Microeconomics Test
Preparation
Course Introduction
Microeconomics is the branch of economics that analyzes the individual elements of the economy, such as households, firms, and how they interact in various markets. This course explores fundamental concepts including supply and demand, market equilibrium, elasticity, consumer behavior, production and cost theory, and the different types of market structures like perfect competition, monopoly, and oligopoly. Students will learn how prices are determined, how goods and services are allocated, and how economic agents make optimal decisions given constraints. The course also introduces the impact of government interventions in markets and examines real-world applications to help understand and predict economic outcomes at a micro level.
Recommended Textbook
Microeconomics 4th Australian Edition by Glenn Hubbard
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16 Chapters
3337 Verified Questions
3337 Flashcards
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Chapter 1: Economics: Foundations and Models
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) Allocative efficiency occurs when every good or service is produced up to the point where the last unit provides________.
A)a marginal benefit to society equal to the marginal cost of producing it.
B)a marginal benefit to society greater than the marginal cost of producing it.
C)a marginal benefit to society less than the marginal cost of producing it.
D)a marginal benefit to society equal to zero.
Answer: A
Q2) All centrally planned economies________.
A)have been political dictatorships.
B)started out as market economies.
C)began as mixed economies.
D)have become mixed economies.
Answer: A
Q3) Examining the conditions that could lead to a recession in an economy is an example of a macroeconomics topic.
A)True
B)False
Answer: True
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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) In economics, the term 'free market' refers to a market where products are traded but not sold.
A)True
B)False
Answer: False
Q2) Refer to Figure 2.7.What is the opportunity cost of producing 1 bolt of cotton in Pakistan?
A)3/8 of a kilogram of cashews
B)5/8 of a kilogram of cashews
C)1 3/5 kilograms of cashews
D)150 kilograms of cashews
Answer: B
Q3) What is meant by the term 'opportunity cost'?
Answer: Opportunity cost is the highest-valued alternative that must be given up to engage in an activity.
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Page 4
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) Refer to Figure 3.1.A decrease in the price of the product would be represented by a movement from:
A)A to B
B)B to A
C)D<sub>1</sub> to D<sub>2</sub>
D)D<sub>2 </sub>to D<sub>1</sub>
Answer: A
Q2) Which of the following is evidence of a shortage of walnuts?
A)Firms lower the price of walnuts.
B)The price of cashews is lowered in order to make up for the walnut shortage.
C)The equilibrium price of walnuts falls due to a decrease in demand.
D)The quantity demanded of walnuts is greater than the quantity supplied.
Answer: D
Q3) Refer to Figure 3.5.At a price of $5, the quantity sold________.
A)is 2 units.
B)is 4 units.
C)is 6 units.
D)cannot be determined.
Answer: A
Page 5
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Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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224 Flashcards
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Sample Questions
Q1) Refer to Figure 4.9.The diagram shows two supply curves, S<sub>A</sub> and S<sub>B</sub>.As price rises from P<sub>0</sub> to P<sub>1</sub>, which supply curve is more elastic?
A)S<sub>A</sub>
B)S<sub>B</sub>
C)They are equally inelastic.
D)They are equally elastic.
Q2) Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8000 units to 10000 units.Use the midpoint formula to calculate the price elasticity of supply.
A)1)22
B)1)0
C)0)82
D)0)07
Q3) If the income elasticity for canned food is 0.8, then canned food is an inferior good.
A)True
B)False
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Page 6
Chapter 5: Economic Efficiency, Government Price Setting and Taxes
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187 Flashcards
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Sample Questions
Q1) Refer to Figure 5.1.If the market price is $1.00, what is the maximum number of burritos that Arnold will buy?
A)1
B)2
C)3
D)4
Q2) A minimum wage law dictates
A)the minimum quantity of labour that a firm must employ.
B)the lowest wage that firms may pay for labour.
C)the highest wage that firms must pay for labour.
D)the minimum qualifications for labour.
Q3) Refer to Figure 5.7.The price buyers pay after the tax is
A)$7.
B)$20.
C)$22.
D)$27.
Q4) If the market price is at equilibrium, the producer surplus is minimised.
A)True
B)False
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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) After getting an A on your economics exam, you decide to go to your favourite Mexican restaurant to celebrate.You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)the chimichanga for $8 which gives you 120 units of utility, or (b)the enchiladas for $15 which gives you 195 units of utility?
Q2) If, when you consume another piece of chocolate, your marginal utility is zero, then A)you want more chocolate.
B)you have maximised your total utility from consuming chocolate.
C)you have not yet reached the point of diminishing marginal utility.
D)you should consume less chocolate.
Q3) Economists assume people's tastes are identical.
A)True
B)False
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Chapter 7: Technology Production and Costs
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301 Verified Questions
301 Flashcards
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Sample Questions
Q1) Diminishing marginal product of labour occurs when adding another unit of labour
A)decreases output.
B)changes output by an amount smaller than the output added by the previous unit of labour.
C)increases output by an amount larger than the output added by the previous unit of labour.
D)decreases output by an amount smaller than the output added by the previous unit of labour.
Q2) A factor of production that is generally fixed in the short run is
A)raw materials
B)labour
C)a factory building
D)water
Q3) In the long run, the relevant cost is total cost.
A)True
B)False
Q4) If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale.
A)True
B)False
Page 9
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Chapter 8: Firms in Perfectly Competitive Markets
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269 Flashcards
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Sample Questions
Q1) Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterises the industry if, as demand for tuna increases, fishing boats have to go farther into the ocean to harvest tuna?
A)a constant-cost industry
B)an increasing-cost industry
C)a decreasing-cost industry
D)a fixed-cost industry
Q2) Refer to Figure 8.1.If the firm is producing 700 units, the amount of its profit or loss is A)loss of $280
B)loss equivalent to the area A
C)profit equivalent to the area A
D)There is insufficient information to answer the question.
Q3) In the long run, perfectly competitive firms earn zero economic profit.Why do firms enter an industry when they know that in the long run they will not earn any profit?
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10
Chapter 9: Monopoly Markets
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Sample Questions
Q1) A profit-maximising monopoly produces a lower output level than would be produced if the industry was perfectly competitive.
A)True
B)False
Q2) Many biologic drug manufacturers are pushing for patent protection to be extended to 12 years before generics are allowed to be introduced to the market.This reflects which of the following barriers to entry?
A)Control of a key resource
B)Network externalities
C)Entry blocked by government action
D)Economies of scale creating a natural monopoly
Q3) What is a public franchise? Are all public franchises natural monopolies?
Q4) Identify four reasons for high entry barriers.Briefly explain each reason.
______
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Chapter 10: Monopolistic Competition: The Competitive
Model in a More Realistic
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255 Flashcards
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Sample Questions
Q1) The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because
A)barriers to entry are very low.
B)there are many firms in the market.
C)products are differentiated.
D)entry into the market is blocked.
Q2) Refer to Table 10.4.Victoria's profit-maximising output is where
A)total profit equals $3.
B)marginal revenue and marginal cost both equal $4.
C)marginal revenue and marginal cost both equal $3.
D)marginal cost is at its minimum value.
Q3) How do consumers benefit from monopolistic competition?
A)By being able to choose from products more closely suited to their tastes.
B)By paying the lowest possible price for the product.
C)By paying the same price as everyone else.
D)By being able to purchase high-quality products at low prices.
Q4) New firms are able to enter monopolistically competitive markets because there are low barriers to entry.
A)True
B)False
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Chapter 11: Oligopoly: Markets With Few Competitors
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186 Verified Questions
186 Flashcards
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Sample Questions
Q1) An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium.
A)True
B)False
Q2) Refer to Figure 11.2.Now suppose that the government delays Xenophone's entry and Gigacom moves first.What is the likely outcome in the market?
A)Both offer Internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million.
B)Both offer DSL Internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.
C)Xenophone offers DSL Internet service and earns a profit of $5 million, while Gigacom offers Internet service via cable line and earns a profit of $6.5 million.
D)Xenophone offers Internet service via cable line and earns a profit of $4 million, while Gigacom offers DSL Internet service and earns a profit of $4.5 million.
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Chapter 12: The Markets for Labour and Other Factors of Production
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250 Verified Questions
250 Flashcards
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Sample Questions
Q1) What is the formula you should use to determine a bank account's future value in one year?
A)Future value equals the present value plus the rate of interest.
B)Future value equals the present value minus the rate of interest.
C)Future value equals the present value multiplied by one plus the rate of interest in decimals.
D)Future value equals the present value divided by one plus the rate of interest in decimals.
Q2) How does demand in factor markets differ from demand in product markets?
A)The demand for a factor of production is difficult to determine.
B)The demand for a factor of production is influenced by workers' productivity and by the producers' expected sales revenues, not by tastes and preferences of consumers.
C)Demand for a factor of production is based on the tastes and preferences of firms.
D)Demand for a factor of production is based on the tastes and preferences of resource owners.
Q3) Increases in population shift the market supply curve for labour to the right.
A)True
B)False
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Chapter 13: Comparative Advantage and the Gains From International Trade
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) Which of the following statements is used to justify protectionism?
A)Free trade leads to higher prices for imported goods.
B)Free trade increases employment by protecting domestic firms.
C)A country should not rely on other countries for goods that are critical to its national defence.
D)Trade restrictions are not necessary to protect new firms since they can gain experience and become more productive without protection.
Q2) What are three primary reasons for the growth of international trade over the past 50 years?
Q3) Refer to Table 13.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Denmark consume?
A)270
B)900
C)930
D)1200
Q4) Anti-globalisation and protectionism are both arguments against free trade.How do these two arguments differ?
Q5) What is autarky?
15
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) Economic rent refers to the price of a factor of production which is fixed in supply.
A)True
B)False
Q2) Refer to Figure 14.2.How much is Bree willing to pay to have 4 street lights installed?
A)$1500
B)$1800
C)$2700
D)$7200
Q3) A successful trademark is one that becomes a generic name for a product, for example, 'Kleenex' has become a generic term for tissues.
A)True
B)False
Q4) Refer to Figure 14.2.The optimal quantity of street lights to install is
A)3
B)4
C)6
D)9
Q5) What is adverse selection?
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Chapter 15: Externalities, Environmental Policy and Public Goods
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212 Flashcards
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Sample Questions
Q1) Refer to Figure 15.6.Why is there a deadweight loss?
A)Because the marginal private benefit for each additional unit between Q<sub>1</sub> and Q<sub>2</sub> exceeds the marginal cost
B)Because the marginal private cost for each additional unit between Q<sub>1</sub> and Q<sub>2</sub> exceeds the marginal private benefit
C)Because the marginal social cost for each additional unit between Q<sub>1</sub> and Q<sub>2</sub> exceeds the marginal social benefit
D)Because the marginal social benefit for each additional unit between Q<sub>1 </sub>and Q<sub>2</sub> exceeds the marginal cost
Q2) Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?
A)The private cost of production
B)The social cost of production
C)The external cost of production
D)The explicit cost of production
Q3) What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?
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Page 17
Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) To what does a personal exemption apply?
A)The tax bracket that represents basic living expenses
B)The tax rate that applies to a particular tax bracket
C)An amount representing basic living expenses that can be subtracted from income.
D)A dispensation that allows certain qualifying individuals not to pay federal taxes.
Q2) What is the tax structure of the federal corporate income tax?
A)Progressive
B)Proportional
C)Regressive
D)Unfair
Q3) What is meant by 'tax incidence'?
Q4) Refer to Figure 16.1.Area B + C + F + G represents
A)the portion of sales tax revenue borne by consumers.
B)the portion of sales tax revenue borne by producers.
C)the excess burden of the sales tax.
D)sales tax revenue collected by the government.
Q5) If you pay $14 000 in taxes on an income of $125 000, and $17 400 in taxes on an income of $144 000, what is your marginal tax rate? Show your work.
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