Microeconomics Test Questions
Course Introduction
Microeconomics is the branch of economics that focuses on the behavior and decision-making processes of individual consumers, firms, and households in allocating limited resources. The course examines how markets function, the principles of supply and demand, price determination, and the impact of government intervention. Key topics include consumer choice, production and costs, market structures such as perfect competition and monopoly, and the effects of externalities and public goods. Through analysis and application of microeconomic theories, students learn to understand and predict how economic agents respond to changes in incentives and market conditions.
Recommended Textbook Fundamentals of Economics 6th Edition by William Boyes
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18 Chapters
2262 Verified Questions
2262 Flashcards
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Page 2
Chapter 1: Economics and the World Around You
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) The opportunity cost of studying economics tonight at the library does not include
A) the good time you could be having by going out with your friends.
B) the time you could be spending studying for your history class.
C) your lost sleep.
D) the time you could be spending listening to music or watching television.
E) the higher grade you might earn on the next economics test.
Answer: E
Q2) Opportunity cost
A) applies only to consumption decisions.
B) applies only to production decisions.
C) is the same as monetary costs.
D) exists because of scarcity.
E) is irrelevant for wealthy economies.
Answer: D
Q3) An example of an opportunity cost is the time you forgo to eat a "free lunch."
A)True
B)False
Answer: True
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3
Chapter 2: Markets and the Market Process
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174 Flashcards
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Sample Questions
Q1) What incentives are created under a random allocation scheme?
A) Fairness
B) Equal results for all
C) To be first
D) To be in favor with or match up with government's rules
E) No incentives are created
Answer: E
Q2) When economists say that people are self-interested, they mean that people are
A) using their scarce resources to maximize their well-being.
B) selfish.
C) greedy for other peoples' possessions.
D) efficiently substituting market demands for complementary goods.
E) reacting to shortages by creating surpluses of socially acceptable wants and needs.
Answer: A
Q3) According to the law of demand, if the price of compact disks decreased, everything else held constant, the demand for compact disks would increase.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Applications of Demand and Supply
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Sample Questions
Q1) Specialization according to comparative advantage can
A) generate more output than being self-sufficient
B) make economies be less dependent on others
C) is very costly and hard to implement
D) cause too much of one type of good to be produced
E) All of these
Answer: A
Q2) Many companies have moved jobs from the U.S. to foreign countries. This has resulted in
A) The demand for American labor to decrease, and the demand for foreign labor to increase
B) The demand for American labor to increase, and the demand for foreign labor to increase
C) The demand for American labor to decrease, and the demand for foreign labor to decrease
D) The demand for American labor to increase, and the demand for foreign labor to decrease
E) The exchange rate for the American dollar to increase.
Answer: A
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Chapter 4: The Firm and the Consumer
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Sample Questions
Q1) Assume that a new nuclear power plant wishes to raise consumers' electrical rates to cover the unexpectedly high costs of construction. However, the government regulatory commission refuses to let electrical rates be increased because it says the increase will only worsen the power plant's financial problems. We can conclude that the
A) power plant is arguing that the demand for electricity is elastic, whereas the government is arguing that it is inelastic.
B) power plant should increase its electrical rates if the demand for electricity is elastic. C) power plant should decrease its electrical rates if the demand for electricity is inelastic.
D) demand for electricity must be unit elastic.
E) power plant is arguing that the demand for electricity is inelastic, whereas the government is arguing that it is elastic.
Q2) Sellers can increase their revenue when they decrease price on their products which have inelastic demand.
A)True
B)False
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Chapter 5: Costs and Profit Maximization
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119 Flashcards
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Sample Questions
Q1) If a firm's total cost, including opportunity costs, equals total revenue, then economic profit
A) exceeds normal profit.
B) is zero.
C) equals fixed costs.
D) equals variable costs.
E) equals accounting costs.
Q2) Refer to Table 5.3. If the production of 2 extra units (units 11 and 12) increases total cost by $162, then the
A) marginal cost of the twelfth unit will be $162.
B) total cost of producing 12 units will be $894.
C) average variable cost of producing 11 units is $732.
D) average total cost of producing 12 units is $61.
E) thirteenth unit will have to go up in price.
Q3) To an economist, total cost is total accounting cost plus opportunity costs not measured in accounting costs.
A)True
B)False
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Chapter 6: Competition
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152 Flashcards
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Sample Questions
Q1) "Creative destruction" is:
A) always easy and fast
B) the process of competition where the inefficient producers are driven out of business
C) exemplified by farms being replaced by golf courses and resorts
D) one reason for the decrease in consumer buying power
E) when one firm is taken over by another
Q2) Compared to a brand name firm, a firm with no obvious stake in the future has an easier time persuading potential customers that it will make good on its promises.
A)True
B)False
Q3) A product is turned into a commodity when
A) there is only one seller of a product
B) there is no more incentive for new businesses to enter
C) there is product differentiation
D) economic profits can be earned
E) consumers perceive the product to be differentiated
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Chapter 7: Business, Society, and the Government
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157 Verified Questions
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Sample Questions
Q1) Which of the following is an example of a negative externality?
A) Mel turns up the volume of his stereo to full blast, annoying his neighbors.
B) Jason pays $20 for an hour's worth of statistics tutoring but fails the test anyway.
C) Sheila buys a new sweater, then has to return it to the store after discovering a hole in the sleeve.
D) Min wants to withdraw money from an ATM machine but finds a sign saying the machine is temporarily out of order.
E) Lance lives by a bakery and every morning enjoys the smell of freshly baked bread.
Q2) Natural monopolies arise because of economies of scale.
A)True
B)False
Q3) For a market to work, someone has to own the rights to that good or resource.
A)True B)False
Q4) In general, market systems are not the most efficient allocation mechanism.
A)True
B)False
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Chapter 8: Government Intervention Versus Free Markets
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Sample Questions
Q1) The only two areas of medicine where prices have fallen and quality has risen are:
A) cancer treatment and AIDS treatment
B) Lasik eye surgery and plastic surgery
C) Lasik eye surgery and Alzheimer's treatment
D) plastic surgery and cardiac treatment
E) cancer treatment and Alzheimer's treatment
Q2) If the interest rate falls, the supply of lumber in the future will shift in.
A)True
B)False
Q3) At equilibrium, the yearly rate of increase in the price of a nonrenewable natural resource will
A) equal zero.
B) approach infinity.
C) equal the increase in the cost of extracting the resource.
D) equal the rate of return on investments of equivalent risk.
E) equal the increase in the cost of extracting the resource plus any taxes.
Q4) The employer-based health care system is very efficient.
A)True
B)False
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Chapter 9: An Overview of the National and International Economies
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Sample Questions
Q1) The World Bank's list of industrial market economies
A) includes some countries that are still developing.
B) does not include some high-income oil-exporting countries.
C) includes Saudi Arabia and Kuwait.
D) includes only countries from North America and western Europe.
E) includes many developing countries from Asia.
Q2) Which of the following does not constitute a consumption item?
A) A Toyota Prius
B) A calculator
C) An iPad
D) A tractor
E) All of these are consumption items
Q3) The circular flow model is built on the idea of equality between national income and national expenditures.
A)True
B)False
Q4) For the complete circular flow model to hold, net exports must always be zero.
A)True
B)False
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Chapter 10: Macroeconomic Measures
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Sample Questions
Q1) If the exchange rate moves from $.08 = 1 peso to $.12 = 1 peso, then
A) the peso has depreciated.
B) 1 dollar will buy more Mexican pesos than before.
C) the U.S. dollar has appreciated.
D) the prices of U.S. imports from Mexico are more expensive.
E) Mexicans will demand fewer U.S. products, other things being equal.
Q2) In Table 10.3, the merchandise trade balance for Germany is
A) 4.
B) 13.
C) - 4.
D) - 13.
E) none of these.
Q3) The difference between gross investment and net investment is defined as
A) net national product.
B) net exports.
C) capital consumption allowance.
D) indirect business taxes.
E) national income.
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12
Chapter 11: Unemployment, Inflation, and Business Cycles
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) The underground economy
A) includes those who collect unemployment insurance but are working "under the table."
B) causes the official unemployment rate to be higher than the true unemployment rate. C) includes those who would rather be on welfare than work.
D) is limited to people engaged in illegal drug trafficking and prostitution. E) is all of these.
Q2) Variable-rate mortgages decrease the risks associated with unexpected inflation. A)True
B)False
Q3) The longest period of increasing real GDP in the United States was:
A) in the 1960s.
B) in the 1970s.
C) in the 1980s.
D) in the 1990s.
E) in the 2000s.
Q4) The unemployment rate is the percentage of the population that is not working. A)True B)False
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Chapter 12: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) Business cycles result from
A) changes in aggregate demand
B) changes in aggregate supply
C) changes in both aggregate demand and aggregate supply
D) greedy Wall Street executives
E) government intervention
Q2) The aggregate supply curve relates real national output produced to the general price level.
A)True
B)False
Q3) Net exports are equal to imports minus exports.
A)True
B)False
Q4) New production technology discourages investment spending because no firm wants to invest in technologies that will quickly become obsolete.
A)True
B)False
Q5) Investment spending is negatively related to changes in interest rates.
A)True
B)False
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Chapter 13: Fiscal Policy
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141 Flashcards
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Sample Questions
Q1) Economists define two components of fiscal policy:
A) obligatory fiscal policy and automatic fiscal actions.
B) discretionary fiscal policy and reflexive fiscal policy.
C) discretionary fiscal policy and automatic stabilizers.
D) automatic stabilizers and reflexive fiscal policy.
E) obligatory and reflexive fiscal policies.
Q2) Assume that an economy has automatic stabilizers in place that include a progressive tax structure and a transfer payment system. In a period of high economic growth and high inflation, we would expect
A) tax revenues to fall and unemployment compensation to rise.
B) average tax rates and welfare payments to decline.
C) the national debt to become larger.
D) average tax rates and government revenues to rise.
E) government spending on social security benefits to rise.
Q3) Suppose Congress decides to decrease annual military expenditures. Other things being equal, this will be associated with a leftward shift in the aggregate demand curve.
A)True
B)False
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Chapter 14: Money and Banking
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Sample Questions
Q1) The deposit expansion multiplier is equal to
A) the reciprocal of excess reserves.
B) the reciprocal of the reserve requirement.
C) total reserves minus demand deposits.
D) total required reserves.
E) the reciprocal of total reserves.
Q2) M2 is a more liquid measure of a country's money stock than is M1.
A)True
B)False
Q3) The two major measures of the money supply used by the Federal Reserve are
A) currency and coins.
B) savings deposits and checkable deposits.
C) institution-only money market mutual fund balances combined with small-denomination time deposits.
D) M1 and M2.
E) Retail Money Market Mutual Fund Balances.
Q4) The U.S. dollar will always be the world's most important reserve currency.
A)True
B)False
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Chapter 15: Monetary Policy
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Sample Questions
Q1) The Fed's most important function is to ensure competition in the U.S. banking system.
A)True
B)False
Q2) The Fed has no direct control over which of the following factors that affect the money supply?
A) The discount rate
B) Open market operations
C) The deposit expansion multiplier
D) Required reserves
E) The federal funds rate
Q3) An increase in the money supply leads to an increase in equilibrium real GDP only if the
A) aggregate demand curve is horizontal.
B) aggregate supply curve is vertical.
C) investment function is horizontal.
D) aggregate supply curve is not vertical.
E) investment function is upward sloping.
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Chapter 16: Macroeconomic Policy, Business Cycles, and Growth
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Sample Questions
Q1) In developing countries, low income levels lead to low savings rates, which in turn leads to low levels of capital formation.
A)True
B)False
Q2) When workers expect less inflation than actually occurs,
A) there is a movement down the short-run Phillips curve.
B) the Phillips curve becomes vertical.
C) the long-run Phillips curve shifts to the right.
D) there is a movement up the short-run Phillips curve.
E) the short-run Phillips curve shifts to the left.
Q3) The oil price shocks of the 1970s demonstrated that business-cycle fluctuations are not solely a function of discretionary government policy.
A)True
B)False
Q4) Because many important but very dangerous experiments can be carried out only in isolated areas, industrial countries lag behind developing countries in creating and implementing new technologies.
A)True
B)False
18
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Chapter 17: Issues in International Trade and Finance
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Sample Questions
Q1) The standard interpretation of the Ricardian model is that differences in labor productivity among countries are due to
A) different quantities of labor.
B) the amount of skilled labor a country possesses.
C) geographic location.
D) technological differences.
E) different quantities of capital.
Q2) A country has an absolute advantage when it can produce a good ____ than other countries can.
A) at a greater monetary cost
B) at a lower monetary cost
C) with fewer hours of labor
D) at a greater input cost
E) at a lower input cost
Q3) In the table in Scenario 17.1, the United States has an absolute advantage in A) beef and an absolute disadvantage in wheat.
B) wheat only.
C) both wheat and beef.
D) neither wheat nor beef.
E) beef only.
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Chapter 18: Globalization
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Sample Questions
Q1) A short-term debt to international reserves ratio of greater than 100 percent means that
A) the country is financially sound.
B) bankers are borrowing too much.
C) there is not enough reserves to meet international settlements.
D) the stock market is overheated.
E) foreign direct investment exceeds portfolio investment.
Q2) During the period between World War I and World War II, the value of international trade
A) shifted from goods to services.
B) expanded with the creation of the Internet.
C) neither increased nor decreased.
D) was controlled by the United Nations.
E) declined.
Q3) Measuring globalization involves measurement of the international movements of goods, services, financial assets, people, ideas, and technology.
A)True
B)False
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