Principles of Microeconomics Exam Practice Tests
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 in allocating scarce resources. The course covers demand and supply analysis, market equilibrium, elasticity, consumer and producer behavior, the role of government in the economy, and the functioning of different market structures such as perfect competition, monopoly, and oligopoly. Emphasis is placed on applying economic reasoning to real-world issues, fostering critical thinking about market outcomes, and understanding how economic incentives shape choices in a variety of contexts.
Recommended Textbook
Microeconomics 2nd Edition by Daron Acemoglu
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Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) Feasible options are options that are ________.
A) available and affordable
B) available but not affordable
C) affordable but not available
D) optimal for an economic agent
Answer: A
Q2) Explain the term "free riders."
Answer: Free riders are people who do not contribute but still benefit from the actions that others undertake.When people pursue their own private interests and do not contribute voluntarily to the public interest,the problem of free riding arises.For example,a free rider may avoid paying taxes but enjoy the same benefits enjoyed by tax payers.
Q3) When a market is in equilibrium,both buyers and sellers do not perceive a benefit from changing their behavior.Why?
Answer: In most economic situations,an economic agent is not optimizing individually.His decision is influenced by the decisions taken by other economic agents.In equilibrium,each and every economic agent is doing the best that they can do,given the information they have and given the actions of other economic agents.Therefore,nobody perceives a benefit from changing his or her behavior.
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Chapter 2: Economic Methods and Economic Questions
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Sample Questions
Q1) An experiment refers to ________.
A) a simplified representation of some real-life phenomenon
B) the process of collecting, measuring, and organizing data
C) validating the claims of a model using statistics and facts
D) a controlled method of investigating causal relationships among variables
Answer: D
Q2) Which of the following statements is true?
A) Empirical arguments can be supported without the use of data.
B) Using a large data set will strengthen the force of an empirical argument.
C) Using fewer observations will strengthen the force of an empirical argument.
D) The number of observations used does not affect the strength of an empirical argument.
Answer: B
Q3) Refer to the scenario above.Which of the following statements is true about the model?
A) The model is not based on any assumption.
B) The predictions of the model will hold for every individual.
C) The model describes the economic payoff of more education.
D) The model can be applied for a maximum of 10 years of additional education.
Answer: C
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Chapter 3: Optimization: Doing the Best You Can
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Sample Questions
Q1) Which of the following is an example of before and after comparisons?
A) The estimation of the quantity demanded of a good when its price is $5
B) The estimation of the demand for a particular good when consumer income is $10
C) The estimation of the ideal number of workers a firm should hire when wage rate is $20 per hour
D) The estimation of the supply of a good when the wage rate of labor changes from $30 to $10 per hour
Answer: D
Q2) Mary has to choose between a 4-day vacation and a 5-day vacation to the same place.To arrive at the optimal choice,which optimization technique will be arithmetically easier and faster to implement and why?
Answer: In this case,to arrive at the optimal choice,optimization using marginal analysis will be arithmetically easier to implement than optimization using total value.If she optimizes using total value,she would evaluate the total net benefit of a 4-day trip and compare it to the total net benefit of a 5-day trip.In contrast,optimization using marginal analysis will only require an estimation of the net benefit of the fifth day,as the first 4 days are common to both options.This makes the marginal analysis option easier and faster to implement.
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Chapter 4: Demand, supply, and Equilibrium
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Sample Questions
Q1) The Law of Demand states that ________.
A) the demand for a commodity is directly related to consumers' income, all other things remaining constant
B) the demand for a commodity always equals the supply of the commodity
C) the quantity demanded of a commodity varies inversely with the price of the commodity, all other things remaining constant
D) the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market
Q2) Other things remaining the same,a leftward shift in the supply curve will lead to a(n)________.
A) decrease in the equilibrium price and the equilibrium quantity
B) increase in the equilibrium price and the equilibrium quantity
C) decrease in the equilibrium price and an increase in the equilibrium quantity
D) increase in the equilibrium price and a decrease in the equilibrium quantity
Q3) With real-world examples,explain the various factors that can cause a shift in the supply curve of a commodity.
Q4) Why is the competitive equilibrium price often referred to as the market clearing price?
Q5) Explain the role of prices in a market.
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Chapter 5: Consumers and Incentives
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Sample Questions
Q1) Refer to the figure above.What is the gain in the market-wide consumer surplus when the price of calculators changes from $6 per unit to $3 per unit?
A) $565
B) $580
C) $950
D) $1,050
Q2) As the number of substitutes available for a good increases,the price elasticity of demand for the good ________.
A) initially increases and then decreases
B) initially decreases and then increases
C) decreases
D) increases
Q3) Sofia is selling homemade cakes.The demand for homemade cakes is elastic.If Sofia reduces the price of her cakes,________.
A) her revenue will increase
B) her revenue will decrease
C) her revenue will not change
D) she will not make any revenue
Q4) Define a budget set.Is it the same as a budget constraint?
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Chapter 6: Sellers and Incentives
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Sample Questions
Q1) Which of the following statements is true of a perfectly competitive market?
A) Sellers in the market produce differentiated goods.
B) There is free entry and exit in the market.
C) There are only a few buyers and sellers in the market.
D) Sellers and buyers both set prices to compete in the market.
Q2) Refer to the figure above.If the market price of the product is $1,700,what is the firm's producer surplus?
A) -$800
B) -$300
C) $0
D) $300
Q3) Refer to the table above.If the factory plans to hire a seventh worker whose marginal product is 15 pairs,the total output after he is hired will be ________.
A) 15 pairs
B) 105 pairs
C) 280 pairs
D) 295 pairs
Q4) What conditions characterize the sellers' side in a perfectly competitive market?
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Chapter 7: Perfect Competition and the Invisible Hand
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Sample Questions
Q1) Differentiate between double oral auctions and bilateral negotiations.
Q2) Refer to the figure above.If a price control is imposed at $8,what is the deadweight loss?
A) $10
B) $50
C) $65
D) $85
Q3) Refer to the graph above.If the equilibrium price in this market is $5,Firm 1's producer surplus is equal ________,and Firm 2's producer surplus is equal ________.
A) $24; $16
B) $24; $40
C) $12; $24
D) $14; $8
Q4) When existing firms leave a perfectly competitive industry,________.
A) the equilibrium price decreases, and the equilibrium quantity increases
B) the equilibrium price increases, and the equilibrium quantity decreases
C) both the equilibrium price and quantity increase
D) both the equilibrium price and quantity decrease
Q5) Are the concepts of equity and efficiency different? Why or why not?
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Chapter 8: Trade
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Sample Questions
Q1) Refer to the figure above.What is the total surplus after Barylia opens up to free trade?
A) $455
B) $800
C) $1,000
D) $1,200
Q2) Refer to the scenario above.The opportunity cost of producing Good X equals
A) loss in Good Y/loss in Good X
B) loss in Good Y/gain in Good X
C) loss in Good X/loss in Good Y
D) loss in Good X/gain in Good Y
Q3) Which of the following is not a characteristic of countries in a free trade area?
A) Trade is tariff free among members.
B) Members have the same tariff structure as the rest of the world.
C) Members do not permit the free movement of labor across their borders.
D) Members do not have a common monetary policy.
Q4) How are the domestic sellers and buyers of a good affected if a country starts exporting the good?
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Chapter 9: Externalities and Public Goods
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Sample Questions
Q1) Which of the following results in a positive externality?
A) Going to the beach
B) Recycling waste
C) Buying a room heater
D) Following a healthy lifestyle
Q2) Which of the following is a market-based alternative to the Kansas state government's approach to reduce earthquakes as described in the textbook?
A) Impose a tax according to the amount of saltwater injected
B) Impose a tax according to the number of earthquakes
C) Pay a subsidy to homeowners whose houses are damaged by earthquakes
D) Pay a subsidy to oil companies to develop an extraction technology that requires less saltwater
Q3) Which of the following occurs when an externality is internalized?
A) An increase in social well-being
B) An increase in private benefit
C) An increase in deadweight loss
D) An increase in returns to scale
Q4) Why are public goods non-rival in consumption? Explain with a real-world example.
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Chapter 10: The Government in the Economy: Taxation and Regulation
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Sample Questions
Q1) Refer to the scenario above.Which policy allows the most consumer sovereignty?
A) 1
B) 2
C) 3
D) 1 or 2
Q2) Refer to the figure above.If the $1.50 tax is collected from the producers of this good,the deadweight loss of this taxation will be ________.
A) $0.25
B) $0.75
C) $1.50
D) $2
Q3) The government of Lithusia has set a minimum wage for factory workers.This will lead to an ________ if the minimum wage is above the current market wage.
A) increase in total surplus
B) increase in the number of workers supplied
C) excess demand for workers
D) increase in income inequality
Q4) What are transfer payments? Give two examples.
Q5) Why are private enterprises more efficient than government enterprises?
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Chapter 11: Markets for Factors of Production
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Sample Questions
Q1) Refer to the scenario above.If in equilibrium the wage in X is greater than the wage in Y,what can explain this wage difference?
A) Differences in human capital
B) Differences in compensating wages
C) Taste-based discrimination
D) Statistical discrimination
Q2) Refer to the figure above.If the price of the output is $3.00 per unit and the wage is $9.00 per worker,the firm's optimal choice in the short run is to hire ________ workers.
A) 3
B) 4
C) 5
D) 6
Q3) Which of the following statements is true?
A) Firm-specific training results in losses to a worker.
B) Firm-specific training results in losses to a worker's employer.
C) A worker is more likely to pay for firm-specific training than for general training.
D) A worker is more likely to pay for general training than for firm-specific training.
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Chapter 12: Monopoly
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Sample Questions
Q1) Refer to the figure above.If the industry were perfectly competitive (marginal cost pricing)rather than a monopoly,social surplus would be ________.
A) Areas A + B + C + D + E
B) Areas A + B + C + D
C) Areas A + B + C
D) Areas A + C
Q2) As a firm increases its output,its average total cost decreases.This is an outcome of ________.
A) the law of demand
B) economies of scale
C) diseconomies of scale
D) the law of diminishing returns
Q3) Refer to the scenario above.Tobac Co.'s total revenue is maximized when it sells ________ packs of cigarettes at ________ per pack.
A) 150 million; $2.00
B) 125 million; $3.00
C) 100 million; $4.00
D) 75 million; $5.00
Q4) What are the problems associated with price regulation?
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Chapter 13: Game Theory and Strategic Play
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Sample Questions
Q1) How does a dominant strategy equilibrium occur in a simultaneous-move game?
Q2) Refer to the scenario above.What should be the value of b?
A) 7 days' worth of meat
B) 4 days' worth of meat
C) 1 days' worth of meat
D) no meat
Q3) Refer to the scenario above.Which of the following strategy combinations denotes the dominant strategy equilibrium in this case?
A) (Bribe, Bribe)
B) (Bribe, Do not bribe)
C) (Do not bribe, Bribe)
D) (Do not bribe, Do not bribe)
Q4) Refer to the scenario above.If this game is repeated several times,and reputational considerations are taken into account,Beth will ________ Charles and Charles will ________ every time.
A) not trust; defect
B) trust; defect
C) trust; cooperate
D) not trust; cooperate
Q5) What does the term "commitment" refer to in game theory?
Page 15
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Chapter 14: Oligopoly and Monopolistic Competition
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Q1) Which of the following happens when new firms enter a monopolistically competitive market structure?
A) The existing firms face higher demand.
B) The existing firms face relatively inelastic demand curves.
C) The existing firms earn higher profits.
D) The existing firms earn lower profits.
Q2) There are a few ship manufacturers in Polonia,and each firm faces a downward-sloping demand curve.The ship-building industry in Polonia will fall under a(n)________ market structure.
A) perfectly competitive
B) monopolistically competitive
C) monopoly
D) oligopoly
Q3) A monopolistically competitive firm always faces a(n)________.
A) horizontal demand curve
B) vertical demand curve
C) upward-sloping demand curve
D) downward-sloping demand curve
Q4) What are the possible benefits of collusion to a firm?
Q5) When is the Department of Justice less likely to allow a merger?
Page 16
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Chapter 15: Trade-Offs Involving Time and Risk
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Sample Questions
Q1) Refer to the scenario above.If you lend $30,000 to your friend for 30 years,you will receive ________ when she repays the amount after 30 years.
A) $552,604.62
B) $523,482.07
C) $1,521,725.58
D) $3,620,025.01
Q2) Refer to the scenario above.What is the net present value of his friend's project?
A) $459.32
B) $666.21
C) $534.66
D) $616.21
Q3) Refer to the scenario above.What will be the difference between the future values of John's deposit and Wendy's deposit after 3 years?
A) $56.04
B) $112.26
C) $208.03
D) $439.15
Q4) Why do preference reversals occur?
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Chapter 16: The Economics of Information
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Q1) The function of the agent in a principal-agent relationship is to ________.
A) ensure an efficient allocation of public goods and services in an economy
B) perform tasks for the principal
C) implement plans to mitigate the problem of moral hazard
D) provide appropriate incentives to the principal
Q2) Which of the following is a market-based solution to the problem of adverse selection?
A) Corrective taxes
B) Signaling
C) Hedging
D) Corrective subsidies
Q3) Company A and Company B are two car insurance companies in a city.Company A pays 100 percent of the money required for repair in case of an accident,while Company B pays 70 percent of the total money required.A research agency has found that Company A's customers have more accidents.Which of the following explains this difference?
A) Moral hazard
B) Adverse selection
C) The presence of positive externalities
D) The presence of negative externalities
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Chapter 17: Auctions and Bargaining
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Q1) Explain why the dominant strategy equilibrium in an English auction is also the Nash equilibrium.
Q2) What are the different types of auctions based on how the price of the item being auctioned is determined?
Q3) In general,it is common for goods with ________ to be auctioned.
A) low prices
B) relatively few buyers
C) a large number of buyers
D) a large number of sellers
Q4) Refer to the scenario above.The seller will earn a revenue of ________.
A) $45,000
B) $40,500
C) $5,000
D) $4,500
Q5) The winner in a first-price auction pays an amount equal to ________.
A) his bid
B) the second-highest bid
C) half of his bid
D) the lowest bid
Q6) What is the difference between the two types of sealed bid auctions?
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Chapter 18: Social Economics
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Sample Questions
Q1) Refer to the scenario above.If Mary prefers more money to less,________.
A) she will not accept any offer that Beth makes
B) she will accept any offer that Beth makes
C) she will accept the offer only if Beth offers her $2,500
D) she will accept the offer only if Beth offers her $5,000
Q2) Why do individuals decide to herd?
Q3) Refer to the scenario above.You should use ________ to make your decision.
A) backward induction
B) forward induction
C) mixed strategies
D) your dominant strategy
Q4) Refer to the scenario above.Tom should use ________ to play this game.
A) backward induction
B) forward induction
C) mixed strategies
D) his dominant strategy
Q5) When does the second player in an ultimatum game reject the offer made by the first player?
Q6) What role does information cascade play in job interviews?
Q7) Why do people donate less when it is costlier to give?
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