Principles of Microeconomics Exam Preparation Guide
Course
Introduction
Principles of Microeconomics introduces students to the fundamental concepts, theories, and analytical tools used to study the behavior of individuals, households, and firms in making decisions about the allocation of limited resources. Topics include supply and demand, market equilibrium, elasticity, consumer and producer behavior, market structures, and the role of government in the economy. Through real-world examples and problem-solving, the course equips students with a foundational understanding of how markets function and the economic forces that shape their daily lives.
Recommended Textbook
ECON MICRO 5th Edition by William
A. McEachern
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21 Chapters
3187 Verified Questions
3187 Flashcards
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Which of the following is the fundamental resource that is the basis of labor?
A)Capital
B)Natural resources
C)Time
D)Money
E)Entrepreneurial ability
Answer: C
Q2) Behavioral assumptions:
A)make economic models more complex than if these assumptions were removed.
B)pertain only to consumers.
C)hold all other things constant.
D)are ways to test a hypothesis.
E)describe how individuals are expected to behave.
Answer: E
Q3) Profit is the payment made for land resources.
A)True
B)False
Answer: False
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3
Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) An economic system:
A)must answer the three economic questions to the satisfaction of everyone in society.
B)must not allow some members of society to gain an unfair advantage when answering the three economic questions.
C)must choose pure capitalism to adequately answer the three economic questions.
D)is a set of social institutions and mechanisms organized to answer society's three primary economic questions.
E)can address problems of scarcity only by embracing the social institution of private property.
Answer: D
Q2) It is possible for one person to have a comparative advantage in the production of all products.
A)True
B)False
Answer: False
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Private goods are excludable and nonrival in consumption.
A)True
B)False Answer: False
Q2) It is difficult to exclude individuals from the use of public goods and services.
A)True
B)False Answer: True
Q3) You own stock worth an estimated $1 million in the LPL Corporation. In addition, you have personal assets worth another $2 million. LPL becomes insolvent, with debts exceeding assets by $15 million. Your personal wealth will decline by:
A)$0.
B)$1 million.
C)$1.5 million.
D)$3 million.
E)your proportion of the total outstanding stock shares times $15 million. Answer: B
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Chapter 4: Demand, Supply, and Markets
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Q1) A new cattle feed has been found to increase the amount of milk each cow produces. Which of these is a likely impact in the market for milk, if this cattle feed is used by most of the dairies?
A)A rightward shift of the supply curve for milk
B)A leftward shift of the supply curve for milk
C)An increase in the price of milk
D)An increase in the demand for milk
E)A decrease in the quantity demanded of milk
Q2) Disequilibrium occurs due to the absence of government intervention in certain markets.
A)True
B)False
Q3) Suppose a market is in equilibrium. If a price ceiling is set by the government below the equilibrium price, which of the following is most likely to happen?
A)A decline in quantity demanded
B)A surplus
C)A shortage
D)An increase in the quantity being sold
E)A new equilibrium
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Chapter 5: Elasticity of Demand and Supply
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Sample Questions
Q1) Luis wonders why commercials appear more frequently at the end of a TV movie than at the beginning. Carol says that this pattern can be explained by the:
A)amount of time Luis spends watching TV.
B)length of the adjustment period.
C)cost of supplying additional minutes of the movie.
D)high elasticity of demand for watching the end of a TV movie.
E)availability of substitutes for the TV movie.
Q2) Any supply curve that is a straight line passing through the graph's origin is unit elastic.
A)True
B)False
Q3) As price decreases along a linear demand curve, the price elasticity of demand decreases.
A)True
B)False
Q4) Cross-price elasticity measures the responsiveness of the price of good A to a change in the price of good B.
A)True
B)False
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Chapter 6: Consumer Choice and Demand
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Sample Questions
Q1) Which of the following illustrates the law of diminishing marginal utility?
A)The marginal utility of Diane's second Coke is greater than the marginal utility of her third pretzel, other things constant.
B)The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third pretzel, other things constant.
C)The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant.
D)The total utility of one Coke is greater than the total utility of two Cokes, other things constant.
E)The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third Coke, other things constant.
Q2) "I don't feel so good; I shouldn't have had that last doughnut." Which of the following supports this statement?
A)The marginal utility of the last doughnut was positive.
B)The marginal utility of doughnuts is still increasing.
C)The total utility from eating doughnuts is negative.
D)The marginal utility of the last doughnut was negative.
E)The marginal utility of the next doughnut will be positive.
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Chapter 7: Production and Cost in the Firm
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Sample Questions
Q1) Cash payments for steel to be used in the production process would be an example of _____.
A)sunk costs
B)fixed costs
C)explicit costs
D)implicit costs
E)entrepreneurial costs
Q2) Which economic concept explains why a large drugstore chain can produce at a lower average cost than Whoville Pharmacy, an individually owned drugstore?
A)Increasing marginal returns
B)Diminishing marginal returns
C)Economies of scale
D)Diseconomies of scale
E)Constant returns to scale
Q3) When marginal cost is decreasing, total cost is rising.
A)True
B)False
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Chapter 8: Perfect Competition
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Sample Questions
Q1) In perfect competition, no firm can earn a normal profit In the long run.
A)True
B)False
Q2) Which of the following is true of a perfectly competitive market?
A)Firms experience constant returns to scale.
B)Firms face significant barriers to entry.
C)Firms experience decreasing returns to scale.
D)Each firm chooses the price at which it wants to sell its product.
E)Each seller supplies only a small fraction of the total amount in a market.
Q3) A firm said to be is productively efficient if, _____.
A)it produces its output at the lowest possible cost
B)it sells its product at the lowest possible price
C)it earns a positive economic profit
D)it produces what consumers demand
E)it earns a normal profit in the short run
Q4) Marginal revenue is the change in total revenue from using one more unit of an input in the short run.
A)True
B)False
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Chapter 9: Monopoly
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Sample Questions
Q1) Gilligan runs the only dry-cleaning business on a desert isle. If the cost of cleaning fluid falls, he can increase profit by:
A)accepting less dry-clean orders.
B)charging the highest price he can.
C)using less cleaning fluid.
D)lowering price.
E)charging a price that is equal to marginal cost.
Q2) Unlike perfectly competitive firms, monopolists:
A)earn positive short-run economic profit even if price is less than average variable cost at all rates of output.
B)sell any quantity of output at any price they choose.
C)earn long-run economic profits.
D)reduce the sales of firms in other industries through advertising.
E)face a perfectly elastic demand curve.
Q3) Average revenue, demand, and price are all depicted by the same curve for a monopoly.
A)True
B)False
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The tit-for-tat strategy implies that firms:
A)will ignore the strategy of the dominant firm if it involves decreases in prices.
B)will follow the lead of the dominant firm in making pricing decisions.
C)will change the price of their products whenever fixed cost changes.
D)cooperate on the first round and then follow the competitor's reactions in the second round.
E)will change the price of their products only if demand changes.
Q2) If there occurs a permanent decrease in the demand for convenience store services, _____ in the long run
A)each store will incur economic loss
B)the price charged by each store will increase
C)there will be a decrease in the number of such stores
D)there will be an increase in the number of such stores
E)each store will earn economic profit
Q3) Firms may easily enter a monopolistically competitive market.
A)True
B)False
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Chapter 11: Resource Markets
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Sample Questions
Q1) Suppose 15 workers produce 100 license plates, 16 workers produce 120 license plates, and 17 workers produce 130 license plates. Identify the correct statement.
A)Diminishing marginal returns have not set in because the marginal product is positive.
B)The marginal product of the seventeenth worker is 130.
C)Diminishing marginal returns must begin with the sixteenth worker.
D)The marginal product of the sixteenth worker is greater than the marginal product of the seventeenth worker.
E)The marginal product of the fifteenth worker must be 20.
Q2) Suppose the marginal resource cost of the tenth worker hired by a firm is $4 and the wage of the tenth worker is $3. The firm will hire ten workers if the marginal revenue product of the tenth worker is _____.
A)$1
B)less than $3
C)greater than or equal to $3
D)greater than or equal to $4
E)less than $4
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Chapter 12: Labor Markets and Labor Unions
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Sample Questions
Q1) If the substitution effect is always greater than the income effect, then an individual's labor supply curve will _____.
A)bend backward
B)always have a positive slope
C)always have a negative slope
D)be vertical
E)be horizontal
Q2) If Dian chooses a job with a lower income over one with a higher income, she cannot be maximizing utility.
A)True
B)False
Q3) The quantity of labor an individual supplies to the labor market:
A)always increases as the market wage rate rises.
B)is contingent upon the wage rate offered in the labor markets.
C)always decreases as the market wage rate rises.
D)could never be zero over the realistic range of wage rates.
E)depends only on the opportunity cost of the individual's time in other labor markets.
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Chapter 13: Capital, Interest, Entrepreneurship, and Corporate Finance
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Sample Questions
Q1) A firm's demand curve for investment is its:
A)expected annual earnings curve.
B)marginal product curve.
C)marginal revenue curve.
D)expected rate of return on investment curve.
E)supply of loanable funds curve.
Q2) An increase in the interest rate tends to increase the demand for loanable funds.
A)True
B)False
Q3) Which of the following does not affect the interest rate on a loan?
A)The retirement plans of a borrower
B)The duration of the loan
C)The tax treatment of the loan
D)The administrative cost of the loan
E)The risk of default on the loan
Q4) The present value of an annuity that pays $100 each year indefinitely is $2,000 if the interest rate is 5 percent.
A)True
B)False
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Chapter 14: Transaction Costs, Asymmetric Information, and Behavioral Economics
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Sample Questions
Q1) If the minimum efficient scale in microwave oven production is 100,000 units per year, it implies that:
A)the average cost of producing 50,000 microwave ovens is greater than the average cost of producing 100,000.
B)the average cost of producing 50,000 microwave ovens is equal to the average cost of producing 100,000.
C)the total cost of producing 50,000 microwave ovens is greater than the total cost of producing 100,000.
D)the firm should not produce more than 50,000 microwave ovens.
E)marginal cost exceeds average cost at 100,000 microwave ovens.
Q2) Imperfect information among the potential bidders of a cable TV franchise results in a final bid that is more than the market value of a franchise. This situation is an example of:
A)moral hazard.
B)an authority relation.
C)the winner's curse.
D)the principal-agent problem.
E)adverse selection.
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Chapter 15: Economic Regulation and Antitrust Policy
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Sample Questions
Q1) Which of the following led to an increase in competition in the United States between 1958 and 1988?
A)An increase in exports
B)A regulated economy
C)Ill-defined antitrust policy
D)Import quotas implemented by the government
E)An increase in imports
Q2) According to William Shepherd's examination of competitive trends in the U.S. economy, a dominant firm:
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) The Herfindahl index is the sum of the squared market shares of the four largest firms in an industry.
A)True
B)False
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Chapter 16: Public Goods and Public Choice
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Sample Questions
Q1) Public choice theory suggests that political candidates try to get elected by:
A)appealing to conservatives.
B)appealing to liberals.
C)appealing to senior citizens.
D)appealing to the median voter.
E)lowering taxes.
Q2) Bureaus are:
A)special-interest groups that try to influence legislators.
B)government agencies whose activities are financed by appropriations from legislative bodies.
C)competing-interest groups that battle federal agencies.
D)collections of legislators who actively engage in logrolling.
E)elected officials who try to maximize their political support by appealing to the median voter.
Q3) _____ are the true owners of government bureaus.
A)Banks
B)Taxpayers
C)Government officials
D)Politicians
E)Retirees
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Chapter 17: Externalities and the Environment
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Q1) Education confers positive externalities because:
A)some education is done outside the market.
B)curricula are regulated by the government, even in private schools.
C)an educated person consuming education gains many personal benefits.
D)an educated person behaves in a way that benefits others.
E)education gives benefits to individuals in excess of the costs they pay to get it.
Q2) If the benefits to society of students attending college exceed the benefits to the students, then:
A)higher education should be strictly regulated.
B)higher education should be taxed.
C)higher education provides a positive externality.
D)higher education is overproduced at the privately determined equilibrium.
E)higher education provides a negative externality.
Q3) Smokers and loud talkers help in generating positive externalities.
A)True
B)False
Q4) Markets tend to underproduce goods that generate positive externalities.
A)True
B)False
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Chapter 18: Poverty and Redistribution
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Q1) On an average, college graduates earn significantly more income than those with less education and the disparity tends to widen into middle age.
A)True
B)False
Q2) When an economy experiences high rates of economic growth and the growth is inclusive is nature, _____.
A)the number of families in the bottom 10 percent of the income distribution is likely to decrease
B)the income of the families in the bottom of the income distribution is likely to increase C)only the income of the families in the top of the income distribution is affected
D)the accompanying inflation cancels out any change in income distribution
E)the rich are no better off because taxes rise with income
Q3) Since 1970, the number of African-American professionals (e.g., doctors, lawyers) in the labor force has increased dramatically.
A)True
B)False
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Chapter 19: International Trade
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Sample Questions
Q1) The World Trade Organization (WTO):
A)became, in 1995, the institutionalized and more comprehensive successor to the General Agreement on Tariffs and Trade (GATT).
B)was established in 1947 by 23 member countries to reduce trade restrictions.
C)was established in 1980 to oppose and counteract the policies of the General Agreement on Tariffs and Trade (GATT).
D)meets in different countries every few years to analyze each country's trade policies and restrictions.
E)was based on an international treaty that expired in 1990.
Q2) International trade equalizes the opportunity cost of producing any good around the world.
A)True
B)False
Q3) An import quota is a tax on imports.
A)True
B)False
Q4) U.S. consumers would be better off if they bought only U.S.-produced goods.
A)True
B)False
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Chapter 20: International Finance
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Q1) A rightward shift of the Mexican demand curve for U.S. dollars will:
A)decrease the price of dollars in terms of pesos.
B)increase the value of pesos relative to dollars.
C)make American goods less expensive in terms of pesos.
D)make American goods more expensive in terms of pesos.
E)make Mexican goods more expensive in terms of dollars.
Q2) Which of the following contributed to the collapse of the Bretton Woods system?
A)Chronic U.S. trade surpluses
B)Fixed exchange rates
C)An insufficient gold supply
D)West Germany allowing the dollar to float against the mark
E)West Germany not wanting the dollar to appreciate
Q3) Between 1917 and 1982, U.S. ran a financial account deficit.
A)True
B)False
Q4) Under the gold standard, each country had little control over its own monetary policies.
A)True
B)False
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Chapter 21: Economic Development
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Sample Questions
Q1) The bulk of exports from developed countries consists of:
A)manufactured goods.
B)education and technology.
C)agricultural products.
D)raw materials.
E)services like banking and insurance.
Q2) According to _____, developing countries can grow faster than developed countries and should be able to eventually close the gap between them.
A)the integration theory
B)the convergence theory
C)the confluence theory
D)the merger theory
E)game theory
Q3) The practice of financing a large fraction of public outlay by printing money leads to deflation.
A)True
B)False
Q4) Wages are high in poor countries because businesses are run efficiently.
A)True
B)False
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