Principles of Microeconomics
Midterm Exam
Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools used to understand economic decision-making at the individual, household, and firm levels. The course explores how scarcity and incentives influence consumer and producer choices within markets, the mechanisms of supply and demand, elasticity, and the role of government intervention. Key topics include market structures, resource allocation, price determination, efficiency, and the impact of public policy on market outcomes. By the end of the course, students develop a solid foundation for analyzing real-world economic issues and the functioning of modern markets.
Recommended Textbook
Microeconomics 7th Edition by R.
Glenn Hubbard
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18 Chapters
4654 Verified Questions
4654 Flashcards
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) A grocery store sells a bag of potatoes at a fixed price of $2.30.Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?
A)marginal revenue
B)gross earnings
C)pure profit
D)marginal costs
E)net benefit
Answer: A
Q2) Refer to Table 1-3.What is Santiago's marginal cost if he decides to stay open for an extra two hours instead of one hour?
A)$18
B)$36
C)$38
D)$102
Answer: A
Q3) What is a marginal benefit?
Answer: Marginal benefit is the additional benefit received from continuing with an activity.
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Which of the following statements is true?
A)Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product.
B)Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product.
C)Individuals who have never been the best at doing anything perform all tasks at a higher opportunity cost than others.
D)Individuals who have never been the best at doing anything must have an absolute advantage in at least ones task.
Answer: B
Q2) Refer to Figure 2-11.One segment of the circular flow diagram in the figure shows the flow of wages and salaries from market K to economic agents M.What is market K and who are economic agents M?
A)K = factor markets; M = households
B)K = product markets; M = households
C)K = factor markets; M = firms
D)K = product markets; M = firms
Answer: A
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Due to wildfires in Northern California, agricultural experts predict a 30 percent decline in this year's grape harvest.What happens in the California wine market as a result of this announcement?
A)The demand curve for California wine shifts to the left in anticipation of higher prices in the future.
B)The demand curve for California wine shifts to the right in anticipation of higher prices in the future.
C)The supply curve for California wine shifts to the right in anticipation of higher prices in the future.
D)The supply curve for California wine shifts to the left in anticipation of lower quantities in the future.
Answer: B
Q2) In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplied will decrease until equilibrium is reached.
A)True
B)False
Answer: True
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Arthur buys a new cell phone for $150.He receives consumer surplus of $150 from the purchase.What value does Arthur place on his cell phone?
A)$0
B)$150
C)$225
D)$300
Q2) Paul goes to Dick's Sporting Goods to buy a new tennis racquet.He is willing to pay $200 for a new racquet, but buys one on sale for $125.Paul's consumer surplus from the purchase is
A)$325.
B)$200.
C)$125.
D)$75.
Q3) Refer to Figure 4-8.The price buyers pay after the tax is
A)$7.
B)$20.
C)$22.
D)$27.
Q4) What area on a supply and demand graph represents consumer surplus?
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because
A)the marginal private benefit of harvesting tuna is higher than the marginal social benefit of harvesting it.
B)the marginal private benefit of harvesting tuna is lower than the marginal social benefit of harvesting it.
C)the marginal social cost of harvesting the fish is lower than the marginal private cost.
D)the marginal private cost of harvesting the fish is lower than the marginal social cost.
Q2) The "tragedy of the commons" refers to the phenomenon where
A)individuals are free riders.
B)people overuse a common resource.
C)people do not internalize an externality.
D)there is rivalry in consumption.
Q3) "When it comes to public goods, individuals do not reveal their true preferences because it is not in their self-interest to do so." Evaluate this statement.
Q4) What is an externality?
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) An increase in the demand for green tea raises the price of green tea from $16 a pound to $20 a pound.As a result, quantity supplied increases by 30 percent.Using the midpoint formula, what is the value of the price elasticity of supply?
A)1.35
B)1.875
C)2.22
D)7.5
Q2) If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is A)unit elastic.
B)perfectly elastic.
C)inelastic.
D)elastic.
Q3) If the income elasticity for canned food is 0.8, then canned food is an inferior good.
A)True
B)False
Q4) Define the economic concept of elasticity.
Q5) What is the relationship between price elasticity of demand and total revenue?
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce
A)the problem of adverse selection.
B)the moral hazard problem.
C)sunk costs.
D)asymmetric information.
Q2) In a market with positive externalities, the market equilibrium price will be less than the efficient equilibrium price.
A)True
B)False
Q3) The increase in the number of surgeries performed outside hospitals will tend to shift the ________ curve for medical services to the ________.
A)demand; left
B)demand; right
C)supply; left
D)supply; right
Q4) What are the main sources of health insurance in the United States?
Q5) What is the principal-agent problem?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Traditionally, Wall Street investment banks had been organized as partnerships, but by 2000 they had converted to being publicly traded companies.As partnerships, the principal-agent problem is ________ because there is ________ separation of ownership from control.
A)reduced; much
B)reduced; little
C)increased; much
D)increased; little
Q2) Assume you set up a sole proprietorship and your lawyer tells you that as the owner you will face unlimited liability.What does that mean?
A)You are liable for organizing the business.
B)You could stand to lose your personal wealth if the business goes bankrupt.
C)There is no legal responsibility of the business in case a customer sues, as the business is legally untouchable.
D)None of these explain what unlimited liability means.
Q3) How can a sole proprietorship raise funds needed for firm expansion?
Q4) How is economic profit calculated?
Q5) Who decides control of a corporation?
Q6) How is accounting profit calculated?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) One of the main sources of comparative advantage is internal economies.
A)True
B)False
Q2) Measuring the impact of a quota or tariff on the U.S.economy is an example of ________.Stating that a quota or tariff should be eliminated is an example of ________.
A)statistical analysis; economic analysis
B)positive analysis; normative analysis
C)econometric analysis; protectionism
D)trade analysis; an opinion
Q3) Refer to Table 9-6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Denmark gain compared to the "without trade" numbers?
A)30
B)100
C)150
D)900
Q4) What is a tariff?
Q5) What does it mean for a country to have an absolute advantage in producing a product?
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) A consumer's budget constraint is
A)the limited income that a consumer has to spend on goods and services.
B)the rate at which the consumer must give up one good to purchase an additional unit of the other goods in the market.
C)the price ratio a consumer faces in the marketplace.
D)the extent to which one's preferences are limited by one's income.
Q2) If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe
A)is maximizing total utility.
B)should buy more apples and fewer oranges.
C)should buy more oranges and fewer apples.
D)should buy fewer oranges and fewer apples.
Q3) To maximize utility consumers should buy goods and services to the point where the marginal utility of each item consumed is maximized.
A)True
B)False
Q4) The marginal rate of substitution is the slope of an indifference curve.
A)True
B)False
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Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) As output increases, the distance between average total cost and average variable cost increases.
A)True
B)False
Q2) The marginal rate of technical substitution is measured by
A)the slope of the isoquant.
B)the relative input prices.
C)the slope of the isocost line.
D)the ratio of the product's price to the product's cost of production.
Q3) If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale.
A)True
B)False
Q4) What is the difference between total costs, variable costs, and fixed costs?
Q5) Refer to Table 11-1.What is the marginal product of the 4th worker?
A)137 pounds
B)50 pounds
C)12.5 pounds
D)5 pounds
Q6) What is the marginal product of labor and what is the average product of labor.
Page 13
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) If the market price is $40, the average revenue of selling five units is
A)$8.
B)$20.
C)$40.
D)$200.
Q2) If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then
A)firms are breaking even.
B)new firms are attracted to the industry.
C)existing firms will exit the industry.
D)market supply will remain constant.
Q3) Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue
A)exceeds his implicit costs.
B)exceeds his nonmonetary opportunity costs.
C)exceeds his variable costs.
D)exceeds his marginal costs.
Q4) What is meant by the term "long-run competitive equilibrium"?
Q5) Under what conditions should a competitive firm shut down in the short run?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a
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Sample Questions
Q1) Refer to Figure 13-11.What is the allocatively efficient output for the firm represented in the diagram?
A)Q units
B)Q units
C)Q units
D)Q units
Q2) Brand management refers to
A)picking a brand name for a new product that will attract attention.
B)the efforts to maintain the differentiation of a product over time.
C)efforts to reduce the cost of production.
D)selling the right to use a brand name in a particular market.
Q3) A monopolistically competitive firm maximizes profit where
A)price = marginal revenue.
B)price > marginal cost.
C)marginal revenue > average revenue.
D)total revenue > marginal cost.
Q4) There are many wheat farmers in the world, and there are also many McDonald's restaurants in the world.Why, then, does a McDonald's restaurant face a downward-sloping demand curve while a wheat farmer faces a horizontal demand curve?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Collusion is common in oligopoly and monopolistically competitive industries.
A)True
B)False
Q2) Which of the following statements about the prisoner's dilemma is false?
A)The prisoner's dilemma in a one-shot game leads to a noncooperative, equilibrium outcome.
B)The prisoner's dilemma in repeated games could lead to cooperation especially if there is some enforcement mechanism that punishes a player who does not cooperate.
C)Players caught in a prisoner's dilemma act in selfish ways that lead to an equilibrium that is sub-optimal.
D)The prisoner's dilemma game rarely ends in a non-cooperative equilibrium.
Q3) On January 2, 1971, all cigarette advertising was banned on U.S.television and radio stations.Assuming that advertising is a prisoner's dilemma, and that if one company advertises, its competitors will also choose to spend money to advertise, did this ban likely increase or decrease the profits of cigarette companies in 1971? Briefly explain.
Q4) Most economists are concerned about entry barriers.Why is this so important to them?
Q5) Firms in an oligopoly are said to be interdependent.What does this mean?
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Chapter 15: Monopoly and Antitrust Policy
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Q1) If a per-unit tax on output sold is imposed on a monopoly's product, the monopolist will increase its market price by the full amount of the tax.
A)True
B)False
Q2) Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.
A)True
B)False
Q3) Market power refers to
A)the ability of consumers to dictate what products should be produced.
B)the ability of a firm to advertise its product and succeed in selling more output.
C)the ability of a firm to sell at a lower price than rival sellers.
D)the ability of a firm to charge a price higher than the marginal cost of production.
Q4) Market power in the United States causes a huge loss of economic efficiency.
A)True
B)False
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Which of the following is a reason why airline yield management is an effective method to increase revenue?
A)because airlines have invested heavily in developing computer models that identify optimal pricing strategies in the various market segments
B)because airlines have successfully induced customers to reveal their resources and preferences by offering them different versions of the product such as business class and coach plane tickets
C)because a ticket is a contract to transport a specific person, and is not transferable D)because airlines have a monopoly in long-distance carriage
Q2) The law of one price holds exactly only if there are transactions costs associated with buying a product in one location and selling it in another location.
A)True
B)False
Q3) In an optimal two-part tariff pricing schedule, consumer surplus is zero.
A)True
B)False
Q4) Are sellers who practice arbitrage taking advantage of buyers?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) A decrease in the amount of human capital acquired by workers will lead to decrease in the supply of labor.
A)True
B)False
Q2) If the market wage rate increases, a firm's labor demand curve does not shift but the labor supply curve shifts to the right.
A)True
B)False
Q3) Refer to Table 17-2.The firm represented in the diagram
A)has market power in the factor market.
B)has market power in the output market.
C)has market power in both the factor and product market.
D)has no market power in the factor or product market.
Q4) Which of the following is a reason why some firms do not use commission pay?
A)It gives workers incentive to produce more.
B)It increases firm profits.
C)It is difficult to measure the output and attribute output to a particular worker.
D)The best workers stay and less productive workers leave.
Q5) Why are there superstar baseball players but no superstar chiropractors?
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Q1) The horizontal-equity principle of taxation is not easy to use in practice because A)some people engage in rent seeking to reduce their taxes below the level other people pay.
B)people can use tax loopholes to reduce their incomes below the incomes of other taxpayers.
C)different people receive different levels of government benefits even if their incomes are the same.
D)it is difficult to determine whether people are in the same economic situation.
Q2) Both Presidents Kennedy and Reagan proposed significant cuts in income taxes because
A)at the time of their proposals the federal government was experiencing budget surpluses; that is, tax revenue exceeded government expenditures.
B)they wanted to offset their proposals to increase other taxes.
C)state governments had increased their taxes and they believed the tax cuts they proposed would result in most citizens paying about the same total state and federal taxes.
D)they believed that the tax cuts would enhance economic efficiency.
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