Microeconomics
Test Questions
Course Introduction
Microeconomics examines the behavior of individuals and firms in making decisions regarding the allocation of scarce resources. The course explores foundational concepts such as supply and demand, market equilibrium, consumer choice, and the production decisions of firms. Students will analyze market structures including perfect competition, monopoly, and oligopoly, and their implications for resource allocation and economic efficiency. Emphasis is placed on real-world applications and policy implications, enabling students to assess how economic agents respond to incentives and how markets function in practice.
Recommended Textbook Microeconomics and Behavior 9th Edition by
Robert H. Frank
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Page 2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) We say economists are doing positive economics when they
A)focus on policies and rhetoric that encourage people to be optimistic about the future.
B)look for regularities and principles in economic life that can help show how the economy works.
C)claim that there is no value free social science so articulating one's values is important.
D)try to improve the welfare of all citizens.
Answer: B
Q2) If you receive $18 worth of pleasure from the first hole of golf played and your additional pleasure from succeeding holes drops $1 for each hole played, how many holes of golf would you play if you had to pay $2.10 per hole?
A)9
B)12
C)14
D)16
Answer: D
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Chapter 2: Supply and Demand
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Sample Questions
Q1) If climate change were to reduce the output per acre of wheat but not the output of other crops, what effect this would have on the soybean market?
A)The demand for soybeans would shift right and the price and quantity would rise.
B)The quantity demanded of soybeans will rise and price will increase.
C)The supply of soybeans will shift left and price will rise.
D)The quantity demanded will increase and the demand will shift right.
Answer: A
Q2) A long hot summer has increased the demand for beer; at the same time a tax is placed on alcohol. What can we say about the equilibrium price and quantity of alcohol?
A)Equilibrium price rises; equilibrium quantity falls.
B)Equilibrium price rises; equilibrium quantity rises.
C)Equilibrium price rises; equilibrium quantity is unknown.
D)Equilibrium price falls; equilibrium quantity is unknown.
Answer: C
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Chapter 3: Rational Consumer Choice
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Sample Questions
Q1) If all consumers are perfectly rational according to microeconomic models they should
A)all have the same marginal rate of substitution.
B)always buy more of the least expensive good.
C)all end up with the same bundle of goods.
D)all have the same level of satisfaction.
Answer: A
Q2) If the consumer's budget constraint is given by 10F + 5S = 100 where F is food and S is shelter, how much food can he buy if he purchases 2 units of shelter?
A)10
B)5
C)20
D)9
Answer: D
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Chapter 4: Individual and Market Demand
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Sample Questions
Q1) The demand curve for a Giffin good
A)slopes upward.
B)slopes downward.
C)is a straight line.
D)is convex.
Q2) Which of the following two goods is likely to have a negative cross-price elasticity of demand?
A)Left and right shoes
B)Margarine and butter
C)Coke and Pepsi
D)Peanut butter and tuna fish
Q3) An Engel curve
A)always slopes up for an inferior good.
B)always slopes down for an inferior good.
C)may slope up or down for a normal good.
D)does not relate to the normal or inferior good concepts.
Q4) Assume that the price-consumption curve is horizontal. What additional information does that tell you about the demand for good X and the amount people spend on it?
Q5) Based on your sketch, is the good a normal or inferior good?
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Chapter 5: Applications of Rational Choice and Demand
Theories
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Sample Questions
Q1) Say the bus authority in your city increased the typical bus fare from $1.00 to $1.50 and that due to this increase total revenue increased by 20%. Based on this we know that the price elasticity of bus rides in your neighborhood is (assume demand curve is linear):
A)0.4.
B)0.8.
C)1.
D)1.5.
Q2) If the demand function for city bus rides is P = 100 - 10Q and the present price of a ride is 50, then
A)raising prices will increase city revenue.
B)raising prices will decrease city revenue.
C)raising prices will not change city revenue.
D)from the information given it is not clear what would happen to city revenue if price is increased.
Q3) An interest rate increase to 4 percent will cause you to
A)save more of your income.
B)save less of your income.
C)be more time patient.
D)be more time impatient.
Page 7
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Chapter 6: The Economics of Information and Choice Under Uncertainty
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Sample Questions
Q1) Your bike is worth $100 and if you park it outside at school there is a 25% chance that it will be stolen. Your utility function for money is U = (M)<sup>2</sup>. Assume throughout that the bike value and money are interchangeable since you could sell the bike instantly at its value if necessary. What is the expected value of your bike?
Q2) Your bike is worth $100 and if you park it outside at school there is a 25% chance that it will be stolen. Your utility function for money is U = (M)<sup>2</sup>. Assume throughout that the bike value and money are interchangeable since you could sell the bike instantly at its value if necessary. Are you a risk taker?
Q3) (Appendix) If the cost of search is $3, and wages are uniformly distributed between $20 and $50, what is the smallest wage you should accept if you are risk neutral?
A)$36.58
B)$33.42
C)$46.58
D)28.73
Q4) Using the simple supply and demand model for the information market, show what the full disclosure principle does to the market. Start from an equilibrium point and apply the concept.
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Chapter 7: Departures From Standard Rational Choice
Models With and Without Regret
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Sample Questions
Q1) If Kahneman and Tversky are correct, I should
A)buy individual stocks rather than put my money into a mutual fund.
B)put my money in a mutual fund instead of individual stocks.
C)be indifferent which type of investment I make.
D)have opposite strategies depending on whether my investments will rise or fall.
Q2) According to the Kahneman-Tversky value function,
A)small gains should be subtracted from large losses.
B)small gains should be combined with large gains.
C)small losses should be segregated from large losses.
D)small gains should be segregated from large losses.
Q3) Many people favor stronger gun control as a method of reducing murder rates. Others argue that criminals will get guns despite stronger laws restricting them. Assume those seeking gun control recognize this argument but they still push for gun control. They most likely believe that
A)people are rational but are subject to the self control pitfall in moments of high passion.
B)murders are usually premeditated rational acts based on cost-benefit analysis.
C)criminals fall prey to the Weber-Fechner law.
D)the sophomore jinx does not apply to murderers.
Page 9
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Chapter 8: Production
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Sample Questions
Q1) In a short-run production function before diminishing returns set in, both MPL and APL will have
A)positive slopes and MPL will lie above APL.
B)positive slopes and APL will lie above MPL.
C)negative slopes and MPL will lie above APL.
D)negative slopes and APL will lie above MPL.
Q2) Say you own a Mexican place that produces, among other things, Mexican burritos. The marginal product of your last worker was 5. If the marginal rate of technical substitution between capital and labor is 0.5, then marginal product of capital is A)10.
B)5.
C)1.
D)we can't say with the information given
Q3) From an isoquant map, one can illustrate diminishing returns to production by
A)observing the slope of the isoquant as one moves outward on the labor axis but stays at the same point on the capital axis.
B)following the curvature of an individual isoquant.
C)moving from isoquant to isoquant along a ray from the origin.
D)constructing a positively sloped isoquant.
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Page 10
Chapter 9: Costs
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Q1) The total fixed cost curve
A)varies with the level of output.
B)is negatively sloped.
C)is simply a horizontal line.
D)is simply a vertical line.
Q2) The short-run output expansion path is __________ in the relevant area.
A)a ray
B)horizontal
C)U-shaped
D)upward sloping
Q3) Producing an additional unit whose marginal cost exceeds the average total cost incurred thus far has the effect of pulling the
A)fixed cost up.
B)average cost up.
C)average cost down.
D)total cost down.
Q4) Average total cost is $100 for a given output, total fixed cost is 120 and average variable cost is 70. What is the quantity being produced?
Q5) Why does the AVC reach its minimum before the ATC reaches its minimum?
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Chapter 10: Perfect Competition
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Sample Questions
Q1) How can a firm stay in business if it makes no economic profit in the long run?
Q2) The Agriculture industry is often used as an example of a competitive market model. However, of the four conditions required for perfect competition, one is clearly not present in farming. Which one is the least applicable and why does it not fit the model?
Q3) A pecuniary diseconomy occurs when
A)supply exceeds demand.
B)an expansion of industry output increases the price of an input.
C)higher output levels results in lower unit costs.
D)higher output levels results in the same unit costs.
Q4) You have a small business that makes $50,000 accounting and economic profit for you. As a disabled person, you must work at home and you did not have other opportunities until your neighbor offers you a job you like equally well for $50,000 and you can do it at home. This means
A)your economic profit has gone down and your accounting profit has gone up.
B)both your accounting and economic profit have gone down.
C)both your accounting and economic profit have gone up.
D)your economic profit has gone down and your accounting profit has stayed the same.
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Chapter 11: Monopoly
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Sample Questions
Q1) If a profit maximizing monopolist faces a linear demand curve and has zero marginal cost, it will produce where demand elasticity is __________________ if it will produce at all.
A)inelastic
B)elastic
C)1
D)Information is inadequate to answer the question.
Q2) Price discrimination is possible only if
A)economies of scale exist.
B)markets can be segregated.
C)each person in the market has the same elasticity of demand.
D)prices are kept secret so those paying the high price do not know that others paid less.
Q3) In second-degree price discrimination it is true that
A)people who buy a lot pay a lower price.
B)people who buy relatively little pay a lower price.
C)the monopolist cannot earn economic profits.
D)the market need not be segmented.
Q4) Show graphically why economists refer to single-price monopoly market structure as inefficient.
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Chapter 12: A Game-Theoretic Approach to Strategic Behavior
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Sample Questions
Q1) In a management class there are two types of students, the individualists and the socialites. There is a group term project that is worked on jointly but then individually summarized and handed in for a grade. When individualists end up in the same group, they all get B- since they are not very inclined to share their insights with each other. When the socialites work together, they all get A- because they learn from each other and have more to say when they each write up a report. When individualists and socialites work in a group, the individualists learn from the socialites but share little, so the individualists get an A and the socialites get a C.The students with the best grades are the ones who stay on in school.From this information answer the following questions.If the teacher allows students to choose partners for a 1/3 letter grade penalty, what will happen to the student body population.Draw another payoff graph and show the proportion of socialites and individualists on the graph.You cannot use a numerical percentage because the letter grades are not numerically specified.Simply label the horizontal axis with an X at the left side and a Y on the right side and a Z where the proportion of socialites will be fixed.The percentage population then becomes XZ/XY.
Q2) Describe a situation in which you were a defector. Did your partners know you were a defector or did you fool them?
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Chapter 13: Oligopoly and Monopolistic Competition
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Q1) The following question relates to an oligopoly market where the industry demand curve is P = 100 - Q. If the Bertrand model is assumed to be the appropriate one for analysis, what will be the price of the product and the quantity sold in this duopoly market?
Q2) The following question relate to a community that is circular in nature with a one mile circumference. There are 81 people evenly distributed around the lake where the town is built. The travel cost is $10 per mile, a restaurant costs $100 to set up, and the cost per meal is $2. If the town was one restaurant below its optimal number when you are brought in as a consultant to help decide some planning issues, and the city fathers want to know how much the town could save overall if it built another restaurant, what would you tell them?
Q3) The following question relate to a community that is circular in nature with a one mile circumference. There are 81 people evenly distributed around the lake where the town is built. The travel cost is $10 per mile, a restaurant costs $100 to set up, and the cost per meal is $2. Calculate the optimal number of restaurants without using the graph. Round off small residuals to the nearest whole number. Show your work.
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Chapter 14: Labor
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Sample Questions
Q1) The value of the marginal product of labor, VMPL, for the perfectly competitive firm equals
A)the total revenue the firm will get by selling the equilibrium amount of output.
B)the extra revenue the firm gets by selling the output of one additional unit of labor.
C)the revenue from the sale of one more unit of output.
D)the price of the product being produced by labor.
Q2) Pay rates within a firm seem to show less variation than marginal productivity rate differences. This is because
A)firms cannot measure marginal productivity accurately.
B)firms compensate their high producers with non-monetary perks.
C)social norms do not allow employers to pay high productivity wages.
D)as much as possible firms try to pay employees the same rate for fairness reasons.
Q3) The upward sloping portion of the supply curve for labor implies that
A)higher wages lead to an increase in hours of work supplied.
B)the law of diminishing returns has settled in.
C)higher wages lead to fewer hours of work supplied.
D)a minimum wage law is in effect.
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Chapter 15: Capital
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Q1) In the loanable funds market
A)demand is downward sloping because lower interest rates make more capital projects profitable.
B)supply is vertical because loanable funds are fixed in any relevant time frame.
C)demand for loanable funds shifts right if the interest rate falls.
D)demand for loanable funds shifts right in the interest rate rises.
Q2) Many minor league ballplayers get called up to play in the majors and then get sent back down again to the minors. Jim makes $26,000 in the minors and then when he gets called up he makes $125,000, though he never plays and is an unknown name to the fans. It is most likely true that
A)Jim's productivity suddenly increases by $99,000 when he is called up to the majors.
B)A portion of Jim's major league salary is economic rent.
C)Jim was playing for way below the value of his marginal product in the minor leagues. D)Jim is irrational to accept only $26,000 in the minor leagues.
Q3) You have a mortgage that has a nominal interest rate of 7%. The inflation rate is 3.5%. Your real interest rate is _________.
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Chapter 16: Externalities, Property Rights, and the Coase
Theorem
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Q1) An example of a positive externality is A)pollution.
B)an apple orchard increasing the number of trees next to a bee farm.
C)the Clean Air Act.
D)smoking in a crowded place.
Q2) Each citizen in a small town suffers 5 units of irritation for each bushel of leaves burned in the town. The charge for hauling a bushel of leaves to the land fill is a fee equal to 20 units of irritation. There are 25 people in the town, each of whom minimizes personal irritation and has 10 bushels of leaves. What is the marginal cost to society when a bushel of leaves is burned?
Q3) Provide an example of a positive externality and explain: 1) why it should be considered a positive externality and 2) what could be done in order to internalize the externality.
Q4) Negative externality occurs when
A)the production of a good harms third parties.
B)the production of a good helps third parties.
C)a buyer is sold inferior and damaged merchandise.
D)the consumption of a good helps third parties.
Q5) Define in technical terms the tragedy of the commons.
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Chapter 17: General Equilibrium and Market Efficiency
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Q1) According to the second welfare theorem
A)when an allocation is efficient it also achieves equity.
B)the issues of equity and efficiency are separate in that the system can be on the contract curve but might not be considered equitable.
C)equity cannot be analyzed in the Edgeworth box model because it shows only possible trades toward efficiency.
D)the welfare of individuals is not based on material goods.
Q2) According to the text, if a policy is designed to move a production process toward efficiency when pollution exists, the best tax is a
A)lump sum tax on pollution.
B)progressive income tax.
C)proportional income tax.
D)sales tax.
Q3) Sketch a typical consumption contract curve in an Edgeworth box for you and she. The two products should be apples and tents. Identify two consumption baskets where you and she are off the contract curve. Label the first point (a) where you value apples much more than she does; label the second point (b) where you value apples much less than she does.
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Chapter 18: Government
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Sample Questions
Q1) Which of the following is the best example of a nonexcludable good?
A)Television broadcast over the air
B)Cable TV
C)National parks
D)Beer
Q2) Suppose Congress consists of 5 people who want to spend X% on national defense. Let their preferences be as follows: 1, 3, 20, 21, 25. What amount will most likely be spent?
A)14
B)20
C)3
D)21
Q3) Give an example of a case where cyclical voting can lead to differing outcomes depending on how the voting sequence is structured. Use a case where three people (Manny, Mo and Jack) are voting on health care and the options are 1) cover everyone who is now uncovered 2) cover half the people now uncovered 3) cover none who are presently uncovered. Show each one's preference rankings and show how the voting can result in any one of the alternatives. A chart and three groups of voting pairings should answer this well.
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