Principles of Microeconomics Exam Review
Course Introduction
Principles of Microeconomics introduces students to the foundational concepts and analytical tools necessary to understand the decision-making processes of individuals, households, and firms in the allocation of scarce resources. The course covers topics such as supply and demand, elasticity, consumer choice, production and costs, market structures (perfect competition, monopoly, monopolistic competition, and oligopoly), and market failures. Emphasizing real-world application, the course helps students interpret economic news, evaluate policy proposals, and develop a critical understanding of how microeconomic principles impact markets and society.
Recommended Textbook
Microeconomics Brief Edition 2nd Edition by Campbell R. McConnell
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13 Chapters
1963 Verified Questions
1963 Flashcards
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Page 2
Chapter 1: Limits, Alternatives, and Choices
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Which expression is another way of saying "marginal cost"?
A) total cost
B) additional cost
C) average cost
D) scarcity
Answer: B
Q2) When a state government chooses to build more roads,the required resources are no longer available for spending on public education.This dilemma illustrates the concept of:
A) marginal analysis.
B) full employment.
C) full production.
D) opportunity cost.
Answer: D
Q3) If the marginal benefits are greater than the marginal cost of an activity,then society is overallocating resources to this activity.
A)True
B)False
Answer: False
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Page 3
Chapter 2: The Market System and the Circular Flow
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) Consumer sovereignty and "dollar votes" are most related to which fundamental question about a competitive market system?
A) What goods and services will be produced?
B) How will the goods and services be produced?
C) How will the system promote progress?
D) Who will get the goods and services?
Answer: A
Q2) Which statement is correct?
A) The operation of a market system eventually results in an equal distribution of income.
B) Producers are "kings" in a market economy because they determine what is produced.
C) The market system is efficient at allocation of resources but not in getting consumer goods to their most valued uses.
D) Freedom of choice and enterprise are essential elements of the market system.
Answer: D
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4
Chapter 3: Demand, Supply, and Market Equilibrium
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179 Verified Questions
179 Flashcards
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Sample Questions
Q1) In the following question you are asked to determine,other things equal,the effects of a given change in a determinant of demand or supply for product X upon (1)the demand (D)for,or supply (S)of,X; (2)the equilibrium price (P)of X;and (3)the equilibrium quantity (Q)of X. A reduction in the number of firms producing X will:
A) increase D,increase P,and increase Q.
B) increase S,decrease P,and increase Q.
C) decrease S,increase P,and decrease Q.
D) decrease S,decrease P,and increase Q.
Answer: C
Q2) In a competitive market,every consumer willing to pay the market price can buy a product and every producer willing to sell the product at that price can sell it.
A)True
B)False
Answer: True
Q3) Surpluses drive market prices up;shortages drive them down.
A)True
B)False
Answer: False
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Chapter 4: Elasticity of Demand and Supply
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic,then a price:
A) increase will decrease total revenue in the short run but increase total revenue in the long run.
B) increase will increase total revenue in the short run but decrease total revenue in the long run.
C) decrease will increase total revenue in the short run but decrease total revenue in the long run.
D) decrease will decrease total revenue in the short run and decrease total revenue in the long run.
Q2) The income elasticity of demand for a food is unity.A consumer's monthly income is $2,000,of which 20 percent is spent on food.If income doubles,the amount spent on food will be:
A) $400 per month.
B) $500 per month.
C) $800 per month.
D) $1,000 per month.
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6
Chapter 5: Market Failures: Public Goods and Externalities
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) Near an ocean beach,a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building.The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings would best be resolved by:
A) the owners themselves.
B) city government officials.
C) a zoning ordinance restricting high-rise buildings.
D) a government fine for the builder of the high-rise.
Q2) If an activity results in a spillover benefit,then in a pure market economy the:
A) quantity produced is too low.
B) quantity produced is too high.
C) market supply is too low.
D) market supply is too high.
Q3) In a free-market economy,a product that entails a spillover benefit will be:
A) overproduced.
B) underproduced.
C) produced at the optimal level.
D) associated only with goods and services provided by the government.
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Chapter 6: Businesses and Their Costs
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156 Verified Questions
156 Flashcards
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Sample Questions
Q1) The principal-agent problem arises in corporations because the interests of the owners or stockholders are aligned with the chief executives who run the corporations for the owners.
A)True
B)False
Q2) Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year.If the firm sold 100,000 units of its output at $50 per unit,its accounting:
A) profits were $100,000 and its economic profits were zero.
B) losses were $500,000 and its economic losses were zero.
C) profits were $500,000 and its economic profits were $1 million.
D) profits were zero and its economic losses were $500,000.
Total revenue was 100,000 * $50 = $5,000,000 and explicit costs were also $5,000,000.So the firm lost its implicit costs for an economic loss of $500,000.
Q3) Normal profit is:
A) determined by subtracting implicit costs from total revenue.
B) determined by subtracting explicit costs from total revenue.
C) the return to the entrepreneur when economic profits are zero.
D) the average profitability of an industry over the preceding 10 years.
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Page 8
Chapter 7: Pure Competition
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155 Verified Questions
155 Flashcards
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Sample Questions
Q1) Price is constant or "given" to the individual firm selling in a purely competitive market because:
A) the firm's demand curve is downward sloping.
B) there are no good substitutes for the firm's product.
C) each seller supplies a negligible fraction of total supply.
D) product differentiation is reinforced by extensive advertising.
Q2) In the long run,pure competition forces firms to produce at the minimum of average total cost and charge a price consistent with that cost.
A)True
B)False
Q3) The individual firm's short-run supply curve is the part of its:
A) average total cost curve that is upsloping.
B) average variable cost curve that is upsloping.
C) marginal cost curve lying above its average variable cost curve.
D) marginal cost curve lying above its average total cost curve.
Q4) In pure competition,the demand for the product of a single firm is perfectly:
A) elastic because the firm produces a unique product.
B) inelastic because the firm produces a unique product.
C) elastic because many other firms produce the same product.
D) inelastic because many other firms produce the same product.
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Chapter 8: Pure Monopoly
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) The cornerstone of antitrust legislation is the:
A) Clayton Act.
B) Sherman Act.
C) Celler-Kefauver Act.
D) Federal Trade Commission Act.
Q2) The supply curve for a pure monopolist:
A) is the portion of the marginal cost curve that lies above the average variable cost curve.
B) is perfectly price-elastic at the market price.
C) is upsloping across all relevant ranges of output.
D) does not exist because there is no fixed relationship between price and quantity supplied.
Q3) A monopolist seeks maximum profit per unit.
A)True
B)False
Q4) A purely competitive firm is a price maker,but a monopolist is a price taker.
A)True
B)False
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Page 10
Chapter 9: Monopolistic Competition and Oligopoly
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179 Verified Questions
179 Flashcards
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Sample Questions
Q1) Which would make it easier to maintain an effective collusive agreement in a cartel?
A) The emergence of a number of potential entrant firms
B) A decrease in the elasticity of demand for the cartel's product
C) An increase in the number of substitutes for products produced by the cartel
D) A new method of pricing that makes it more difficult for firms in the cartel to determine the prices at which other cartel members are selling their product
Q2) A cartel is formed among the major firms in an industry that maximizes joint profits of the firms.Each firm:
A) will operate at the level of output associated with the kink in the demand curve.
B) will be protected from the economic effects of a recession.
C) has a perfectly elastic demand for its product.
D) has the incentive to cheat by cutting its price.
Q3) Monopolistically competitive firms have a:
A) horizontal demand curve.
B) perfectly inelastic demand curve.
C) perfectly elastic demand curve.
D) downward-sloping demand curve.
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Page 11
Chapter 10: Wage Determination
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164 Verified Questions
164 Flashcards
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Sample Questions
Q1) Immobile resources contribute to wage differentials.
A)True
B)False
Q2) A union representative observed that if the union members' wages were increased by some proportion,the workers would eventually suffer a greater than proportional decline in employment.This statement could best be explained if:
A) the new wages are to take effect immediately.
B) union labor can easily be replaced with capital.
C) union labor is an insignificant portion of the total cost of production.
D) the demand for the final product the workers produce is relatively inelastic.
Q3) In a purely competitive industry,a decrease in a firm's marginal revenue product for an economic resource could result from a(n):
A) decrease in demand for the firm's final product.
B) decrease in the price of the economic resource.
C) decrease in the supply of the economic resource.
D) increase in the marginal productivity of the resource.
Q4) Education is a form of human capital if it increases productivity.
A)True
B)False
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Chapter 11: Income Inequality and Poverty
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158 Verified Questions
158 Flashcards
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Sample Questions
Q1) Under a guaranteed minimum annual income plan,if the minimum income level is $5000 with a benefit-reduction rate of 50 percent,the earnings level at which benefits (transfer payments)would be zero is:
A) $2500.
B) $5000.
C) $8000.
D) $10,000.
The worker is guaranteed an income of $5000.If the worker made $10,000,he would have 50 percent of the earned income taken away.This means the guaranteed income disappears.
Q2) The basic argument for income inequality is that it is necessary if consumer satisfaction (utility)is to be maximized.
A)True
B)False
Q3) Which of the following provides retirement income to qualified retirees?
A) Medicare
B) Supplemental Security Income (SSI)
C) Social Security
D) SNAP
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Page 13
Chapter 12: Public Finance: Expenditures and Taxes
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) If each taxpayer paid the same lump-sum amount regardless of income level,the tax system would be:
A) disproportionate.
B) progressive.
C) proportional.
D) regressive.
Q2) Which of the following statements is most consistent with the benefits-received principle of taxation?
A) A childless couple should not be required to pay taxes for the support of public schools.
B) Prosperous corporations should pay substantial taxes even if they use few government goods and services.
C) The best tax is the income tax.
D) People with high incomes should pay more taxes than people with low incomes.
Q3) (Applying the Analysis)Proponents of a value-added tax (VAT)claim that a VAT:
A) is progressive,leading to a more equitable distribution of income.
B) equalizes the tax burden between buyers and sellers of goods.
C) is proportional,so all income groups pay a fair share.
D) penalizes consumption and encourages savings and investment.
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Page 14
Chapter 13: International Trade and Exchange Rates
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) If the U.S.dollar appreciates relative to the British pound,then:
A) the pound will appreciate relative to the U.S.dollar.
B) the pound will depreciate relative to the U.S.dollar.
C) British goods will be more expensive for Americans.
D) American goods will be less expensive for the British.
Q2) If a Japanese importer could buy $1000 U.S.for 122,000 yen,the rate of exchange for one dollar would be:
A) 112 yen.
B) 122 yen.
C) 1220 yen.
D) 12,200 yen.
Since $1000 = 122,000 yen,$1 = 122,000/1000 = 122 yen.
Q3) If there is no comparative advantage between two countries:
A) one country must be more productive in producing all goods than the other.
B) the benefits resulting from trade are increased.
C) there are no gains from specialization and trade.
D) each country should specialize in the production of a particular commodity.
Q4) Net exports in the United States average about 1 to 2 percent of GDP.
A)True
B)False
Page 15
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