Principles of Microeconomics
Exam Questions
Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools used to understand how individuals, households, and firms make decisions in a market economy. The course covers topics such as supply and demand, market equilibrium, elasticity, consumer behavior, production and costs, different market structures (including perfect competition, monopoly, and oligopoly), and the role of government in addressing market failures. Emphasis is placed on applying economic reasoning to real-world problems and policy issues, helping students develop a foundational understanding of how microeconomic forces shape everyday economic interactions and outcomes.
Recommended Textbook
Microeconomics 3rd Australian Edition by Glenn Hubbard
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16 Chapters
3350 Verified Questions
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) A university must decide if it wants to offer more Internet-based classes.This decision involves answering the economic question of 'what to produce.'
A)True
B)False
Answer: True
Q2) Marginal analysis involves undertaking an activity
A)until its marginal costs start declining.
B)only when its marginal benefits are positive.
C)until its marginal benefits equal marginal costs.
D)only if its marginal costs are greater than its marginal benefits. Answer: C
Q3) What is the difference between positive economic analysis and normative economic analysis? Give one example each of a positive and normative economic issue or question or statement.
Answer: Positive economic analysis is concerned with what is.Positive economic analysis reaches conclusions based on verifiable statements.Normative economic analysis,on the other hand,is concerned with what ought to be.Normative analysis reaches conclusions based on opinions.(Students will give many different examples. )
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Chapter 2: Choices and Trade-Offs in the Market
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Sample Questions
Q1) In economics,the term 'free market' refers to a market where products are traded but not sold.
A)True
B)False
Answer: False
Q2) What is the difference between product markets and factor markets?
Answer: Product markets are markets for goods and services.Factor markets are markets for the factors of production,which are the inputs used to make goods and services.
Q3) It is possible to have an absolute advantage in producing a good or service without having a comparative advantage.
A)True
B)False
Answer: True
Q4) The attainable production points on a production possibility curve are
A)the horizontal and vertical intercepts.
B)the points along the production possibility frontier.
C)the points outside the area enclosed by the production possibility frontier.
D)the points along and inside the production possibility frontier.
Answer: D
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?
A)a decrease in the price of flour
B)an increase in the price of flour
C)an increase in the price of rye bread,a substitute for white bread
D)an increase in the price of butter,a complement for white bread
Answer: A
Q2) If the demand for a product increases and the supply of the product does not change,equilibrium price and equilibrium quantity will both increase.
A)True
B)False
Answer: True
Q3) The income effect of a price change refers to the impact of a change in
A)income on the price of a good.
B)demand when income changes.
C)the quantity demanded when income changes.
D)the price of a good on a consumer's purchasing power.
Answer: D
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Chapter 4: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) The most important determinant of the price elasticity of demand for a good is
A)the definition of the market for a good.
B)the availability of substitutes for the good.
C)the share of the good in the consumer's budget.
D)whether the good is a necessity or a luxury.
Q2) If a 6 per cent increase in income leads to a 4 per cent increase in quantity demanded for audio books the income elasticity of demand is
A)-0.67.
B)0.67.
C)1.5.
D)2.
Q3) If,for a given percentage decrease in price,quantity supplied decreases by a proportionately smaller percentage,then supply is A)unit-elastic.
B)perfectly elastic.
C)relatively inelastic.
D)elastic.
Q4) What factors would make you more sensitive or less sensitive to price when purchasing petrol?
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Chapter 5: Economic Efficiency, Government Price Setting and Taxes
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Sample Questions
Q1) If equilibrium is achieved in a competitive market,
A)there is no deadweight loss.
B)the deadweight loss will be maximised.
C)the deadweight loss will equal the sum of consumer surplus and producer surplus.
D)the deadweight loss will be the same as the opportunity cost of the last unit of output sold.
Q2) A minimum wage law dictates
A)the minimum quantity of labour that a firm must employ.
B)the lowest wage that firms may pay for labour.
C)the highest wage that firms must pay for labour.
D)the minimum qualifications for labour.
Q3) If the quantity of sunglasses supplied is represented by the equation Q<sub>S</sub> = -60 + 4P,then the corresponding price of sunglasses is represented by the equation
A)P = 0.25Q<sub>S</sub> + 15.
B)P = 15Q<sub>S</sub> + 240.
C)P = Q<sub>S</sub> - 7.5.
D)P = 12 - 0.4Q<sub>S</sub>.
Q4) What is economic surplus? When is economic surplus at a maximum?
Page 7
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Chapter 6: Consumer Choice and Behavioural Economics
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Sample Questions
Q1) The income effect of a price increase causes a decrease in the quantity demanded of a normal good.
A)True
B)False
Q2) A consumer's utility-maximising combination of goods is given by the bundle that corresponds to the highest point on his indifference curve.
A)True
B)False
Q3) Which of the following is held constant along an indifference curve?
A)the prices of the goods in question
B)the marginal rate of substitution between the two goods in question
C)the marginal utility derived from consuming any bundle of goods on the indifference curve
D)the total utility derived from consuming any bundle of goods on the indifference curve
Q4) Total utility is constant along a given indifference curve.
A)True
B)False
Q5) What is marginal utility and what is the law of diminishing marginal utility?
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Chapter 7: Technology, Production and Costs
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Sample Questions
Q1) The absolute value of the slope of an isocost line equals the ratio of
A)the marginal productivities of the two inputs.
B)the prices of the two inputs.
C)the marginal utilities of the two inputs.
D)the quantities of the two inputs.
Q2) Refer to Figure 7-13.The lines shown in the diagram are isocost lines.Which of the following shows a decrease in the price of capital while the price of labour remains unchanged?
A)the movement from AF to BF
B)the movement from BF to AF
C)the movement from BF to BD
D)the movement from BF to CE
Q3) Refer to Figure 7-2.The curve labeled 'F' is
A)the total product curve.
B)the average product curve.
C)the marginal product curve.
D)the output supply curve.
Q4) In economics,what is the difference between the short run and the long run?
Q5) What is the difference between between total costs,variable costs,and fixed costs?
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Chapter 8: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) If total variable cost exceeds total revenue at all output levels,a perfectly competitive firm
A)should produce in the short run.
B)is making short-run profits.
C)should shut down in the short run.
D)has covered its fixed cost.
Q2) Refer to Figure 8-13.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?
A)Panel A
B)Panel B
C)Panel C
D)Panel D
Q3) Which of the following is the best example of a perfectly competitive industry?
A)wheat production
B)steel production
C)electricity production
D)airplane production
Q4) What is meant by the term 'long-run competitive equilibrium'?
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Chapter 9: Monopoly Markets
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Sample Questions
Q1) Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.As a result of this change
A)Price will be higher,output will be lower and the deadweight loss will be eliminated.
B)Consumer surplus will be smaller,producer surplus will be greater and there will be a reduction in economic efficiency.
C)Price will be higher,consumer surplus will be greater and output will be greater.
D)Consumer surplus will be smaller and producer surplus will be greater.There will be a net increase in economic surplus.
Q2) A monopolist faces
A)a perfectly elastic demand curve.
B)a perfectly inelastic demand curve.
C)a horizontal demand curve.
D)a downward-sloping demand curve.
Q3) What is yield management? How is yield management being used in the airline industry?
Q4) What is a monopoly? Can a firm be a monopoly if close substitutes for its product exists?
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Chapter 10: Monopolistic Competition
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Sample Questions
Q1) Why are many companies concerned about brand management?
Q2) When a monopolistically competitive firm breaks even in the long run,this is equivalent to earning a zero accounting profit.
A)True
B)False
Q3) Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?
Q4) For a monopolistically competitive firm,marginal revenue
A)equals the price.
B)is greater than the price.
C)is less than the price.
D)and price are unrelated.
Q5) In the long-run equilibrium,both the perfectly competitive firm and the monopolistically competitive firm produce the output at which MR = MC and charge a price equal to the average total cost of production.
A)True
B)False
Q6) What is the difference between zero accounting profit and zero economic profit?
Page 12
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Chapter 11: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) In economics,the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called
A)decision theory.
B)game theory.
C)market structure analysis.
D)profit analysis.
Q2) Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.
Q3) A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.
A)True
B)False
Q4) A dominant strategy
A)is one that is the best for a firm,no matter what strategies other firms use.
B)is one that a firm is forced into following by government policy.
C)involves colluding with rivals to maximise joint profits.
D)involves deciding what to do after all rivals have chosen their own strategies.
Q5) What is the difference between explicit collusion and implicit collusion?
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Chapter 12: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) For a firm that is a price taker in the market for labour,the marginal revenue product of labour equals the
A)marginal product of labour multiplied by the wage rate.
B)marginal product of labour multiplied by the product price.
C)marginal product of labour divided by the wage rate.
D)marginal product of labour multiplied by the marginal cost of production.
Q2) The marginal product of labour curve is the demand curve for labour.
A)True
B)False
Q3) Consider the market for opticians.What is likely to happen to the equilibrium wage and quantity of opticians if more and more people turn to laser eye surgery instead of wearing glasses or contact lens?
A)The equilibrium wage and the equilibrium quantity of opticians rise.
B)The equilibrium wage and the equilibrium quantity of opticians fall.
C)The equilibrium wage rises and the equilibrium quantity of opticians falls.
D)The equilibrium wage falls and the equilibrium quantity of opticians rises.
Q4) What is the substitution effect of a wage increase? What is the income effect of a wage increase? Under what conditions will a worker's labour supply curve become downward sloping?
Page 14
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Chapter 13: International Trade
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Sample Questions
Q1) Refer to Table 13-2.Select the statement that accurately interprets the data in the table.
A)Sarita has a comparative advantage in baking pies.
B)Gabriel has an absolute advantage in baking cakes.
C)Gabriel has a comparative advantage in baking pies.
D)Gabriel has a comparative advantage in baking pies and baking cakes.
Q2) Under autarky,consumer surplus is represented by the area
A)above the supply curve and below the equilibrium price.
B)above the supply curve and below the demand curve.
C)below the demand curve and above the equilibrium price.
D)above the demand curve and below the supply curve.
Q3) Trade between countries that is without restrictions is called
A)unobstructed commerce.
B)unabated trade.
C)free trade.
D)unencumbered trade.
Q4) Jobs lost to foreign trade are generally easy to identify,but jobs created by foreign trade are generally less easy to identify.
A)True
B)False
Page 15
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) Refer to Figure 14-2.How much is Amit willing to pay to have 4 street lights installed?
A)$3600
B)$2700
C)$1800
D)$900
Q2) Which of the following is a disadvantage of trademarking a firm's product?
A)A trademark differentiates a firm's product.
B)A trademark conveys information about the product to the public.
C)A trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name.
D)A trademark does not affect demand for the firm's product.
Q3) Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.
A)True
B)False
Q4) What is rent seeking and how is it related to regulatory capture?
Q5) What is adverse selection?
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Chapter 15: Externalities, Environmental Policy and Public Goods
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Sample Questions
Q1) Pollution is an example of a A)public good.
B)positive externality.
C)private cost.
D)negative externality.
Q2) When production generates a negative externality,the true cost of production is the A)private cost of production.
B)public cost of production.
C)social cost of production.
D)average cost of production.
Q3) For the Coase theorem to work,there must be clear assignment of property rights. A)True
B)False
Q4) Refer to Figure 15-2.The marginal benefit of the last unit produced is represented by the price
A)P<sub>a</sub><sub>.</sub>
B)P<sub>b</sub><sub>.</sub>
C)P<sub>c</sub><sub>.</sub>
D)P<sub>f</sub><sub>.</sub>
Page 17
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) A tax bracket is
A)the per cent of taxable income paid in taxes at a specific income bracket.
B)the income range within which a particular tax rate applies.
C)the type of tax structure for which a range of taxes applies.
D)the range,from the high to the low tax rate,of a particular type of tax.
Q2) Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,the government's revenue from the tax is represented by the area
A)(P<sub>a</sub>P<sub>c</sub><sub> </sub>× Q<sub>a</sub>)if the supply curve is S<sub>0</sub> and (P<sub>b</sub>P<sub>c</sub><sub> </sub>× Q<sub>b</sub>)if the supply curve is S<sub>1</sub>.
B)(P<sub>a</sub>P<sub>d</sub><sub> </sub>× Q<sub>a</sub>)if the supply curve is S<sub>0</sub> and (P<sub>b</sub>P<sub>e</sub><sub> </sub>× Q<sub>b</sub>)if the supply curve is S<sub>1</sub>.
C)(P<sub>a</sub>P<sub>e</sub> × Q<sub>a</sub>)under either supply curve.
D)(P<sub>b</sub>P<sub>e</sub> × Q<sub>b</sub>)under either supply curve.
Q3) The person or firm that pays a tax bears the burden of the tax.
A)True
B)False
Q4) What is a Lorenz curve and what is a Gini coefficient?
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