Principles of Microeconomics Solved Exam
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Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools used to understand the behavior of individual consumers, firms, and markets. The course explores how scarcity and incentives influence decision-making, the role of supply and demand in determining prices and output, and the impact of government intervention on market outcomes. Key topics include consumer choice, production and costs, market structures such as competition and monopoly, efficiency, and welfare. Through real-world examples and theoretical models, students gain insights into how microeconomic principles guide choices in everyday life and inform public policy.
Recommended Textbook
Principles of Microeconomics 6th Edition by Robert H. Frank
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14 Chapters
1931 Verified Questions
1931 Flashcards
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Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. If the Chicago-Atlanta round-trip air fare were $350, should you use the coupon to go to Miami?
A)No, your economic surplus would be -$50.
B)No, your economic surplus would be -$100.
C)Yes, your economic surplus would be $50.
D)Yes, your economic surplus would be $400.
Answer: C
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Page 3
Chapter 2: Comparative Advantage
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Sample
Questions
Q1) One concern regarding the North American Free Trade Agreement (NAFTA) was that it would lead:
A)the total value of goods and services produced by the United States to fall.
B)wages in Mexico to rise.
C)highly skilled workers in the United States to lose their jobs.
D)unskilled workers in the United States to lose their jobs.
Answer: D
Q2) As the differences in opportunity costs between the U.S. and its trading partners increase, the potential gains from specialization and trade ______.
A)increase
B)decrease
C)stay the same
D)become unpredictable
Answer: A
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Chapter 3: Supply and Demand
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Sample Questions
Q1) You notice that your grocery store always has day-old bakery products at a reduced price. Why might that be?
A)At the original price, the quantity demanded was greater than the quantity supplied.
B)At the original price, there was a shortage of bakery products.
C)The original price was an equilibrium price because it was established in a free market.
D)At the original price, quantity supplied was greater than quantity demanded.
Answer: D
Q2) A market in disequilibrium would feature:
A)a stable price.
B)consumers able to purchase all they wish at the market price.
C)a stable quantity.
D)either excess supply or excess demand.
Answer: D
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Chapter 4: Elasticity
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Sample Questions
Q1) If the income elasticity for a particular good is negative, then:
A)the good is a normal good.
B)as income increases, consumers will tend to purchase more of the good.
C)as income increases, consumers will tend to purchase less of the good.
D)the good is a luxury good.
Q2) If the demand curve is horizontal, then demand is:
A)perfectly inelastic.
B)unit elastic.
C)elastic.
D)perfectly elastic.
Q3) The cross-price elasticity of demand between two goods that are substitutes can never be:
A)negative.
B)less than one.
C)greater than one.
D)positive.
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Chapter 5: Demand
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Sample Questions
Q1) The law of demand indicates that as the cost of an activity:
A)falls, less of the activity will occur.
B)rises, more of the activity will occur.
C)rises, the level of the activity may or may not increase depending on the individual.
D)rises, less of the activity will occur.
Q2) Suppose you want to maximize your total utility. If your marginal utility per dollar spent is higher for one good than for all others, then you should:
A)reallocate your spending away from that good.
B)reallocate your spending towards that good.
C)spend more on all goods.
D)spend less on all goods.
Q3) According to the law of demand, when the price of shoes ______ people will consume ______ shoes.
A)rises; more
B)falls; more
C)rises; the same amount
D)falls; the same amount
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Chapter 6: Perfectly Competitive Supply
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Sample Questions
Q1) A decrease in the price a firm receives for its output will lead the firm to:
A)expand output.
B)cut its payments to its factors of production.
C)leave output unchanged.
D)reduce output.
Q2) Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If the total cost of its fixed factors of production falls from $500 to $400, the firm will:
A)expand its output.
B)lower its price.
C)earn greater profits or smaller losses.
D)earn smaller profits or larger losses.
Q3) The most important challenge facing a firm in a perfectly competitive market is deciding:
A)whether to maximize its profits.
B)how much to produce.
C)what price to charge.
D)whether to advertise.
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8
Chapter 7: Efficiency, Exchange, and the Invisible Hand in Action
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Sample Questions
Q1) Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Christine's opportunity cost of working as a consultant last year was ______.
A)$15,000
B)$51,000
C)$40,000
D)$36,000
Q2) If a firm is earning zero economic profit, then:
A)the firm's revenues are sufficient to pay its explicit costs, but not its implicit costs.
B)the owner will not be able to pay himself or herself a salary.
C)the firm will shut down in the long run, but will continue to operate in the short run.
D)the firm's accounting profit is equal to the firm's implicit costs.
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9
Chapter 8: Monopoly, Oligopoly, and Monopolistic Competition
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Sample Questions
Q1) Both a perfectly competitive firm and a monopolist find that:
A)price and marginal revenue are the same.
B)they can sell as many units of output as they want at the market price.
C)it is best to expand production until the benefit and the cost of the last unit produced are equal.
D)price is less than marginal revenue.
Q2) A firm whose production process exhibits constant returns to scale would find that if it doubled all of its inputs, its output would ______.
A)double
B)more than double
C)less than double
D)remain constant
Q3) A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ______.
A)increasing
B)low
C)high
D)decreasing
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Chapter 9: Games and Strategic Behavior
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Sample Questions
Q1) A prisoner's dilemma illustrates situations in which:
A)resources with the lowest opportunity cost should be used first.
B)everyone does best when each person specializes in the activities in which he or she has a comparative advantage.
C)efficiency is an important social goal.
D)there is a conflict between the narrow self-interest of individuals and the broader interests of a group.
Q2) When players cannot achieve their goals because they are unable to make credible threats or promises, the situation is called a:
A)prisoner's dilemma.
B)Nash equilibrium.
C)failure of dominant strategies.
D)commitment problem.
Q3) Most cartels cease to be effective because:
A)of strict enforcement of antitrust legislation.
B)of the incentive to cheat on the cartel agreement.
C)the dominant firm buys out the other firms.
D)consumers discover the cartel and buy from other firms instead.
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Chapter 10: Externalities and Property Rights
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Sample Questions
Q1) Which of the following is NOT an example of an activity with external benefits?
A)Eating a sandwich in the dining hall
B)Planting flowers in your front yard
C)Installing smoke alarms in your house
D)Having your car's faulty exhaust system repaired
Q2) Your economics professor has announced that he or she will assign final grades as follows: the top 20 percent of students will get an A, the bottom 20 percent of students will get an F, and everyone else will get a C. You would expect that, as the semester progresses, students who really care about getting an A will:
A)study less and less to maintain low standards.
B)try to forget about the grading scheme.
C)engage in a positional arms race, studying more and more.
D)maintain a stable agreement to not study for exams.
Q3) According to the textbook, social norms:
A)are usually ignored.
B)are a type of positional externality.
C)can help curtail positional arms races.
D)are never effective at limiting positional arms races.
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Page 12
Chapter 11: The Economics of Information
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Sample Questions
Q1) In the absence of laws requiring individuals to purchase insurance, insurance is most attractive to:
A)the poor.
B)the wealthy.
C)those with lowest likelihood of filing a claim.
D)those with the highest likelihood of filing a claim.
Q2) Suppose Joe has a two-year old Honda Civic that's in excellent condition and that he would be willing to sell for $13,000. Lauren, who is risk-neutral, is considering whether to buy Joe's car. She's willing to pay $14,000 for a two-year Honda Civic that's in excellent condition and only $10,000 for one that's not in excellent condition. Lauren cannot tell whether Joe's car is in excellent condition. She believes that only 20 percent of two-year old Hondas for sale in the market are in excellent condition and that the other 80 percent are not in excellent condition. To Lauren, Joe's car looks just like every other two-year Honda that's for sale. What's the most Lauren is willing to pay for Joe's car?
A)$10,000
B)$10,800
C)$13,000
D)$14,000
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Chapter 12: Labor Markets, Poverty, and Income Distribution
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Sample Questions
Q1) Suppose Sarah has been offered a position as web designer at Firm A and Firm B. Both firms require their employees to work for 9 hours a day, but Firm A allows its employees to have a flexible work schedule, while Firm B requires its employees to be at work from 9am to 5pm. Otherwise, the jobs are identical. You would expect:
A) Sarah's wages to be the same at both firms.
B) Sarah's wages to be higher at Firm A than at Firm B.
C) Sarah's wages to be lower at Firm A than at Firm B.
D) Sarah to turn down both job offers.
Q2) When the government transfers resources to the poor in the form of a good or service, it is called:
A)the Earned Income Tax Credit (EITC).
B)Temporary Assistance to Needy Families (TANF).
C)an in-kind transfer.
D)a regressive tax.
Q3) The general rule governing the hiring of workers is to:
A)minimize average labor costs.
B)equate marginal labor costs to marginal labor benefits.
C)equate total labor costs to total labor benefits.
D)maximize the marginal product of labor.
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Page 14
Chapter 13: The Environment, Health, and Safety
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Sample Questions
Q1) Pat has just graduated from college and has two job offers. One pays $45,000 and requires that Pat supervise employees doing construction work on a busy highway. The other is an office job that pays $40,000. Chris has received the same offers from the same firms. Pat values the added safety of the office job at $6,000 per year, and Chris values the added safety of the office job at $3,000 per year. Suppose that the agency that regulates highway safety requires that the highway construction firm provide additional safety precautions. After the changes, Chris places no additional value on working at the office, and Pat values the added safety of the office job by $2,000 per year. If the safety precautions cost the firm $3,000 per year and the highway construction firm reduces salaries by $3,000 to $42,000, then:
A)Pat will prefer the office job, and Chris will be indifferent between the two jobs.
B)both will prefer the highway job.
C)both will prefer the office job.
D)Chris will prefer the highway job, and Pat will be indifferent between the two jobs.
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Page 15
Chapter 14: Public Goods and Tax Policy
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Sample Questions
Q1) A good or service that is rival but nonexcludable is called a ______, and a good or service that is nonrival but excludable is called a ______.
A)public good; private good
B)commons good; public good
C)commons good; collective good
D)public good; collective good
Q2) Suppose the latest Hunger Games movie first played in theaters, where it sold out during its opening week. Several months later it was available on pay-per-view TV. Two years later it was shown on CBS, a broadcast television network. When the movie was playing in theaters, it was a ______ good; when it was available on pay-per-view TV, it was a ______ good; and when it was shown on CBS, it was a ______ good.
A)private; public; public
B)private; collective; public
C)collective; private; commons
D)collective; commons; public
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