Principles of Microeconomics
Chapter Exam Questions
Course Introduction
Principles of Microeconomics introduces students to the foundational concepts and analytical tools used to understand the decision-making processes of individuals, households, and firms within an economy. The course covers topics such as supply and demand, market equilibrium, elasticity, consumer choice, production costs, different market structures, and the role of government in maintaining market efficiency and addressing market failures. Emphasis is placed on real-world application of economic principles to help students interpret economic events, evaluate policy choices, and understand the impact of individual and collective behavior on resource allocation.
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ECON MICRO 6th Edition by William
A. McEachern
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Chapter 1: The Art and Science of Economic Analysis
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Q1) Refer to the circular-flow model in Exhibit 1.2.Firms supply ________ to households through product markets.
A)goods and services
B)products
C)labor, capital, natural resources, and entrepreneurial ability
D)resources
E)wages, interest, rent, and profit
Answer: A
Q2) Because resources are scarce and wants are unlimited,_____
A)only the rich get everything they want.
B)we must choose from among our many wants.
C)there will be more services produced than goods.
D)people search for spiritual fulfillment rather than material fulfillment.
E)poor people never get anything they want.
Answer: B
Q3) Rent is the payment received by resource owners for the use of their natural resources.
A)True
B)False
Answer: True
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Chapter 2: Economic Tools and Economic Systems
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Q1) The production possibilities frontier of an economy can shift inward if there is _____
A)a natural disaster in the economy.
B)a stable political environment in the economy.
C)an improvement in technology in the economy.
D)a larger work force in the economy.
E)a larger capital stock in the economy.
Answer: A
Q2) You can either read a book,get something to eat,or take a nap.The opportunity cost of getting something to eat is _____
A)the cost of what you eat.
B)the difference between the costs of the book and the food.
C)the difference between the opportunity costs of reading and sleeping.
D)the net benefit of sleeping.
E)impossible to determine because the most preferred alternative is not known.
Answer: E
Q3) One flaw of pure capitalism is that a person who owns no resources could starve.
A)True
B)False
Answer: True
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Chapter 3: Economic Decision Makers
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Q1) Household income is not spent on _____.
A)services
B)tax payments
C)durable goods
D)nondurable goods
E)dividends
Answer: E
Q2) Households act as demanders when they demand:
A)that corporate executives and government officials be held accountable for their actions.
B)dividends from the stocks they hold.
C)interest and capital gains from the bonds they hold.
D)goods and services from firms and governments.
E)payments for the goods and services they sell to firms and governments.
Answer: D
Q3) Household production increases when there is a stronger desire to avoid taxation.
A)True
B)False
Answer: True
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Chapter 4: Demand, supply, and Markets
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Q1) Which of the following will not shift the supply curve?
A)the state of technology and know-how
B)the prices of resources
C)the prices of other goods
D)producer expectations
E)a change in price
Q2) In the Exhibit given below,the number of units of rented apartments being supplied in the market when the maximum rent is fixed by the government at $750 is _____.
A)40,000 units
B)80,000 units
C)130,000 units
D)90,000 units
E)50,000 units
Q3) If a good is normal,an increase in consumers' income would shift the _____
A)demand curve leftward.
B)supply curve leftward.
C)supply curve rightward.
D)supply and demand curves leftward.
E)demand curve rightward.
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Page 6
Chapter 5: Elasticity of Demand and Supply
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Q1) Identify a statement that is true about a linear demand curve.
A)Along a linear demand curve, both the slope and price elasticity are constant.
B)Along a linear demand curve, the price elasticity is constant, but the slope varies.
C)Along a linear demand curve, total revenues are constant.
D)Along a linear demand curve, the slope is constant, but the price elasticity varies.
E)Along a linear demand curve, total revenues are negative.
Q2) Wheat farmers in Kansas would benefit from a devastating crop failure in North Dakota (another major wheat-producing state)if the U.S.demand for wheat is _____
A)inelastic.
B)elastic.
C)unit elastic.
D)downward sloping.
E)perfectly elastic.
Q3) The greater the availability of close substitutes for a product,the greater the price elasticity of demand for that product.
A)True
B)False
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Chapter 6: Consumer Choice and Demand
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Questions
Q1) Refer to Table 6.3,which shows the total utility and marginal utility derived from the consumption of scones.The first column of the table represents the number of scones a consumer consumes in a day.The second column of the table presents the total utility derived from that consumption,and the third column shows the marginal utility of each additional scone.The total utility derived from the consumption of five scones is _____ units.
A)82
B)30
C)34
D)27
E)2
Q2) Refer to Exhibit 6.6,which shows the market demand schedule for a good.When the price of the good is P,the shaded area represents _____
A)shortage.
B)the marginal utility of the good.
C)price floor.
D)consumer surplus.
E)the marginal valuation of the good.
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Chapter 7: Production and Cost in the Firm
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Q1) Refer to Table 7.2,which shows labor and the quantity of shoes produced by a firm.What is the marginal product of the third unit of labor?
A)45 pairs of shoes
B)25 pairs of shoes
C)15 pairs of shoes
D)75 pairs of shoes
E)50 pairs of shoes
Q2) A firm enters into a consent decree to avoid a major legal setback.If the terms of the consent decree effectively double the firm's fixed costs,then _____
A)marginal cost more than doubles.
B)marginal cost doubles.
C)marginal cost remains unchanged.
D)average total cost remains unchanged.
E)average variable cost doubles.
Q3) If a firm is experiencing diminishing marginal returns,its marginal product is declining.
A)True
B)False
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Chapter 8: Perfect Competition
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Q1) A perfectly competitive firm is allocatively efficient because price is identical to marginal cost at every quantity.
A)True
B)False
Q2) In the long run,the entry of new firms in a competitive industry _____
A)drives up the equilibrium price.
B)eliminates economic profits.
C)reduces the equilibrium quantity.
D)makes the demand curve facing each firm more inelastic.
E)makes the market demand curve steeper.
Q3) Firms in a perfectly competitive market achieve both allocative and productive efficiency in the short run.
A)True
B)False
Q4) If a perfectly competitive firm raises its price,its sales decrease to zero.
A)True
B)False
Q5) A firm that minimizes average cost will not survive in the long run.
A)True
B)False
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Chapter 9: Monopoly
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Q1) Refer to Exhibit 9.3,which shows the cost and revenue curves for a non-discriminating monopolist.The total cost incurred by the monopolist for producing the profit-maximizing output is _____
A)$16,500.
B)$24,200.
C)$16,200.
D)$19,800.
E)$30,800.
Q2) Which of the following prevents potential competitors from entering a monopolized market?
A)legal restrictions
B)diseconomies of scale
C)product differentiation
D)stable market demand
E)an abundant supply of resources
Q3) Rent-seeking activities are socially wasteful because they use scarce resources but do not add to society's output.
A)True
B)False
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Chapter 10: Monopolistic Competition and Oligopoly
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Q1) Refer to Exhibit 10.10,which shows the payoff matrix of marketing strategies.If Coke adopts a big budget but Pepsi does not,Pepsi will earn _____.
A)$1 billion.
B)$2 billion.
C)$3 billion.
D)$4 billion.
E)$0.
Q2) Which of the following is inconsistent with the model of perfect competition?
A)ease of entry into the industry
B)ease of exit from the industry
C)many buyers and sellers in the industry
D)advertising of product differences in the industry
E)a horizontal demand curve facing each firm in the industry
Q3) Collusion is most likely to occur in those oligopolies in which firms have vastly different cost structures.
A)True
B)False
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Chapter 11: Resource Markets
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Q1) What will happen if carpenters can earn more building homes than making furniture?
A)The supply of and demand for carpenters in building homes will increase.
B)The supply for carpenters in building homes will increase and the demand will decrease.
C)The supply for carpenters in building homes will decrease.
D)The supply for carpenters in building homes will increase, demand will not change.
E)The supply of and demand for carpenters in building homes will both decrease.
Q2) If the supply of beach houses is fixed and perfectly inelastic,_____
A)the demand for the beach houses determines their price and the level of economic rent.
B)the supply of the beach houses determines their price and the level of economic rent.
C)the supply of the beach houses determines their price, and the demand for the beach houses determines the level of economic rent.
D)the demand for the beach houses determines their price, and the supply of the beach houses determines the level of economic rent.
E)the supply curve for beach houses is horizontal.
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Chapter 12: Labor Markets and Labor Unions
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Q1) Abby maximizes utility by allocating her time among leisure,market work,and nonmarket work so that the _____
A)total utility of each is equal.
B)average utility of each is equal.
C)total utility per hour of each is equal.
D)marginal utility per hour of each is equal.
E)maximum amount of goods and services can be acquired.
Q2) Refer to Exhibit 12.3 which shows a backward-bending labor supply curve for an individual.In the figure below,which of the following is true at a wage rate of $7?
A)The income effect dominates the substitution effect.
B)The substitution effect dominates the income effect.
C)The income effect exactly offsets the substitution effect.
D)No labor is supplied.
E)The individual will supply 30 hours of labor.
Q3) The amount of time an individual is willing to sell in the labor market varies positively with the value of leisure time.
A)True
B)False
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Chapter 13: Capital, interest, entrepreneurship, and Corporate Finance
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Q1) If the interest rate is 8 percent,$54 next year is worth _____today.
A)$80
B)$54
C)$50
D)$62
E)$4.32
Q2) Banks and other financial institutions _____
A)channel savings directly to producers.
B)are intermediaries between savers and borrowers.
C)move money from borrowers to savers.
D)move money from those who need money to those that have money.
E)serve no purpose in the economy.
Q3) If you own a perpetuity of $500 and if the interest rate is 4 percent,then its present value _____
A)cannot be determined unless the number of years is known.
B)is $2,000.
C)is $504.
D)is $12,500.
E)is infinite.
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Chapter 14: Transaction Costs, asymmetric Information, and Behavioral Economics
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Q1) An individual is least likely to confront the principal-agent problem while availing services from _____
A)a plumber.
B)a real estate agent.
C)an air hostess.
D)a car mechanic.
E)a travel agent.
Q2) Which of the following is likely to limit the extent of a firm's vertical integration?
A)a managers' bounded rationality
B)a small minimum efficient scale of producing inputs relative to the firm's input requirements
C)the fact that the quality of inputs is easily determined at the time of purchase
D)the presence of a large number of suppliers of the firm's inputs
E)a high transaction cost of contracting with resource suppliers
Q3) Vertical integration has no effect on the internal organization of a firm; it only affects the industry.
A)True
B)False
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Chapter 15: Economic Regulation and Antitrust Policy
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Q1) According to _____,competition in the U.S.economy increased between 1958 and 2000 because of a reduction in government intervention.
A)Kenneth Arrow
B)George Akerlof
C)Sir William Ashley
D)Thomas Attwood
E)William Shepherd
Q2) According to William Shepherd's examination of competitive trends in the U.S.economy,a single firm which controls the entire market and is able to block entry
_____
A)is usually a pure monopoly.
B)is a firm with over half the market share and no close rival.
C)is one of four firms that together supply more than 60 percent of the market.
D)is a firm that sells a product with many close substitutes.
E)is one of four firms that work together to block entry into the market.
Q3) If the value of the Herfindahl-Hirschman Index is 10,000,there must be exactly one firm in the industry.
A)True
B)False
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Chapter 16: Public Goods and Public Choice
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Q1) A large U.S.steel firm wants to restrict imports of Japanese steel,but Ford Motor Company wants fewer restrictions on steel imports so that its cost of production remains constant.This can best be described as a(n)_____
A)zero-sum game.
B)example of a competing interest.
C)example of a special interest.
D)situation with widespread costs and concentrated benefits.
E)free-rider problem.
Q2) Direct transfer programs _____
A)are generally less efficient and less politically acceptable than subsidy programs.
B)are generally more efficient and more politically acceptable than subsidy programs.
C)are generally less efficient but more politically acceptable than subsidy programs.
D)are generally more efficient but less politically acceptable than subsidy programs.
E)are generally less efficient as they benefit only the large farmers.
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Chapter 17: Externalities and the Environment
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Q1) Negative externalities of open resources arise because _____
A)there are no enforceable property rights to open-access resources.
B)these are private goods and government enforces property rights.
C)consumers have to pay for each unit of production.
D)the government undertakes the distribution of these resources.
E)these are available in finite amounts.
Q2) A tannery discovers a technology that makes it cheaper to reduce the air pollution it generates.On a graph of the optimal level of air quality,the use of the new technology would be represented by _____
A)a leftward shift of the marginal social cost curve.
B)a rightward shift of the marginal social cost curve.
C)movement to the right along the marginal social cost curve.
D)movement to the left along the marginal social cost curve.
E)a downward shift of the marginal social benefit curve.
Q3) A society is better off when the level of education exceeds the private equilibrium.
A)True
B)False
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Chapter 18: Poverty and Redistribution
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Q1) The U.S.infant mortality rate _____
A)is lower than the mortality rates in other industrialized countries.
B)is higher than the mortality rates in other industrialized countries.
C)is the same as the mortality rates in other industrialized countries.
D)is not related to the poverty rate.
E)is inversely related to the poverty rate.
Q2) Identify the correct statement about workers.
A)Their contribution to the productive process remains constant as they grow older, and they earn less.
B)They acquire job experience, and their earnings increase with an increase in their ages.
C)Industrial deregulation has increased the pay for workers with less education.
D)Declining unionization has increased the pay for workers with less education.
E)Migration of workers has increased the pay for workers with less education.
Q3) Poor welfare recipients often face very high marginal tax rates.
A)True B)False
Q4) In every age group,average income in the United States increases with education.
A)True
B)False
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Chapter 19: International Trade
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Q1) If production is subject to economies of scale,countries can gain from trade if each nation specializes in the production of a good.
A)True
B)False
Q2) Which of the following is true of the terms of trade?
A)It is determined by supply and demand factors.
B)It is a legal limit on the amount of a commodity that can be imported.
C)It is determined by the General Agreement on Tariffs and Trade.
D)It is independent of the negotiations between trading partners.
E)It is identical for all trading partners with differences in tastes.
Q3) Dumping refers to selling a commodity abroad at a price that is below its cost of production or below the price charged in the domestic market.
A)True
B)False
Q4) Whenever the opportunity costs of goods are significantly different in different countries,there are gains from specialization and trade.
A)True
B)False
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Chapter 20: International Finance
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Q1) Which of the following is not true about the U.S.trade balance since 1976?
A)Imports and exports have been equal.
B)Exports exceeded imports.
C)Imports exceeded exports.
D)When the economy expanded, the demand for imports increased.
E)When the economy expanded, the trade balance worsened.
Q2) Which of the following statements is true of speculators?
A)There is no risk involved in their speculative activity.
B)They simultaneously buy and sell a currency in different markets.
C)They hope to profit by trading a currency at a different exchange rate later.
D)Their actions do not affect exchange rates.
E)Their actions are exactly like those of arbitrageurs.
Q3) One difference between arbitrageurs and speculators is that _____
A)arbitrageurs buy and sell foreign exchange, while speculators do not.
B)speculators buy foreign exchange but do not sell it.
C)arbitrageurs take more risks than do speculators.
D)speculators take more risks than do arbitrageurs.
E)arbitrageurs buy foreign exchange in the hope that its value will increase.
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Chapter 21: Economic Development
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Q1) Which of the following leads to an inefficient use of labor?
A)underemployment
B)a high rate of economic growth
C)overemployment
D)a high rate of growth of income
E)a high rate of inflation
Q2) In developing countries,farm productivity is low because _____
A)half of the labor force is involved in industrial activities.
B)half of the labor force is involved in the service sector.
C)more than half of the population consists of old people.
D)farming methods are generally primitive.
E)people prefer leisure over working.
Q3) One measure of banking presence in a nation is _____
A)the amount of credit provided by banks to that nation's agricultural sector.
B)the amount of savings that the banks set aside to meet their daily withdrawal needs.
C)the credit given out by banks to that nation's service sector.
D)the total profit of the banking sector.
E)the credit provided by banks as a percent of that nation's total output.
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