Microeconomics Test Questions
Course Introduction
Microeconomics examines the decision-making processes of individuals, households, and firms as they allocate limited resources among competing uses. The course explores fundamental concepts such as supply and demand, market equilibrium, elasticity, consumer choice theory, production and cost structures, and various market structures including perfect competition, monopoly, monopolistic competition, and oligopoly. Through real-world applications and analytical frameworks, students gain insights into how prices are determined, how markets function, and the impact of government policies on economic outcomes.
Recommended Textbook
Economics for Today 4th Asia Pacific Edition by Allan Layton
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19 Chapters
2245 Verified Questions
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Page 2
Chapter 1: Thinking like an economist
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) Consider the statement 'The increase in money supply will push the prices downwards'.This is a statement of a:
A)microeconomist.
B)both macroeconomist and microeconomist.
C)macroeconomist.
D)resource economist.
E)social science economist.
Answer: C
Q2) An economist builds a model to:
A)define the problem.
B)capture all the complexities of reality.
C)collect data.
D)test the hypothesis.
Answer: D
Q3) Scarcity means that rich people are able to have as much as they would like to have.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Production possibilities and opportunity cost
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Sample Questions
Q1) If an economy is producing at full employment,it means that:
A)there are idle resources in this economy.
B)production is not efficient.
C)the economy is operating at maximum technical and economic efficiency at this point of time.
D)the economy is producing at a point that is to the left of the production possibilities curve.
E)the economy is producing at a point that is to the right of the production possibilities curve.
Answer: C
Q2) The production possibilities frontier shows different combinations of two goods:
A)that are able to be produced at a particular point of time with underemployment.
B)that are able to be produced at a particular point of time with resources available.
C)that are able to be produced with technology available in the future.
D)that will be produced at a particular point of time with or without full employment .
Answer: B
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Chapter 3: Market demand and supply
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Sample Questions
Q1) Assuming that oranges and apples can both be grown on the same type of land,a decrease in the price of apples,other things being equal,will cause a/an:
A)upward movement along the supply curve for oranges.
B)downward movement along the supply curve for oranges.
C)rightward shift of the supply curve for oranges.
D)leftward shift of the supply curve for oranges.
Answer: C
Q2) Assume that croutons and soup are complementary goods.The effect on the soup market of a decrease in the price of croutons (other things being equal)would best be described as a/an:
A)decrease in the quantity of soup demanded.
B)decrease in the demand for soup.
C)increase in the quantity of soup demanded.
D)increase in the demand for soup.
Answer: D
Q3) A shortage occurs when a good is in great demand.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Markets in action
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Sample Questions
Q1) Competition in the presence of negative externality will result in the following outcome:
A)the market price will be lower and output will be lower than socially desirable.
B)the market price will be lower and output will be higher than socially desirable.
C)the market price will be higher and output will be lower than socially desirable.
D)the market price output will be the same as socially desirable.
Q2) If two goods A and B are complements,then an increase in price of good A will result in a:
A) temporary surplus of good B.
B) temporary surplus of good A.
C) temporary shortage of good B.
D) temporary shortage of good A.
Q3) Which if the following is the best example of a public good?
A)Bread.
B)Fish in the ocean.
C)Scrambled satellite broadcasts.
D)National defence.
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Chapter 5: Elasticity of demand and supply
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Sample Questions
Q1) The price elasticity of demand coefficient for a good will be lower if which of the following occurs?
A)There are many substitutes for the good.
B)The longer a price change persists.
C)The less of the budget is spent on the good.
D)The higher the price of complements.
Q2) Cars have higher price elasticity of demand than tyres and tubes because:
A)tyres and tubes and cars are substitutes.
B)tyres and tubes and cars are complements.
C)cars are a luxury and tyres and tubes are a necessity.
D)tyres and tubes are a luxury and cars are a necessity.
Q3) If demand price elasticity measures 2,this implies that consumers would:
A)buy twice as much of the product if the price drops 10 per cent.
B)require a 2 per cent drop in price to increase their purchases by 1 per cent.
C)buy 2 per cent more of the product in response to a 1 per cent drop in price.
D)require at least a $2 increase in price before showing any response to the price increase.
E)buy twice as much of the product if the price drops 1 per cent.
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7
Chapter 6: Production costs
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Sample Questions
Q1) As shown in Exhibit 6-6,the marginal cost of producing the fourth unit is:
A)$0.
B)$19.
C)$27.
D)$100.
Q2) Implicit costs are best thought of as:
A)variable costs.
B)marginal costs.
C)accounting costs.
D)opportunity costs.
E)sunk costs.
Q3) In Exhibit 6-1,the marginal product of labour is equal to zero at point:
A) A.
B) B.
C) C.
D) D.
Q4) A zero economic profit is the same as a zero accounting profit.
A)True
B)False
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Chapter 7: Perfect competition
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Sample Questions
Q1) Refer to Exhibit 7-10 and assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D to D .The result is a long-run supply curve drawn from point:
A) A to point B.
B) B to point A.
C) A to point D.
D) A to point C.
Q2) Assume that a firm's marginal revenue just barely exceeds marginal cost.What should the firm do under these conditions?
A)Expand output.
B)Contract output.
C)Maintain output.
D)There is insufficient information to answer the question.
Q3) Under perfect competition,which of the following determine the market equilibrium?
A)Price and marginal cost.
B)Both demand and supply.
C)Marginal cost and average revenue.
D)Total cost and a number of suppliers.
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9
Chapter 8: 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) The monopolist can choose:
A)any price for its product.
B)the demand curve.
C)price and quantity to produce.
D)price or quantity to produce.
Q3) Price discrimination can benefit some consumers because:
A)a uniform price may be above their willingness to pay.
B)they can resell that good at a higher price and earn some extra money.
C)it forces monopolists to earn lower profits.
D)it forces monopolists to operate on the elastic section of their demand curve.
Q4) If price is less than average variable cost,a monopoly should shut down. A)True B)False
Q5) If a big firm is needed to produce at low cost,then natural monopoly can occur. A)True
B)False
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Chapter 9: Monopolistic competition and oligopoly
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Sample Questions
Q1) A picture frame company operates in a monopolistically competitive market.Its short-run equilibrium price is $80 and its ATC is $65.It sells 100 picture frames a week.From this we can tell:
A)this firm is making a normal profit.
B)other picture-frame companies will want to exit the market.
C)there are no other picture-frame companies in the area.
D)economic profits are $1500.
E)total profits are being maximised.
Q2) In the long run,profitability of the existing firms encourages:
A)the exit of existing firms and therefore the demand for existing firms will increase.
B)the entry of new firms and therefore the demand for existing firms will decrease.
C)the entry of new firms and therefore the demand for existing firms will increase.
D)the entry of new firms and therefore the demand for existing firms will stay the same.
Q3) The number of sellers is the largest in oligopoly.
A)True
B)False
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11
Chapter 10: Policy issues: resource taxes and climate change
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Sample Questions
Q1) Assume that the private supply is 'Supply 1' and the supply including tax is 'Supply 2' (Exhibit 10-2).What is the reduction in the output after the carbon tax was imposed?
A)0 units.
B)30 units.
C)20 units.
D)10 units.
Q2) Regulation is the best solution to climate change issues.
A)True
B)False
Q3) The replacement of a per-tonne royalty with a tax on super profits results in:
A)less tax revenue and a lower level of output.
B)more tax revenue and a higher level of output.
C)less tax revenue and a higher level of output.
D)more tax revenue and a lower level of output.
Q4) The emissions trading scheme is often called a:
A)'less is better' scheme.
B)'buy and sell' scheme.
C)'cap and trade' scheme.
D)'ceiling and cap' scheme.
Page 12
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Chapter 11: Measuring the size of the economy
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124 Flashcards
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Sample Questions
Q1) New residential housing is counted in GDP as a/an:
A)durable consumption good.
B)household durable good.
C)investment good.
D)inventory expansion.
E)long-term durable good.
Q2) Net national product is:
A)NDP minus depreciation.
B)GDP minus depreciation.
C)NDP minus net income paid overseas.
D)GNP minus net income paid overseas.
Q3) As shown in Exhibit 11-1,total expenditures by businesses for fixed investment and inventories are:
A)$15 billion.
B)$50 billion.
C)$65 billion.
D)$200 billion.
E)$500 billion.
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13
Chapter 12: Business cycles and economic growth
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Sample Questions
Q1) The 'golden rule',steady-state in the Solow growth model occurs when:
A)the level at which the economy will be made no better off by additional saving.
B)the level of output per person is maximised.
C)the level of savings per person is minimised.
D)the level of consumption per person is maximised.
Q2) Which of the following is an example of a government policy aimed at increasing the long-term living standards of Australians?
A)Increases in government spending.
B)Decreases in taxes.
C)Decreases in interest rates.
D)Compulsory superannuation.
E)Increases in interest rates.
Q3) Patents are an example of governments:
A)stifling competition.
B)protecting lazy monopolies.
C)providing an incentive for firms to engage in research and development.
D)inducing negative externalities.
E)doing none of these things.
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Chapter 13: Inflation and unemployment
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Sample Questions
Q1) An increase in the average price level of goods and services is called:
A)deflation.
B)disinflation.
C)inflation.
D)cost-push deflation.
Q2) Assume that the real rate of interest is 5 per cent and a lender charges a nominal interest rate of 15 per cent.If a borrower expects that the rate of inflation next year will be 10 per cent and the actual rate of inflation next year is 12 per cent:
A)neither the borrower nor the lender benefits from inflation.
B)both the borrower and the lender lose from inflation.
C)the borrower benefits from inflation, while the lender loses from inflation.
D)the lender benefits from inflation, while the borrower loses from inflation.
E)it is not possible to determine who gains or loses.
Q3) Cost-push inflation is:
A)only due to an increase in the cost of raw materials.
B)due to a reduction in demand.
C)only due to an increase in the cost of borrowing.
D)due to an increase in the cost of any inputs used in production.
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Page 15
Chapter 14: A simple model of the macro economy
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Sample Questions
Q1) The aggregate supply curve is:
A)always vertical.
B)always horizontal.
C)a summation of individual supply curves and is always upward sloping.
D)horizontal, vertical and upward sloping.
Q2) Keynes placed great primacy on the:
A)production function.
B)supply side of the economy.
C)demand side of the economy.
D)delivery of inputs to producer.
Q3) The aggregate demand is:
A)C + I + G + (X + M).
B)C + I + G - (X - M).
C)C + I + G*(X - M).
D)C + I + G + (X - M).
Q4) Which range is not a part of the aggregate supply curve?
A)Keynesian range.
B)Intermediate range.
C)Classical range.
D)Neo-Classical range.
Page 16
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Chapter 15: The monetary and financial system
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Sample Questions
Q1) The characteristics that money should have include:
A)portability, durability and flexibility.
B)durability, flexibility and stability.
C)durability, portability and homogeneity.
D)scarcity, portability and divisibility.
Q2) The money supply known as M3:
A)includes large-denomination time deposits.
B)excludes interest-earning cheque accounts in savings and loans.
C)does not include money-market mutual accounts.
D)includes savings accounts and small-denomination time deposits.
E)includes large-denomination repurchase agreements.
Q3) Treasury notes issued by the government are:
A)considered to be high risk.
B)are long-term financial instruments.
C)sold by the Treasury at a face value.
D)freely traded in financial markets once issued.
Q4) When there is an excess demand for money,individuals,business and agencies will attempt to purchase bonds.
A)True
B)False
Page 17
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Chapter 16: Macroeconomic policy I: monetary policy
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Sample Questions
Q1) Financial innovation in Australia during the 1980s led to:
A)the demand for money increasing.
B)the velocity of money becoming more stable.
C)the velocity of money becoming more volatile.
D)the demand for money becoming more stable.
Q2) Which of the following is a belief of the monetarists?
A)They think the problems of Great Depression were solved by monetary policy.
B)They believe monetary policy is transmitted to the economy only through its effect on interest rates and planned investment.
C)They do not believe that the interest-investment curve is vertical.
D)They do not believe monetary policy is transmitted to the economy only through its effect on interest rates and planned investment.
Q3) The velocity of money is equal to nominal GDP divided by the money supply.
A)True
B)False
Q4) Monetarists argue that velocity is reasonably predictable.
A)True
B)False
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Page 18
Chapter 17: Macroeconomic policy II: fiscal policy
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Sample Questions
Q1) Which of the following is not an example of an automatic stabiliser?
A)Welfare payments.
B)Unemployment benefits.
C)Transfer payments.
D)Highway construction.
Q2) To finance a budget deficit,the government must:
A)reduce taxes.
B)buy securities.
C)sell securities.
D)increase unemployment rate.
Q3) Countercyclical fiscal policy advocates running a balanced budget over the course of the business cycle.
A)True
B)False
Q4) Australian microeconomic reforms can be viewed as:
A)new demand-side reforms.
B)strictly political decision.
C)supply-side fiscal policies.
D)unnecessary spending.
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Chapter 18: International trade and finance
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Sample Questions
Q1) The principal objective of the WTO is to:
A)reduce the level of all tariffs.
B)establish fair prices for all goods traded internationally.
C)act as the world's police officer to prevent dumping.
D)prevent the trading of services across nations' borders.
E)encourage countries to establish quotas.
Q2) Using tariffs to trade only with some developing countries is often called:
A)the national safety argument.
B)the cheap foreign labour argument.
C)the baby industry argument.
D)the unemployment argument.
Q3) In Exhibit 18-1,the production possibilities curves of wheat and corn for Nabia and Pada are presented.In Nabia the cost of producing one more unit of wheat is equal to:
A)4 units of wheat.
B)1/4 unit of corn.
C)4 units of corn.
D)15 units of corn.
E)60 units of corn.
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Chapter 19: Applying graphs to economics
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Sample Questions
Q1) In Exhibit 1A-4,as X increases along the horizontal axis,corresponding to points C-D on the line,the Y values decrease.The relationship between the X and Y variables is:
A)direct.
B)inverse.
C)independent.
D)variable.
Q2) A graph can be used to illustrate the relationship between the price of compact discs and the quantity of compact discs demanded.If there is evidence that buyers' income also influences the demand for compact discs,then a movement along the curve can be caused by a change in the price of compact discs.
A)True
B)False
Q3) Straight line A-D in Exhibit 1A-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.
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