Principles of Microeconomics
Final Test Solutions
Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools used to understand how individuals, firms, and governments make choices about allocating limited resources. The course covers topics such as supply and demand, market equilibrium, consumer behavior, production and costs, market structures (including perfect competition, monopoly, and oligopoly), and the role of government in addressing market failures. Emphasis is placed on real-world applications that illustrate how microeconomic principles affect everyday decision-making and societal outcomes.
Recommended Textbook
Microeconomics Principles and Applications 6th Edition by Robert E. Hall
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18 Chapters
2377 Verified Questions
2377 Flashcards
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Page 2
Chapter 1: What Is Economics
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) Which of the following explains why economists may disagree over normative issues?
A)They have different beliefs and values.
B)They examine the same data to draw their conclusions.
C)They need to disagree in order to publish their research findings.
D)They often employ different statistical techniques when examining data.
E)Some work only on microeconomic issues,while others focus exclusively on macroeconomic issues.
Answer: A
Q2) Consider an economic model designed to analyze the purchasing decisions of households.An assumption that a household chooses between only two goods would be an example of a
A)simplifying assumption
B)critical assumption
C)macroeconomic assumption
D)financial assumption
E)positive assumption
Answer: A
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Chapter 2: Scarcity, choice, and Economic Systems
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Sample Questions
Q1) Every economic system requires a means for determining resource allocation.
A)True
B)False
Answer: True
Q2) Specialization leads to greater production than is otherwise possible
A)only if different workers have different natural abilities
B)only if production is organized within business firms
C)under capitalism,but not under communism
D)even if different workers have identical natural abilities
E)under communal ownership,but not under capitalism
Answer: D
Q3) An economy is said to be saving lives efficiently
A)if the number of lives saved increases each year
B)whenever the cost of saving lives is decreasing
C)if it is operating on its production possibilities frontier
D)if more resources are devoted to saving lives than to any other activity
E)if fewer resources are devoted to saving lives than to any other activity
Answer: C
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4
Chapter 3: Supply and Demand
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Sample Questions
Q1) Studies show that the supply curve for bananas has shifted.All of the following could be possible explanations for the shift,except one.Which is the exception?
A)The price of land for growing bananas has risen.
B)Weather conditions in banana-growing countries have worsened.
C)The price of apples has fallen.
D)The price of bananas has risen.
E)The salaries paid to banana growers has risen.
Answer: D
Q2) In Figure 3-8,using the supply and demand curves denoted S and D ,respectively,the equilibrium price and quantity are
A)$100 and 50,000
B)$100 and 100,000
C)$120 and 50,000
D)$120 and 75,000
E)$120 and 100,000
Answer: A
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Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) In Figure 4-5,if the government imposes a price floor of $2,the result will be
A)equilibrium
B)no different than before the minimum price is imposed
C)a shortage
D)that the demand curve will shift leftward
E)a surplus
Q2) If an excise tax is imposed on restaurant meals,
A)fewer meals will be produced and sold
B)more meals will be produced and sold
C)the government's tax revenue will fall
D)the market price of meals will decrease
E)restaurants will sell more meals,but at a lower price per meal
Q3) If an excise tax is imposed on shirts,
A)the number of shirts produced will exceed the number demanded
B)the number of shirts demanded will exceed the number supplied
C)the equilibrium market price will decrease
D)the amount consumers pay for each shirt will decrease
E)the net revenue producers receive from each shirt will decrease
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6
Chapter 5: Elasticity
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Sample Questions
Q1) Suppose that a local supermarket sells apples and oranges for 50 cents apiece,and at these prices is able to sell 100 apples and 200 oranges per week.One week,the supermarket lowered the price per apple to 40 cents and sold 120 apples.The next week,they lowered the price per orange to 40 cents (after raising the price per apple back to 50 cents)and sold 240 oranges.These results imply that the
A)price elasticity of apples is lower than the price elasticity of oranges
B)price elasticity of apples is higher than the price elasticity of oranges
C)demand for apples is more price sensitive than the demand for oranges
D)demand for oranges is more price sensitive than the demand for apples
E)price elasticities of demand for apples and oranges are the same over these price ranges
Q2) If demand is price elastic,a decrease in seller's total revenue would result from a(n)
A)decrease in price
B)increase in quantity demanded
C)increase in price
D)decrease in income for an inferior good
E)increase in total cost to the seller
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Page 7
Chapter 6: Consumer Choice
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Sample Questions
Q1) The Jones family is going to Disney World and has set a budget of $2000 for visiting the theme park and hotel accommodations.Their original plan was to spend three days at the park and two nights in the hotel.Mrs.Jones unexpectedly listens to a timeshare sales pitch and she is paid $400 for enduring the ordeal.The family decides to spend an extra day at the park and two extra nights in the hotel.For the Jones family,we can be certain that
A)hotels nights are an inferior good
B)their budget line has shifted to the left
C)theme parks days are an inferior good
D)hotel nights are a normal good
E)their budget line has changed its slope
Q2) If diminishing marginal utility holds,and a person consumes less of a good,then all else being equal
A)the price of the good will rise
B)total utility will rise
C)marginal utility will rise
D)expenditure on the good will increase
E)marginal utility will decline
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Chapter 7: Production and Cost
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127 Flashcards
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Sample Questions
Q1) Which of the following is true about the relationships among various cost curves?
A)When MC exceeds ATC,ATC must be rising.
B)When MC exceeds ATC,ATC could be rising or falling.
C)When ATC is falling,MC must exceed ATC.
D)When TC is rising,MC must exceed TC.
E)TC falls when AFC falls.
Q2) For a given level of output,the short-run total cost of production
A)always falls below the long-run total cost of production
B)always exceeds the long-run total cost of production
C)always equals the long-run total cost of production
D)may exceed or equal the long-run total cost of production
E)may exceed or fall below the long-run total cost of production
Q3) Bob gives up his factory job in order to open a bait-and-tackle shop.The earnings from his factory job represent
A)the hourly wage paid by the shop
B)the marginal cost of running the shop
C)the average cost of running the shop
D)a fixed cost that can vary in the long run
E)an implicit cost of opening the shop
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Page 9
Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) In Figure 8-5,which of the five output levels corresponds to the highest level of profit?
A)level A
B)level B
C)level C
D)level D
E)level E
Q2) When marginal revenue is positive,total revenue must rise as output increases.
A)True
B)False
Q3) Which of the following determines the maximum price a firm may charge for a particular quantity of output?
A)the firm's supply curve
B)opportunity costs
C)explicit and implicit costs of production
D)the minimum point of the average total cost curve
E)the demand curve facing the firm
Q4) Every firm is constrained by the demand curve for the product it produces.
A)True
B)False
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Chapter 9: Perfect Competition
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250 Verified Questions
250 Flashcards
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Sample
Questions
Q1) Justina operates in a perfectly competitive market.Which of the following is her short-run supply curve?
A)the MC curve above its point of intersection with the ATC curve
B)the market supply curve
C)the MC curve above its point of intersection with the AVC curve
D)the market demand curve
E)its MC curve
Q2) In short-run equilibrium in a perfectly competitive market,
A)each firm earns an economic profit
B)each firm earns a normal profit
C)firms shut down if price exceeds average total cost
D)each firm takes consumers' marginal utility as given
E)peach firm takes the market price as given
Q3) Under perfect competition
A)the only major difference between firms is the mark-up they use to determine prices
B)a single seller sets the price
C)a small number of sellers offer a differentiated product
D)sellers offer a standardized product
E)a small number of buyers and sellers negotiate the market price
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Page 11
Chapter 10: B:Perfect Competition
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Sample Questions
Q1) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Q2) One of the defining characteristics of a perfectly competitive market is
A)both buyers and sellers are well informed about the market
B)a small number of buyers
C)high barriers to entry
D)a small number of buyers but a large number of sellers
E)buyers are better informed about the market than sellers
Q3) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Q4) Which of the following is not a characteristic of a perfectly competitive market
A)buyers and sellers are well informed about the market
B)standardized product
C)many buyers and few sellers
D)easy exit out of the industry
E)easy entry into the industry
Page 12
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Chapter 11: Monopolistic Competition and Oligopoly
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192 Flashcards
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Sample Questions
Q1) When the oil-producing countries of the Middle East meet to set prices and output levels,this is an example of A)monopoly behavior
B)profit sharing
C)market distribution
D)explicit collusion
E)tacit collusion
Q2) In the prisoner's dilemma,
A)the prisoners easily collude in order to achieve the best possible payoff for both
B)only one player has a dominant strategy
C)each player has a dominant strategy
D)playing the dominant strategy leads to a better payoff for one prisoner than if the two jointly selected a strategy
E)playing the dominant strategy leads to a better payoff for both prisoners than if the two jointly selected a strategy
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13
Chapter 11: Monopoly
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Sample Questions
Q1) Which of the output levels shown in Figure 10-10 would a monopolist never produce?
A)1 unit
B)4 units
C)7 units
D)3 units
E)5 units
Q2) A natural monopoly is producing an output level of 1,000 units per day.If the monopoly is broken up into 5 firms,then average total cost for each of the 5 firms
A)will exceed the monopolist's average total cost
B)will equal the monopolist's average total cost
C)will fall below the monopolist's average total cost
D)may equal or fall below the monopolist's average total cost
E)may equal or exceed the monopolist's average total cost
Q3) In Figure 10-28,the monopolist's profit-maximizing output level is
A)50.
B)55.
C)60.
D)65.
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14
Chapter 12: Labor Markets
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Sample Questions
Q1) Assume that the labor market for auto mechanics is initially in equilibrium.Which of the following would lead to an increase in both the wage rate and employment for auto mechanics?
A)a decrease in the price of a substitutable input
B)a decrease in the price of a complementary input
C)an increase in training costs for auto mechanics
D)a decrease in wages in an alternate labor market
E)a decrease in demand for the output of firms employing auto mechanics
Q2) Which of the following is an assumption made about a competitive labor market?
A)A firm must offer a higher wage rate to attract more labor.
B)A firm must offer a lower wage rate to attract more labor.
C)A firm cannot influence the market wage rate.
D)The labor supply curve facing each firm is inelastic.
E)Workers compete for jobs and firms pay a variety of wage rates.
Q3) A firm's labor demand curve is derived from the demand for the goods and services it produces.
A)True
B)False
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Chapter 13: B: Labor Markets
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Sample Questions
Q1) Suppose there is a semiskilled labor market and two different unskilled labor markets.Initially,all three markets are in competitive equilibrium.What would happen if the government imposed a minimum wage rate above the competitive equilibrium rate in one of the unskilled labor markets?
A)Wage rates will rise in all three markets.
B)Wage rates will rise in both unskilled labor markets,but remain unchanged in the semiskilled labor sector.
C)Wage rates will rise in the semiskilled labor market and in the unskilled labor market covered by the minimum wage,but fall in the other unskilled labor market.
D)Wage rates will rise in the unskilled labor market covered by the minimum wage,remain unchanged in the other unskilled labor market,and fall in the semiskilled labor market.
E)Wage rates will rise in the unskilled labor market covered by the minimum wage,but remain unchanged in the other two markets.
Q2) The beneficiaries of the minimum wage are confined to those in poverty.
A)True
B)False
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Page 16
Chapter 14: Capital and Financial Markets
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Sample Questions
Q1) With one year of study,Rob Sanchez can earn a master's degree,which will cost him $15,000 in tuition and $20,000 in lost wages.The degree will increase his yearly income by $20,000 per year for three years after receiving the degree.The interest rate is 10 percent (0.10)per year.What should Rob do? (Assume that costs are incurred and income is received at the end of the year. )
A)he should obtain the degree because education always pays off B)because the cost of tuition and lost wages ($35,000)is less than the extra income ($60,000),he should obtain the degree
C)he should subtract the present value of tuition from the total present value of the additional income.If the number is positive,he should obtain the degree
D)he should subtract the total present value of the tuition and lost wages from the total present value of the additional income.If the number is positive,he should obtain the degree
E)he should subtract the present value of lost wages from the total present value of additional income.If the number is positive,he should obtain the degree
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Page 17
Chapter 15: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Rebecca and Leah are roommates.Rebecca likes to study with the music playing loudly and Leah needs quiet when she studies.Rebecca would be willing to pay $5 a night to hear music while Leah would be willing to pay $10 a night for the quiet.In this situation
A)Leah should pay Rebecca $7.50 a night to not listen to music,because that would be a Pareto improvement
B)Rebecca should stop listening to music because that would be a Pareto improvement
C)There is no action that would create a Pareto improvement
D)Rebecca should pay Leah $7.50 a night to listen to music,because that would be a Pareto improvement
E)Leah should pay Rebecca $4.50 a night to not listen to music,because that would be a Pareto improvement
Q2) A Pareto improvement is any action that makes everyone better off.
A)True
B)False
Q3) A mutually advantageous trade leads a Pareto improvement.
A)True
B)False
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Chapter 16: Governments Role in Economic Efficiency
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Sample Questions
Q1) Price-fixing agreements among competing firms are a violation of the Clayton Antitrust Act.
A)True
B)False
Q2) If production creates a negative externality,social welfare can be increased through
A)antitrust law
B)subsidization
C)taxation
D)free market policies
E)allocative efficiency
Q3) A subsidy equal to the marginal private benefit of a good can be used to make a market with a positive externality efficient.
A)True
B)False
Q4) The Sherman Antitrust Act prohibits price fixing by competitors,monopolization of a market,and attempts to monopolize a market.
A)True
B)False
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Page 19
Chapter 17: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) If Canada began to export maple syrup to Australia,which of the following will happen?
A)The price of maple syrup in Australia will increase and Australian consumers will be made worse off.
B)The price of maple syrup in Australia will decrease and the Australian consumers will be made better off.
C)The price of maple syrup in Canada will decrease and the Canadian consumers will be made better off.
D)The price of maple syrup in Canada will increase and the Canadian consumer will be made worse off.
E)The price of maple syrup in Canada will decrease and the Canadian consumer will be made worse off.
Q2) If Armenia can produce rugs more efficiently than any other country,it does not necessarily benefit from producing rugs for international trade.
A)True
B)False
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Page 20