Principles of Microeconomics
Exam Questions
Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and tools of economic analysis at the individual and firm level. The course explores how markets function, how consumers and producers make decisions, and how government policies can affect outcomes in various markets. Topics include supply and demand, elasticity, consumer behavior, production and costs, market structures such as perfect competition and monopoly, and the impact of government regulation. Emphasis is placed on developing analytical skills to understand real-world economic issues and to evaluate public policy.
Recommended Textbook
ECON Micro 2 2nd Edition by William A. McEachern
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21 Chapters
3947 Verified Questions
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Jackson is a manager at the local 'Two-minute Bank'.He wants to extend the bank's operating hours by 3 more hours,but he'll have to hire one more bank teller.Jackson estimates the benefits from keeping the bank opened longer hours to be $1,200 per week,and he'll have to pay the new bank teller $1,700 per week.Should Jackson hire the additional bank teller? Why?
A) Jackson should not hire the additional bank teller because the expected profit is only $500 per week.
B) Jackson should not hire the additional bank teller because the expected additional benefits are greater than the expected additional costs.
C) Jackson should hire the additional bank teller because the expected additional benefits are lower than the expected additional costs.
D) Jackson should hire the additional bank teller because the expected additional benefits are greater than the expected additional costs.
E) Jackson should not hire the additional bank teller because the expected additional benefits are lower than the expected additional costs.
Answer: E
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Chapter 2: Economic Tools and Economics Systems
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Sample Questions
Q1) Eileen has a comparative advantage over Jan in piano tuning but not in shoe polishing.Therefore,
A) Jan must have an absolute advantage in piano tuning
B) Eileen must have an absolute advantage in shoe polishing
C) Jan must have a lower opportunity cost of shoe polishing
D) Eileen must have an absolute advantage in shoe polishing and in piano tuning
E) Eileen must have an absolute advantage in piano tuning
Answer: C
Q2) On a production possibilities frontier,the opportunity cost of one more unit of a commodity per time period is measured by the
A) monetary price of the commodity
B) amount of the other commodity that must be sacrificed
C) amount of unemployed resources that must be used
D) amount of satisfaction it gives consumers
E) amount of tax paid to government for production,sale,and use of the commodity
Answer: B
Q3) It is impossible for one person to have a comparative advantage in all tasks.
A)True
B)False
Answer: True
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Under a regressive income tax system,individuals with higher incomes pay higher marginal tax rates.
A)True
B)False
Answer: False
Q2) Households act as demanders when they demand
A) that corporate executives and government officials be held accountable for their actions
B) dividends from the stocks they hold
C) interest and capital gains from the bonds they hold
D) goods and services from firms and the government
E) payment for the goods and services they sell to firms and governments
Answer: D
Q3) Which of the following is not a not-for-profit institution?
A) Columbia Broadcasting System (CBS)
B) American Red Cross
C) Salvation Army
D) a public library
E) a typical college or university
Answer: A
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Chapter 4: Demand, supply, and Markets
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Sample Questions
Q1) If the price of the good described in Exhibit 4-1 is $1.60,then an economist would expect the
A) price to decrease to $1.40
B) price to decrease to $1.50
C) quantity supplied to increase to 50 units
D) quantity demanded to increase to 80 units
E) quantity demanded to increase to 90 units
Q2) If a certain type of clothing becomes more fashionable,we would expect that its price
A) will decrease and quantity will remain constant
B) and quantity will both decrease
C) will increase and quantity will decrease
D) will decrease and quantity will increase
E) and quantity will both increase
Q3) A leftward shift of a supply curve represents a decrease in supply.
A)True B)False
Q4) A price ceiling set below the equilibrium price will result in a shortage.
A)True B)False
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Chapter 5: Elasticity of Demand and Supply
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Sample Questions
Q1) In Exhibit 5-5,what is the total revenue at point a?
A) $4
B) $5
C) $10
D) $50
E) $100
Q2) The more broadly a good is defined,
A) the more substitutes it has so the more elastic is its demand
B) the fewer substitutes it has so the more elastic is its demand
C) the more substitutes it has so the less elastic is its demand
D) the fewer substitutes it has so the less elastic is its demand
E) the more complements it has so the more elastic is its demand
Q3) Between points a and b on the demand curve in Exhibit 5-9,demand is
A) perfectly elastic
B) elastic
C) perfectly inelastic
D) inelastic
E) unit elastic
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Chapter 6: Consumer Choice and Demand
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Sample Questions
Q1) Economists assume people's tastes are
A) determined solely by advertising
B) relatively stable over time
C) quite variable
D) irrelevant to utility analysis
E) identical
Q2) "The second glass of Evian water was very good.May I have another?" Which of the following is necessarily true regarding this statement?
A) The marginal utility of the second glass is negative.
B) The marginal utility of the second glass is less than the marginal utility of the first glass.
C) The marginal utility of the second glass is positive.
D) The water is free.
E) The marginal utility of the third glass is negative.
Q3) In Exhibit 6-3,the marginal utility of consuming the fourth scone is
A) 4
B) 7
C) 6
D) 24
E) 2
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Chapter 7: Production and Cost in the Firm
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Sample Questions
Q1) As output increases,diseconomies of scale
A) lead to rising long-run average costs
B) lead to declining long-run average costs
C) lead to rising short-run average total costs
D) lead to declining short-run total cost
E) means the law of diminishing marginal returns is affecting production
Q2) If a firm experiencing "economies of scale" decreases its output,its long-run average cost will decrease.
A)True
B)False
Q3) A firm's long-run average cost curve is also called its
A) profit curve
B) explicit cost curve
C) opportunity cost curve
D) production curve
E) planning curve
Q4) In the long run,all of a firm's inputs are variable.
A)True
B)False
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Chapter 8: Perfect Competition
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Sample Questions
Q1) In the short run,a perfectly competitive firm suffering a loss
A) will close if P < AVC
B) will shut down operations if P < MC
C) cannot leave the industry even if P < AVC
D) can sell off all its resources to competitors
E) can raise the price to increase revenues
Q2) Exhibit 8-20 shows the cost schedule for 'No#2 widget factory'.We know that the market for widgets is perfectly competitive,and the widgets are selling for $10 each.If 'No#2 widget factory' sells 3 widgets,the total revenue is:
A) $10
B) $20
C) $30
D) $21
E) $50
Q3) When market exchange occurs voluntarily in a competitive market
A) choice incurs no opportunity cost
B) the sum of consumer surplus and producer surplus is maximized
C) both consumer surplus and producer surplus are eliminated
D) buyers benefit at the expense of producers
E) the exchange confers no net benefit to the participants
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Chapter 9: Amonopoly
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Sample Questions
Q1) In Exhibit 9-11,for a monopolist that does not price discriminate,consumer surplus at the profit-maximizing level of output is
A) the area under the demand curve bounded above a price of $136
B) the area under the demand curve bounded by average total cost of $110
C) the area under the marginal revenue curve bounded by a marginal revenue of $60
D) $0
E) equal to total consumer expenditure
Q2) In the long run,which of the following is not a problem for a monopolist earning economic profit?
A) other firms have an incentive to create substitutes for the monopolist's product
B) technological change tends to break down barriers to entry
C) patents expire,licenses must be renewed,and new sources of essential resources may be discovered
D) government often decides to regulate monopolies
E) all profit will gradually be converted to consumer surplus
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11
Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Suppose that a monopolistically competitive firm is in long-run equilibrium.The firm's demand curve is tangent to its average cost curve at Q = 25.Average cost is minimized at Q = 35,where average cost is $50.Which of the following is true?
A) This firm maximizes profit at an output level of 25 units.
B) This firm maximizes profit at an output level of 35 units.
C) This firm maximizes profit at an output level less than 25 units.
D) This firm maximizes profit at an output level greater than 35 units.
E) There is not enough information to find the firm's profit-maximizing level of output.
Q2) In Exhibit 10-1,the monopolistic competitor's total economic profit at the profit-maximizing level of output is
A) $0
B) $4
C) $600
D) $6
E) $750
Q3) The defining characteristic of oligopoly is product differentiation.
A)True
B)False
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Chapter 11: Resource Markets
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Sample Questions
Q1) The resource market is different from the product market because
A) in the resource market,firms don't maximize profit
B) in the resource market,households don't maximize utility
C) in the resource market,firms are demanders and households are suppliers
D) supply and demand do not apply in the resource market
E) supply and demand do not apply in the product market
Q2) In Exhibit 11-1,total earnings at equilibrium are represented by area
A) a
B) b
C) c
D) a + b
E) b + c
Q3) If a firm is using a resource hired in a perfectly competitive market,and if the marginal resource cost is less than its marginal revenue product,
A) more of the resource should be used
B) less of the resource should be used
C) the firm should pay a lower price for the resource
D) the firm should pay a higher price for the resource
E) the firm is using the optimal amount of the resource
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Page 13
Chapter 12: Labor Markets and Labor Unions
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Sample Questions
Q1) An increase in the wage rate will lead to a reduction in the quantity of labor supplied if
A) the substitution effect outweighs the income effect
B) the income effect outweighs the substitution effect
C) the opportunity costs of leisure do not increase
D) the opportunity costs of working always increase
E) workers are irrational because otherwise they would be violating the law of supply
Q2) Because of discrimination,which of the following have systematically earned less than others of equal ability?
A) only African-Americans
B) only Hispanics
C) only African-Americans and Hispanics
D) African-Americans,Hispanics,and women
E) only Hispanics and women
Q3) Unions can affect the demand for,but not the supply of,labor.
A)True
B)False
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Chapter 13: Capital, interest, and Corporate Finance
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Sample Questions
Q1) Most securities traded in the United States are
A) secondhand securities bought by individuals
B) secondhand securities bought by institutional investors
C) new securities bought by institutional investors
D) new securities bought by banks and insurance companies
E) new securities bought by individuals
Q2) Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying.Assume that any dough-mixing machine is expected to last indefinitely,that operating expenses are negligible,and that the price of donuts is expected to remain constant in the future.The marginal rate of return on the machine with the three-quart bowl is
A) 1 percent
B) 5 percent
C) 10 percent
D) 20 percent
E) 55 percent
Q3) A perpetuity is an annuity with a fixed term.
A)True
B)False
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Page 15
Chapter 14: Transaction Costs, imperfect Information, and Market Behavior
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Sample Questions
Q1) Managers experience bounded rationality when they focus narrowly on maximizing their firm's profits and ignore the broader perspective of society's preferences.
A)True
B)False
Q2) In Exhibit 14-1,suppose each tire produced requires ten pounds of rubber.Which of the following is true?
A) The tire manufacturer should integrate backward into producing rubber.
B) The tire manufacturer should produce more than 200,000 tires.
C) The tire manufacturer should buy rubber rather than produce it.
D) The rubber producer must be a monopolist.
E) The minimum efficient scale of rubber production is 2 million pounds.
Q3) One effect of the lemons problem in the used car market is that
A) the market is efficient
B) without reliable information,lemons become increasingly common
C) no good cars are offered on the market
D) no lemons are offered on the market
E) good cars sell at more than their market value
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Page 16
Chapter 15: Economic Regulation and Antitrust Policy
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Sample Questions
Q1) The firm in Exhibit 15-4 is a natural monopoly.If a government regulator forces the monopoly to set price equal to marginal cost,the economic profit is:
A) -$2,310
B) $2,310
C) $210
D) -$210
E) -$4,620
Q2) Individuals serving on the boards of directors of competing firms is called
A) interlocking directorates
B) tying contracts
C) the rule of reason
D) exclusive dealing
E) predatory pricing
Q3) Economies of scale throughout the range of market demand give natural monopolies
A) downward-sloping long-run average cost curves
B) upward-sloping long-run average total cost curves
C) upward-sloping long-run average cost curves
D) upward-sloping short-run average total cost curves
E) horizontal long-run average cost curves
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Chapter 16: Public Goods and Public Choice
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Sample Questions
Q1) An example of traditional public-goods legislation is
A) price supports for dairy products
B) a system of justice
C) a tattoo removal program in San Luis Obispo,California
D) tort-reform
E) a labor union issue
Q2) If the legislature has a line-item veto on a bureau's budget,the bureau
A) can no longer present its entire budget as a package deal for provision of services
B) will have more power than if the legislature used an overall budget ceiling
C) will be able to supply its output to the legislature as a monopolist
D) will try to discourage budget cuts by threatening to make cuts that will cause the legislature the least political trouble
E) will be free to pursue its own overall objectives
Q3) Rent seeking reduces our economy's overall efficiency by
A) getting government to adopt legislation that actually reduces production
B) disseminating market information
C) lowering taxes
D) getting voters more interested in politics
E) reducing equity
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Page 18
Chapter 17: Externalities and the Environment
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Sample Questions
Q1) In Exhibit 17-3,the welfare loss (from society's perspective) that results from 70 units of air quality is shown by area
A) edcb
B) eda
C) bac
D) adc
E) there is no loss
Q2) In order to increase society's well-being,a process that produces a positive externality might be
A) taxed to discourage production
B) subsidized to encourage production
C) taxed to encourage production
D) subsidized to discourage production
E) provided without government intervention
Q3) Marginal social cost includes both the marginal private cost and the marginal external cost that production imposes on society
A)True
B)False
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Chapter 18: Income Distribution and Poverty
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Sample Questions
Q1) The federal government's earned-income tax credit
A) provides support only for elderly and disabled poor
B) represents a type of in-kind transfer program
C) provides food assistance to the working poor
D) reduces taxes if the poor buy housing
E) offers an income tax refund to the working poor greater than the taxes they paid
Q2) The most effective government policy for reducing poverty is to
A) reduce discrimination in the job market based on gender and race
B) abandon all government programs and rely on private charity
C) reduce programs that promote education and training of the poor
D) dramatically increase Medicare payments to the elderly
E) promote economic growth and job creation
Q3) In every age group,average income in the United States increases with education. A)True B)False
Q4) In the U.S. ,the poverty rate is lowest among young families with a head of household under 25.
A)True B)False
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Chapter 19: International Trade
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Sample Questions
Q1) Which of the following is not correct concerning predatory dumping?
A) It may be a way to discourage the development of domestic production of a good.
B) It may drive out established firms.
C) There are a great number of documented cases of predatory dumping.
D) In actuality,the blocking of entry on a worldwide scale would be extremely difficult to accomplish.
E) In pursuing their monopoly position after dumping,dumpers may actually encourage the entry of other firms.
Q2) Dumping is the practice of
A) selling a lower quality product abroad
B) selling a commodity abroad at a price lower than the domestic price
C) selling a commodity abroad at a price higher than the domestic price
D) flooding a foreign market with large quantities of a good
E) most less-developed countries but not industrialized countries
Q3) Under a tariff,the domestic government gains revenue,but under an import quota it does not,unless it sells the quota rights.
A)True
B)False
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Chapter 20: International Finance
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Sample Questions
Q1) The United States is a net importer of capital.This means
A) that U.S.citizens own more foreign assets than foreigners own U.S.assets
B) that citizens of other countries are buying more U.S.assets than U.S.citizens are buying foreign assets
C) only that U.S.citizens own foreign assets
D) only that foreign citizens own U.S.assets
E) either that U.S.citizens own foreign assets or that foreign citizens own U.S.assets
Q2) Under a gold standard,
A) a nation's currency can be traded for gold at a fixed rate
B) a nation's central bank or monetary authority has absolute control over its money supply
C) new discoveries of gold have no effect on money supply or prices
D) prices are constant (there is no inflation and no deflation)
E) all international transactions are financed with gold
Q3) An exchange rate is the price of one commodity (e.g. ,corn) measured in terms of another commodity (e.g. ,wheat).
A)True
B)False
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Page 22
Chapter 21: Developing and Transitional Economies
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Sample Questions
Q1) Around the world,once-socialist countries have replaced central plans with A) foreign aid
B) budgets
C) special interests
D) markets
E) capital equipment
Q2) A firm should be transparent,meaning
A) the windows at headquarters should be cleaned regularly
B) if executives lie during a stockholder meeting,people should be able to see right through them
C) someone should be able to look at the books and the balance sheet and tell exactly what's going on
D) None of the answers is correct
E) All of the answers are correct
Q3) Lessons about the nature of economic processes will likely emerge from the analysis of transitional economies.
A)True
B)False
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