Principles of Microeconomics
Exam Answer Key
Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and tools used to analyze how individuals, households, and firms make decisions regarding the allocation of scarce resources. The course explores the mechanisms of supply and demand, market equilibrium, consumer and producer behavior, production costs, and the different types of market structures such as perfect competition, monopoly, and oligopoly. Additional topics include the study of government intervention, externalities, public goods, and the role of incentives in shaping economic outcomes. Through theoretical frameworks and real-world applications, students gain a foundational understanding of how microeconomic principles influence everyday life and inform policy decisions.
Recommended Textbook
Economics of Social Issues 20th Edition by Ansel Sharp
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Chapter 1: Alleviating Human Misery: The Role of Economic Reasoning
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Q1) If Ford Motors shifts all production outside of the U.S.,which of the following is true?
A)GNP would remain unchanged and GDP would decline
B)GDP would remain unchanged
C)Both GNP and GDP would remain unchanged
D)GDP would remain unchanged and GNP would decline
E)GNP would increase
Answer: A
Q2) Poverty is primarily a result of rapid population growth in much of the underdeveloped worlD.
A)True
B)False
Answer: False
Q3) If a movement along the production possibilities curve yields greater benefits to society than costs,the movement will increase social well-being.
A)True
B)False
Answer: True
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Chapter 2: Economic Systems, Resource Allocation, and
Social Well-Being: Lessons From Chinas Transition
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Q1) The entry of new firms into a market,all other things equal,will have what effect on equilibrium price and quantity?
A)Price will increase,quantity will decrease
B)Price will increase,quantity will increase
C)Price will decrease,quantity will decrease
D)Price will decrease,quantity will increase
E)The new equilibrium price and quantity can not be determined
Answer: D
Q2) If the market starts in equilibrium with D<sub>1</sub> and S<sub>1</sub>,and equilibrium price and quantity increase to $10 and 65,which of the following could have caused the change?
A)An increase in consumer income
B)An increase in production costs
C)The discovery that Dr.Pepper causes health problems
D)A technological advance in Dr.Pepper production
E)All of the above
Answer: A
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Chapter 3: Government Control of Prices in Mixed Systems:
Who Are the Winners and Losers
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Q1) Firms can offset increased wage costs due to an increase in the minimum wage by increasing efficiency.
126.Evidence indicates the minimum wage has little effect on the income distribution.
A)True
B)False
Answer: True
Q2) If the wage rate is $10,what is the quantity of labor supplied?
A)0
B)8
C)16
D)22
E)25
Answer: D
Q3) All U.S.workers are covered under the U.S.minimum wage law.
A)True
B)False
Answer: False
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Chapter 4: Pollution Problems: Must We Foul Our Own Nests
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Q1) The costs of pollution control to a society are measured by the value of the goods and services that must be given up to have the control.
A)True
B)False
Q2) A technological advance that improves pollution control methods would cause which of the following changes on the graph? A movement from
A)A<sub>1</sub> to A<sub>2</sub>
B)C<sub>1</sub> to C<sub>2</sub>
C)q<sub>1</sub> to q<sub>2</sub>
D)TT<sub>1</sub> to TT<sub>2</sub>
E)0 to C<sub>2</sub>
Q3) When MPC is less than MSC,
A)Firms will tend to produce more than is socially optimal
B)The price of the product will be higher than the competitive price
C)The firm must be a monopolist
D)The firm will produce less than is socially optimal
E)There are positive externalities in production
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Page 6
Chapter 5: Economics of Crime and Its Prevention: How
Much Is Too Much
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Q1) If society receives no additional benefit from increasing crime prevention activities,the MSB of crime prevention
A)Equals 0
B)Is increasing
C)Is decreasing D)Is equal to the MSC of crime prevention
E)Must rise in the long run.
Q2) Curves D<sub>1</sub> and S<sub>1</sub> represent the market for marijuana if it is illegal.Legalization of marijuana will cause equilibrium price and quantity to change to
A)P<sub>1</sub> and Q<sub>2</sub>
B)P<sub>2</sub> and Q<sub>1</sub>
C)P<sub>3</sub> and Q<sub>4</sub>
D)P<sub>4</sub> and Q<sub>3</sub>
E)None of the above
Q3) Making abortion services illegal would lead to a large decrease in the demand for the servicE.
A)True
B)False
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Chapter 6: The Economics of Education: Crisis and Reform
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Q1) The marginal benefit of education increases as a student completes more years of education.
A)True
B)False
Q2) A reduction in class size should be undertaken as long as the marginal benefit of the decrease is
A)Positive
B)Negative
C)Greater than the marginal cost
D)Less than the marginal cost
E)Increasing
Q3) A master's degree increases lifetime earnings over a bachelor's degree by $2.5m over high school graduates.
A)True
B)False
Q4) Economists agree that voucher programs improve K-12 education.
A)True
B)False
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Chapter 7: Poverty Problems and Discrimination: Why Are
so Many Still so Poor
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Questions
Q1) Poverty is more widespread among black families than among white families.
A)True
B)False
Q2) Which of the following factors contributes to wage differentials in our economy?
A)Workers exhibit different degrees of experience and skill
B)Some workers are more productive than others
C)The level of demand varies across markets for different products
D)Prices of different products vary tremendously in a market economy
E)All of the above
Q3) Most poor people are poor because they
A)Are lazy
B)Are exploited
C)Own resources that are not worth much
D)Are old
E)Are all of the above
Q4) Family income in the United States has become more equal over the last forty years.
A)True
B)False
Page 9
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Chapter 8: The Economics of Monopoly Power: Can Markets
Be Controlled
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Q1) Increasing output beyond Q<sub>0</sub> will cause the firm to experience
A)Economies of scale
B)Diseconomies of scale
C)Constant returns to scale
D)Network economies
E)Decreasing total costs
Q2) Market failure,by itself,is enough to justify government regulation of business.
A)True
B)False
Q3) In a competitive market in the short run,firms
A)May earn profits or losses
B)Always break even
C)Earn neither profits nor losses
D)Must be free to enter or exit the market
E)Charge a high price and produce a low quantity
Q4) Barriers to entry are often created by governments.
A)True
B)False
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Chapter 9: The Economics of Professional Sports: What Is the Real Score
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Q1) In a product market,
A)Producers sell goods and services
B)Consumers buy goods and services
C)Final goods and services are exchanged
D)All of the above
E)None of the above
Q2) Under which of the following conditions will a monopsony hire an additional worker? When
A)MCL > MRP
B)MCL < MRP
C)MRP = D
D)MC = MR
E)D > S
Q3) The public relations benefit of a city's professional sports team is generally more valuable than the number of jobs it creates.
A)True
B)False
Q4) The National Basketball Association is a cartel.
A)True
B)False
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Chapter 10: Competition in the Global Market-Place: Should
We Protect Ourselves From International Trade
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Q1) If D and S are the relevant demand and supply curves,pegging the exchange rate at r<sup>1</sup>
A)Imposes a price floor
B)Results in a balance of payments problem
C)Will increase British demand for U.S.exports
D)Will increase U.S.demand for British imports
E)Will do all of the above
Q2) There is more international trade today than at any time in the past.
A)True
B)False
Q3) An exchange rate is the price of one country's currency in terms of the currency of another.
A)True
B)False
Q4) A country's population as a whole will benefit from import restrictions.
A)True
B)False
Q5) In recent years,"protectionists" have won the battle with "free traders."
A)True
B)False
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Chapter
Bumpy
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Q1) The U.S.economy grew at a faster rate in the 1980s relative to the 1960s.
A)True
B)False
Q2) The U.S.government spends less than 1% of GDP on research and development each year.
A)True
B)False
Q3) Which of the following is the best definition of "productivity"?
A)A measurement of how efficiently resources are converted into goods and services through a production process
B)A measurement of how technology increases the ability of an economy to produce goods and services
C)The ratio of inputs to output
D)The quantity of goods and services produced during a given period of time by labor
E)The total output produced in an economy given its set of resources and the current state of technology
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Chapter 12: Money,Banking and the Financial System: Old
Problems With New Twists
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Q1) Large corporations enter the secondary financial market to provide themselves adequate liquidity to conduct their day to day operations.
A)True
B)False
Q2) Home equity loans
A)Allow a home owner to recapture some of the increase in the value of their home without selling the home
B)A way for homeowners to issue stock,or equity,in their home
C)Only used when home prices are increasing
D)A way for the market to eliminate paper profits
E)None of the above
Q3) M1 includes
A)Currency and coins in circulation,traveler's checks,demand deposits at commercial banks,and other checkable deposits
B)Currency and coins in circulation,all demand deposits,and all time deposits
C)All demand deposits and all time deposits
D)Just currency and coins in circulation
E)None of the above
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Chapter 13: Unemployment and Inflation:
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Q1) Unemployment rates tend to rise when
A)Inflation rates rise
B)Aggregate demand is high
C)The economy goes through an expansion
D)There is a recession
E)Interest rates are low
Q2) Inflation is not equitable because it arbitrarily changes the pattern of income distribution.
A)True
B)False
Q3) If leakages exceed injections,unemployment will result.
A)True
B)False
Q4) The oil embargo during the early 1970s showed how stable the relationship is between unemployment and inflation rates.
A)True
B)False
Q5) Cyclical unemployment is involuntary.
A)True
B)False
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Chapter 14: Government Spending,Taxation,and the
National Debt: Who Wins and Who Loses
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Q1) Given demand curve D,if a tax independent of output is levied on this good,how much of the tax will be shifted forward?
A)None
B)One-fourth
C)Half
D)All
E)Cannot be determined
Q2) The fears that people have concerning government are related to the size of government and the distribution of taxes.
A)True
B)False
Q3) Federal debt reduction will cause which of the following?
A)A decrease in the interest rate
B)An increase in private investment
C)A decrease in the supply of bonds
D)An increase in the price of bonds
E)All of the above
Q4) The federal income tax system results in a mildly progressive tax structurE.
A)True
B)False
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Chapter 15: Social Security and Medicare: How Secure Is Our
Safety Net for the Elderly
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Q1) The results of the wealth substitution effect are illustrated on the graph as a movement from point
A)E to F
B)A to C
C)E to G
D)F to E
E)None of the above
Q2) Both Social Security and Medicare are social insurance programs.
A)True
B)False
Q3) A modest increase in taxes could postpone Social Security's financial crisis for decades.
A)True
B)False
Q4) Third-party payments for health care increase the quantity of services demandeD.
A)True
B)False
Q5) Managed care leads to higher costs of providing health care services.
A)True
B)False
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