Microeconomics Test Questions
Course Introduction
Microeconomics is the branch of economics that analyzes the behavior of individual consumers, firms, and industries, and how they interact within markets to allocate scarce resources. The course explores fundamental concepts such as supply and demand, elasticity, consumer choice, production and costs, market structures (including perfect competition, monopoly, and oligopoly), and the role of government in market efficiency and failure. Through theoretical models and real-world applications, students will develop an understanding of how microeconomic decisions are made and the impact of these decisions on economic outcomes.
Recommended Textbook Essentials of Economics 6th Edition by
R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Dr.Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services.How can Dr.Goldfinger strive to achieve this productive efficiency?
A) by investing in companies that produce goods and services based on consumer preferences
B) by investing in companies that produce goods and services at the lowest possible cost
C) by investing in companies that fairly distribute their products and services
D) by investing in companies that produce up to the point where the marginal benefit of the last unit produced is equal to the marginal cost of producing it
Answer: B
Q2) Which of the following is an example of an activity undertaken by an entrepreneur?
A) washing and ironing your own shirts instead of taking them to the cleaners
B) holding a position as the president of a liberal arts college
C) running for the president of the United States
D) starting your own pet sitting business
Answer: D
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Table 2-19.What is Wilma's opportunity cost of making a statue?
A) 1/3 of a bench
B) 3 benches
C) 6/7 of a statue
D) 1/2 of a bench
Answer: A
Q2) Refer to Figure 2-11.If the two countries have the same amount of resources and the same technological knowledge,which country has an absolute advantage in the production of cotton?
A) Indonesia
B) They have the same advantage.
C) Pakistan
D) cannot be determined
Answer: A
Q3) Households
A) purchase final goods and services in the factor market.
B) purchase final goods and services in the product market.
C) purchase resources in the product market.
D) purchase resources in the factor market.
Answer: B
Page 4
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample Questions
Q1) ________ means the supply curve has shifted to the right,while ________ refers to a movement along a given supply curve in response to an increase in price.
A) An increase in supply; a decrease in supply
B) A decrease in supply; an increase in supply
C) An increase in supply; an increase in quantity supplied
D) A decrease in supply; a decrease in quantity supplied
Answer: C
Q2) What would happen in the market for knee replacement surgery if insurance companies started to cover a smaller portion of the cost of the surgery,and fewer doctors decide to enter the field of joint replacement surgery?
A) Demand will decrease, but this will not shift the supply curve.
B) Supply will decrease, but this will not shift the demand curve.
C) Demand and supply will both decrease.
D) Demand will decrease and supply will increase.
Answer: C
Q3) A positive technological change will cause the supply of a good to increase.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) In 2017,economists working at the U.S.Department of Treasury's Office of Tax Analysis have estimated that the marginal social cost of carbon dioxide emissions was about
A) $7 per metric ton.
B) $32 per metric ton.
C) $49 per metric ton.
D) $70 per metric ton.
Q2) Refer to Table 4-8.What is the equilibrium hourly wage (W*)and the equilibrium quantity of labor (Q*)?
A) W* = $9.00; Q* = 370,000
B) W* = $8.50; Q* = 380,000
C) W* = $8.50; Q* = 360,000
D) W* = $9.00; Q* = 740,000
Q3) Worldwide annual carbon dioxide emissions increased from about 198 million metric tons in 1850 to ________ million metric tons in 2015.
A) 1,930
B) 3,855
C) 35,700
D) 246,500
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Chapter 5: The Economics of Health Care
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Q1) Since 1960,out-of-pocket spending on health care has increased sharply as a fraction of all health care spending.
A)True
B)False
Q2) In the United States from 1981 to 2015,deaths from diabetes increased largely due to the effects of
A) foreign-produced insulin.
B) stress in the workplace.
C) a larger immigrant population.
D) increasing obesity.
Q3) The rising cost of uninsured patients receiving treatment at hospital emergency rooms is one of the leading causes of the increase in health care spending as a percentage of GDP in the United States.
A)True
B)False
Q4) In what ways do economists and policymakers who believe that market-based reforms are the key to improving the health care system criticize the Patient Protection and Affordable Care Act (ACA)?
Q5) How can increases in a country's total income improve health?
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Chapter 6: Firms, The Stock Market, and Corporate Governance
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Sample Questions
Q1) Assume that you set up a sole proprietorship and your lawyer tells you that as the owner,you could stand to lose your personal wealth if the business goes bankrupt.This means that a sole proprietorship
A) faces limited liability.
B) faces unlimited liability.
C) has little chance of succeeding.
D) is not a good type of business to set up.
Q2) The Sarbanes-Oxley Act of 2002 was passed in response to what event/events?
A) a series of accounting scandals in the early 2000s
B) unexpected increases in dividend payments to stockholders at various corporations
C) volatility in NASDAQ indexes
D) historically low bond prices
Q3) Over ninety-five percent of all new businesses that open each year in the United States employ ________ workers.
A) only one or two
B) fewer than 20
C) 50 or more
D) over 100
Q4) How do firms raise external funds through indirect finance?
Page 8
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Which of the following is not a common mistake made by consumers?
A) the failure to take into account the implicit costs of an activity
B) the failure to ignore sunk costs
C) being overly optimistic about their future behavior
D) being overly pessimistic about their future behavior
Q2) Refer to Table 7-4.For steak and cheese sandwiches and grilled chicken sandwiches,the table contains the values of the marginal utility (MU)and marginal utility per dollar (MU/P)for Mabel Jarvis.Mabel has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches.Which of the following statements is false?
A) The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is $2.
B) If Mabel maximizes her utility she will buy three grilled chicken sandwiches.
C) If Mabel maximizes her utility she will buy two steak and cheese sandwiches.
D) We do not have enough information to determine how many sandwiches Mabel will buy to maximize her utility.
Q3) Define the economic concept of elasticity.
Q4) The iPod is a product without any significant network externalities.
A)True
B)False
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Chapter 8: Technology,Production,and Costs
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Sample Questions
Q1) Consider a manufacturing operation that uses specialized machinery and labor to produce its output.In this case,the input that is not fixed in the short run is labor.
A)True
B)False
Q2) When a firm's long-run average cost curve is horizontal for a range of output,then that range of production displays
A) increasing returns to scale.
B) constant returns to scale.
C) decreasing returns to scale.
D) constant average fixed costs.
Q3) Which of the following explains why the marginal cost curve has a U shape?
A) Initially, the marginal product of labor falls, then rises.
B) Initially, the average product of labor rises, then falls.
C) Initially, the marginal product of labor rises, then falls.
D) Initially, the average cost of production rises, then falls.
Q4) Use a long-run average cost curve graph to illustrate how diseconomies of scale would not make it beneficial for two companies to go through with a merger.
Q5) Describe the difference between technology and positive technological change.
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Page 10
Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 9-9.If the firm chose to produce at price P ,the firm would
A) lose an amount equal to its fixed cost.
B) lose an amount more than fixed cost.
C) lose an amount less than fixed cost.
D) break even.
Q2) Refer to Table 9-1.If the market price of each camera case is $8,what is the firm's total revenue when the profit-maximizing quantity is found at the output where MR = MC?
A) $2,400
B) $3,200
C) $4,000
D) $4,800
Q3) Perfectly competitive industries tend to produce low-priced,low-technology products.
A)True
B)False
Q4) A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.
A)True
B)False
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Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) Refer to Figure 10-2.If the firm's average total cost curve is ATC ,the firm will
A) suffer a loss.
B) break even.
C) make a profit.
D) face competition.
Q2) A narrow definition of monopoly is that a firm is a monopoly if it can ignore
A) government antitrust laws.
B) the pricing decisions of its suppliers.
C) the pricing decisions of firms that produce complementary products.
D) the actions of all other firms.
Q3) The demand curve for a monopoly firm
A) is perfectly inelastic.
B) lies below its marginal revenue curve.
C) is the same as the market demand curve.
D) is horizontal.
Q4) What gives rise to a natural monopoly? How do consumers benefit from a natural monopoly?
Q5) How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Firms in an oligopoly are said to be interdependent.What does this mean?
Q2) Occupational licensing is an example of an entry barrier that improves a country's standard of living.
A)True
B)False
Q3) Selling baked goods out of your home or apartment is illegal in Wisconsin and New Jersey.In these states,baked goods must be prepared in commercial kitchens that are subject to state inspection if they are to be sold to the public.For home bakers in these two states,they barrier to entry they face is
A) due to economies of scale.
B) due to ownership of a key resource.
C) government imposed.
D) self imposed.
Q4) Refer to Figure 11-17.What is the allocatively efficient output for the firm represented in the diagram?
A) Qf units
B) Qg units
C) Qh units
D) Q units
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Chapter 12: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Refer to Table 12-31.The table above represents hypothetical data from the National Income Accounts for 2017.Use the data to calculate personal income and disposable income.
Q2) If nominal GDP exceeds real GDP for a specific year,then the GDP deflator must be
A) equal to 100.
B) greater than 100.
C) less than 100.
D) less than 0.
Q3) Which of the following is included in both the U.S.GDP and U.S.GNP?
A) the value of all cars produced by General Motors in the United States
B) the value of all cars produced by Ford in Mexico
C) the value of all cars produced by Toyota in the United States
D) the value of all cars produced by Nissan in Japan and the United States
Q4) If real GDP in 2018 (using 2009 prices)is lower than nominal GDP of 2017,then
A) prices in 2018 are lower than prices in 2017.
B) nominal GDP in 2018 equals nominal GDP in 2017.
C) prices in 2018 are higher than prices in 2017.
D) real GDP in 2018 is larger than real GDP in 2017.
Q5) Why do we subtract import spending from total expenditures?
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Assume the average annual CPI values for 2017 and 2018 were 207.3 and 215.3,respectively.What was the percent increase in the CPI between these two years?
A) 0.96
B) 1.04
C) 3.86
D) 8.0
Q2) The labor force participation rate equals the A) (number of employed divided by the labor force) × 100.
B) (labor force divided by the number of people not in the labor force) × 100.
C) (labor force divided by working-age population) × 100.
D) (labor force divided by the total population) × 100.
Q3) You borrow $10,000 from a bank for one year at a nominal interest rate of 5%.The CPI over that year rises from 180 to 200.What is the real interest rate you are paying?
A) 15%
B) 5%
C) -1.1%
D) -6.1%
Q4) Why would a firm pay efficiency wages?
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Page 15
Chapter 14: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) Suppose that real GDP for 2017 was $10,000 billion and real GDP for 2018 was $11,000 billion.What is the rate of growth of real GDP between 2017 and 2018?
A) 1%
B) 2%
C) 5%
D) 10%
Q2) What two factors are the keys to determining labor productivity?
A) the business cycle and the growth rate of real GDP
B) the growth rate of real GDP and the interest rate
C) the level of technology and the quantity of capital per hour worked
D) the average level of education of the workforce and the price level
Q3) Which of the following will result in an increase in labor productivity?
A) a decrease in the number of people attending institutions of higher education
B) a decline in the amount of human capital per worker
C) an increase in technology
D) a decline in the capital stock per hour worked
Q4) The growth rate of real GDP in the United States rises from 4.2% to 4.4%.Explain and calculate how this increase in the growth rate of real GDP affects the number of years it will take for real GDP to double.
Page 16
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) On the long-run aggregate supply curve
A) a decrease in the price level decreases the level of potential GDP.
B) a decrease in the price level increases the aggregate quantity of GDP supplied.
C) a decrease in the price level decreases the aggregate quantity of GDP supplied.
D) a decrease in the price level has no effect on the aggregate quantity of GDP supplied.
Q2) The main belief of the monetarist model is that
A) workers and firms have rational expectations.
B) the quantity of money should be increased at a constant rate.
C) productivity shocks explain fluctuations in real GDP.
D) the economy is slow to adjust to sticky wages and prices.
Q3) According to the real business cycle model
A) increases in aggregate demand raise GDP.
B) increases in aggregate demand lower GDP.
C) increases in aggregate demand do not affect GDP.
D) increases in aggregate demand lower the price level.
Q4) Explain the three reasons the aggregate demand curve slopes downward.
Q5) What are sticky prices,and how can contracts make them "sticky"?
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Chapter 16: Money,Banks,and the Federal Reserve System
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Sample Questions
Q1) An economy without money would have no exchanges of goods and services.
A)True
B)False
Q2) India's decision in late 2016 to withdraw from circulation all existing 500- and 1,000rupee paper currency,to stop accepting the old currency,and to stop exchanging it for new currency was an attempt by policymakers to
A) eliminate all currency from the economy.
B) increase the size of the underground economy.
C) reduce corruption.
D) end hyperinflation.
Q3) According to the quantity theory of money,deflation will occur if the
A) money supply is less than real GDP.
B) money supply is more than real GDP.
C) money supply grows at a slower rate than real GDP.
D) money supply grows at a faster rate than real GDP.
Q4) By making exchange ________,money allows for ________ and higher
A) harder; specialization; costs
B) easier; specialization; productivity
C) harder; generalization; productivity
D) easier; specialization; costs
Page 18
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Chapter 17: Monetary Policy
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Sample Questions
Q1) The Fed has adopted an interest rate target for most of the time since World War II.
A)True
B)False
Q2) Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook.
A)True
B)False
Q3) In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was that the Fed announced it would loan up to $200 billion of Treasury securities in exchange for A) stock.
B) mortgage-backed securities.
C) corporate bonds.
D) required bank reserves.
Q4) Rising nominal GDP will increase the demand for money and short-term interest rates.
A)True
B)False
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Chapter 18: Fiscal Policy
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Sample Questions
Q1) Expansionary fiscal policy
A) can be effective in the short run.
B) causes complete crowding out in the short run.
C) is never effective because of crowding out.
D) can be effective in the long run.
Q2) Borrowing to pay for long-lived capital expenditures makes sense as
A) the benefits are received in the current year so the burden of paying for them should be spread over many years.
B) the benefits are received over many years so the burden of paying for them should be spread over many years.
C) the benefits are received in the current year so the burden of paying for them should be paid in the current year.
D) the benefits are received over many years so the burden of paying for them should be paid in the current year.
Q3) Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.
A)True
B)False
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Chapter 19: Comparative Advantage, International Trade, and Exchange Rates
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Sample Questions
Q1) Assume that Australia has a comparative advantage in producing surfboards and New Zealand imports surfboards from Australia.We can conclude that
A) Australia also has an absolute advantage in producing surfboards relative to New Zealand.
B) Australia has a lower opportunity cost of producing surfboards relative to New Zealand.
C) New Zealand has an absolute disadvantage in producing surfboards relative to Australia.
D) Labor costs are higher for surfboard producers in New Zealand than in Australia.
Q2) Although the United States is the second largest exporting country,international trade is less important to the United States than it is to most other countries.
A)True
B)False
Q3) Imports are goods and services bought domestically but produced in other countries.
A)True
B)False
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