santa Barbara, California. It is popular with the locals and even the late Julia Child found the food delicious. If La Super Rica is making an economic profit, what is the probable outcome in the taco market?
A) The number of firms will increase, decreasing La Super Rica's demand.
B) The number of firms will decrease, decreasing La Super Rica's demand.
C) The number of firms will increase, increasing La Super Rica's demand.
D) The number of firms will decrease, increasing La Super Rica's demand.
Q4) Why would a firm in a monopolistically competitive industry ever advertise?
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Chapter 15: Oligopoly
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Q1) Which of the following is TRUE regarding a collusive agreement? I. It is illegal in the United States.
II) Two or more producers agree to restrict output or raise prices.
III) Firms' profits are never maximized under this sort of agreement.
A) I and II
B) I and III
C) II and III
D) I, II and III
Q2) Suppose that all pizza companies have the same costs and the minimum average total cost is $12 per pizza. The pizza companies have an efficient scale of 100 pies per night. In the small town of Coatsville, at the price of $12 per pizza the quantity demanded is approximately 300 pizzas per night. This market, therefore, can best be characterized as
A) perfectly competitive.
B) a natural monopoly.
C) a natural duopoly.
D) a natural oligopoly.
Q3) What is a cartel?
Q4) What is a natural oligopoly? How does it arise? Give an example.
Q5) Why do most collusive agreements have difficulty surviving?
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Chapter 16: Public Choices, Public Goods, and Healthcare
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Q1) Michigan Radio is the state's most listened-to public radio service, attracting approximately 400,000 listeners each week and is funded through listener donations. Listeners can access Sirius satellite radio through a subscription to the service. Michigan Radio is a ________ and Sirius satellite radio is a ________.
A) common resource; natural monopoly
B) public good; natural monopoly
C) natural monopoly; private good
D) public good; common resource
Q2) Which of the following is likely to be nonexcludable but rival?
A) walking along a crowded hiking trail
B) watching cable TV
C) viewing flowers along the highway
D) listening to a local radio station
Q3) The above figure shows the marginal benefit and marginal cost curves for a public good. The efficient quantity is
A) A.
B) B.
C) C.
D) zero units supplied.
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Chapter 17: Externalities
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Q1) A copper ore refiner pollutes the water upstream from a brewery. These are the only two parties involved. The transactions costs of reaching an agreement between the refinery and the brewery are low. The amount of water pollution will be at the efficient level
A) only when the property right to the stream is assigned to the ore refinery.
B) only when the property right to the stream is assigned to the brewery.
C) when the property right to the stream is assigned to either the refinery or to the brewery.
D) when no one has clear property rights.
Q2) Consider a market in which there is an external benefit. The inefficient market equilibrium is such that
A) too little output is produced.
B) too much output is produced.
C) price is too high.
D) marginal social cost is greater than marginal social benefit.
Q3) What is an individual transferable quota (ITQ)?
Q4) One way of overcoming the problem of the commons is to make it private property.
A)True
B)False
Q5) Why is it not efficient to eliminate all pollution?
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Chapter 18: Markets for Factors of Production
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Q1) A technological change that raises the value of marginal product of capital ________ the rental rate of capital because the ________.
A) raises; supply curve of capital shifts leftward
B) lowers; supply curve of capital shifts rightward
C) raises; demand curve for capital shifts rightward
D) lowers; demand curve for capital shifts leftward
Q2) Which of the following groups lists the four factors of production?
A) labor, capital, land, entrepreneurship
B) labor, capital, land, money
C) labor, money, land, entrepreneurship
D) labor, capital, money, entrepreneurship
Q3) If the supply of a factor is perfectly inelastic, then
A) no more than the existing quantity can be supplied.
B) the supply curve is horizontal.
C) sellers will provide whatever quantity is demanded at the going price.
D) a fall in price results in no quantity being supplied.
Q4) Discounting is converting a future amount of money to a present value.
A)True
B)False
Q5) What tools can unions use to increase the demand for union labor?
Page 20
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Chapter 19: Economic Inequality
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Q1) The wage rate for high-skilled labor is higher than that for low-skilled labor because
A) both the demand for and the supply of high-skilled labor is greater than that for low-skilled labor.
B) the demand for high-skilled labor is greater than the demand for low-skilled labor and the supply of high-skilled labor is less than the supply of low-skilled labor.
C) the demand for high-skilled labor is less than the demand for low-skilled labor and the supply of high-skilled labor is greater than the supply of low-skilled labor.
D) both the demand for and the supply of high-skilled labor is less than that for low-skilled labor.
Q2) Which of the following taxes causes the greatest shift of the Lorenz curve toward the line of equality?
A) proportional income tax
B) regressive income tax
C) flat-rate income tax
D) progressive income tax
Q3) What factors make inheritances a source of increased economic inequality?
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Chapter 20: Uncertainty and Information
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Q1) Nancy's utility of wealth curve is given in the above figure. Option A gives Nancy $100 for sure. Option B gives Nancy $50 half the time and $150 half the time. Nancy's expected utility of option A
A) is greater than the expected utility of option B.
B) is the same as the expected utility of option B.
C) is less than the expected utility of option B.
D) could be either greater or less than the expected utility of option B.
Q2) John's utility of wealth curve is shown in the above figure. He currently has wealth of $20,000. If there is a 10 percent chance that he could lose all his wealth, what is his expected wealth?
A) $0
B) $2,000
C) $17,000
D) $18,000
Q3) If Pearl is a risk averse, then
A) expected utility has nothing to do with her choices.
B) she does not have diminishing marginal utility of wealth.
C) she will not buy insurance.
D) risk is costly to her.
Q4) When would a risk averse individual not insure a risky event?
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