Microeconomics with Calculus
Question Bank
Course Introduction
Microeconomics with Calculus delves into the foundational principles of microeconomic theory using the analytical tools of calculus. The course explores how individuals and firms make decisions regarding allocation of scarce resources, analyze consumer and producer behavior, and understand market mechanisms. Topics include optimization, utility maximization, cost minimization, and equilibrium analysis, with an emphasis on using differential calculus to solve economic problems and interpret comparative statics. Through mathematical modeling and real-world applications, students gain a deeper understanding of demand and supply, elasticity, production, and welfare analysis, preparing them for more advanced economic studies or quantitative fields.
Recommended Textbook
Microeconomics An Intuitive Approach with Calculus 2nd Edition by Thomas Nechyba
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713 Verified Questions
713 Flashcards
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Chapter 1: Introduction
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Sample Questions
Q1) A spontaneous order emerges from individual decisions that cause something to "work" without anyone planning for it to "work".
A)True
B)False
Answer: True
Q2) Suppose two economic models give the same predictions --- but one is simplistic and unrealistic in its assumptions while the other is rich in detail and resembles the real world more closely.If the sole goal of the economist is to predict, then the economist should use the simple and unrealistic model.
A)True
B)False
Answer: True
Q3) Each economic model can be applied to many different real-world problems. A)True
B)False
Answer: True
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Chapter 2: A Consumers Economic Circumstances
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Sample Questions
Q1) Suppose inflation comes in the form of an across-the board increase in all prices by some percentage k.For a consumer with exogenous income operating in a 2-good world, this will cause the budget constraint to
A)rotate inward
B)rotate outward
C)shift out in a parallel way
D)shift inward in a parallel way
E)none of the above
Answer: D
Q2) Suppose that the price of a TV is $200 and he price of an MP3 player is $50.What is the opportunity cost of a TV (in terms of MP3 players), and what is the opportunity cost of an MP3 player (in terms of TVs)?
Answer: The opportunity cost of a TV is 4 MP3 players, and the opportunity cost of an MP3 player is one fourth of a TV.
Q3) In a graph of choice sets, a price change affects the ratio but does not affect the budget line.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Economic Circumstances in Labor and Financial Markets
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Sample Questions
Q1) An increase in the interest rate is an increase in the opportunity cost of consuming in the future.
A)True
B)False
Answer: False
Q2) An "endowment" is something whose value is unknown.
A)True
B)False
Answer: False
Q3) Suppose you earn annually compounding interest of 10% (per year) on an initial investment of $1,000.Rounded to the nearest 100, what will your balance in 10 years be?
A)$11,000
B)$5,200
C)$2,600
D)$2,000
E)$1,600
F)None of the above
Answer: C
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Chapter 4: Tastes and Indifference Curves
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Sample Questions
Q1) Two rationality assumptions economists make about tastes are first, that some individuals are not able to compare any two bundles of goods to one another, and second, that there is an internal consistency to tastes that makes it possible to choose a "best" bundle.
A)True
B)False
Q2) Explain the following statement: Individuals with different tastes might have the same tastes at the margin at their current consumption bundles.
Q3) If the marginal rate of substitution is not diminishing, it must mean that tastes violate convexity (assuming that our other assumptions about tastes hold).
A)True
B)False
Q4) When the price of beer goes up, our model of tastes would typically require tastes to change.
A)True
B)False
Q5) Explain the following statement: For the same individual, tastes over goods may vary at the margin as we move from one bundle to another.
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Chapter 5: Different Types of Tastes
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Q1) Suppose our tastes are homothetic.It is often observed that people become more rigid --- more set in their ways --- as they get older.Can you translate this observation into "economics-speak" by discussing which feature of our tastes is likely the be changing as we get older?
Q2) There are no quasilinear tastes that have elasticity of substitution equal to 1 everywhere.
A)True
B)False
Q3) Tastes for perfect substitutes are both homothetic and quasilinear.
A)True B)False
Q4) Homothetic tastes are always tastes over essential goods. A)True B)False
Q5) There are no quasilinear tastes that have constant elasticity of substitution. A)True B)False
Q6) In the case of perfect complements, more is not necessarily better. A)True B)False
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Chapter 6: Doing the Best We Can
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Sample Questions
Q1) Essential goods give rise to corner solutions.
A)True
B)False
Q2) Suppose that choice sets are convex but we tastes may or may not be convex.(Assume all our other usual assumptions about tastes hold.) The first order conditions of the constrained utility maximization problem are then A)necessary conditions for a true optimum.
B)sufficient conditions for a true optimum.
C)necessary and sufficient conditions for a true optimum.
D)none of the above.
Q3) Suppose that choice sets are convex.State assumptions about tastes that are necessary and sufficient to guarantee that the first order conditions are necessary and sufficient for identifying a true optimum.
Q4) Kinks in budget constraints always produce non-convexities in choice sets.
A)True B)False
Q5) If all goods are essential, a consumer will optimize at an interior solution. A)True B)False
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Chapter 7: Income and Substitution Effects in Consumer
Goods Markets
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Sample Questions
Q1) A change in the price of one good cannot leave utility unchanged unless the price change is accompanies by a change in income.
A)True
B)False
Q2) Every luxury good is a normal good but not every normal good is a luxury.
A)True
B)False
Q3) Every necessity is a normal good, but not all normal goods are necessities. A)True
B)False
Q4) Except for the case of Giffen goods, the substitution effect always tells us that a consumer will consume less (or at least no more) of a good whose price has increased. A)True B)False
Q5) The price of peaches goes up and I observe you buying more strawberries.This implies that strawberries must be an inferior good. A)True
B)False
9
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Chapter 8: Wealth and Substitution Effects in Labor and Capital Markets
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Sample Questions
Q1) The amount of work a person will do as wage increases depends entirely on the size of the wealth effect.
A)True
B)False
Q2) When tastes over current and future consumption are characterized by Cobb-Douglas utility functions, a borrower who has no income now and all income in the future will borrow more when the interest rate falls.
A)True
B)False
Q3) If you earn income now and expect to live off savings in the future, then a raise now will cause you to save more so long as consumption -- now and in the future -- is a normal good.
A)True B)False
Q4) In a model of consumption and leisure, a drop in the wage will cause workers to work less if tastes are quasilinear in leisure.
A)True
B)False
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Chapter 9: Demand for Goods and Supply of Labor and Capital
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Sample Questions
Q1) Leisure being a normal good is neither necessary nor sufficient for labor supply to slope up.
A)True
B)False
Q2) Assuming the same sized substitution effect, normal goods have steeper cross-price demand curves than inferior goods.
A)True
B)False
Q3) Saving is equivalent to withdrawing financial capital from the market.
A)True
B)False
Q4) Unless a good is a Giffen good, the demand curve shifts to the right as income rises.
A)True
B)False
Q5) For the same sized substitution effect, own-price demand curves for inferior goods are steeper than own price demand curves for normal goods.
A)True
B)False
11
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Chapter 10: Consumer Surplus and Deadweight Loss
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Sample Questions
Q1) As tax rates rise linearly, DWL also rises linearly.
A)True
B)False
Q2) If a person's compensated demand (or MWTP) curve is perfectly vertical, the good is borderline between regular inferior and Giffen for this consumer.
A)True
B)False
Q3) An increase in income causes compensated demand curves to shift inward and regular demand curves to shift outward.
A)True
B)False
Q4) When tastes are not quasilinear, the positive economist will introduce error into the analysis if he uses the uncompensated (rather than the compensated) demand curve to predict behavior.
A)True
B)False
Q5) Indirect utility functions are homogeneous of degree 1 in income.
A)True
B)False
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Chapter 11: One Input and One Output: a Short-Run
Producer Model
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Sample Questions
Q1) Since the marginal product of labor can increase initially as I hire more workers, demand for labor is also upward sloping for the initial workers I hire.
A)True
B)False
Q2) In the one-input model of production, increasing marginal product implies non-convexity of the producer choice set.
A)True
B)False
Q3) If the single-input producer choice set is fully convex, the first order conditions of the profit maximization problem are necessary but not sufficient for identifying the profit maximizing production plan.
A)True
B)False
Q4) The law of diminishing marginal product holds so long as the input is not a Giffen good.
A)True B)False
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Chapter 12: Production With Multiple Inputs
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Sample Questions
Q1) In 2-input production models, constant returns to scale implies horizontal marginal cost curves.
A)True
B)False
Q2) Cobb-Douglas production function have decreasing returns to scale.
A)True
B)False
Q3) Technologically efficient production plans are also economically efficient.
A)True
B)False
Q4) Output prices are irrelevant for a firm as it is calculating its cost curves.
A)True
B)False
Q5) Cost functions must be homogeneous of degree 1 in (input and output) prices.
A)True
B)False
Q6) Profit functions are homogeneous of degree zero.
A)True
B)False
Page 14
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Chapter 13: Production Decisions in the Short and Long Run
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Sample Questions
Q1) If the production technology has increasing returns to scale, short run marginal cost curves must be downward sloping.
A)True
B)False
Q2) (Long run) average cost curves are U-shaped when the production technology has increasing returns to scale and the firm faces recurring fixed costs.
A)True
B)False
Q3) (Long run) average cost curves are U-shaped when the production technology has decreasing returns to scale and the firm faces recurring fixed costs.
A)True
B)False
Q4) If the cross-price demand curve for capital (relative to the wage) is vertical, the short run response by a firm to an increase in the wage is the same as its long run response.
A)True
B)False
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Chapter 14: Competitive Market Equilibrium
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Sample Questions
Q1) Whenever a firm is making positive economic profit, there is nothing it can do to make more profit.
A)True B)False
Q2) Suppose Congress passes a one-time tax refund of all taxes paid by firms in an industry last year.This will lead to a drop in output price in the industry.
A)True B)False
Q3) The reason long run market supply curves are shallower than short run market supply curves is because individual firm supply curves are shallower in the long run than in the short run.
A)True
B)False
Q4) An increase in license fees -- a long run recurring fixed cost -- will lead to a drop in the number of firms competing in a competitive industry.
A)True B)False
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Chapter 15: The Invisible Hand and the First Welfare
Theorem
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Sample Questions
Q1) Suppose all individuals in a group have homothetic tastes.Then we can be sure that the group can be treated as a single representative consumer is if the group members also have identical tastes.
A)True
B)False
Q2) The First Welfare Theorem states that, invariably, a competitive market results in an efficient allocation of resources and thus maximizes social surplus.
A)True
B)False
Q3) Both successful market-processes and central planning rely on self-interested behavior.
A)True
B)False
Q4) Absent any violations of the conditions underlying the first welfare theorem, the competitive market equilibrium is efficient if and only if tastes are quasilinear.
A)True
B)False
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Chapter 16: General Equilibrium
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Sample Questions
Q1) Any efficient allocation has to be such that everyone would agree to switch to that allocation from the endowment allocation -- or at least no one would object to such a switch.
A)True
B)False
Q2) If good 1 is essential for one person but not for the other, the first person will end up with all of good 1 in a competitive equilibrium within the Edgeworth Box.
A)True
B)False
Q3) If the two goods in an Edgeworth Box are perfect complements for both people, all efficient allocations will have each person getting the same amount of good 1 as of good 2.
A)True
B)False
Q4) The First Welfare Theorem holds that the allocation of goods resulting from competitive prices is "efficient," which is the equivalent of "equitable."
A)True
B)False
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Chapter 17: Choice and Markets in the Presence of Risk
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Sample Questions
Q1) The risk premium is negative when tastes are risk averse.
A)True
B)False
Q2) Suppose an individual has state-independent tastes and invests in risky stocks rather than safe bonds.We can infer that he must be risk loving.
A)True
B)False
Q3) The independence axiom implies that if I prefer a bottle of wine over a six pack of beer I will prefer half a bottle of wine with a bag of pretzels over half a sixpack of beer with a bag of pretzels.
A)True
B)False
Q4) The certainty equivalent is less than the expected value of a gamble when tastes are risk averse.
A)True
B)False
Q5) Risk averse individuals will fully insure to avoid risk.
A)True
B)False
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Chapter 18: Elasticities, Price-Distorting Policies, and Non-Price Rationing
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Sample Questions
Q1) When tastes over current and future consumption are homothetic, the interest rate elasticity of savings supply is positive.
A)True
B)False
Q2) An equilibrium in the presence of price floors can be restored by increased consumer effort to obtain scarce goods.
A)True
B)False
Q3) When own-price elasticity lies between 0 and -1, consumer spending decreases when price increases.
A)True
B)False
Q4) Demand curves with constant slopes must have different own-price elasticities as one moves along the demand curve.
A)True
B)False
Q5) The wage elasticity of labor demand is always negative.
A)True B)False
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Chapter 19: Distortionary Taxes and Subsidies
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Q1) The more inelastic the supply curve in a goods market, the smaller will be the deadweight loss from a per-unit tax in that market.
A)True
B)False
Q2) A wage tax in a labor market with a perfectly inelastic labor supply curve is efficient.
A)True
B)False
Q3) When tastes are quasilinear, the sole reason for the deadweight loss from a per-unit tax is that output falls under the tax.
A)True
B)False
Q4) The larger the wealth effect, the less likely it is that a wage tax will give rise to a Laffer curve that has a downward sloping portion.
A)True
B)False
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Chapter 20: Prices and Distortions Across Markets
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Q1) Suppose there is a tradeable goods market (such as products like textiles that can be shipped across markets) and a non-tradable goods market (such as services like hair cuts).Can outsourcing impact wages in the non-tradable market?
Q2) When tariffs on exports are eliminated, there is at least in principle a way for everyone to benefit.
A)True
B)False
Q3) Quality of life indexes produced in popular magazines often place a heavy emphasis on the cost of housing in different cities -- with a lower housing cost entering the index as a positive feature of the city.Why might such quality of life indeces be misleading?
Q4) Because trade across markets creates winners and losers,the overall surplus in the loser's market is diminished.
A)True
B)False
Q5) Even when earning zero profit, exporters (nearly) equalize prices across markets.
A)True
B)False
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Chapter 21: Externalities in Competitive Markets
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Sample Questions
Q1) Suppose you and I are identical.We put up fireworks in our adjacent backyards on a national holiday, and we can both enjoy each other's fireworks.
a.Can you identify an externality?
b.Can you identify any missing markets?
c.Do you think we will provide more or less than the efficient number of fireworks?
d.If we could vote on a tax to be imposed on us fund fireworks in our back yards, would we vote for a lump sum tax (imposed equally on both of us) that will cause more fireworks to be put up than what we would put up on our own?
e.Suppose instead the government implements a Pigouvian subsidy.How would the number of fireworks compare to what would happen in (d)? How much of a subsidy would you think we would both get for every dollar of fireworks each of us individually buys?
Q2) If a tax on gasoline is appropriately set, the congestion externality on roads can be fully internalized -- resulting in the efficient level of congestion on roads.
A)True
B)False
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Chapter 22: Asymmetric Information in Competitive Markets
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Q1) Consider two types of rules that might govern an otherwise unregulated health insurance market: (1) Insurance companies can price-discriminate against the sick and old; (2) insurance companies cannot price discriminate against the sick and old.Explain why, in equilibrium, insurance may be very expensive for the sick and old regardless of which case we find ourselves in.
Q2) Suppose a competitive market with adverse selection has settled into a pooling equilibrium where everyone is offered the same price.If full markets are re-established through signals, the new equilibrium will be more efficient than the original pooling equilibrium.
A)True
B)False
Q3) If a pooling equilibrium exists in an insurance market, no separating equilibrium can exist.
A)True B)False
Q4) Adverse selection in insurance markets results in missing markets because people engage in riskier behavior once they are insured.
A)True
B)False
24
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Chapter 23: Monopoly
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Q1) In the absence of recurring fixed costs, a monopolist will always produce a positive output quantity.
A)True
B)False
Q2) If a monopolist faced a downward sloping average cost curve that lies fully above market demand, he will not produce if he can only charge a single per-unit price, but it would also be inefficient for him to produce.
A)True
B)False
Q3) Monopoly power can last only if there are legal barriers to entry for other firms.
A)True
B)False
Q4) Unlike perfectly competitive firms, monopolists produce where marginal revenue intersects marginal cost.
A)True
B)False
Q5) What are some obstacles to price discrimination that a monopolist who is protected by high barriers to entry might face?
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Chapter 24: Strategic Thinking and Game Theory
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Q1) A Prisoner's Dilemma game is one in which not cooperating is a dominant strategy despite cooperation making everyone better off.
A)True
B)False
Q2) Every subgame perfect equilibrium is a Nash equilibrium but not every Nash equilibrium is a subgame perfect equilibrium.
A)True
B)False
Q3) Complete information sequential games can be represented in payoff matrices and complete information simultaneous games can be represented in game trees with information sets.
A)True
B)False
Q4) Suppose a player in a sequential game has 2 potential decision nodes, with 5 possible actions at each node.Then he has 25 possible pure strategies.
A)True
B)False
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Chapter 25: Oligopoly
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Q1) So long as production in the oligopoly still occurs, recurring fixed costs have no impact on output under Cournot competition but do have an impact under Bertrand competition.
A)True
B)False
Q2) In a 2-firm oligopoly, if you can choose to either be a simultaneous move Cournot competitor or a Stackelberg leader, you will always choose to be a Stackelberg leader.
A)True
B)False
Q3) Suppose a market is currently served by an incumbent firm.If a potential entrant can enter prior to the incumbent firm announcing its output (or price), the incumbent cannot deter entry through its actions.
A)True
B)False
Q4) Explain why firms in a cartel might lobby for government regulation.
Q5) Cartels tend not to be long-lived because of the Prisoner's Dilemma.
A)True
B)False
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Chapter 26: Product Differentiation and Innovation in Markets
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Q1) Without price competition, there is no incentive for product differentiation. A)True
B)False
Q2) Most firms produce where marginal revenue is equal to marginal cost, but firms in a monopolistically competitive industry instead choose output where average cost is equal to demand.
A)True
B)False
Q3) Comment on the following statement: "Since product differentiation allows price competitors to establish some market power, it would be more efficient to not permit product differentiation."
Q4) In a monopolistically competitive market with Dixit-Stiglitz preferences, equilibrium price falls as the goods in the differentiated product market become more substitutable. A)True
B)False
Q5) Describe the tradeoffs involved when thinking about setting the time over which a patent grants an innovator exclusive monopoly rights.
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Chapter 27: Public Goods
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Q1) Suppose you run a charity that raises money for a worthy public good.Your donors may be concerned about how much of each dollar that is raised is put back into more fund-raising.
a.Suppose the marginal product of a dollar put into fundraising is initially increasing but eventually diminishing.How much will the last dollar spend on fundraising raise?
b.If everyone considers their own contribution to this charity as the marginal contribution, what will be their impression of how much they are really helping the public good?
c.Would you expect your answer to (b) to make it harder for you to raise money for your charity?
d.How might your answer to (c) explain why some charities make a point of informing people that they have placed a cap on their fund raising budget -- or that they have placed a cap on how many people will be approached during the fund raising campaign?
Q2) We say that individuals get a "warm glow" from giving to a public good if they not only get utility from the public good but also from giving itself.Explain the following: "While warm glow lessens the free rider problem, it cannot eliminate it."
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Chapter 28: Governments and Politics
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Q1) If oil executives control the governmental agency which regulates oil companies, regulatory capture has occurred.
A)True
B)False
Q2) Suppose voter preferences over a public good funded through a proportional income tax are single peaked.If everyone has the same tastes and the public good is a normal good, then ideal points for higher income individuals will lie to the right of ideal points of lower income individuals.
A)True
B)False
Q3) It is possible to come up with a democratic social choice process that satisfies Arrow's axioms as long as we are willing to let go of the No Dictatorship axiom.
A)True
B)False
Q4) Median voters in settings where the policy space is single dimensional and everyone has single peaked preferences are Arrow Dictators.
A)True
B)False
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Chapter 29: What Is Good Challenges From Psychology and Philosophy
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Q1) Any consequentialist approach to normative economics that uses standard indifference maps as social indifference maps (over utilities or consumption) will choose efficient outcomes in the first-best case.
A)True
B)False
Q2) Since it lies in 2-dimensions, one of the drawbacks of using Lorenz curves to think about inequality is that we are restricted to thinking about only two types of individuals.
A)True
B)False
Q3) In a society in which everyone lives at the subsistence level, the Gini coefficient is 0. A)True B)False
Q4) What's the Easterlin Paradox -- and in what sense does it suggest reference-dependent preferences?
Q5) In the presence of compensating wage differentials, explain why the consumption possibility frontier is not a good approximation of the utility possibility frontier.
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