Microeconomics Question
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Course Introduction
Microeconomics explores the fundamental principles of economics at the level of individual consumers, firms, and markets. The course covers topics such as supply and demand, consumer behavior, production and cost analysis, market structures (including perfect competition, monopoly, and oligopoly), and the role of government in regulating markets. Through theoretical models and real-world applications, students develop an understanding of how decision-making processes and market mechanisms influence the allocation of resources and the distribution of goods and services in the economy.
Recommended Textbook Essentials of Economics 4th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) When voluntary exchange takes place,neither party usually gains from the exchange.
A)True
B)False
Answer: False
Q2) The term "market" refers to trading arrangements by which buyers and sellers come together.
A)True
B)False
Answer: True
Q3) The relationship between sales and revenue is
A)an inverse relationship.
B)a direct relationship.
C)a negative relationship.
D)independent.
Answer: B
Q4) Optimal decisions are made at the point where marginal cost equals zero.
A)True
B)False
Answer: False
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System
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Q1) The payment received by suppliers of entrepreneurial skills is called profit.
A)True
B)False
Answer: True
Q2) If additional units of a good could be produced at a constant opportunity cost,the production possibility frontier would be bowed outward (concave).
A)True
B)False
Answer: False
Q3) Refer to Figure 2-11.Suppose Mercedes-Benz has to shut down a portion of its facility as it works on remodeling the facility to merge two of its separate assembly lines in preparation for the production of a new,hybrid models.The production decision to shut down temporarily will result in a
A)movement from E to F in Graph A.
B)movement from G to H in Graph B.
C)movement from K to L in Graph C.
D)movement from J to H in Graph B.
Answer: C
4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Refer to Figure 3-6.The figure above represents the market for coffee grinders.Compare the conditions in the market when the price is $15 and when the price is $21.Which of the following describes how the market differs at these prices?
A)At each price there is a shortage; the shortage is greater at $15 than at $21.
B)The difference between quantity supplied and quantity demanded is greater at $21 than at $15.
C)At each price there is a shortage; firms will raise the equilibrium price in order to eliminate the shortage.
D)At each price the demand for coffee grinders exceeds the supply of coffee grinders. Answer: A
Q2) As the number of firms in a market increases,the supply curve will shift to the right and the equilibrium quantity will rise.
A)True
B)False
Answer: True
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Chapter 4: Market Efficiency and Market Failure
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Q1) Refer to Figure 4-4.What is the value of producer surplus at the equilibrium price of $15?
A)$80
B)$160
C)$240
D)$400
Q2) Each point on a demand curve shows
A)the willingness of consumers to purchase a product at different prices.
B)the consumer surplus received from purchasing a given quantity of a product.
C)the economic surplus received from purchasing a given quantity of a product.
D)the legally determined maximum price that sellers may charge for a given quantity of a product.
Q3) Refer to Table 4-7.If a minimum wage of $12.50 an hour is mandated,what is the quantity of labor demanded?
A)80,000
B)550,000
C)630,000
D)1,180,000
Q4) What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?
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Chapter 5: The Economics of Health Care
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Q1) Which of the following is not an advantage of risk pooling?
A)By insuring large groups as opposed to individuals, health insurance providers reduce adverse selection.
B)It gives very sick people in the group the same access to health care and to pay the same premiums as healthy individuals.
C)It is easier for an insurance company to estimate the average number of claims likely to be filed under a group policy than it is to predict the number of claims likely to be filed under an individual policy.
D)Individuals who are insured and therefore do not have to pay the full cost of health care services may be inclined to over-use those services.
Q2) Refer to Figure 5-2.At the efficient equilibrium
A)economic surplus is maximized.
B)economic surplus is minimized.
C)economic surplus is zero.
D)economic surplus is negative.
Q3) What are two reasons why employees would prefer for their employer pay for their health insurance rather than receiving increased wages and paying for their own health insurance?
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Chapter 6: Firms, the Stock Market, and Corporate Governance
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Q1) Why do corporations want to keep the price of their stock high?
A)A higher stock price increases the funds the firm can raise when it sells a given amount of stock.
B)Corporations can pay their managers lower salaries and avoid principal-agent problems when stock prices are higher.
C)Higher stock prices are correlated with lower expected profitability.
D)All of the above provide incentive for corporations to keep the price of their stock high.
Q2) What is a primary market?
A)a market where primary inputs like steel are sold
B)a market where you can sell any bonds you own as a private investor
C)a market where a newly issued claims are sold to initial buyers by the borrowing firm
D)a market where you can sell any stocks you own as a private investor
Q3) Anything of value owned by a person or a firm is
A)an asset.
B)a liability.
C)wealth.
D)owner's yield.
Q4) How is economic profit found?
Page 8
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Chapter 7: Consumer Choice and Elasticity
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Q1) If the price elasticity of demand for canned soup is estimated at -1.62.What happens to sales revenue if the price of canned soup rises?
A)It falls by 162 percent.
B)It rises by 1.62 percent.
C)It falls.
D)It rises.
Q2) ________ is an experiment that tests the significance of fairness in consumer decision making.
A)The fairness challenge
B)The consumer choice paradigm
C)The ultimatum game
D)The Giffen paradox
Q3) Refer to the Article Summary.One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular.
A)more utility
B)diminishing utility
C)greater network externalities
D)increased path dependency
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Chapter 8: Technology, production, and Costs
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Q1) When firms analyze the relationship between their level of production and their costs they separate the time period involved into
A)morning and evening.
B)6 months or less; 6 months to 1 year; more than 1 year.
C)a fixed period and a variable period.
D)the short run and the long run.
Q2) Refer to Table 8-4.The table above shows the following relationship between hours spent fishing and the quantity of fish caught for Juan,a commercial fisherman.
Q3) Which of the following statements is true?
A)As output increases, average fixed cost becomes smaller and smaller.
B)Average fixed cost does not change as output increases.
C)The marginal cost curve intersects the average fixed cost curve at its minimum point.
D)When marginal cost is greater than average fixed cost, average fixed cost increases.
Q4) As output increases,average fixed cost gets smaller and smaller.
A)True
B)False
Q5) What is the marginal product of labor and what is the average product of labor.
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Chapter 9: Firms in Perfectly Competitive Markets
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Q1) Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run.Which of the following is one reason for this?
A)Owners of perfectly competitive firms realize that their short-run profits are temporary.Therefore, they either sell their businesses or develop other products that will earn short-run profits.
B)Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms.But eventually consumers realize that all of the firms sell virtually identical products.
C)Firms from other countries are able to produce similar products at lower costs.
D)Firms in these industries sell identical products.
Q2) Assume that price is greater than average variable cost.If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102,then the firm is probably producing more than its profit-maximizing quantity.
A)True
B)False
Q3) What is meant by the term "long-run competitive equilibrium?
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Chapter 10: Monopoly and Antitrust Policy
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Q1) Refer to Figure 10-2.The firm's profit-maximizing price is
A)P .
B)P .
C)P .
D)P .
Q2) If the market for a product begins as perfectly competitive and then becomes a monopoly,there will be a reduction in economic efficiency and a deadweight loss.
A)True
B)False
Q3) The Federal Trade Commission (FTC)Act
A)gave the FTC full power to regulate mergers.
B)closed the loopholes in the Sherman and Clayton Acts.
C)divided authority to police mergers between the FTC and the Department of Justice.
D)prohibited charging buyers different prices if the result would reduce competition.
Q4) Explain why the monopolist has no supply curve?
Q5) Explain whether a monopoly that maximizes profit will also be maximizing revenue and production.
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Chapter 11: Monopolistic Competition and Oligopoly
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Q1) When new firms are encouraged to enter a monopolistically competitive market
A)some existing firms must be earning economic profits.
B)they do so because there is insufficient product differentiation.
C)the demand curve facing an existing firm shifts to the right.
D)the marginal cost curve facing an existing firm shifts downwards.
Q2) When a monopolistically competitive firm cuts its price to increase its sales,it experiences a gain in revenue due to the A)substitution effect.
B)income effect.
C)price effect.
D)output effect.
Q3) The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called A)game theory.
B)oligopoly.
C)competitive analysis.
D)strategic analysis.
Q4) What is the difference between explicit collusion and implicit collusion?
Q5) What is meant by "excess capacity"? How does it relate to consumer utility?
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Chapter 12: Gdp: Measuring Total Production and Income
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Q1) Refer to Scenario 12-1.The value of each canoe in gross domestic product equals
A)$1,200.
B)$800.
C)$500.
D)$400.
Q2) If prices are rising on average,then
A)real GDP will always be equal to nominal GDP.
B)real GDP will be greater than nominal GDP in the years after the base year.
C)real GDP will be less than nominal GDP in the years before the base year.
D)real GDP will be greater than nominal GDP in the years before the base year.
Q3) Developing countries with large informal sectors tend to have firms that invest less in capital equipment.
A)True
B)False
Q4) The "underground economy" refers to
A)the buying and selling of goods that is concealed from the government.
B)the production of goods and services used by the government for covert spy operations.
C)the sector of the economy that earns profits that are higher than average.
D)the formal sector of the economy in developing countries.
Page 14
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Chapter 13: Unemployment and Inflation
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Q1) Refer to Table 13-14.The real average hourly earnings for 1965 in 2010 dollars equal
A)$3.87.
B)$5.80.
C)$12.10.
D)$18.14.
Q2) An increase in cyclical unemployment will result in
A)an increase in the natural rate of unemployment.
B)an increase in the unemployment rate.
C)an increase in structural unemployment.
D)a decrease in frictional unemployment.
Q3) An efficiency wage
A)is higher than the market wage and tends to increase productivity.
B)is lower than the market wage and tends to increase productivity.
C)is higher than the market wage and tends to decrease productivity.
D)is lower than the market wage and tends to decrease productivity.
Q4) Suppose you obtain a fixed rate mortgage during a period of relatively high inflation.During the next ten years,inflation falls.Are you a winner or a loser due to inflation? Explain why.
Q5) Describe how inflation can be costly even if it is anticipated.
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Chapter 14: Economic Growth, the Financial System, and Business Cycles
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Q1) What is investment in a closed economy if you have the following economic data?
Y = $10 trillion
C = $5 trillion
TR = $2 trillion
G = $2 trillion
A)$2 trillion
B)$3 trillion
C)$5 trillion
D)cannot be determined without information on taxes (T)
Q2) Which of the following would occur if the United States switched from income taxes to consumption taxes?
A)Consumption would increase.
B)The supply of loanable funds would decrease.
C)Saving would increase.
D)Tax revenues would rise.
Q3) Growth in potential GDP in the United States is estimated to be about
A)8.25% per year.
B)5.0% per year.
C)3.2% per year.
D)1.5% per year.
Page 16
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) Refer to Figure 15-2.Ceteris paribus,a decrease in the price level would be represented by a movement from
A)SRAS to SRAS .
B)SRAS to SRAS .
C)point A to point B.
D)point B to point A.
Q2) Which of the following models advocate that the quantity of money should be increased at a constant rate?
A)the monetarist model
B)the new classical model
C)the real business cycle model
D)the new Keynesian model
Q3) A decrease in the price level results in a(n)________ in the quantity of real GDP demanded because a lower price level ________ consumption,investment,and net exports.
A)decrease; increases
B)increase; increases
C)decrease; decreases
D)increase; decreases
Q4) What are sticky prices,and how can contracts make them "sticky"?
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Chapter 16: Money, banks, and the Federal Reserve System
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Q1) If the Fed buys U.S.Treasury securities,then this
A)increases reserves, encourages banks to make more loans, and increases the money supply.
B)decreases reserves, causes banks to reduce their loans, and decreases the money supply.
C)decreases reserves, causes banks to reduce their loans, and increases the money supply.
D)increases reserves, causes banks to reduce their loans, and increases the money supply.
Q2) The primary tool the Federal Reserve uses to increase the money supply is
A)printing more money.
B)lowering the required reserve ratio.
C)buying Treasury securities.
D)lowering the discount rate.
Q3) The Fed has more control over open market operations as compared to discount policy.
A)True
B)False
Q4) Why is the real-world deposit multiplier smaller than 1/RR,where RR is the required reserve ratio?
Page 18
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Chapter 17: Monetary Policy
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Q1) What is a mortgage? What were the important developments in the mortgage market during the years after 1970?
Q2) Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply
A)lowers the interest rate, and firms increase investment spending.
B)causes people to spend more because they know prices will rise in the future.
C)raises the interest rate and consumers decrease spending on durable goods.
D)lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports.
Q3) When the Fed embarked on a policy known as quantitative easing,they
A)slowly lowered the federal funds rate target until it was equal to zero.
B)they reduced the required reserve ration by one-quarter point per month for 12 months.
C)bought longer-term securities than are usually bought in open market operations.
D)opened up lending to primary dealers, commercial banks, and investment banks.
Q4) List the Fed's four main monetary goals.
Q5) What problems can high inflation rates cause for the economy?
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Chapter 18: Fiscal Policy
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Q1) Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
A)higher; higher B)higher; lower C)lower; higher D)lower; lower
Q2) The majority of the federal government debt is held by government agencies. A)True B)False
Q3) Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and the Congress to conduct expansionary fiscal policy.Briefly explain the condition of the economy and what the president and the Congress are attempting to do.
Q4) Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.
Q5) How can tax simplification be beneficial to the economy?
Q6) What is expansionary fiscal policy? What is contractionary fiscal policy?
Page 20
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Q1) Free trade refers to trade between countries without government restrictions.
A)True
B)False
Q2) Refer to Figure 19-5.Without the tariff in place,the United States produces
A)12 million pounds of coffee.
B)26 million pounds of coffee.
C)33 million pounds of coffee.
D)45 million pounds of coffee.
Q3) If Finland has an absolute advantage in the production of two goods compared to Latvia,Finland can still benefit from trade with Latvia.
A)True
B)False
Q4) Refer to Table 19-4.Use the table above to select the statement that accurately interprets the data in the table.
A)Rob has a comparative advantage in catching fish.
B)Bill has an absolute advantage in catching fish.
C)Bill has a comparative advantage in catching fish.
D)Rob has a comparative advantage in picking berries and catching fish.
Q5) What is a tariff?
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