Principles of Microeconomics Exam
Bank
Course Introduction
Principles of Microeconomics introduces students to the fundamental 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 and costs, market structures (including perfect competition, monopoly, and oligopoly), and the role of government in addressing market failures. Emphasis is placed on applying theoretical models to real-world economic issues and cultivating critical thinking skills necessary for analyzing economic outcomes and policy implications.
Recommended Textbook
Principles of microeconomics v 3.0 by Rittenberg
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19 Chapters
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Page 2
Chapter 1: Economics: The Study of Choice
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Sample Questions
Q1) Economics is a:
A) social science that deals with making choices among alternatives.
B) natural science that concerns itself with allocating relatively scarce resources among alternative ends.
C) science that has no theories or models based on the scientific method.
D) humanities course that mainly concerns itself with limited wants versus unlimited resources.
Answer: A
Q2) The problem of determining how goods and services should be produced is a problem of deciding:
A) the best combinations of resources to be used for producing goods and services.
B) the extent to which imports should be reduced relative to exports.
C) the extent to which exports should be reduced relative to imports.
D) who owns the resources.
Answer: A
Q3) Scarcity is determined by the existence of bad alternatives.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Confronting Scarcity: Choices in Production
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Sample Questions
Q1) Factors of production are:
A) the resources the economy has available to produce goods and services.
B) generally unlimited in modern economies.
C) always employed in modern economies.
D) the knowledge that can be applied to the production of goods and services.
Answer: A
Q2) If an economy is producing a combination of goods that places it on the production possibilities curve, then it has:
A) economic growth.
B) full employment.
C) inefficiency.
D) idle factors of production.
Answer: B
Q3) Which of the following will not lead to economic growth?
A) increased immigration
B) restrictions on international trade
C) introduction of faster computers
D) opening all federal lands to mining
Answer: B
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Chapter 3: Demand and Supply
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Sample Questions
Q1) (Exhibit: The Demand for Chocolate-Covered Peanuts) If the price of chocolate-covered peanuts is 60 cents, the quantity demanded by George is ________ bags per month.
A) 10
B) 15
C) 20
D) 25
Answer: D
Q2) An announcement that smoking will harm your ability to think clearly will most likely result in:
A) an increase in the quantity of cigarettes demanded.
B) a decrease in the demand for cigarettes.
C) no change in smoking habits.
D) an increase in the equilibrium price of cigarettes.
Answer: B
Q3) If two goods are complements, a fall in the price of one will lead to an increase in demand for the other.
A)True
B)False
Answer: True
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Chapter 4: Applications of Supply and Demand
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Sample Questions
Q1) Price controls:
A) always increase economic efficiency.
B) always lead to more equitable results.
C) can result in inequitable outcomes.
D) all of the above statements are true.
Q2) Which of the following would lead to an increase in the supply of health care?
A) An increase in the number of people insured.
B) Increased tax subsidies for health care.
C) An increase in the productivity of doctors.
D) All of the above would increase the supply of health care.
Q3) (Exhibit: Third-Party Payers) Based on the exhibit, and assuming there are no third-party payers, the:
A) equilibrium price for physician office visits is $80.
B) equilibrium quantity is 3 million physician office visits per week.
C) total amount spent on physician office visits per week at the equilibrium price is $40 million.
D) equilibrium price for physician office visits is $40.
Q4) How does the supply of health care in general and doctors in particular contribute to the rising costs of health care?
Q5) What are the basic provisions of the Affordable Health Care Act of 2010?
Page 6
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Chapter 5: Elasticity: a Measure of Response
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Sample Questions
Q1) If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when your income increases from $19,000 to $21,000 a year, then your income elasticity of demand for shoes is:
A) 2.
B) -0.67.
C) 0.
D) 0.67.
Q2) The price elasticity of a demand curve with a constant slope:
A) is equal to the slope.
B) is greater than the slope.
C) is less than the slope.
D) increases in absolute value as the price rises.
Q3) The arc price elasticity of demand method is best used for:
A) small changes in price.
B) large changes in quantity demanded.
C) large changes in both price and quantity demanded.
D) infinitely large changes in price.
Q4) Define, identify and explain the differences among price elasticity of demand, price elasticity of supply, income elasticity of demand, and cross price elasticity of demand.
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Chapter 6: Markets, Maximizers, and Efficiency
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Sample Questions
Q1) (Exhibit: Net Benefit) The equilibrium price will be _______ and the equilibrium quantity will be ________.
A) OI; OH
B) OA: OH
C) OB; OE
D) OI; OE
Q2) (Exhibit: Markets and Efficiency) Using Panel (a), which of the following statements is (are) true?
A) A consumer purchasing apples sends a message to producers that tells them marginal benefit equals or exceeds marginal cost.
B) A consumer's decision to buy apples ratifies the decisions of producers to forgo the production of other goods to produce apples.
C) At the equilibrium price, the marginal benefit of apples to consumers is reflected by the price they are willing to pay and is equal to the marginal cost of apples.
D) All of the above statements are true.
Q3) Public goods are private goods produced by government.
A)True
B)False
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8
Chapter 7: The Analysis of Consumer Choice
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Sample Questions
Q1) (Exhibit: Consumer Equilibrium 3) The highest level of utility shown in the exhibit is associated with:
A) indifference curve X.
B) indifference curve Y.
C) indifference curve Z.
D) either indifference curve Y or Z.
Q2) A consumer is in equilibrium along the portion of an indifference curve that lies below a budget line.
A)True
B)False
Q3) If the price of a good falls, the consumer will increase the quantity demanded.
A)True
B)False
Q4) Utility maximization _______ the law of demand.
A) has no relation to B) underlies
C) is OK in theory, but does not support in fact, D) is generally inconsistent with
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Chapter 8: Production and Cost
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Sample Questions
Q1) Average variable cost is:
A) the firm's variable cost per unit multiplied by the quantity.
B) total variable cost divided by quantity.
C) the difference between average total cost and total variable cost.
D) the difference between total cost and total variable cost.
Q2) (Exhibit: Short-Run Costs) At 6 units of output, marginal cost is approximately:
A) $50
B) $70.
C) $120.
D) $150
Q3) The Case in Point on The Production of Fitness suggested:
A) that the region of diminishing marginal returns to aerobic training began on the fourth day of training.
B) that the region of diminishing marginal returns is irrelevant in the context of aerobic training.
C) that athletes should ignore the law of diminishing marginal returns if they expect to excel in their sport.
D) none of the above.
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Chapter 9: Competitive Markets for Goods and Services
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Sample Questions
Q1) A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if price is:
A) greater than marginal cost.
B) less than marginal cost.
C) less than average variable cost.
D) greater than average total cost.
Q2) (Exhibit: Short-Run Costs) At the given price, the most profitable level of output occurs at quantity:
A) N.
B) P.
C) S.
D) T.
Q3) If a perfectly competitive firm increases production from 10 units to 11 units, and the market price is $20 per unit, total revenue for 10 units is:
A) $10.
B) $20.
C) $200.
D) $210.
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11
Chapter 10: Monopoly
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Sample Questions
Q1) If a monopolist is producing a quantity that generates MC = P, then profit: A) is maximized.
B) is maximized only if MR = P. C) can be increased by increasing production.
D) can be increased by decreasing production.
Q2) The demand curve facing a monopolist is:
A) horizontal, the same as that facing a perfectly competitive firm.
B) downward sloping, the same as that facing a perfectly competitive firm.
C) upward sloping, the same as that facing a perfectly competitive firm.
D) downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.
Q3) Monopoly firms may have economic profits in the long run.
A)True
B)False
Q4) In economic theory, a perfectly competitive firm follows the marginal decision rule, but a monopoly does not.
A)True
B)False
Q5) Why would a monopoly firm never produce in the inelastic portion of its demand curve?
Page 12
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Chapter 11: The World of Imperfect Competition
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Sample Questions
Q1) (Exhibit: Monopoly Through Collusion) The exhibit illustrates the situation in an industry that consists of two firms facing identical demand curves; the demand curve for each firm is D .If the firms collude and agree to share the market demand equally, then each firm will act as if its demand curve is given by:
A) D .
B) D .
C) MR .
D) 2 x D .
Q2) (Exhibit: Profit Maximization in Monopolistic Competition) In Panel (b), the profit-maximizing price is P and the ATC curve is tangent to the new demand curve.The portion of the ATC that lies to the right of the tangency and continues down to the intersection of MC with ATC indicates _______ , because in the long run in _______ the price would be equal to _______.
A) unused capacity; oligopoly; MC = minimum ATC
B) excess capacity; perfect competition; MC = minimum ATC
C) under-utilization; monopoly; MR = MC
D) excess capacity; perfect competition; MC > minimum ATC
Q3) Define and explain the difference between concentration ratios and the Herfindahl-Hirschman Index.
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Page 13
Chapter 12: Wages and Employment in Perfect Competition
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Sample Questions
Q1) A change in demand for a given factor of production will not occur if:
A) the price of that factor falls.
B) the productivity of that factor increases.
C) the productivity of that factor decreases.
D) there is a decrease in the price of a substitute factor.
Q2) In perfect competition where P is the price of output:
A) MRP = MP x P.
B) MRP/ P = Price of input.
C) MRP/MP = Price of input.
D) MRP x P = MP.
Q3) (Exhibit: Demand and Supply in a Perfectly Competitive Labor Market) Curve A is the:
A) supply curve of labor faced by a firm.
B) firm's demand for labor.
C) MFCL.
D) firm's marginal revenue curve.
Q4) A wage increase raises the quantity of labor supplied through the substitution effect.
A)True
B)False
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Chapter 13: Interest Rates and the Markets for Capital and Natural Resources
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Sample Questions
Q1) (Exhibit: The Demand Curve for Capital) The demand curve for capital would shift to the left if the:
A) interest rate rises.
B) price of capital rises.
C) price of labor falls.
D) supply of capital increased.
Q2) Some people view interest rates with contempt and disdain, and further, they feel interest rates serve no useful purposes at all.Given the discussions in the textbook concerning interest rates and the markets for capital and natural resources, write a brief essay on the role of interest rates in the allocation of resources.
Q3) An increase in the value that future consumers are expected to place on an exhaustible resource ________ the marginal cost of extraction and ________ the current price of the resource.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) does not change; does not change
Q4) What are the differences between renewable and exhaustible natural resources? Give several examples of each.
Page 15
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Chapter 14: Imperfectly Competitive Markets for Factors of Production
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Q1) (Exhibit: Monopoly and Monopsony) In monopoly, _______ ; in monopsony,
A) P < MC; factor price < MRP
B) the equilibrium price and quantity are P and Q ; the equilibrium factor price and quantity are P and FQ
C) price and quantity in equilibrium are P and Qm; factor price and quantity in equilibrium are P and FQ
D) P = MC; factor price = MRP
Q2) (Exhibit: Labor Market) Given competitive market demand curve D and initial union members supply curve S, the effect of the union successfully restricting entry into the factor market is illustrated by a:
A) new demand curve FTD .
B) new supply curve FTS.
C) new supply curve GVS .
D) shift in the supply curve to S .
Q3) (Exhibit: Monopsony) Given monopsony in the factor market, the wage would be:
A) determined where MRP > MFC.
B) determined where MRP < MFC.
C) W .
D) W .
Page 16
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Chapter 15: Public Finance and Public Choice
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Sample Questions
Q1) A transfer payment for which recipients qualify on the basis of income is:
A) externality tested.
B) nonexternality tested.
C) means-tested.
D) non-means-tested.
Q2) The largest _______ transfer payment in the United States is _______ .
A) non-means-tested; Medicaid
B) non-means-tested; Social Security payments to retired persons
C) means-tested; farmers aid
D) means-tested; Social Security payments to retired persons
Q3) An example of a transfer payment is:
A) expenditure on national defense.
B) a Social Security payment to the disabled.
C) expenditure on public school education.
D) purchasing a new city police car.
Q4) An example of a tax based on benefits received is the _______ tax.
A) personal income
B) sales
C) marginal
D) property
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Chapter 16: Antitrust Policy and Business Regulation
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Sample Questions
Q1) The government is most likely to challenge a merger that:
A) is of the vertical type.
B) is of the conglomerate type.
C) results in a substantial lessening of competition, regardless of its type.
D) results in any lessening of competition.
Q2) Critics of antitrust laws and enforcement activity argue that:
A) among the 500 largest companies in the United States in 1950, almost none have been displaced in the last 50 years.
B) the emergence of new firms suggests dynamism and the competitive nature of the economy.
C) it is necessary that an industry be perfectly competitive to achieve the benefits of competition.
D) there is not enough enforcement, and more effort should go into it.
Q3) Regulation of markets may involve the cost of fewer products being available.
A)True
B)False
Q4) The application of the Sherman Antitrust Act was unsuccessful in the Standard Oil case.
A)True
B)False
Page 18
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Chapter 17: International Trade
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Sample Questions
Q1) (Exhibit: The Production of Tires and Radios) Assuming constant costs in the neighborhood of their current levels of production, the exhibit shows the number of tires each country would have to forgo in order to produce the additional radios indicated.Further assume that the only input is labor and that it remains fully employed.Assume that there is unrestricted trade and complete specialization.According to comparative advantage, country:
A) Y would import tires.
B) Y would export radios.
C) X would export radios.
D) X would export tires.
Q2) (Exhibit: Heartland and Soulland) If trade now opens up between the two economies, we can expect that:
A) Heartland will export drill presses to Soulland and import corn from it.
B) Heartland will export corn to Soulland and import drill presses from it.
C) both countries will export corn and drill presses.
D) both countries will import corn and drill presses.
Q3) A protectionist policy restricts free trade.
A)True
B)False
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Page 19
Chapter 18: The Economics of the Environment
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Sample Questions
Q1) (Exhibit: Pollution Abatement and Emissions) Curve B is the marginal cost of:
A) emissions curve.
B) abatement curve.
C) resources curve.
D) opportunities curve.
Q2) The Coase theorem emphasizes the importance of _______ in the efficient allocation of resources when external costs are present.
A) enforcement of contracts
B) marketable pollution permits
C) regulation and appropriate environmental standards
D) well-defined property rights
Q3) Pollution has _______ and _______ .
A) no benefits; only costs
B) benefits; costs
C) no opposition; only advocates
D) short-term impacts; very little long-term impact
Q4) Moral suasion is the most widely accepted approach to environmental problems by economists.
A)True
B)False
Page 20
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Chapter 19: Inequality, Poverty, and Discrimination
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Sample Questions
Q1) Discrimination in an economy results in the economy operating inside its production possibilities curve.
A)True
B)False
Q2) Compare and contrast the issues involved in making choices between the uses of an absolute income test versus a relative income test for defining poverty.
Q3) If discrimination against blacks in the labor market is eliminated, then the wage paid to blacks will _______ and the number of blacks employed will _______ .
A) increase; increase
B) decrease; decrease
C) increase; remain unchanged
D) remain unchanged; increase
Q4) If some employees have discriminatory attitudes against a group of workers, the demand for workers from that group may be lower.
A)True
B)False
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