Microeconomics
Question Bank
Course Introduction
Microeconomics is a foundational course that explores the decision-making processes of individuals, households, and firms as they allocate limited resources among competing uses. It examines the functioning of markets, the determination of prices and outputs in different market structures, and the role of government in correcting market failures. Through analysis of consumer behavior, production and cost theories, and the concepts of supply and demand, students develop a critical understanding of how economic agents interact and respond to incentives. The course employs graphs, models, and real-world examples to illustrate key principles and inform practical decision-making.
Recommended Textbook
Economics for Today 5th Edition by Allan Layton
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19 Chapters
2164 Verified Questions
2164 Flashcards
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Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) The statement: 'When buyers and sellers interact in the market, the equilibrium price is $50 per unit', is an example of normative economic analysis.
A)True
B)False
Answer: False
Q2) The most fundamental concepts underlying the discipline of economics are:
A) scarcity and making an efficient choice.
B) supply and demand.
C) money, stocks and bonds.
D) inflation and unemployment.
Answer: A
Q3) Inflation is a concern of:
A) macroeconomics.
B) microeconomics.
C) both political science and philosophy.
D) neither macroeconomics or microeconomics.
Answer: A
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Page 3
Chapter 2: Applying Graphs to Economics
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Sample Questions
Q1) In Exhibit A1.3, the slope of straight line AB is:
A) variable.
B) zero.
C) negative.
D) positive.
E) not determinable from the information provided.
Answer: D
Q2) Straight line A-D in Exhibit A1.5 shows which of the following?
A) Increasing values for X will increase the value of Y.
B) Increasing values for X will decrease the value of Y.
C) Increasing values for X does not affect the value of Y.
D) All of the above.
Answer: C
Q3) Which of the following would cause a shift in the relationship shown in Exhibit A1.6?
A) A change in people's annual income.
B) A rise in people's expenditure on air travel.
C) Both a rise in income and a rise in expenditure on air travel.
D) A change in people's preferences in favour of air travel.
Answer: D
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Page 4
Chapter 3: Production Possibilities and Opportunity Cost
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Sample Questions
Q1) The production possibilities frontier demonstrates the basic economic principle that:
A) market-based economies are more efficient.
B) supply will determine demand in the economy.
C) the production of more capital goods this year will cause the economy to produce fewer consumption goods next year.
D) to produce more of any one thing, assuming full employment, the economy must produce less of something else.
Answer: D
Q2) Without the increase in immigration after the Second World War, Australia's population would now be around:
A) 5 million.
B) 7 million.
C) 10 million.
D) 13 million.
Answer: D
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Chapter 4: Market Demand and Supply
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Sample Questions
Q1) In Exhibit 3.6, Panel A, the movement from A to C describes a/an:
A) ambiguous change in price and a decrease in quantity.
B) increase in price and an ambiguous change in quantity.
C) increase in both price and quantity.
D) decrease in both price and quantity.
Q2) The most plausible reason why changes in the price of cotton can cause shifts in the supply curve for tobacco is:
A) cigarette smokers often wear cotton shirts.
B) when incomes rise, people consume more cotton and tobacco.
C) firms can switch from growing tobacco to cotton and vice versa.
D) tobacco is an input in the production of cotton.
E) cotton and tobacco are unrelated markets in all ways.
Q3) An improvement in technology will:
A) increase the demand.
B) lower the cost of production.
C) decrease the demand.
D) increase the cost of production.
Q4) A shortage occurs when a good is in great demand.
A)True
B)False
Page 6
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Chapter 5: Markets in Action
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Sample Questions
Q1) If a good gives rise to substantial external benefits to society that are associated with its production and/or consumption, then the good likely has too many resources devoted to its production.
A)True
B)False
Q2) A severe storm destroyed the banana plantations in northern Queensland. Shortly thereafter the price of bananas rose significantly. These events suggest that a/an:
A) decrease in the supply of bananas caused the price of bananas to rise.
B) increase in the supply of bananas caused the price of bananas to rise.
C) increase in demand caused the price of bananas to rise.
D) decrease in demand caused the price of bananas to rise.
Q3) A public good may be defined as any good or service that:
A) must be provided only to certain groups.
B) must be distributed to all citizens in equal shares.
C) excludes free riders.
D) is not exclusive.
Q4) A price ceiling set below the equilibrium price creates a shortage.
A)True
B)False
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Chapter 6: Elasticity of Demand and Supply
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Sample Questions
Q1) The imposition of a tax on the seller of a product normally results in an increase in market price, which is less than the full amount of the tax.
A)True
B)False
Q2) The income elasticity of demand:
A) can only be zero or unity.
B) can only be positive.
C) can only be negative.
D) can be positive or negative.
Q3) Inelastic demand is a change of less than 10% in quantity demanded in response to a 1% change in price.
A)True
B)False
Q4) Demand sensitivity depends on all of the following except:
A) how low the price of the good is.
B) the sensitivity of a firm's output to changes in its price.
C) the consumer's income.
D) the availability and closeness of substitutes.
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8
Chapter 7: Production Costs
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Sample Questions
Q1) Which of the following is considered to be a fixed cost of operating a hairdressing salon?
A) Wages.
B) Insurance.
C) Cost of receipt books.
D) Cost of shampoos.
Q2) The marginal cost is the change in:
A) average variable cost as the quantity changes by two units.
B) total cost as the quantity changes by a number of units.
C) total variable cost as the quantity changes by one unit.
D) total fixed cost as the quantity changes by one unit.
Q3) Total fixed costs:
A) vary as output varies.
B) are zero when the output is zero.
C) are the costs that do not vary with the output.
D) are the costs that increase with output.
Q4) If a firm increases output and its average total cost declines, then the firm is experiencing economies of scale.
A)True
B)False
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Chapter 8: Perfect Competition
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Sample Questions
Q1) A perfectly competitive firm's supply curve follows the upward-sloping segment of its marginal cost curve above the:
A) average total cost curve.
B) average variable cost curve.
C) average fixed curve.
D) average price curve.
Q2) How long will the state of short-run equilibrium remain unchanged?
A) Forever.
B) Until some factors change.
C) Six months.
D) One year.
Q3) Consider a firm operating where P = 10, MR = 10, MC = 10 and ATC = 10 (and there is no fixed cost). This firm is:
A) making an economic profit of 10.
B) an example of monopolistic competition.
C) going to go out of business in the long run.
D) perfectly competitive in long-run equilibrium.
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Chapter 9: Monopoly
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Sample Questions
Q1) In order for a monopolist to earn a positive economic profit in short-run equilibrium, price must exceed average total cost.
A)True
B)False
Q2) A recent study has concluded that working adults have a price elasticity of demand of 1.72 for train services, while pensioners have a price elasticity of demand of 3.74. If price discrimination is possible, then the company providing the train service will:
A) charge a lower price to working adults than to pensioners.
B) charge a lower price to pensioners than to working adults.
C) earn higher profits by charging everyone the same price.
D) lower prices for all customers because demand is elastic for both groups.
Q3) The condition/s required for a monopolist to engage in price discrimination is/are:
A) that buyers are not able to resell the good.
B) when it cannot identify specific groups of consumers with different elasticities.
C) that the demand curve must be perfectly elastic.
D) for potential competitors to threaten entry into the market.
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Game theory provides a framework for studying:
A) games and attitudes.
B) relationships within the firm.
C) output decisions in perfect competition.
D) strategic behaviour in an oligopoly.
Q2) The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13 and MC = MR = $17.47. Which of the following is true?
A) Per-unit profit is $11.
B) Additional firms will be attracted into the industry.
C) The firm could raise price and increase profits.
D) The firm could lower price and increase profits.
Q3) Which of the following statements best describes firms under monopolistic competition?
A) There is little price or quality competition.
B) Firms compete using quality, location, advertising and price.
C) Firms do not compete using advertising.
D) There is little competition between firms.
Q4) The strategic analysis firms undertake is often seen in perfect competition.
A)True
B)False
Page 12
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Chapter 11: Policy Issues: Housing Affordability and Climate Change
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Sample Questions
Q1) The Carbon Pollution Reduction Scheme (CPRS) was authored by:
A) Kevin Rudd.
B) Barack Obama.
C) Bill Clinton.
D) Ross Garnaut.
Q2) Which of the following is true?
A) Regulation is a superior method of emissions reduction because it can be controlled by the government.
B) Once the property rights are assigned, the carbon tax regime will adjust the private costs to the full social costs and the perfect market equilibrium will be achieved.
C) Once the correct property rights are assigned and the market is competitive, the emissions trading scheme will achieve the socially desirable outcome.
D) The property rights accompanied by regulation are superior policy solutions because the government knows the best solution for emissions reduction.
Q3) Regulation is the best solution to climate change issues.
A)True
B)False
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Page 13
Chapter 12: Measuring the Size of the Economy
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Sample Questions
Q1) National saving can be defined as:
A) (T - G) + (Y - C - T).
B) T + S.
C) Y - C - T +G.
D) S - I.
Q2) Which of the following is included in GDP?
A) The underground economy.
B) Leisure time.
C) Environmental degradation.
D) Price increase.
Q3) Which of the following would not be included in the gross private domestic investment (I) category of GDP?
A) A bakery's purchase of a new oven.
B) A retailer's additions to its inventories.
C) Newly built residential construction.
D) A bank's purchase of an Australian Treasury bond.
Q4) Net domestic product (NDP) is equal to gross domestic product (GDP) plus indirect business taxes.
A)True
B)False
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Chapter 13: Business Cycles and Economic Growth
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Sample Questions
Q1) In the simple Solow growth model, investment depends crucially on:
A) the capital stock.
B) the supply of labour.
C) household savings.
D) diminishing returns to capital.
Q2) The 'golden rule' level of capital per worker in the Solow model implies:
A) governments should consistently follow the same monetary policy rule regardless of the economy's stage in the business cycle.
B) consumption will be maximised when capital per worker is at its maximum.
C) there is an optimal rate of saving that will maximise investment.
D) there is an optimal rate of saving that will maximise consumption.
Q3) Total spending influences the business cycle because:
A) increases in spending flow through to higher output, employment and income.
B) it allows GDP to increase well beyond the full-employment level of output.
C) decreases in spending will increase inflation, which then reduces real GDP.
D) increases in spending will decrease inflation, which then increases real GDP.
Q4) Leading indicators are the most important indicators of recession.
A)True
B)False
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Chapter 14: Inflation and Unemployment
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Sample Questions
Q1) The real interest rate is defined as the:
A) actual interest rate.
B) fixed rate on consumer loans.
C) nominal interest rate minus the inflation rate.
D) expected interest rate minus the inflation rate.
Q2) A person pays cash for a house in 1990 for $200 000 and sells it in 2000 for $400 000. Over the same period the CPI has risen from its base index to 200. In terms of this asset, the purchasing power of this person:
A) has increased.
B) has decreased.
C) has remained unchanged.
D) is indeterminate.
Q3) If the consumer price index (CPI) in 2001 was 200 and the CPI in 2002 was 215, the rate of inflation was:
A) 215 per cent.
B) 15 per cent.
C) 5 per cent.
D) 7.5 per cent.
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16
Chapter 15: A Simple Model of the Macro Economy
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Sample Questions
Q1) When the economy is operating well below capacity, an increase in spending tends to be reflected primarily in a/an:
A) lower level of employment.
B) increase in price.
C) lower level of output.
D) higher level of output and employment.
Q2) The interest-rate effect is the impact on:
A) the value of all final goods and services produced during a given time period based on current prices.
B) the value of all final goods and services produced during a given time period based on the prices existing in a selected base year.
C) the value of all intermediate goods and services sold during a given time period.
D) the value of all raw materials extracted during a given time period based on the prices existing in a selected base year.
Q3) The only determinant of investment is the interest rate.
A)True
B)False
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Chapter 16: The Monetary and Financial System
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Sample Questions
Q1) In Keynes' view, an excess quantity of money demanded causes people to:
A) sell bonds pushing the interest rate up.
B) buy bonds pushing the interest rate down.
C) buy bonds pushing the interest rate up.
D) increase speculative balances.
Q2) If people are selling bonds, it causes the interest rate to:
A) rise and MD > MS.
B) fall and MS > MD.
C) fall and MD = MS.
D) The demand for money has fallen.
Q3) Comparing how many dollars it takes to run your car each year to annual earnings on a job, instead of recording costs in terms of litres of petrol and oil represents the use of money as:
A) a means of payment.
B) a unit of account.
C) a store of purchasing power.
D) a form of plastic money.
Q4) Unused lines of credit on credit cards are part of M3.
A)True
B)False
Page 18
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Chapter 17: Macroeconomic Policy I: Monetary Policy
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Sample Questions
Q1) If the central bank announces that it is going to increase the money supply by 6 per cent this year, it is following:
A) a demand-based approach.
B) a discretionary monetary policy.
C) a discretionary fiscal policy.
D) a monetarist approach.
Q2) If M stands for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is:
A) MP = VQ.
B) MV = PQ.
C) MQ = VP.
D) MP = PQ.
Q3) If the supply of money is stable while the demand for money is volatile, the likely result will be that:
A) interest rates will remain constant.
B) inflation rates will remain constant.
C) interest rates will become more volatile.
D) the velocity of money will fall.
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Chapter 18: Macroeconomic Policy II: Fiscal Policy
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Sample Questions
Q1) According to supply-side fiscal policy, reducing tax rates on wages and profits will:
A) create demand-pull inflation.
B) lower the price level but may trigger a recession.
C) result in stagflation.
D) reduce both unemployment and inflation.
Q2) Assume Parliament enacts a $10 billion decrease in spending and a $10 billion decrease in tax revenue. The result of this balanced-budget approach is a:
A) $10 billion decrease in aggregate demand.
B) $20 billion decrease in aggregate demand.
C) $100 billion decrease in aggregate demand.
D) $10 billion increase in aggregate demand.
Q3) When the economy enters a prosperity phase, unemployment benefits:
A) fall and so disposable income and spending fall more slowly than real GDP.
B) fall and so disposable income and spending do not rise as rapidly as real GDP.
C) rise and so disposable income and spending do not rise as rapidly as real GDP.
D) rise and so disposable income and spending fall more slowly than real GDP.
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Chapter 19: International Trade and Finance
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Sample Questions
Q1) In Exhibit 18.1, the production possibilities curves of wheat and corn for Nabia and Pada are presented. Suppose Nabia produces at point A on its PPF. How many units of wheat is the country able to produce?
A)15.
B)60.
C)5.
D) 20.
Q2) In Exhibit 18.3, Australia has an absolute advantage in producing:
A) potatoes.
B) wheat.
C) both potatoes and wheat.
D) neither potatoes nor wheat.
Q3) Assume A$1.05 is exchangeable for one US dollar. The exchange rate is:
A) US$1=A$0.95.
B) A$1=US$1.05.
C) A$1=US$0.95.
D) both A$1=US$0.95 and US$1=A$1.05.
Q4) If the yen price of dollars falls, then the dollar price of yen rises.
A)True
B)False
Page 21
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