Microeconomics Review Questions
Course Introduction
Microeconomics explores the behavior of individual consumers, firms, and markets, analyzing how they make choices under conditions of scarcity and trade-offs. The course covers fundamental concepts such as demand and supply, elasticity, market equilibrium, consumer choice theory, production and costs, and various market structures including perfect competition, monopoly, and oligopoly. By applying theoretical tools and graphical analysis, students gain insights into how prices are determined, how resources are allocated, and how different economic agents respond to incentives within the economy.
Recommended Textbook
Microeconomics 3rd Australian Edition by Glenn Hubbard
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16 Chapters
3350 Verified Questions
3350 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) What is the difference between positive economic analysis and normative economic analysis? Give one example each of a positive and normative economic issue or question or statement.
Answer: Positive economic analysis is concerned with what is.Positive economic analysis reaches conclusions based on verifiable statements.Normative economic analysis,on the other hand,is concerned with what ought to be.Normative analysis reaches conclusions based on opinions.(Students will give many different examples. )
Q2) In economics,choices must be made because we live in a world of A)unemployment.
B)scarcity.
C)greed.
D)unlimited resources.
Answer: B
Q3) Even if the population declines,scarcity will still exist.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Choices and Trade-Offs in the Market
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) Any output combination outside a production possibility frontier is associated with unused or underutilised resources.
A)True
B)False
Answer: False
Q2) Refer to Figure 2-3.Consider the following events:
A.a reduction in the patent protection period to no more than 2 years
B.a war that destroys a substantial portion of a nation's capital stock
C.the lack of a secure and enforceable property rights system
Which of the events listed above could cause a movement from W to V?
A)a only
B)a and b only
C)a and c only
D)a,b,and c
Answer: C
Q3) In economics,the term 'free market' refers to a market where products are traded but not sold.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) Assume there is a shortage in the market for digital music players.Which of the following statements correctly describes this situation?
A)The demand for digital music players is greater than the supply of digital music players.
B)Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.
C)The price of digital music players will rise in response to the shortage;as the price rises,the quantity demanded will increase and the quantity supplied will decrease.
D)the shortage will cause an increase in the equilibrium price of digital music players. Answer: B
Q2) Chips and salsa are complements.If the price of salsa decreases,the demand for chips will increase.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Elasticity: the Responsiveness of Demand and Supply
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226 Verified Questions
226 Flashcards
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Sample Questions
Q1) If,when price changes by 35 per cent,the quantity demanded changes by 7 per cent,then the absolute value of the price elasticity of demand is 5.
A)True
B)False
Q2) The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.
A)True
B)False
Q3) Refer to Figure 4-4.Which of the following statements is true about the price elasticity of demand?
A)The elasticity coefficient is constant along the demand curve.
B)The elastic portion of a straight-line downward-sloping demand curve corresponds to the segment above the midpoint.
C)The inelastic portion of the demand curve corresponds to the segment above the midpoint.
D)At the midpoint of the demand curve,the elasticity coefficient is zero.
Q4) Briefly explain the economic concept of elasticity.
Q5) Explain the relationship between price elasticity of demand and total revenue.
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Chapter 5: Economic Efficiency, Government Price Setting and Taxes
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187 Verified Questions
187 Flashcards
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Sample Questions
Q1) Refer to Table 5-4.If a minimum wage of $12.50 is mandated,there will be a
A)shortage of 40 000 units of labour.
B)surplus of 40 000 units of labour.
C)shortage of 80 000 units of labour.
D)surplus of 80 000 units of labour.
Q2) Refer to Figure 5-1.What is the total amount that Arnold is willing to pay for 3 burritos?
A)$1.50
B)$6.00
C)$7.00
D)$10.00
Q3) To affect the market outcome,a price ceiling
A)must be set below the black market price.
B)must be set below the legal price.
C)must be set below the price floor.
D)must be set below the equilibrium price.
Q4) Black markets only exist in developing nations.
A)True
B)False
Q5) What is economic surplus? When is economic surplus at a maximum?
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Chapter 6: Consumer Choice and Behavioural Economics
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254 Verified Questions
254 Flashcards
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Sample Questions
Q1) Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies.Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found that
A)there is no convincing evidence that the alternative technologies were superior.
B)consumers sometimes do become locked into the use of products with inferior technologies.
C)in all of these cases,network externalities resulted in market failure.
D)consumers use products with inferior technologies when their prices are lower than products with superior technologies.
Q2) Utility is
A)easily measured in units called utils.
B)subjective and difficult to measure.
C)the consumption of a quasi-public good like electricity or natural gas.
D)the production of a quasi-public good like electricity or natural gas.
Q3) The demand for a Giffen good slopes upward.
A)True
B)False
Q4) What is a Giffen good?
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Chapter 7: Technology, Production and Costs
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300 Verified Questions
300 Flashcards
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Sample Questions
Q1) An avocado orchard employs five full-time workers.Currently,the average product of labour is 120 pounds of avocados per day.The orchard hires a 6th full-time worker and his marginal product is 150 pounds of avocados.The average product of the six workers will now be
A)more than 120 pounds.
B)less than 120 pounds.
C)equal to 120 pounds.
D)less than the marginal product of labour.
Q2) Suppose the price of capital and labour remain constant.As a firm's expenditures for capital and labour increase,its isocost line
A)shifts out parallel to the original isocost line.
B)shifts in parallel to the original isocost line.
C)rotates outward on the Y-intercept.
D)rotates outward on the X-intercept.
Q3) Higher isocost lines correspond to higher A)profits.
B)total costs of production.
C)input prices.
D)sales revenue.
Q4) What is an isoquant? What is the slope of an isoquant?
Page 9
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Chapter 8: Firms in Perfectly Competitive Markets
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270 Verified Questions
270 Flashcards
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Sample Questions
Q1) A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?
A)The price remains constant at $48.
B)The price falls below $48.
C)The price rises above $48.
D)There is insufficient information to answer the question.
Q2) A perfectly competitive firm breaks even at a price equal to its minimum average total cost.
A)True
B)False
Q3) If productive efficiency characterises a market,
A)the marginal cost of production is minimised.
B)firms produce the goods that consumers desire most.
C)the output is being produced at the lowest possible cost.
D)firms use the best technology available to produce the good.
Q4) Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down.
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Chapter 9: Monopoly Markets
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281 Verified Questions
281 Flashcards
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Sample Questions
Q1) If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations,then it is engaging in
A)odd pricing.
B)cost-plus pricing.
C)price discrimination.
D)markup pricing.
Q2) Refer to Table 9-3.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7.How many hours will be purchased and what is her total revenue?
A)5 hours;total revenue = $35
B)4 hours;total revenue = $28
C)3 hours;total revenue = $21
D)2 hours;total revenue = $14
Q3) Because each customer pays according to her willingness to pay,a consumer maximises her consumer surplus under first-degree price discrimination.
A)True
B)False
Q4) Identify four reasons for high entry barriers.Briefly explain each reason.
Q5) What three conditions must hold for a firm to successfully price discriminate?
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Chapter 10: Monopolistic Competition
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253 Verified Questions
253 Flashcards
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Sample Questions
Q1) Sparkle,one of many firms in the market for toothpaste,is in long-run equilibrium.Sparkle has a small market share and has been in business for a long time.
a.Identify the market structure in which Sparkle operates.Explain your answer.
b.What is Sparkle's profit or loss? Explain your answer.If you cannot determine the profit or loss,explain what information is missing.
c.Draw a diagram showing Sparkle's demand curve,marginal revenue curve,average total cost curve and marginal cost curve.Label your diagram.
Q2) Refer to Figure 10-8.At the profit-maximising output level,the firm will
A)earn a profit of $176.
B)break even.
C)earn a profit of $88.
D)earn a profit of $60.
Q3) A major difference between monopolistic competition and perfect competition is A)the number of sellers in the markets.
B)the degree by which the market demand curves slope downwards.
C)that products are not standardised in monopolistic competition,unlike in perfect competition.
D)the barriers to entry in the two markets.
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12
Chapter 11: Oligopoly: Firms in Less Competitive Markets
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186 Verified Questions
186 Flashcards
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Sample Questions
Q1) Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?
A)producing more of its product
B)advertising that it will match its rival's price
C)reneging on a previous tacit agreement with rival firms to charge identical high prices
D)ignoring the pricing decisions of the other firms
Q2) Marginal revenue for an oligopolist is
A)identical to the demand for the firm's product.
B)difficult to determine because the firm's demand curve is typically unknown.
C)downward sloping beneath the firm's demand curve.
D)horizontal on a price-quantity diagram.
Q3) Refer to Table 11-1.Is there a dominant strategy for Godrickporter and,if so,what is it?
A)No,its outcome depends on what Star Connections does.
B)Yes,Godrickporter should increase its advertising spending.
C)Yes,Godrickporter should reduce its advertising spending.
D)Yes,Godrickporter's dominant strategy is to collude with Star Connections.
Q4) Discuss how traditional models of oligopoly may be able to be explained using game theory.
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Chapter 12: The Markets for Labour and Other Factors of Production
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253 Verified Questions
253 Flashcards
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Sample Questions
Q1) a.What are the two effects of an increase in the wage rate on an individual's labour supply decision? Briefly explain each effect.
b.Explain how a labour supply curve could be backward-bending.
Q2) Net worth and stockholders' equity are both equal to the difference between assets and liabilities.
A)True
B)False
Q3) The marginal productivity theory of income distribution states that
A)as more and more units of labour are added to a fixed quantity of capital,eventually labour's contribution to a firm's income will decrease.
B)income distribution is determined by the marginal productivity of the factors of production that individuals own.
C)factors of production in short supply command higher prices than those available in abundant quantities.
D)capital owners receive the bulk of a nation's income because capital-intensive production generates productivity gains.
Q4) What is a monopsony?
Q5) What is the marginal productivity theory of income distribution?
Page 14
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Chapter 13: International Trade
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) The ratio at which a country can trade its exports for imports from other countries is called
A)a trade barrier.
B)the terms of trade.
C)autarky.
D)a free trade agreement.
Q2) Free trade refers to trade between countries without government restrictions.
A)True
B)False
Q3) A tariff
A)makes domestic consumers worse off.
B)makes both domestic producers and consumers worse off.
C)makes everyone better off.
D)makes domestic producers worse off.
Q4) Refer to Table 13-6.All of the following are terms of trade that could possibly benefit both countries except
A)1 hat : 2 clocks.
B)1 hat : 4 clocks.
C)1 hat : 5 clocks.
D)1 hat : 8 clocks.
Page 15
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Chapter 14: Government Intervention in the Market
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Refer to Figure 14-1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9,
A)economic surplus is maximised.
B)too many consumers want to buy pecans.
C)the quantity supplied is greater than the economically efficient quantity.
D)the quantity demanded is economically efficient,but the quantity supplied is economically inefficient.
Q2) A tragedy of the commons occurs when a resource is
A)rival and excludable.
B)rival and non-excludable.
C)non-rival and non-excludable.
D)non-rival and excludable.
Q3) When people who buy insurance change their behaviour after the purchase because they are protected from loss by the insurance,the insurance market is said to face the problem of
A)moral hazard.
B)adverse selection.
C)asymmetric information.
D)economic irrationality.
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Page 16
Chapter 15: Externalities, Environmental Policy and Public Goods
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212 Verified Questions
212 Flashcards
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Sample Questions
Q1) When a tax on output is imposed to internalise the external costs of pollution,the supply curve shifts down by the amount of the tax.
A)True
B)False
Q2) If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost,
A)further reductions will make society better off.
B)the marginal benefit will rise and the marginal cost will fall as further reductions are made.
C)economic efficiency will be achieved when emissions are reduced to zero.
D)private businesses,rather the consumers,should be made to pay for the cost of further reductions.
Q3) Refer to Figure 15-8.What is the economically efficient level of pollution reduction?
A)12.5 million tons
B)9 million tons
C)8 million tons
D)0 tons
Q4) How does a negative externality in production reduce economic efficiency?
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Chapter 16: The Distribution of Income and Social Policy
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121 Verified Questions
121 Flashcards
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Sample Questions
Q1) What is the poverty rate?
A)the rate at which the number of people relative to the size of the population fall below the poverty line
B)the percentage of the population earning an annual income below the poverty line,according to the federal government's definition
C)the percentage of working adults whose annual income is sufficiently low as to be exempt from paying income taxes
D)the percentage of households who qualify for government assistance to meet the minimal requirement for adequate nutrition
Q2) When the demand for a product is more elastic than the supply,
A)consumers pay the majority of the tax on the product.
B)consumers pay the entire tax on the product.
C)firms pay the majority of the tax on the product.
D)firms pay the entire tax on the product.
Q3) Exempting food purchases from sales tax is consistent with the ability-to-pay principle,although not necessarily consistent with vertical equity.
A)True
B)False
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