Microeconomics Test Questions
Course Introduction
Microeconomics explores the behavior of individuals, households, and firms as they make decisions regarding the allocation of limited resources. The course examines how these economic agents interact within various market structures to determine prices, production, and consumption of goods and services. Key topics include demand and supply analysis, elasticity, consumer choice theory, production and cost functions, market equilibrium, and the impact of government interventions on market outcomes. Through theoretical models and real-world applications, students gain a deeper understanding of how economic forces shape individual and firm behavior at the micro level.
Recommended Textbook
Economics for Today 4th Asia Pacific Edition by Allan Layton
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19 Chapters
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Page 2
Chapter 1: Thinking like an economist
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Sample Questions
Q1) Scarcity is a situation:
A)where people's needs exceed their resources.
B)where people's wants exceed their resources.
C)where the quantity of resources is sufficient to meet all wants.
D)where people's needs exceed other people's resources.
E)where the quantity of resources is sufficient to meet all needs.
Answer: B
Q2) The statement: 'It would be better to put up with price controls than to have continuing higher medical care prices',is an example of normative economic analysis.
A)True
B)False
Answer: True
Q3) An economic theory claims that a rise in petrol prices will cause petrol purchases to fall,ceteris paribus.The phrase 'ceteris paribus' means that:
A)other relevant factors like consumer incomes must be held constant.
B)the petrol prices must first be adjusted for inflation.
C)the theory is widely accepted but cannot be accurately tested.
D)consumers' need for petrol remains the same regardless of the price.
Answer: A
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Page 3
Chapter 2: Production possibilities and opportunity cost
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Sample Questions
Q1) In Exhibit 2-9,which of the following is not true regarding point H? Point H:
A)cannot be achieved by this economy today.
B)could be achieved today only if the economy achieved full employment.
C)could be achieved in the future by an enlargement of the economy's resource base.
D)could be achieved in the future by an advancement in technology.
E)could be achieved in the future by growth in the economy.
Answer: B
Q2) Suppose an economy is faced with the production possibilities table shown in Exhibit 2-8.The second unit of capital goods production will cost _____ units of consumption goods and the third unit of capital goods production will cost _____ units of consumption goods.
A)4; 6
B)25; 23
C)23; 19
D)1; 23
E)2; 19
Answer: A
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Chapter 3: Market demand and supply
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Sample Questions
Q1) In Exhibit 3-5,if there is a surplus of radios of 300 units,the current price of radios must be:
A)$60.
B)$55.
C)$70.
D)$45.
E)$40.
Answer: C
Q2) A shortage of a product means a/an:
A)excess supply of the product.
B)excess demand of the product.
C)situation where the quantity demanded is less than the quantity supplied.
D)situation where the quantity supplied exceeds the quantity demanded.
E)situation where the current market price is too high.
Answer: B
Q3) A surplus means that the quantity supplied is greater than the quantity demanded at the prevailing price.
A)True
B)False
Answer: True
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Chapter 4: Markets in action
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Sample Questions
Q1) If the market demand and supply curves shift as given in Exhibit 4-3,the resulting new equilibrium will show a/an:
A)increase in market price and a decrease in the quantity exchanged.
B)decrease in market price and a decrease in the quantity exchanged.
C)increase in market price and an increase in the quantity exchanged.
D)decrease in market price and an increase in the quantity exchanged.
E)decrease in market price and no change in the quantity exchanged.
Q2) The market shown in Exhibit 4-2 is initially in equilibrium at E .Changes in market conditions result in a new equilibrium at E .This change is stated as a/an:
A)increase in demand and an increase in supply.
B)decrease in demand and a decrease in quantity supplied.
C)increase in quantity demanded and an increase in quantity supplied.
D)decrease in supply and a decrease in quantity demanded.
E)increase in supply and an increase in quantity demanded.
Q3) A minimum wage results in:
A)market equilibrium.
B)increased demand for workers.
C)unemployment.
D)a shortage of workers.
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Page 6
Chapter 5: Elasticity of demand and supply
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Sample Questions
Q1) Price elasticity of demand can be:
A)greater than 100 per cent.
B)equal to 100 per cent.
C)less than 1.
D)less than 100 per cent.
Q2) The price elasticity of demand coefficient for a good will be greater:
A)if close substitutes exist.
B)if minor complements exist.
C)in the short run.
D)if a small portion of the budget will be spent on it.
Q3) Tara buys four music CDs when the price is $10 and two CDs when the price is $14.Her price elasticity of demand is (using the average values method):
A)0.
B)1.
C)2.
D)3.
E)4.
Q4) A horizontal demand curve indicates perfectly elastic demand. A)True
B)False
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Chapter 6: Production costs
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Sample Questions
Q1) A young chef is considering opening his own sushi bar.To do so,he would have to quit his current job,which pays $20 000 a year,and take over a store building that he owns and currently rents to his brother for $6000 a year.His expenses at the sushi bar would be $50 000,for food and $2000 for gas and electricity.What are his implicit costs?
A)$26 000.
B)$66 000.
C)$78 000.
D)$52 000.
E)$72 000.
Q2) Which of the following is true if the total variable cost curve is rising?
A)Average fixed cost is increasing.
B)Marginal cost is decreasing.
C)Marginal cost is increasing.
D)Average fixed cost is constant.
Q3) Costs that do not vary as output varies and that must be paid even if output is zero are called total fixed costs.
A)True
B)False
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8
Chapter 7: Perfect competition
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Sample Questions
Q1) Consider a firm operating where P = 10,MR = 10,MC = 10 and ATC = 10.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)a monopolist for a product with a relatively inelastic demand.
E)perfectly competitive in long-run equilibrium.
Q2) In a perfectly competitive market,firms:
A)enter the industry in the long run.
B)exit the industry in the long run.
C)earn economic profit in a long run.
D)earn normal profit in a long run.
Q3) Which of the following is not a characteristic of a perfectly competitive market?
A)There is a large number of small firms.
B)Firms sell a homogeneous product.
C)Firms can easily enter or exit the market.
D)Firms are price makers, not price takers.
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Chapter 8: Monopoly
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Sample Questions
Q1) A casino is often protected by license because:
A)it is helping gamblers to access the services.
B)it allows the casino to enjoy the monopolistic pricing.
C)it creates a stream of revenue to the government.
D)it invites more casinos to open.
Q2) Which of the following is true about a monopoly?
A)A monopoly charges a higher price and produces a lower output level than if the market were competitive.
B)A monopoly is guaranteed an economic profit.
C)A monopoly charges the highest possible price.
D)A monopoly will shut down whenever losses are incurred.
Q3) Price is always greater than marginal revenue because:
A)the monopolist cannot charge a price below the demand curve.
B)the reduction in revenue due to the higher price is subtracted from the increase in revenue from the extra unit produced.
C)the reduction in revenue due to the lower price is subtracted from the increase in revenue from the extra unit produced.
D)the increase in revenue due to the lower price is subtracted from the increase in revenue from the extra unit produced.
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Page 10
Chapter 9: Monopolistic competition and oligopoly
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Sample Questions
Q1) In monopolistic competition,a firm:
A)enjoys its monopoly status.
B)does not compete with other firms.
C)can only compete on price.
D)can use non-price competition.
E)competes by charging high prices.
Q2) In the long run,the economic profits of Hoot's Chicken'n'Ribs,a monopolistic competitor,are:
A)not eliminated, because competition is not perfect.
B)not eliminated, because the demand curve slopes downward.
C)eliminated due to firms entering the industry.
D)eliminated due to firms leaving the industry.
E)not eliminated, because firms cannot enter the industry.
Q3) A monopolistically competitive market is characterised by:
A)many small sellers selling a differentiated product.
B)a single seller of a product that has few suitable substitutes.
C)very strong barriers to entry.
D)mutual interdependence in pricing decisions.
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11
Chapter 10: Policy issues: resource taxes and climate change
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Sample Questions
Q1) The carbon tax can be introduced when:
A)society has a low liability cost of pollution.
B)the external cost of production is not accounted for in the market prices.
C)government decides to reduce spending on rail and road infrastructure.
D)producers adopt emissions reduction technologies.
Q2) The Australian government was proposing to introduce a super profits tax and to:
A)double a progressive income tax.
B)abolish company tax.
C)neutralise the effect of royalties.
D)mitigate a proportional income tax.
Q3) The carbon tax has to be set at the ________ level.
A)high
B)correct
C)low
D)fair
Q4) Which of the following statements is most likely to be true?
A)The RSPT has a lower tax rate than the MRRT.
B)The Minerals Resource Rent Tax has no benefits to the economy.
C)Most of the industries have to pay the MRRT.
D)The MRRT has lower rates than the RSPT.
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Chapter 11: Measuring the size of the economy
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Sample Questions
Q1) In an open economy,domestic savings must always equal investment.
A)True
B)False
Q2) Real GDP measures a value of a specific basket of goods produced in a given period.
A)True
B)False
Q3) Because GDP does not account for improvements in the quality of goods,the GDP calculation:
A)tends to overstate the true value of output in Australia.
B)tends to understate the true value of output in Australia.
C)provides an accurate value of output in Australia.
D)provides the best measure of output in Australia.
E)measures the value correctly because price changes always capture the value of quality changes.
Q4) Which of the following is a shortcoming of GDP?
A)It excludes changes in inventories.
B)It includes an estimate of illegal transactions.
C)It excludes quality of products.
D)It includes business investment spending.
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Chapter 12: Business cycles and economic growth
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Sample Questions
Q1) Economic growth is measured by the annual percentage increase in a nation's level of:
A)nominal GDP.
B)real GDP.
C)real GDP deflator.
D)economic indicators.
Q2) According to Exhibit 12-2,the level of consumption per person when capital per person is 120 units will be:
A)32.
B)34.
C)36.
D)38.
E)40.
Q3) The phase in the business cycle in which real GDP declines is called a: A)trendline.
B)peak.
C)recession.
D)recovery.
E)trough.
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Page 14
Chapter 13: Inflation and unemployment
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Sample Questions
Q1) The CPI is used to determine:
A)how higher quality products increase the wellbeing of consumers.
B)how the cost of living changed from one period to another.
C)the changes in prices of all consumer goods and services.
D)how changing prices affect the export of goods and services.
Q2) A wage-price spiral occurs:
A)when firms need to continually meet higher wage demands because unemployment is close to zero.
B)when falling wages lead to rapidly falling prices, causing deflation.
C)when higher prices lead to rapidly falling real wages, which prompts demands for higher nominal wages.
D)when wages are indexed by law to the CPI.
Q3) Consider a broom factory that permanently closes because of foreign competition.If the broom factory's workers cannot find new jobs because their skills are no longer marketable,then they are classified as:
A)seasonally unemployed.
B)frictionally unemployed.
C)structurally unemployed.
D)cyclically unemployed.
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Page 15
Chapter 14: A simple model of the macro economy
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Sample Questions
Q1) In the aggregate demand and supply model:
A)the aggregate supply curve is horizontal at full-employment real GDP.
B)the vertical axis measures real GDP.
C)the horizontal axis measures the average price level.
D)equilibrium occurs where the AD and AS intersect.
Q2) The French economist Jean-Baptiste Say transformed the equality of total output and total spending into a law that can be expressed as follows:
A)unemployment is not possible in the short run.
B)demand and supply are never equal.
C)supply creates its own demand.
D)demand creates its own supply.
Q3) The aggregate demand curve shows how real GDP purchased varies with changes in:
A)unemployment.
B)output.
C)the price level.
D)the interest rate.
Q4) The only determinant of investment is the interest rate.
A)True
B)False
16
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Chapter 15: The monetary and financial system
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Sample Questions
Q1) The statement that Computech's profits totalled $500 million last year represents the use of money as a:
A)medium of exchange.
B)store of value.
C)unit of account.
D)means of coincidence.
Q2) Using the aggregate supply and demand model,assume the economy is operating along the intermediate portion of the aggregate supply curve.An increase in the money supply will increase the price level and:
A)lower both the interest rate and real GDP.
B)raise both the interest rate and nominal GDP.
C)lower the interest rate and raise GDP.
D)raise the interest rate and lower real GDP.
Q3) The M1 definition of the money supply includes currency plus:
A)cheque account deposits and savings accounts.
B)cheque account deposits and credit cards.
C)cheque account deposits and debit cards.
D)cheque account deposits and traveller's cheques.
E)traveller's cheques and credit cards.
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Page 17
Chapter 16: Macroeconomic policy I: monetary policy
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Sample Questions
Q1) Classical economists traditionally believed that:
A)there are three motives for demanding money.
B)a change in the money supply can affect real GDP.
C)the transactions demand for money influences the velocity of money.
D)the velocity of money is constant.
E)the economy does not always operate at full employment.
Q2) According to the equation of exchange,if M = 500,P = 100 and Q = 10,the V is:
A)2.
B)5.
C)10.
D)20.
E)2000.
Q3) If the velocity of money is constant then the money supply will also be constant. A)True
B)False
Q4) Monetarists argue that the central bank should frequently adjust the money supply in response to ever-changing economic conditions.
A)True
B)False
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Chapter 17: Macroeconomic policy II: fiscal policy
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Sample Questions
Q1) Microeconomic reform in Australia included:
A)the reduction of tariffs.
B)higher regulation of the Australian financial system.
C)holding interest rate under controls.
D)less flexibility in work practices.
Q2) The balanced budget multiplier is always equal to:
A)0.5.
B)0.75.
C)1.
D)1.5.
E)1 / MPC.
Q3) An example of a long-term fiscal policy in Australia is:
A)the GST.
B)an encouragement of competition in the markets.
C)employment of high-ranking academics.
D)introduction of new markets.
Q4) The cyclically adjusted budget deficit is the planned deficit for future times.
A)True
B)False
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Chapter 18: 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.In Pada the cost of producing one more unit of corn is equal to:
A)3 units of corn.
B)1/3 unit of wheat.
C)3 units of wheat.
D)15 units of wheat.
E)30 units of wheat.
Q2) In terms of production possibilities curves,the benefits of trade between two nations is that each nation moves to:
A)a lower standard of living.
B)a more expansive consumption possibilities combination.
C)a higher standard of living.
D)a lower consumption possibilities combination.
Q3) In Exhibit 18-3,Australia has a comparative advantage in producing: A)potatoes.
B)wheat.
C)both potatoes and wheat.
D)neither potatoes nor wheat.
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20
Chapter 19: Applying graphs to economics
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Sample Questions
Q1) When one variable increases,the other variable increases - it is called:
A)an inverse relationship.
B)causation.
C)horizontal line.
D)a direct relationship.
Q2) As shown in Exhibit 1A-3,the slope of straight line AB:
A)decreases with increases in X.
B)increases with increases in X.
C)increases with decreases in X.
D)remains constant with changes in X.
Q3) Measured between two points on a curve,the ratio of the change in the variable on the vertical axis to the change in the variable on the horizontal axis is the: A)axis.
B)slope.
C)dependent curve.
D)independent curve.
Q4) Direct relationships are illustrated using upward-sloping lines and curves.
A)True
B)False
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