Microeconomics
Textbook Exam Questions
Course Introduction
Microeconomics is the branch of economics that analyzes the decision-making behavior of individuals, households, and firms and how these agents interact within markets to allocate scarce resources. The course covers fundamental concepts such as supply and demand, utility maximization, production and cost analysis, market structures (perfect competition, monopoly, oligopoly), and the role of government intervention. Through theoretical models and real-world applications, students develop a foundational understanding of how prices are determined, how consumers and firms respond to incentives, and how economic efficiency and welfare are affected by different market conditions.
Recommended Textbook
Exploring Economics 6th Edition by Robert L. Sexton
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Chapter 1: The Role and Method of Economics
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Q1) What is the difference between a hypothesis and a theory?
Answer: A hypothesis about behavior is the first step in developing and constructing a theory.A hypothesis is testable and makes a prediction about behavior in response to changed circumstances.If a hypothesis is shown to be consistent with real-world data,it can be tentatively accepted as an economic theory.
Q2) Why is prediction in social sciences like economics more difficult than in physical sciences?
Answer: The major reason for the difference is that the social scientists are concerned with human behavior.Human behavior is more variable and often less readily predictable than the behavior of experiments observed in a laboratory.
Q3) "A reduction in the rate at which stock dividends are taxed will lead to greater investment in the stock market." This is an example of:
A) a positive economic statement.
B) a negative economic statement.
C) the fallacy of composition.
D) a normative economic statement.
Answer: A
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Chapter 2: Economics: Eight Powerful Ideas
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Q1) Which of the following would be likely to raise your opportunity cost of attending a big basketball game this Sunday night?
A) A friend calls you up and offers you free tickets to a concert by one of your favorite bands on Sunday night.
B) Your employer offered you double your usual wage to work this Sunday night.
C) Late Friday afternoon, your physics professor makes a surprise announcement that there will be a major exam on Monday morning.
D) All of the above would likely raise the opportunity cost of attending the game.
Answer: D
Q2) Which of the following is the most critical signaling mechanism in markets?
A) quantity
B) price
C) cost
D) government regulation
Answer: B
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Chapter 3: Scarcity, Trade-Offs, and Production Possibilities
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Q1) Inefficiency is best illustrated by which of the following?
A) foregoing civilian goods in order to produce more military goods
B) limiting economic growth by reducing capital spending
C) high levels of unemployment of labor and other resources that could be productively employed
D) producing outside the production possibilities frontier
Answer: C
Q2) In a simple circular flow model,
A) households are suppliers of resources.
B) households are demanders of final products.
C) firms are demanders of resources.
D) all of the above are true.
Answer: D
Q3) The degree of government involvement in the economy is greatest in A) a command economy.
B) a mixed economy.
C) a market economy.
D) a traditional economy.
Answer: A
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Chapter 4: Demand, Supply, and Market Equilibrium
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Q1) An upward-sloping supply curve shows that:
A) buyers are willing to pay more for particularly scarce products.
B) suppliers expand production as the product price falls.
C) suppliers are willing to increase production of their goods if they receive higher prices for them.
D) buyers are willing to buy more as the product price falls.
E) buyers are not affected either directly or indirectly by the sellers' costs of production.
Q2) Antonio's makes the greatest pizza and delivers it hot to all the dorms around campus.Last week Antonio's supplier of pepperoni informed him of a 25% increase in price.Which variable determining the position of the supply curve has changed and what effect does it have on supply?
A) future expectations; supply decreases
B) future expectations; supply increases
C) input prices; supply decreases
D) input prices; supply increases
Q3) Explain how both sales and long lines prior to store openings are characteristic of markets in disequilibrium.
Q4) Differentiate between a change in quantity demanded and a change in demand.
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Chapter 5: Markets in Motion and Price Controls
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Q1) If the price of ice cream increases substantially (ceteris paribus),the equilibrium quantity of hot fudge sauce,a complement,is likely to:
A) increase, and the equilibrium price is likely to decrease.
B) increase, and the equilibrium price is likely to increase.
C) decrease, and the equilibrium price is likely to decrease.
D) decrease, and the equilibrium price is likely to increase.
Q2) A non-binding price ceiling
i.causes a surplus.
ii.causes a shortage.
iii.is set at a price above the equilibrium price.
iv.is set at a price below the equilibrium price.
A) (i) only
B) (iii) only
C) (i) and (iii) only
D) (ii) and (iv) only
Q3) If a price floor is not binding,then
A) the equilibrium price is above the price floor.
B) the equilibrium price is below the price floor.
C) there will be a surplus in the market.
D) Both (a) and (c) are correct.
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Chapter 6: Elasticities
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Q1) Which of the following is false?
A) The price elasticity of supply measures the sensitivity of the quantity supplied to the changes in the price of the good.
B) The price elasticity of supply is defined at the percentage change in the quantity supplied divided by the percentage change in price.
C) Goods with a supply elasticity that is greater than 1 are called relatively elastic in supply.
D) When supply is inelastic, a 1 percent change in the price of a good will induce a more than 1 percent change in the quantity supplied.
Q2) If demand is unit elastic:
A) revenue and prices rise and fall together.
B) revenue rises as price falls.
C) revenue falls as price rises.
D) revenue remains constant as price rises or falls.
Q3) Price elasticity of demand is a measure of the relative responsiveness of the change in price to a change in quantity demanded.
A)True
B)False
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Chapter 7: Market Efficiency and Welfare
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Sample Questions
Q1) Consumer surplus increases whenever the price of a good decreases due to a rightward shift of the supply curve.
A)True
B)False
Q2) The difference between the amount a consumer is willing to pay and the amount they actually must pay for a good is called the:
A) price elasticity of demand.
B) substitution effect.
C) consumer surplus.
D) income elasticity of demand.
Q3) Could a price ceiling decrease consumer surplus?
Q4) How does the deadweight loss occur in a deficiency payment program?
Q5) The more elastic the demand curve,the ____ will be the effect of a tax on the quantity exchanged and the ____ will be the welfare cost.
A) greater; greater.
B) greater; smaller.
C) smaller; greater.
D) smaller; smaller.
Q6) How do taxes distort the incentives of buyers and sellers in a market?
Page 9
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Chapter 8: Market Failure
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Sample Questions
Q1) The ____ is the government agency with the task of developing and enforcing policies that are aimed at protecting the environment.
A) FDA
B) DOI
C) FEMA
D) EPA
E) None of the above
Q2) Which of the following is (are)true when one firm's research and production can increase another firm's access to technological advances?
A) It is called a technology spillover.
B) Other firms will imitate and improve on the new knowledge.
C) If there is no subsidy, the market equilibrium output level is less than the efficient equilibrium output level.
D) All of the above.
Q3) If the government imposes a pollution tax on gasoline refineries:
A) the supply of gasoline will shift to the right.
B) the demand for gasoline will shift to the right.
C) the supply of gasoline will shift to the left.
D) the demand for gasoline will shift to the left.
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Chapter 9: Public Finance and Public Choice
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Sample Questions
Q1) Tax collected based on a taxpayer's spending is known as:
A) excise tax.
B) consumption tax.
C) gift tax.
D) income tax.
Q2) Public choice theory assumes that each voter will tend to favor the political candidate who offers:
A) programs with the largest social benefits.
B) equality of government-provided benefits across all citizens.
C) programs that will yield the greatest personal benefits net of personal cost.
D) a plan requiring the least amount of tax dollars, regardless of the level of benefits provided.
Q3) Would a tax on prescriptions drugs be more likely to be progressive or regressive? Why?
Q4) Most flat tax proposals call for exempting income to a certain minimum level. A)True B)False
Q5) Payroll taxes are actually regressive taxes.
A)True
B)False
11
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Chapter 10: Consumer Choice Theory
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Sample Questions
Q1) A consumer's budget line will shift to the right in a parallel manner if:
A) the price of the good on the X-axis decreases.
B) the price of the good on the Y-axis increases.
C) the consumer's income increases.
D) the consumer's income decreases.
Q2) The amount of additional satisfaction derived from an additional unit of a good or service is called:
A) total utility.
B) marginal cost.
C) total cost.
D) marginal utility.
Q3) Any combination of goods beyond the budget line is not feasible.
A)True
B)False
Q4) In consumer equilibrium,which of the following is true?
A) The marginal utility from the consumption of each good is the same.
B) The marginal utility from the consumption of each good is zero.
C) The marginal utility from the consumption of the last dollar's worth of each good is the same.
D) The total utility from the consumption of each good is the same.
Page 12
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Chapter 11: The Firm: Production and Costs
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Sample Questions
Q1) Accounting profits are calculated based upon:
A) explicit cash receipts and implicit expenditures of cash.
B) actual cash receipts and actual expenditures of cash.
C) implicit cash receipts and actual expenditures of cash.
D) opportunity costs plus explicit costs.
Q2) The marginal product of labor can be defined as:
A) the change in profit divided by the change in labor, other factors of production held constant.
B) the change in total output divided by a one unit change in labor, other factors of production held constant.
C) the total output divided by the total labor utilized.
D) the change in labor utilized divided by the change in total output, other factors of production held constant.
Q3) A Texas oil woman would like to increase the oil produced from her oil fields.Since it takes over a year to drill new wells,she opts instead for increasing labor and other variable inputs to produce more oil from existing wells.She is making a short-run production decision.
A)True
B)False
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Perfect competition is the term used to describe:
A) an industry in which a few price-taking firms produce identical products.
B) an industry in which numerous price-taking firms produce identical products.
C) an industry in which firms are price takers and compete for market share by varying the qualitative characteristics of products.
D) an industry in which numerous firms are price makers and produce identical products.
Q2) Which of the following best resembles a perfectly competitive market?
A) a stock market
B) the book publishing industry
C) the steel industry
D) the used car industry
Q3) In the short run,a perfectly competitive firm will maximize profit by producing where:
A) MC = MR.
B) MC = ATC.
C) ATC = MR.
D) AVC = MC.
Q4) What is productive efficiency? Does it guarantee that markets are operating efficiently?
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Q1) When marketing makes customers better informed about all firms in the market:
A) demand curves for specific brands in the market are likely to become less elastic.
B) each firm is likely to have less market power.
C) firms are better able to foster stronger brand loyalty.
D) the market power of individual firms is strengthened.
Q2) Advertising is very important to firm operating in:
A) perfect competition but not in monopolistic competition.
B) monopolistic competition but not in perfect competition.
C) perfect competition and monopolistic competition but not in monopoly.
D) none of the above
Q3) Because of product differentiation,a monopolistically competitive firm:
A) possesses some degree of market power.
B) is very similar to a perfectly competitive firm.
C) faces a perfectly elastic demand curve.
D) is unaffected by the elasticity of demand.
Q4) Monopolistically competitive sellers are price takers.
A)True
B)False
Q5) Define monopolistic competition.
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Chapter 15: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Predatory pricing:
A) occurs when a firm increases price in order to exploit inelastic demand by consumers.
B) occurs when a firm prices below average variable cost in order to drive competitors out of the market.
C) is difficult to distinguish from vigorous competition in practice.
D) is characterized by both (b) and (c).
Q2) In which market structure is there clear interdependence between individual firms with regard to prices and sales?
A) pure competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
Q3) What are the characteristics of oligopoly?
Q4) Which of the following could result in a negative network externality?
A) snob effect; standardization
B) bandwagon effect; congestion
C) bandwagon effect; standardization
D) snob effect; congestion
Q5) Why are successful collusive oligopolies rather short-lived?
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Chapter 16: The Markets for Labor, Capital, and Land
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Sample Questions
Q1) The contribution of an additional worker to a firm's ____,is the worker's contribution to revenue minus the worker's ____.
A) profits; wage
B) output; wage
C) profits; marginal productivity
D) output; marginal productivity
Q2) The market supply curve for labor:
A) shows the relationship between the wage rate and the number of employees firms are willing to hire.
B) shows the relationship between the price of output and the number of employees firms are willing to hire.
C) shows the relationship between the wage rate and the quantity of labor that workers are willing to supply.
D) shows the relationship between the price of output and the quantity of labor that workers are willing to supply.
Q3) If the private-sector wage of biologists was significantly greater than that of music professors,what might happen if a university tried to pay its entire faculty the same salary?
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Chapter 18: Introduction to Macroeconomics:
Unemployment, Inflation, and Economic Fluctuations
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Q1) If a large number of individuals file unemployment claims while working in the underground economy:
A) the unemployment rate overstates the level of unemployment.
B) the unemployment rate understates the level of unemployment.
C) the accuracy of the unemployment rate is not affected.
D) discouraged worker statistics will underestimate the true state of frustration by job seekers.
Q2) Which of the following people is most likely to be structurally unemployed?
A) Brendan left his job as a short-order cook in New Jersey to become a short-order cook in Madrid, New Mexico. He was unemployed for six weeks during the transition.
B) Mildred quit her job after giving birth to a child.
C) Clem, a skilled corset maker, lost his job when his factory shut down due to a permanent reduction in the demand for corsets.
D) Danielle lost her job when the electronics assembly plant was shut down temporarily due to low product sales in a slumping economy.
Q3) Each person in the population can be classified as employed or unemployed.
A)True
B)False
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Chapter 19: Measuring Economic Performance
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Q1) The investment component of GDP includes:
A) funds in individual retirement accounts.
B) construction of a new steel mill.
C) the sale of shares of Coca-Cola stock.
D) the purchase of a refrigerator by a household.
Q2) GDP equals $8 trillion.If consumption equals $5.5 trillion,investment equals $500 billion,and government spending equals $1.5 trillion,then:
A) exports exceed imports by $500 billion.
B) imports exceed exports by $500 billion.
C) net exports equal zero.
D) exports exceed imports by $1 trillion.
Q3) Which of the following is not part of U.S.GDP?
A) the value of a Toyota imported from Japan
B) the value of a Ford Mustang produced in the United States and sold in Canada
C) the salary of the governor of Minnesota
D) the value of a Rhode Island attorney's services
Q4) Would it be possible for an increase in taxation to decrease the gross domestic product measured in the U.S.? Why or why not?
Q5) Differentiate between personal income and disposable personal income.
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Chapter 20: Economic Growth in the Global Economy
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Q1) The GI Bill provided educational opportunities to many young men returning from military service.Using a production possibilities curve,demonstrate how the GI Bill affected economic growth and explain your answer.
Q2) Thomas Malthus's predictions did not come to pass because he implicitly assumed that there would be no technological advances and did not foresee that agricultural land was not completely fixed in quantity or quality.
A)True
B)False
Q3) Which of the following will not affect the size of a nation's physical or human capital stock?
A) A new factory is constructed.
B) A new machine is installed in company's plant.
C) An eighteen-year-old enrolls in college as a full-time student.
D) All of the above affect the size of a nation's capital stock.
Q4) One of the most important determinants of accelerated economic growth is:
A) relaxed property rights.
B) an increase in population.
C) a high level of savings.
D) an increased rate of consumption.
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Chapter 21: Financial Markets, Saving, and Investment
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Q1) Crowding out will lead to a decrease in supply of loanable funds,a decrease in real interest rates,and subsequently a decrease in spending by households and firms.
A)True
B)False
Q2) Owners of preferred stock received fixed dividend payments while owners of common stock receive dividend payments that vary with the level of profits.
A)True
B)False
Q3) Which of the following is not true with regard to mutual funds?
A) Some mutual funds allow investors to invest in all stocks in a given market.
B) Mutual fund returns are greater than those for an individual who selects his/her own stocks.
C) They allow individuals to spread risk across many different companies.
D) Investors gain access to the services of a financial expert.
Q4) The 2008 financial crisis was caused by the decline of real estate values as well as several other factors.
A)True
B)False
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Chapter 22: Aggregate Demand and Aggregate Supply
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Q1) ____ are unexpected temporary events that can either increase or decrease the short-run aggregate supply.
A) Profit effects
B) Volatilities
C) Supply shocks
D) Misperception effects
Q2) If some nonprice level determinant causes total spending to decrease,then the effect on aggregate demand will be a:
A) movement upward along the curve.
B) movement downward along the curve.
C) shift to the left.
D) shift to the right.
Q3) Any permanent change in the quantity of any factor of production availablecapital,technology,land,or labor - can cause a shift in both the long-run and short-run aggregate supply curves.
A)True
B)False
Q4) Describe the difference between a microeconomic demand curve and an aggregate demand curve.
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Chapter 23: The Aggregate Expenditure Model
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Q1) When all the factors of aggregate expenditure are influenced by income,the multiplier becomes a function of the:
A) marginal propensity of government purchases.
B) marginal propensity to consume out of disposable income.
C) marginal propensity of aggregate expenditure.
D) marginal propensity to import.
Q2) If the marginal propensity to consume is 0.60,the marginal propensity to save will be:
A) greater than 0.60.
B) equal to 0.40.
C) equal to 0.60.
D) equal to 0.
Q3) Which of the following is positively related to income?
A) consumption
B) investment
C) government expenditures
D) all of the above
Q4) The expenditure multiplier applies only to changes in government spending.
A)True
B)False
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Chapter 25: Monetary Institutions
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Q1) Which of the following would most likely reduce the number of bank failures?
A) an increase in the number of small banks
B) tighter restrictions on interstate banking
C) creating a system of deposit insurance
D) encouraging banks to make more risky loans
Q2) A decrease in currency in circulation combined with an equal increase in savings account deposits would:
A) increase both M1 and M2.
B) increase M1 but have no effect on M2.
C) decrease both M1 and M2.
D) decrease M1 but have no effect on M2.
Q3) If you deposit $500 cash into your account at a commercial bank.If it faces a 10 percent required reserve ratio,as a result of your deposit,the bank will:
A) have $450 of additional excess reserves.
B) be capable of lending an additional $5,000.
C) be capable of lending an additional $500
D) have $50 of additional excess reserves.
Q4) How is money destroyed in the banking system?
Q5) What are the inherent disadvantages of a barter system?
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Chapter 26: The Federal Reserve System and Monetary Policy
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Q1) When interest rates are higher:
A) the opportunity cost of holding monetary assets is higher, and the quantity of money demanded, but not the demand for money, is lower.
B) the opportunity cost of holding monetary assets is higher, and the demand for money increases.
C) the opportunity cost of holding monetary assets is lower, and the quantity of money demanded, but not the demand for money, is greater.
D) the opportunity cost of holding monetary assets is lower, and the demand for money increases.
Q2) A combination of Fed purchases of government securities and an increase in reserve requirements would:
A) increase the money supply.
B) decrease the money supply.
C) leave the money supply unchanged.
D) have an indeterminate effect on the money supply.
Q3) If money supply increases,P will rise as long as V and Q remain constant.
A)True
B)False
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Chapter 27: Issues in Macroeconomic Theory and Policy
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Q1) Many economists think that,in the long run,the economy generally tends to move toward:
A) an accelerating inflation rate.
B) a stable price level.
C) the natural or full-employment rate of inflation.
D) the natural or full-employment rate of unemployment.
Q2) According to Milton Friedman,the short-run trade-off between unemployment and inflation comes from unanticipated inflation.
A)True
B)False
Q3) If people have rational expectations,but they are not always correct in their expectations,the expectation of a lower inflation rate will cause:
A) the short-run Phillips curve to become vertical.
B) the short-run Phillips curve to shift leftward.
C) a movement down along a short-run Phillips curve.
D) the short-run Phillips curve to shift rightward.
Q4) At one time,policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices.Today,the curve is no longer viewed this way.Why has the interpretation changed?
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Chapter 28: International Trade
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Q1) Explain why it is not possible for a country to have comparative advantage in the production of all goods.
B. In this way, the country in question cannot have lower opportunity costs for all goods.
Q2) The change in the total gain to a nation from international trade is the:
A) producer surplus.
B) consumer surplus.
C) excess of producer surplus over consumer surplus.
D) sum of consumer and producer surpluses.
Q3) If a nation has "cheap" labor,
A) it can still benefit from trade.
B) it is unlikely to have a comparative advantage in the production of goods that are highly capital intensive.
C) it cannot have a comparative advantage in everything.
D) all of the above are true.
Q4) What is producer surplus? How is it different from consumer surplus?
Q5) How do subsidies distort trade patterns and lead to inefficiencies?
Q6) What are the commonly used arguments for the use of tariffs?
Q7) What is the law of comparative advantage,and why is it important in international trade?
Page 29
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Chapter 29: International Finance
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Q1) What factors will shift the supply and demand for currency?
Q2) Since the advent of flexible exchange rates,world trade has not only continued but also expanded.
A)True
B)False
Q3) Because central banks intervene in currency markets,the term ____ has been used to describe the system.
A) organized
B) planned
C) dirty float
D) flexible
Q4) Deflation in the United States would tend to make the exchange value of the dollar depreciate.
A)True
B)False
Q5) The Bretton Woods Conference:
A) established a system of fixed exchange rates.
B) established a system of flexible exchange rates.
C) established a dirty float exchange rate system. D) did none of the above.
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