Principles of Microeconomics Exam Preparation Guide
Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools used to understand how individuals, firms, and governments make choices regarding the allocation of limited resources. The course covers key topics such as supply and demand, market equilibrium, consumer and producer behavior, elasticity, and the impact of government interventions in markets. Students will also explore the functioning of different market structures, including perfect competition, monopoly, and oligopoly, as well as the effects of externalities and public goods. By the end of the course, students will be able to apply microeconomic principles to real-world situations and make informed decisions as participants in the economy.
Recommended Textbook Microeconomics 19th Edition by Paul A. Samuelson
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Chapter 1: The Central Concepts of Economics
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Sample Questions
Q1) The production-possibility frontier of a country can be said to shift outward as a result of the following.Which, if any, is the wrong explanation?
A)Expenditures on new plants and equipment are constantly being made.
B)The population increases.
C)Better methods of production are developed.
D)New oil finds are found.
E)All of the above are valid explanations.
Answer: E
Q2) If an economy is not on its PPF, then it is not utilizing its resources as efficiently as it might be.
A)True
B)False
Answer: True
Q3) College students that do well in economics courses always do better in business, get into the law school of their choice, and otherwise have superior lives compared to students who either fail to take economics or fail economics.
A)True
B)False
Answer: False
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Chapter 2: The Modern Mixed Economy
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Sample Questions
Q1) Taxation plays no role in efficiency or stability concerns.
A)True
B)False
Answer: False
Q2) Decisions about how much of current output to devote to the production of capital goods determine, in part, the rate of growth of the economy.
A)True
B)False
Answer: True
Q3) Capital is defined as:
A)the vacant lot next to your factory.
B)the means to pay for your lunch.
C)the produced and durable input which is itself an output of the economy.
D)the political seat of a state.
Answer: C
Q4) In a production process, more specialization is always preferred to less specialization.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Basic Elements of Supply and Demand Part
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Sample Questions
Q1) An increase in price will lead to a lower quantity demanded because:
A)suppliers will supply only the smaller amount.
B)quality deteriorates.
C)people will purchase less of the good.
D)all of the above.
E)none of the above.
Answer: C
Q2) Equilibrium occurs where the demand curve intersects the supply curve.
A)True
B)False
Answer: True
Q3) The quantity of some good X demanded by individuals hardly ever depends upon the prices of other goods.
A)True
B)False
Answer: False
Q4) The market mechanism uses price as a rationing device.
A)True
B)False
Answer: True
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Chapter 4: Supply and Demand: Elasticity and Applications
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Q1) The sales tax benefits the suppliers in the market depicted by Figure 4-4 since they now receive $40 per unit in equilibrium, while they had previously only received $30.00 per unit.
A)True
B)False
Q2) If you raise your prices on the product you sell, you will always increase total revenue.
A)True
B)False
Q3) Economists make a distinction between an increase in supply and an increase in quantity supplied.
A)True
B)False
Q4) An increase in population will increase the rent of land.
A)True
B)False
Q5) Society can easily fulfill everyone's desires, we just need government to step in and help out.
A)True
B)False
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Chapter 5: Demand and Consumer Behavior
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Q1) Refer to Table 5-1.If good X costs $6 per unit and good Y costs $5 per unit, at what quantities of X and Y is utility maximized if the budget is $33?
A)X = 2, Y = 3
B)X = 4, Y = 5
C)X = 3, Y = 4
D)X = 3, Y = 3
E)None of the above
Q2) The price of good X is $1.50 and that of good Y, $1.A particular consumer who evaluates the marginal utility of Y to be 30 units, and is in equilibrium with respect to purchases of X and Y, must consider the marginal utility of X to be:
A)15 units.
B)20 units.
C)30 units.
D)45 units.
E)none of the above.
Q3) If prices go up, your real income goes down.
A)True
B)False
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Chapter 6: Production and Business Organization
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Sample Questions
Q1) Important features of network markets include:
A)history matters in product design.
B)they are "tippy."
C)they lead to a fascinating array of business strategies.
D)All of the above.
Q2) If you hire an additional worker for your farm and you don't buy more land or tools, which of the following would explain why this worker's marginal product is less:
A)law of farming.
B)law of production function.
C)law of diminishing returns.
D)law of economics.
E)none of the above.
Q3) One important disadvantage of partnerships is the A)double taxation of their income.
B)liabilities the partners face.
C)limit to the number of possible partners.
D)vulnerability to takeovers which they face.
E)higher tax rates for higher than normal profits that are distributed as capital gains.
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8
Chapter 7: Analysis of Costs
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Sample Questions
Q1) Marginal cost is equal to the per unit change in variable cost.
A)True
B)False
Q2) The item "taxes payable" is a long-term liability.
A)True
B)False
Q3) If marginal cost is falling, then total cost is falling at an increasing rate.
A)True
B)False
Q4) In Figure 7-2, the minimum of the AC curve occurs:
A)between Q = 2 and Q = 3.
B)between Q = 3 and Q = 4.
C)at Q = 4.
D)between Q = 4 and Q = 5.
E)none of the above.
Q5) The marginal cost curve can cut the average variable cost curve from below only at its minimum.
A)True
B)False
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Chapter 8: Analysis of Perfectly Competitive Markets
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Sample Questions
Q1) If the market price increases to $15, the firm depicted in Figure 8-1 will:
A)shutdown.
B)earn economic profits.
C)produce more than 10 units of output.
D)produce less than 10 units of output.
E)both B and C are correct.
Q2) For the market whose typical firm is characterized in Figure 8-2, the long-run competitive equilibrium price is $1000.
A)True
B)False
Q3) If prices fall in a perfectly competitive industry, then the firms in that industry will in the short run:
A)not decrease in number unless price falls below ATC for some firms.
B)try to reduce production or shut down.
C)keep output at the same level but make losses.
D)advertise.
E)both A and B.
Q4) When its variable costs are less than total revenue, a firm should shut down.
A)True
B)False
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Chapter 9: Imperfect Competition and Monopoly
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Sample Questions
Q1) Imperfect competition does not mean "no competition.Many firms have rivals but are still in an imperfect competition industry.A rival wants to do which of the following:
A)increase profits.
B)increase market share.
C)advertise to shift out their demand curve.
D)all of the above.
E)none of the above.
Q2) Two possible reasons for the existence of an imperfectly competitive market are:
A)product differentiation and free trade.
B)constant returns to scale and a lack of market regulation.
C)increasing returns to scale and barriers to free entry.
D)a lack of market segmentation and "U" shaped marginal cost curves.
E)none of the above.
Q3) Wheat farming in the U.S.can be best described as an oligopoly.
A)True
B)False
Q4) Oligopoly means exactly two sellers.
A)True
B)False
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Chapter 10: Competition Among the Few
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Sample Questions
Q1) When economists urge the federal government to attempt to eliminate monopoly, they do so mainly in order to:
A)prevent the growth of big business.
B)expand public utilities.
C)prevent small firms from decreasing in number.
D)restrain conglomerates.
E)ensure competition.
Q2) Suppose that two firms, A and B, collude to share maximum profits.If the average cost curve for firm A is higher than the average cost curve for firm B at every output, then
A)firm A should produce nothing.
B)firm A should produce output as long as its marginal cost is less than firm B's.
C)both firms should produce where their marginal costs are equal to some number that exceed marginal revenue.
D)both firms should produce where their marginal costs are precisely equal to marginal revenue.
E)optimal output cannot be determined from the information provided.
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Chapter 11: Economics of Uncertainty
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Sample Questions
Q1) Health care has a high income elasticity, indicating that ensuring a long and fit life becomes increasingly important as people are able to pay for other essential needs.
A)True
B)False
Q2) Welfare will be increased by the transfer of one unit of some good X from Region A to Region B if the price that would clear the market in Region A given one more unit of supply exceeds the price that clears the market in Region B by more than the cost of transporting one unit of X from Region A to Region B.
A)True
B)False
Q3) What is the necessary condition(s)for efficient insurance markets?
A)Large number of insurable events.
B)Sufficient experience regarding events so that insurance companies can reliably estimate losses.
C)The insurance must be relatively free of moral hazard.
D)A and B are necessary conditions.
E)All of the above are necessary conditions.
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13
Chapter 12: The Labor Market
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Sample Questions
Q1) Suppose that a firm has the opportunity to employ a new machine that will increase production by 5 units and will cost $10 to purchase.If each unit of output can be sold for $5, then the:
A)marginal revenue product of the machine is less than its cost, and the firm should not take advantage of the opportunity.
B)marginal product of the machine is exactly equal to the price of output, and the firm should therefore take advantage of the opportunity.
C)marginal revenue product of the machine is equal to $25, so the firm should take advantage of the opportunity.
D)marginal revenue product of the machine is equal to $5, so the firm should take advantage of the opportunity.
E)none of the above.
Q2) Output demand curves are derived from factor demand curves.
A)True
B)False
Q3) National income includes all the incomes paid to factors of production.
A)True
B)False
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Chapter 13: Land, Natural Resources, and the Environment
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Sample Questions
Q1) In Figure 13-2, how much labor would be supplied in the market for black male jobs once discrimination disappeared?
A)0
B)3
C)6
D)8.67
E)none of the above
Q2) A perfectly competitive labor market is:
A)one in which there is a large number of workers and employers, none can affect the wage rates.
B)one in which there is a large number of workers and employers, most can affect the wage rates.
C)one in which there is a small number of workers and employers, one can affect the wage rates.
D)one in which there is a small number of workers and employers, all can affect the wage rates.
E)none of the above.
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Chapter 14: Capital, Interest, and Profits Part Four:
Applications of Economic Principles
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Sample Questions
Q1) Pure economic rent on land of fixed supply is a surplus which can be taxed without causing a decline in productive efficiency.
A)True
B)False
Q2) Public goods are ones whose benefits are indivisibly spread among the entire community, whether or not individuals desire to consume the public good.
A)True
B)False
Q3) Liability laws also help in the control of pollution.
A)True
B)False
Q4) How does the government enforce a pollution regulation?
A)command and control regulations.
B)no regulations.
C)let firms regulate themselves.
D)provide incentives not to pollute.
E)none of the above.
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Chapter 15: Government Taxation and Expenditure
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Sample Questions
Q1) Positive profit premiums in excess of normal profits that must be paid to attract people to risky activities reflect payment to compensate for:
A)risk aversion.
B)temporary excess losses to innovators.
C)constant marginal utility of income.
D)contrived scarcities.
E)a lack of perfect competition.
Q2) If an investment returns $600 a year forever and the annual rate of interest is 10%, then its present value is:
A)$6,000.
B)$3,000.
C)$1,000.
D)$600.
E)some positive number that cannot be determined from the information provided.
Q3) When interest rates rise, many asset prices fall.
A)True
B)False
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Chapter 16: Efficiency Vsequality: The Big Trade-Off
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Q1) Laissez-faire policies lapsed in response, at least in part, to exaggerated business cycle swings in the aggregate economy.
A)True
B)False
Q2) Laissez-faire policies in the United States gave way to some regulatory activity in part in response to problems with:
A)hazards in the workplace.
B)hazards facing consumers.
C)information that kept buyers from knowing completely the value of their purchases.
D)discrimination in the workplace.
E)all of the above.
Q3) The efficiency concern of government is motivated primarily as an attempt to help the market answer the for whom question of allocation.
A)True
B)False
Q4) Education is the biggest single item in the budget of local government.
A)True
B)False
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Chapter 17: International Trade
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Q1) Given the social constraint drawn in Figure 17-2, the cost of redistribution, measured in terms of income, of achieving perfect equality in the income distribution would be:
A)length FD.
B)length FD plus length GH.
C)length EZ.
D)two times length EZ.
E)none of the above.
Q2) The top 5 percent of the income class receive how much of the total income in the U.S.?
A)5%.
B)10%.
C)15%.
D)21%.
E)none of the above.
Q3) By 2006, the poverty rate of families headed by women raising children alone was 30 percent.
A)True
B)False
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Chapter 18: Overview of Macroeconomics
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Q1) In 2007, U.S.imports exceeded exports by around $700 billion, reflecting large borrowing from abroad.
A)True
B)False
Q2) At what price level in Figure 18-3 would domestic production levels exactly satisfy demand?
A)$1.00.
B)$2.50.
C)$3.00.
D)$3.25.
E)Domestic production exceeds demand at all points.
Q3) Trade may take place because of the diversity in productive possibilities among countries.
A)True
B)False
Q4) Quotas always create higher efficiency costs than their equivalent tariffs.
A)True
B)False
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Chapter 19: Geometrical Analysis of Consumer Equilibrium
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Q1) The scarcer the good, the greater its relative substitution value.
A)True
B)False
Q2) The slope of an indifference curve is:
A)the sum of a consumer's demand curves for the goods they purchase.
B)derived from the supply curves of two different goods.
C)the measure of the goods' relative marginal utilities, or of the substitution terms on which the consumer would be willing to exchange a little less of one good in return for a little more of the other.
D)the same for all consumers.
E)none of the above.
Q3) As the price of food changes, the budget line for clothing and food pivots about a single point on the clothing axis.
A)True
B)False
Q4) Geometrically, the consumer is at equilibrium where the slope of the budget line is exactly equal to the slope of the indifference curve.
A)True
B)False
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Chapter 20: Production Cost Theory and Decisions of the Firm
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Q1) By supplying the firm with a production-function schedule, an engineer is indicating the various combinations of possible inputs which will produce a series of different possible outputs.
A)True
B)False
Q2) The equal-product curve is a locus of points showing constant total cost of producing different outputs with varying combinations of inputs.
A)True
B)False
Q3) Suppose a producer wants to increase production of good y from 100 to 200.Assume MP<sub>L</sub>/MP<sub>K</sub> and input prices remain constant.If point A in Figure
7A-1 represents the best possible combination of inputs for production of 100, which point represents the new best possible combination?
A)Point B
B)Point C
C)Point D
D)All of the above.
E)None of the above.
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