Principles of Microeconomics
Midterm Exam
Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools used to study individual economic agents such as consumers, firms, and markets. The course examines how these agents make decisions regarding the allocation of limited resources, how prices are determined through supply and demand, and how markets function under various forms of competition. Students will explore topics such as elasticity, consumer behavior, production costs, market efficiency, and the impact of government intervention in markets. By understanding these core principles, students gain insight into real-world economic issues and policy debates.
Recommended Textbook
Principles of Microeconomics 1st Edition by Dirk
Mateer
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20 Chapters
2784 Verified Questions
2784 Flashcards
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Page 2
Chapter 1: The Five Foundations of Economics
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Sample Questions
Q1) The opportunity cost of working rather than going to school is:
A) the cost of food and housing.
B) the cost of clothing and transportation.
C) zero because the person is earning an income by working.
D) the higher wages that come with additional education.
E) the annual wages earned by working.
Answer: D
Q2) A good is ________ if it takes even a small amount of time,energy,or money to acquire.
A) abundant
B) in shortage
C) cheap
D) scarce
E) virtually free
Answer: D
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Chapter 2: Model Building and Gains From Trade
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Q1) Consumer goods:
A) are produced today to be used to produce more goods in the future.
B) are produced today to be consumed at some point in the future.
C) are invested today in order to consume more today.
D) are produced today to be consumed today.
E) generate economic growth.
Answer: D
Q2) The ability of one producer to produce a good at a lower opportunity cost than another producer is called:
A) a normative statement.
B) a zero-sum game.
C) absolute advantage.
D) comparative advantage.
E) the law of increasing relative cost.
Answer: D
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Chapter 3: The Market at Work: Supply and Demand
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Sample Questions
Q1) If the cost of flour increases from $3 to $5 a bag,you could predict the supply curve for bagels to:
A) shift to the right.
B) shift to the left.
C) become steeper.
D) become flatter.
E) increase.
Answer: B
Q2) When the price of an hour of tutoring increases,
A) the demand for tutoring decreases.
B) the demand for tutoring increases.
C) the demand curve for tutoring shifts.
D) the quantity demanded for tutoring increases.
E) the quantity demanded for tutoring decreases.
Answer: E
Q3) Using a supply and demand model,show what happens to the equilibrium price and equilibrium quantity in the market for cigarettes when the government imposes a tax on their production.
Answer: 11ea592e_1c2b_03e5_af5c_21805785808b_TB4869_00
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Page 5
Chapter 4: Price Controls
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Sample Questions
Q1) If rent control is established at $1,750,what would be the amount of disequilibrium in the apartment market?
A) There would be a shortage of 23,500 apartments.
B) There would be a surplus of 23,500 apartments that is reduced, over time, as individuals rent apartments in the illegal black market.
C) There would be neither a shortage nor a surplus.
D) There would be a surplus of 23,500 apartments that is eliminated through individuals renting apartments in the illegal black market.
E) There would be a surplus of 23,500 apartments that increases as houses and condominiums are converted into apartments,
Q2) What would be the equilibrium price for used cars?
A) $100
B) $154,100
C) $21,474
D) $1,541
E) $72
Q3) Explain why a shortage occurs in a market where a binding price ceiling exists.Does a price ceiling improve the operation of the market?
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Chapter 5: The Efficiency of Markets and the Costs of Taxation
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Sample Questions
Q1) Social welfare (i.e.,the sum of producer and consumer surplus) is maximized when:
A) the government taxes most goods and services.
B) very few consumers and producers exist within a market.
C) the market reaches its equilibrium price and quantity.
D) supply and demand are perfectly inelastic.
E) the government imposes price controls.
Q2) Supply and demand both tend to become more elastic in the long run.What does this mean for the deadweight loss and tax revenue from a tax in the long run compared to the short run?
Q3) What areas represent the total cost to society,in terms of lost social welfare,created as a result of the tax?
A) B + C + F + G
B) A + B + F
C) C + E + G
D) A + B + C + E
E) F + G
Q4) Why is deadweight loss greater when goods with very elastic demands or supplies are taxed?
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Chapter 6: Introduction to Macroeconomics and Gross
Domestic Product
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Sample Questions
Q1) What was the GDP deflator in 2013?
A) 116.67
B) 108.57
C) 100
D) 119.44
E) 102.38
Q2) The difference between nominal GDP and real GDP is:
A) real output growth.
B) the price level.
C) nominal output growth.
D) long-run trend GDP.
E) average output growth.
Q3) A company produces a computer.They pay $100 for the keyboard and outer case,$200 for the internal hardware,and $100 for the software.They sell it to a consumer for $500.The contribution to GDP is:
A) $400.
B) $500.
C) $100.
D) $900.
E) $800.
Page 8
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Chapter 7: Unemployment
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Sample Questions
Q1) Labor force participation rates among teenagers are:
A) very low.
B) very high.
C) similar to labor force participation rates among adults.
D) higher than the labor force participation rates among adults.
E) not calculated by the Bureau of Labor Statistics.
Q2) Which of the following statements about unemployment is true?
A) To be officially unemployed, a person has to be in the labor force.
B) A person who is not working is officially unemployed.
C) A person who is working part-time but would like to be working full-time is considered to be unemployed.
D) A person who is retired and not looking for a job is still considered unemployed.
E) A person who is a full-time student and not seeking employment is still considered unemployed.
Q3) List and define the three different types of unemployment.
Q4) Explain the relationship between the unemployment rate and the business cycle.
Q5) Analyze the following statement: "Unemployment insurance can cause unemployment."
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Chapter 8: The Price Level and Inflation
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Sample Questions
Q1) As presented in the figure,one could correctly state that:
A) U.S.inflation and E.U.inflation were directly related, but E.U.inflation was generally more than U.S.inflation.
B) U.S.inflation and E.U.inflation were inversely related, but E.U.inflation was generally more than U.S.inflation.
C) U.S.inflation and E.U.inflation were directly related, but U.S.inflation was generally more than E.U.inflation.
D) U.S.inflation and E.U.inflation were inversely related, but U.S.inflation was generally more than E.U.inflation.
E) Both the United States and the European Union experienced deflation from about mid-1980 until about mid-1986.
Q2) Typically the largest percentage category in the consumer price index (CPI) is:
A) transportation.
B) education.
C) food and beverages.
D) housing.
E) medical care.
Q3) What is the underlying concept behind future price level uncertainty?
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10
Chapter 9: Savings, interest Rates, and the Market for Loanable Funds
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Sample Questions
Q1) In the figure,line 2 represents ____________,and at an interest rate of 6% ____________ exists.
A) the supply of loanable funds; a shortage of loanable funds
B) the quantity demanded of loanable funds; a surplus of loanable funds
C) the demand for loanable funds; a shortage of loanable funds
D) the quantity supplied of loanable funds; a surplus of loanable funds
E) the demand of loanable funds; a surplus of loanable funds
Q2) The gap between the real and nominal interest rate represents:
A) the inflationary premium.
B) the time preference
C) the difference from what the lender receives and the borrower pays.
D) consumption smoothing.
E) a surplus of loanable funds.
Q3) An increase in the supply of loanable funds means:
A) borrowers want to borrow more at every interest rate.
B) savers want to borrow more at every interest rate.
C) borrowers want to borrow more at a specific interest rate.
D) savers want to save more at a specific interest rate.
E) savers want to save more at every interest rate.
Page 11
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Chapter 10: Financial Markets and Securities
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Sample Questions
Q1) Coupon bonds are:
A) bonds with coupons attached that represent multiple interest rates.
B) bonds with coupons attached that represent periodic interest payments.
C) bonds with coupons attached that represent multiple bond issuers.
D) bonds with coupons attached that represent discounted repayments.
E) bonds with coupons attached that represent multiple bond holders.
Q2) Give one argument for and one argument against the Troubled Asset Relief Program (TARP).
Q3) Treasury securities:
A) are first bought and sold in secondary markets.
B) are first sold through auctions to large financial firms.
C) are only available to domestic buyers.
D) can never default.
E) are riskier than most other investment options.
Q4) Which of the following is a secondary stock market?
A) North American Stock Exchange
B) The S&P 500
C) New York Stock Exchange
D) The Dow Jones Industrial Average
E) The United States Stock Exchange
Page 12
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Chapter 11: Economic Growth and the Wealth of Nations
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Sample Questions
Q1) Which of the following would be classified as a natural resource?
A) obtaining a college degree
B) a factory
C) coal
D) a loaf of bread
E) wireless networking equipment
Q2) From 2009 to 2010,nominal gross domestic product (GDP) in the United States grew by 3.8%.Given that prices increased by 1% and per capita real GDP grew by 1.8%,we know that the population grew by:
A) 2%.
B) 1.8%.
C) 1%.
D) 4.8%.
E) 5.8%.
Q3) Competitive markets contribute significantly to economic growth because:
A) they encourage firms to exploit consumers via high prices.
B) people who want to participate don't face barriers to entry.
C) they employ high levels of government regulations.
D) they prevent foreign firms (with better ideas) from entering markets.
E) they create an incentive for firms to differentiate their products.
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Chapter 12: Growth Theory
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Sample Questions
Q1) A reason wealthy nations have continued to realize sustained growth is:
A) they participate in unfair trade practices with developing nations.
B) there has been continued technological advance.
C) they have passed their steady state.
D) they are not getting close to their steady state.
E) the steady state does not exist.
Q2) A country lowers trade barriers and institutes monetary and price stability.As a result,the annual growth rate of gross domestic product (GDP) increases from 2% to 4% per year.All else the same,in 35 years,GDP will be __________ as high as if there were no reform.
A) 50%
B) twice
C) three times
D) five times
E) four times
Q3) What policy prescriptions follow from the Solow growth model?
Q4) Net investment can be positive,negative,or zero.Is this true or false? Explain your answer.
A)True
B)False
Page 14
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Chapter 13: The Aggregate Demandaggregate Supply
Model
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Q1) Which of the following is true about recessions in the United States?
A) They are more common today than in the past.
B) They are rarer today than in the past.
C) They occur predictably about every two years.
D) They occur predictably about every eight years.
E) They are often caused by changes in government policy.
Q2) Suppose a hurricane destroys 20% of the capital stock in a country.In the long run,output will _________ and the price level will _________.
A) decrease; decrease
B) decrease; increase
C) decrease; remain unchanged
D) remain unchanged; remain unchanged
E) remain unchanged; increase
Q3) Explain and illustrate how the short-run and long-run equilibrium levels of output and the price level are affected by legislation that increases the employer's cost of providing health care to workers.
Q4) How does the interest rate effect explain the slope of the aggregate demand curve?
Q5) How does the wealth effect explain the slope of the aggregate demand curve?
Page 15
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Chapter 14: The Great Recession, the Great Depression, and Great Macroeconomic Debates
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Sample Questions
Q1) When considering how the economy works,classical economists hold that:
A) prices are sticky.
B) savings is a drain on demand.
C) the market tends toward instability and cyclical unemployment.
D) the long run is more significant than the short run.
E) the economy needs help in moving back to full employment.
Q2) If asked about the basic functioning of the economy,a classical economist would claim that:
A) the market tends toward stability and full employment.
B) the market tends toward instability and cyclical unemployment.
C) prices are sticky.
D) the economy needs help in moving back to full employment.
E) the short run is more significant than the long run.
Q3) During the Great Recession,real gross domestic product (GDP) decreased and unemployment increased,yet the price level did not change much at all.Using the aggregate demand and aggregate supply model,explain what caused this.
Q4) Assume that you are a classical economist.Someone asks you what the government should do when the economy falls into a recession.What is your response?
Page 16
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Chapter 15: Federal Budgets: the Tools of Fiscal Policy
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Sample Questions
Q1) By 1918,the top marginal income tax rate in the United States rose to:
A) 77%.
B) 76%.
C) 75%.
D) 74%.
E) 73%.
Q2) According to the table,which country appeared to be in the best fiscal shape in 2012?
A) United States
B) France
C) Italy
D) Belgium
E) Australia
Q3) If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion:
A) the federal debt was unaffected in that year.
B) the federal debt decreased $1.6 trillion.
C) the federal debt increased $1.6 trillion.
D) the federal budget surplus was $1.6 trillion.
E) the federal budget was balanced.
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Page 17
Chapter 16: Fiscal Policy
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Sample Questions
Q1) Contractionary fiscal policy occurs when:
A) the government decreases spending or increases taxes to slow economic expansion.
B) the government decreases spending or decreases taxes to slow economic expansion.
C) the government increases spending or increases taxes to slow economic expansion.
D) the government increases spending or decreases taxes to stimulate the economy toward expansion.
E) the Federal Reserve decreases money supply to stimulate the economy toward expansion.
Q2) Typical fiscal policy focuses squarely on:
A) aggregate demand.
B) short-run aggregate supply.
C) long-run aggregate supply.
D) government spending.
E) taxes.
Q3) Write a short explanation of supply-side fiscal policy; include a long-run aggregate supply curve as further illustration.
Q4) Draw the Laffer curve and discuss the two distinct regions of the graph.
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Page 18
Chapter 17: Money and the Federal Reserve
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Q1) If a local bank decides to convert some of its U.S.Treasury securities into cash,which it will hold in its vault,what impact will this have on the bank's balance sheet?
A) Reserves would increase, liabilities would stay the same, and owner's equity would decrease.
B) Reserves would increase, liabilities would stay the same, and owner's equity would increase.
C) Reserves would decrease, liabilities would decrease, and owner's equity would decrease.
D) Reserves would decrease, liabilities would stay the same, and owner's equity would decrease.
E) Reserves would stay the same, liabilities would increase, and owner's equity would decrease.
Q2) Why isn't the barter method of exchange more common in the U.S.economy?
A) The double coincidence of wants frequently occurs.
B) The level of commodity money is too low.
C) The level of commodity money is too high.
D) The double coincidence of wants infrequently occurs.
E) The amount of money in the economy is easy to measure.
Q3) What is quantitative easing? What are the benefits of this new monetary tool?
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Page 19
Chapter 18: Monetary Policy
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Q1) When central banks purposefully choose to only stabilize money and price levels through monetary policy,it is known as:
A) active monetary policy.
B) expansionary monetary policy.
C) contractionary monetary policy.
D) adaptive monetary policy.
E) passive monetary policy.
Q2) Answer the following questions using an aggregate demand-aggregate supply model when appropriate.
a. Use an aggregate demand-aggregate supply model to represent an economy at long-run equilibrium.
b. Show what happens on your model when aggregate demand increases.
c. Is the economy you modeled in an expansion or recession now?
d. Continuing with the economy you are building, what type of monetary policy would you suggest be taken by the Federal Reserve?
e. What will your suggested policy do to your aggregate demand-aggregate supply model in the short run?
Q3) Explain the theory behind the long-run Phillips curve and draw the long-run Phillips curve.
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Page 20
Chapter 19: International Trade
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Sample Questions
Q1) The World Trade Organization (WTO):
A) is an ecoterrorist group.
B) advocates for protection of domestic industries against cheap imports.
C) enforces international trade agreements.
D) protects consumers against exploitation by large multinational corporations.
E) protects workers against exploitation by large multinational corporations.
Q2) Spencer and Trevor produce cars and trucks.Spencer can produce 10 cars per hour and 5 trucks per hour.Trevor can produce 12 cars per hour and 4 trucks per hour.Who has the absolute advantage and comparative advantage in the production of cars and trucks?
Q3) Based on the scenario,Albert's opportunity cost of one hot dog is:
A) 3 hamburgers.
B) 1 1/2 hamburgers.
C) 6 hamburgers.
D) 4 hamburgers.
E) 8 hamburgers.
Q4) Briefly list and define the three major types of trade barriers most commonly used.
Q5) Would consumers benefit more from a tariff or a quota on imports?
Q6) What are the rationales for trade-restrictive policies?
Page 21
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Chapter 20: International Finance
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Sample Questions
Q1) A national government or central bank can ______________ its currency in foreign currency exchange markets by printing more of it.
A) reflate
B) recombine
C) demonetize
D) monetize
E) devalue
Q2) Pegged exchange rates can also be referred to as ____________ exchange rates.
A) variable
B) fixed
C) flexible
D) specialized
E) nominal
Q3) An increase in imports,ceteris paribus,indicates:
A) economic weakness.
B) an increase in net exports.
C) an increase in unemployment.
D) a decrease in gross domestic product (GDP).
E) a decrease in the trade deficit.
Q4) Why might a large capital account surplus be considered bad for an economy?
Page 22
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