Principles of Microeconomics
Final Exam Questions
Course Introduction
Principles of Microeconomics introduces students to the foundational concepts of microeconomic theory, focusing on how individuals and firms make decisions regarding the allocation of limited resources. This course explores the mechanisms of supply and demand, market structures, consumer behavior, production costs, and the role of government intervention in markets. Through real-world examples and analytical tools, students will gain an understanding of how economic agents interact within various market systems and how prices and outputs are determined. The course also examines issues such as market failures, public goods, and externalities, equipping students with the analytical skills necessary to assess economic policies and everyday economic decisions.
Recommended Textbook
ECON MICRO 6th Edition by William A. McEachern
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Chapter 1: The Art and Science of Economic Analysis
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Q1) In the economic model of consumer behavior,rational self-interest would likely be
A)a key variable.
B)the hypothesis of the model.
C)a behavioral assumption.
D)a prediction of the model.
E)a method of testing the model.
Answer: C
Q2) The "other-things-constant" assumption is also known as _____
A)ceteris paribus.
B)prediction.
C)normative.
D)variable.
E)positive.
Answer: A
Q3) "There should be less discrimination against women" is an example of a positive economic statement.
A)True
B)False
Answer: False
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Chapter 2: Economic Tools and Economic Systems
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Q1) A cost that has already been incurred and cannot be recovered is known as a(n)_____
A)sunk cost.
B)opportunity cost.
C)direct cost.
D)implicit cost.
E)explicit cost.
Answer: A
Q2) A point inside the production possibilities frontier illustrates a situation in which resources are not fully employed.
A)True
B)False
Answer: True
Q3) If you enjoy playing golf,the opportunity cost of cleaning your room _____
A)is greater on sunny days than it is on rainy days.
B)is the same on sunny days as it is on rainy days.
C)is smaller on sunny days than it is on rainy days.
D)does not change with weather conditions.
E)is equal to the opportunity cost of any other chore you have to do that day.
Answer: A
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Which of the following components of U.S.household spending has grown the most over the past ten years?
A)Taxes
B)Savings
C)Spending on services
D)Spending on nondurable goods
E)Spending on durable goods
Answer: C
Q2) If real wage decreases,the opportunity cost of working in the home will:
A)increase as long as worker productivity decreases.
B)decrease.
C)not be affected.
D)increase as long as worker productivity also rises.
E)increase only if households want to maintain their standard of living.
Answer: B
Q3) The personal income tax is based on the benefits-received principle of taxation.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Demand, supply, and Markets
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Q1) Suppose the current equilibrium price of pizza is $5.If the government decides the price of pizza cannot rise above $4,there would be _____
A)a shortage of pizzas.
B)a surplus of pizzas.
C)a rightward shift of the supply curve of pizzas.
D)no impact on the equilibrium price and quantity of pizzas.
E)a rightward shift of the demand curve for pizzas.
Q2) Suppose you drink more tea because the price of coffee has increased.This is indicative of _____
A)a positive relation between money income and demand.
B)an inverse relation between price and quantity supplied.
C)a positive relation between price and quantity demanded.
D)the income effect of a price change.
E)the substitution effect of a price change.
Q3) Buyers prefer a _____ price and sellers prefer a _____ price.
A)lower, higher
B)higher, lower
C)lower, lower
D)higher, lower.
E)market, market
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Chapter 5: Elasticity of Demand and Supply
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Q1) The value of the price elasticity of demand for a good with no close substitutes tends to be _____
A)greater than 1.
B)less than 1.
C)equal to 1.
D)equal to 0.
E)equal to 1.
Q2) If the demand curve shifts,but the supply curve does not,and the price remains the same,supply must be perfectly inelastic.
A)True
B)False
Q3) Refer to Exhibit 5.10,which shows two upward-sloping linear supply curves that pass through the origin.The price elasticity of supply between $10 and $20 on the supply curve S is _____
A)0.
B)infinity.
C)1.
D)2.
E)10.
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Page 7
Chapter 6: Consumer Choice and Demand
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Q1) Refer to Exhibit 6.6,which shows the market demand schedule for a good.When the price of the good is P,the shaded area represents _____
A)shortage.
B)the marginal utility of the good.
C)price floor.
D)consumer surplus.
E)the marginal valuation of the good.
Q2) Refer to Table 6.2,which shows the total utility derived from the consumption of a good.The first column of the table shows the number of units of the good consumed in a day,and the second column of the table shows the total utility derived from that consumption.What is the marginal utility of consuming the third unit?
A)0
B)30
C)35
D)20
E)65
Q3) Opportunity cost is measurable only when prices are known.
A)True
B)False
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Page 8
Chapter 7: Production and Cost in the Firm
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Q1) At a given rate of output,marginal cost equals the slope of the _____
A)long-run average cost curve.
B)short-run average total cost curve.
C)planning curve.
D)total cost curve.
E)average variable cost curve.
Q2) Refer to Table 7.2,which shows labor and the quantity of shoes produced by a firm.What is the marginal product of the fourth unit of labor?
A)5 pairs of shoes
B)10 pairs of shoes
C)20 pairs of shoes
D)50 pairs of shoes
E)80 pairs of shoes
Q3) If variable cost at each output level doubles,then _____
A)average total cost doubles.
B)average fixed cost doubles.
C)marginal cost remains unchanged.
D)marginal cost doubles.
E)marginal cost less than doubles.
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Page 9
Chapter 8: Perfect Competition
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Q1) Refer to Exhibit 8.9,which shows a perfectly competitive firm's short-run output decisions.The firm earns short- run economic profit by producing at point _____
A)1.
B)3.
C)5.
D)2.
E)4.
Q2) Refer to Exhibit 8.13,which shows a perfectly competitive market.Social welfare is maximized at _____
A) $6.
B) point m.
C) point e.
D) area A.
E) area B
Q3) In a perfectly competitive market,profit attracts new firms to the market in the long run.
A)True
B)False
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Chapter 9: Monopoly
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Sample Questions
Q1) The practice of charging different prices to different consumers for the same product is called _____
A)arbitration.
B)unit pricing.
C)price discrimination.
D)predatory pricing.
E)marginal cost pricing.
Q2) If a perfectly competitive industry is monopolized,consumer surplus _____
A)can be expected to decrease.
B)usually remains constant.
C)becomes equal to producer surplus.
D)becomes double the amount of producer surplus.
E)increases from zero to a high value.
Q3) 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.
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Chapter 10: Monopolistic Competition and Oligopoly
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Q1) Economic analysis of product differentiation leads to all of the following conclusions,except one.Which of the following is the exception?
A)Product differentiation makes it harder for firms to collude.
B)Product differentiation makes price leadership harder to maintain.
C)Product differentiation sometimes contributes to wasteful allocation of resources.
D)Product differentiation must be based on real, substantive differences among products.
E)Product differentiation makes it easier for firms to liquidate assets.
Q2) Identify a statement that is true of a cartel.
A)In a cartel, all firms produce the same amount of output and earn the same profit.
B)In a cartel, all firms produce the same amount of output but earn different amounts of profit because their costs differ.
C)In a cartel, firms produce different amounts of output but earn the same profit.
D)In a cartel, firms with higher average costs produce more so that all firms earn the same profit.
E)In a cartel, firms with lower average costs often earn higher profits.
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Chapter 11: Resource Markets
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Sample Questions
Q1) If ZipCo's marginal revenue product curves slope downward,_____
A)ZipCo is likely to be a price taker.
B)the price of the product equals marginal revenue.
C)the price of each resource used by ZipCo is constant.
D)the price of the product is less than marginal revenue.
E)ZipCo has some power in the product market.
Q2) 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.
Q3) A resource's earnings are all economic rent when the resource has no alternative uses.
A)True
B)False
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Chapter 12: Labor Markets and Labor Unions
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Q1) As the wage rate decreases,the amount of time spent on market work _____
A)increases if the income effect dominates the substitution effect.
B)increases because of the substitution effect.
C)decreases because of the income effect.
D)decreases if the income effect dominates the substitution effect.
E)decreases if the substitution effect dominates the income effect.
Q2) A large inheritance from a relative will tend to _____
A)cause a movement up and to the right along the individual's labor supply curve.
B)cause a movement down and to the left along the individual's labor supply curve.
C)shift the individual's labor supply curve outward.
D)shift the individual's labor supply curve inward.
E)make the income effect of a wage increase positive.
Q3) The market labor supply curve is _____
A)the sum of individual labor supply curves at each quantity of labor.
B)the sum of individual labor supply curves at each wage rate.
C)the average of all individual labor supply curves.
D)the sum of the upward-sloping portions of individual labor supply curves.
E)the sum of the downward-sloping portions of individual labor supply curves.
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Chapter 13: Capital, interest, entrepreneurship, and Corporate Finance
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Q1) If a firm can borrow or lend at a 10 percent annual interest rate,it will _____.
A)buy all the units of capital with an expected rate of return above 10 percent.
B)buy all the units of capital with an average rate of return above 0.1 percent.
C)buy all the units of capital with an expected rate of return below 10 percent.
D)buy all the units of capital with an average rate of return below 10 percent.
E)select only the unit of capital with the highest expected rate of return, assuming it is above 10 percent.
Q2) The value of a corporation remains stable in the securities exchange if it is a large company.
A)True
B)False
Q3) If the interest rate is 10 percent,and a perpetuity is worth $10,000 today,how much would you expect to receive every year?
A)$100
B)$1,000
C)$10,000
D)$100,000
E)$909.09
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Chapter 14: Transaction Costs, asymmetric Information, and Behavioral Economics
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Sample Questions
Q1) In the market for used cars,car owners have abundant personal experience with the important characteristics of the vehicle that they are selling.However,a prospective buyer can only guess the characteristics based on each car's appearance.Which of the following problems arises because of this information mismatch?
A)the principal-agent problem
B)the problem of the winner's curse
C)the problem of adverse selection
D)the problem of common resources
E)the problem of unbounded rationality
Q2) When a firm is operating at its minimum efficient scale,its _____
A)short-run average total cost of production is minimized.
B)long-run marginal cost of production is minimized.
C)long-run average cost of production is minimized.
D)marginal revenue is less than its marginal cost.
E)total revenue is just equal to its total cost.
Q3) One result of asymmetric information in the market for used cars is that buyers benefit at the expense of sellers.
A)True
B)False
Page 16
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Chapter 15: Economic Regulation and Antitrust Policy
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Sample Questions
Q1) Refer to Exhibit 15.3,which shows the cost and revenue curves for a natural monopolist.The welfare loss that occurs if the monopoly is unregulated is shown by the area _____
A)cef.
B)abc.
C)adf.
D)dfeg.
E)bcfd.
Q2) Government regulation of natural monopoly,where average production cost is lowest when a single firm supplies the market is called _____
A)market power.
B)social regulation.
C)economies of scale.
D)economic regulation.
E)antitrust policy.
Q3) The Herfindahl-Hirschman Index (HHI)is the sum of the squared market shares of the four largest firms in an industry.
A)True
B)False
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Page 17
Chapter 16: Public Goods and Public Choice
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Q1) Which of the following is an example of tax evasion?
A)Barry making charitable donations that are eligible for tax deductions
B)Mindy buying municipal bonds, as they yield returns free of federal income taxes
C)Martha not reporting the additional income she earns from waiting tables at a restaurant to reduce her taxable income
D)Bertram claiming his business travel expenses from his company as deductions to reduce his taxable income
E)Daisy moving to a different state to benefit from its low tax rates
Q2) A lobbyist for the coal industry asks Congress to limit environmental constraints on coal-burning plants.This is an example of _____
A)the median-voter model.
B)rent seeking.
C)competing-interest legislation.
D)populist legislation.
E)public-interest legislation.
Q3) Rent-seeking behavior imposes no costs on society.
A)True
B)False
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Chapter 17: Externalities and the Environment
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Q1) The _____ coordinates Federal efforts to address the common-pool issues of air,water,and ground pollution in the United States.
A)Association for Protection of Environment
B)Environmental Protection Agency
C)U.S. Environment Conservation Agency
D)U.S. Department of Environmental Protection
E)U.S. Association for Prevention of Pollution
Q2) Markets can allocate resources efficiently only as long as _____
A)property rights are well defined and can be easily enforced.
B)property rights are well defined but not easily enforced.
C)property rights are not defined but can be easily enforced.
D)property rights are not defined and not easily enforced.
E)a nonrenewable resource has been used in the production of the good.
Q3) When consuming a good creates positive externalities,_____
A)the private demand for the good increases.
B)the private demand for the good decreases.
C)the private demand curve overstates the marginal social benefit of the good.
D)the private demand curve understates the marginal social benefit of the good.
E)the equilibrium quantity traded of the good increases without government intervention.
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Chapter 18: Poverty and Redistribution
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Q1) How much did spending for federal redistribution programs total in 2015?
A)$0.5 trillion
B)$1 trillion
C)$5 trillion
D)three times the amount set on national defense
E)five times the amount set on national defense
Q2) Welfare reforms introduced nearly two decades ago have been aimed at _____
A)retaining benefits.
B)reducing long-term dependency.c
C)required job searches
D)required work in paid or unpaid jobs
E)on-the-job training.
Q3) One of the main tools used by economists to measure the actual distribution of income in an economy is _____
A)the Lorenz curve.
B)the Golden Rule.
C)the MR = MC rule.
D)the MRP = MRC rule.
E)the capital/labor ratio.
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Page 20
Chapter 19: International Trade
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Q1) Specialization based on absolute advantage leads to gains from trade.
A)True
B)False
Q2) Refer to Table 19.3,which shows the demand,supply,and price of tulips in the Netherlands.If the world price of tulips is $4 and there are no trade restrictions,the Netherlands will _____
A)produce 10,000, consume 4,000, and import 6,000 tulips.
B)produce 10,000 and consume 10,000 tulips.
C)produce 8,000 and consume 8,000 tulips.
D)import all the tulips it consumes.
E)consume only some of the tulips it produces.
Q3) If there are no trade restrictions,a country will import a particular good if _____
A)domestic quantity supplied equals domestic quantity demanded at the world price.
B)there is excess quantity demanded by domestic consumers at the world price.
C)the quantity of the good demanded by domestic consumers decreases.
D)the quantity of the good supplied by domestic producers increases.
E)the world price of the good is higher than its domestic price.
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Chapter 20: International Finance
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Q1) In order for the balance of payments to balance,the _____
A)current account balance must equal the capital account balance.
B)sum of the current account balance, the capital account balance, the net flow of international reserves, and the statistical discrepancy must have a negative value.
C)sum of the current account balance, the capital account balance, the net flow of international reserves, and the statistical discrepancy must have a positive value.
D)sum of the current account balance, the capital account balance, the net flow of international reserves, and the statistical discrepancy must equal zero.
E)the sum of the current account balance, the capital account balance, and the net flow of international reserves must be greater than the statistical discrepancy.
Q2) A leftward shift of a country's demand curve for foreign exchange will _____
A)decrease the price of foreign exchange in the country.
B)increase the price of foreign exchange in the country.
C)decrease the value of its currency.
D)make foreign goods more expensive in the country.
E)make its goods cheaper in the foreign market.
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Page 22
Chapter 21: Economic Development
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Sample Questions
Q1) Labor productivity depends on _____
A)the quality of labor.
B)the volume of imports.
C)the size of an economy.
D)the volume of exports.
E)the proportion of the labor force that is unionized.
Q2) Which of the following is not correct?
A)Differences in economic vitality among countries are huge.
B)Some of the world's 7.5 billion people have little housing or food.
C)Some of the world's 7.5 billion people have little clothing.
D)Some of the world's 7.5 billion people have no formal job.
E)Many of the world's 7.5 billion people can read or write.
Q3) If developed economies want to grow faster,they can do so with their existing technologies.
A)True
B)False
Q4) If the country of Zorg has a birth rate of greater than 2.2 births per woman,it is likely that Zorg is an industrial market country.
A)True
B)False
Page 23
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