Principles of Microeconomics Solved Exam Questions
Course
Introduction
Principles of Microeconomics introduces students to the fundamental concepts of economic analysis at the individual and firm level. The course covers topics such as supply and demand, market equilibrium, consumer behavior, production decisions, costs, market structures (including perfect competition, monopoly, and oligopoly), and the role of government in addressing market failures. Through real-world examples and analytical tools, students develop an understanding of how markets function, how prices are determined, and how economic agents make choices under conditions of scarcity. This foundational course provides the essential framework for further study in economics and related fields.
Recommended Textbook
Foundations of Microeconomics 7th Edition by Robin Bade
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Chapter 1: Getting Started
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Sample Questions
Q1) Of the three major economic questions,which of the following is the best example of a "How?" question?
A) Should we produce more heavy fleece coats?
B) Should we collect tolls on turnpikes using human toll collectors or mechanized toll machines?
C) Should we build log homes or build factories from bricks?
D) Should we spend more on health care?
E) Should we eat more oatmeal?
Answer: B
Q2) Rather than go out to eat by yourself,you decide to stay at home and fix dinner for yourself and your two roommates.Your roommates applaud your decision.Your roommates tell you that your decision to eat at home has no opportunity cost because you already have all the dinner ingredients in your pantry.Is this comment correct? Answer: Your roommates' comment is incorrect.The opportunity cost of preparing dinner at home is whatever is the best thing you give up,which,given your choice boiled down to staying home or going out,is going out to eat.Hence the opportunity cost of fixing dinner at home is going out to eat.
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Page 3
Chapter 2: The USand Global Economies
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Sample Questions
Q1) The difference between consumption and capital goods is that
A) only big corporations can afford capital goods.
B) capital goods are used to produce additional goods while consumption goods are not.
C) capital goods are provided by the government.
D) consumption goods can be enjoyed by many people at the same time.
E) it is illegal to export capital goods.
Answer: B
Q2) Which of the following is <u>NOT</u>directly related to human capital?
A) a college education
B) a summer internship
C) knowledge of computer programing
D) an MRI machine
E) an understanding of real estate markets
Answer: D
Q3) Draw a circular flow diagram with households and firms and without government.Label the markets and the flows in the circular flow diagram.
Answer: 11ea36bd_5285_2e07_9cc4_5172da3bc554_TB1459_00 A circular flow diagram with the markets and flows labeled is in the figure above.
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Page 4
Chapter 3: The Economic Problem
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Sample Questions
Q1) On a production possibilities frontier,500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier,300 pounds of apples and 1,300 pounds of bananas can be produced.Between these points,what is the opportunity cost of producing a pound of apples?
A) 2 pounds of bananas
B) 100 pounds of bananas
C) 2 pounds of apples
D) 0.5 of a pound of bananas
E) 5/12 of a pound of bananas
Answer: D
Q2) In the table above,Jack's opportunity cost for 1 pound of food is ________ and his opportunity cost for 1 pound of clothing is ________.
A) 1 pound of clothing; 4 pounds of food
B) 1/2 of a pound of clothing; 2 pounds of food
C) 1/3 of a pound of clothing; 3 pounds of food
D) 2 pounds of clothing; 2 pounds of food
E) 1 pound of food; 1 pound of clothing
Answer: B
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Page 5
Chapter 4: Demand and Supply
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Sample Questions
Q1) When the price of rice rises,
A) the market quantity supplied of rice increases.
B) the market supply of rice increases.
C) the market quantity of rice demanded decreases.
D) Both A and C are true.
E) Both A and B are true.
Q2) What is the "quantity demanded"?
A) the amount of a good people desire
B) the amount of a good people are able and willing to buy during a specific time period and at a given price
C) the amount of a good people are able and willing to buy at all possible prices
D) the maximum amount of a good that can be consumed during a specific time period
E) the minimum amount of a good that people are willing to buy during a specific time period and at a given price
Q3) When does a surplus occur?
Q4) In the figure above,if the price is $8 a unit,is there a shortage or surplus and what is the amount of any shortage or surplus?
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Chapter 5: Elasticities of Demand and Supply
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Sample Questions
Q1) The greater the amount of time that passes after a price change,the A) less elastic supply becomes.
B) more elastic supply becomes.
C) more negative supply becomes.
D) steeper the supply curve becomes.
E) None of the above answers is correct.
Q2) Demand is elastic if
A) consumers respond strongly to changes in the product's price.
B) a large percentage change in price brings about a small percentage change in quantity demanded.
C) a small percentage change in price brings about a small percentage change in quantity demanded.
D) the quantity demanded is not responsive to price changes.
E) the demand curve is vertical.
Q3) The table above gives the demand schedule for a good.Using the midpoint method,find the price elasticity of demand between points A and B,between B and C,between C and D,and between D and E.
Q4) List factors that increase the price elasticity of supply.
Q5) What are the three cases for the price elasticity of demand? Briefly define each.
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) Auditors working for a large accounting firm are often away from the office.When they are in the office,they are allowed to use any desk that is available.Which method is used to allocate desks?
A) lottery
B) first-come, first-served
C) command
D) contest
E) sharing equally
Q2) When the marginal benefit and marginal cost of sodas are equal,then
A) the production of sodas might be allocatively efficient but it is definitely production inefficient.
B) the allocatively inefficient amount of sodas is being produced.
C) more sodas should be produced to reach the allocatively efficient quantity.
D) fewer sodas should be produced to reach the allocatively efficient quantity.
E) the allocatively efficient amount of sodas is being produced.
Q3) The supply curve is the same as another curve.What other curve is the same as the supply curve? Why are the curves the same?
Q4) Why is the demand curve the same as the marginal benefit curve?
Q5) What is producer surplus?
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Chapter 7: Government Actions in Markets
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Sample Questions
Q1) The above figure shows the domestic market for tomatoes.Suppose this market is isolated from global competition and there is a support price set at $16.In this figure,what area equals the deadweight loss?
A) area B + area C + area D + area F
B) area E
C) area C + area D + area E + area G
D) area A
E) area F
Q2) What is a price support program in an agricultural market? Explain its impact on a market.
Q3) In the figure above,if the minimum wage is $8 per hour,then
A) resources used in job-search activity increase compared to the situation before the minimum wage.
B) it is legal to hire workers for a wage below the minimum wage because otherwise unemployment would result.
C) the deadweight loss is minimized.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Q4) Explain why a price floor set below the equilibrium price is ineffective.
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Chapter 8: Taxes
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Sample Questions
Q1) Suppose everybody paid the same total amount of tax regardless of their income.This type of tax system would be
A) regressive.
B) proportional.
C) progressive.
D) marginal.
E) efficient.
Q2) If the supply of land is perfectly inelastic,what is the deadweight loss from a tax on land?
Q3) Based on the figure above,after the tax is imposed,the price received (and kept)by the seller is ________ per MP3 player.
A) $95
B) $105
C) $100
D) $110
E) $90
Q4) What is the difference in the tax incidence between imposing the Social Security tax on workers and imposing the same tax on employers?
Q5) Describe the effects of an increase in the tax on labor income.
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Chapter 9: Global Markets in Action
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Sample Questions
Q1) Why are the losers from free international trade not fully compensated for their losses?
A) The amount of compensation needed would bankrupt the government.
B) The people who claim to lose are also the same ones who benefit.
C) Identifying all losers and the size of their losses is extremely difficult.
D) No one actually loses from international trade.
E) The losers are foreigners.
Q2) A tariff is a tax
A) on an exported good.
B) on an imported good.
C) imposed on all traded goods.
D) imposed on people's income.
E) imposed on the difference between the value of the goods a firm imports and the value of the goods it exports.
Q3) How do imports affect buyers' consumer surplus?
Q4) Economics demonstrates that opening up unrestricted free international trade is beneficial to all nations.However,are there any losers from such a policy change?
Q5) How do exports affect buyers' consumer surplus?
Q6) How do imports affect sellers' producer surplus?
Page 11
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Chapter 10: Externalities
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Sample Questions
Q1) The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.Suppose the marginal private cost of the 5th concert is $10,000.Then,for the 5th concert,the
A) marginal external cost equals $30,000.
B) marginal social cost equals $30,000.
C) marginal external cost equals the marginal private cost.
D) marginal external cost equals $40,000.
E) marginal external cost equals $10,000.
Q2) Use the idea of external costs to explain why some cities have laws against late-night rock concerts.
Q3) In the figure above,when the market is unregulated and in equilibrium,marginal social cost ________ marginal benefit,and the quantity of chemical produced is
A) exceeds; above the efficient quantity
B) exceeds; below the efficient quantity
C) is below; above the efficient quantity
D) is below; below the efficient quantity
E) equals; efficient
Q4) Discuss the difference between a private cost and a social cost.
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Which of the following goods is excludable and nonrival?
A) food
B) air
C) the Internet
D) a streetlight
E) a two liter bottle of Mountain Dew
Q2) Which of the following is an example of a pure private good?
A) national defense
B) the Florida State Turnpike, a non-congested toll highway
C) Lake Erie
D) the Metropolitan Museum of Art in New York City
E) the new heat pump your neighbor bought for her house
Q3) The fact that technology prevents Sam in Nevada from using the email account of Samantha in Virginia means that email is an example of
A) a good that is nonexcludable.
B) a good that is excludable.
C) a public good.
D) the free-rider problem.
E) the tragedy of the commons.
Q4) What are the differences between public goods and private goods?
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Chapter 12: Markets with Private Information
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Sample Questions
Q1) Bill purchases property insurance for his office building,which includes coverage for fire damage.The policy offers premium discounts for smoke detectors,fire alarms,fire extinguishers and sprinkler systems.This is an incentive system to help avoid
A) adverse selection.
B) adverse signals.
C) moral hazard.
D) screening.
E) None of the above answers is correct.
Q2) Private information
A) can create adverse selection but plays no role in creating moral hazard.
B) explains why drivers screen auto insurance companies.
C) means that unless it is overcome, the equilibrium in the market will be a separating equilibrium.
D) plays a role in the markets for health-care insurance and auto insurance.
E) cannot explain why the U.S. expenditures on health care per person exceed those in other major nations.
Q3) What is private information and what problems does it create?
Q4) How can a warranty at the seller's expense signal that a product is high quality?
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Chapter 13: Consumer Choice and Demand
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Sample Questions
Q1) When Chris maximizes his total utility,then his entire available budget is allocated in such a way that the
A) marginal utility of all goods is equal.
B) marginal utility per dollar is equal for all goods.
C) marginal utility is as large as possible for goods.
D) marginal utility will start decreasing if it consumes fewer goods. E) quantities consumed of each good are equal.
Q2) Based on the figures above,it is the case that the consumer surplus from water ________ the consumer surplus from diamonds and the marginal utility from water ________ the marginal utility from diamonds.
A) is equal to; is equal to B) is larger than; is equal to C) is larger than; is larger than D) is larger than; is smaller than E) is smaller than; is smaller than
Q3) Kevin allocates his budget according to rules of utility maximization.What are the rules of utility maximization and how do they explain the paradox of value,which is that diamonds are expensive but useless,while water is inexpensive but essential?
Q4) What is "marginal utility"?
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Chapter 14: Production and Cost
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Sample Questions
Q1) Decreasing marginal returns
A) can be avoided if a firm watches costs.
B) affect all firms, but at different production levels.
C) affect all firms at the same level of production.
D) disappear when the firm produces a large enough level of output.
E) mean that the average product of labor starts as a negative number and then becomes positive.
Q2) If Melissa owns a software company that incurs no fixed costs,then
A) her total cost equals her total variable cost.
B) she will earn an economic profit.
C) her total variable cost is less than her total cost.
D) her total cost equals zero.
E) her marginal cost must equal zero.
Q3) To produce 10 shirts,the total cost is $80; to produce 11 shirts,the total cost is $99.The average total cost of the 11th shirt is equal to
A) $8.
B) $9.
C) $80.
D) $99.
E) $19.
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Chapter 15: Perfect Competition
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Q1) Which of the following will increase a perfectly competitive seller's short-run supply and shift the firm's short-run supply curve rightward?
A) an increase in the market price
B) a decrease in average fixed costs
C) a decrease in marginal cost
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Q2) Does a perfectly competitive producer have any incentive to lower its price so it is below the current market price? Explain your answer
Q3) If firms in a perfectly competitive market are incurring economic losses,then as time passes firms ________ and the market ________.
A) enter; demand curve shifts leftward
B) enter; supply curve shifts rightward
C) exit; demand curve shifts leftward
D) exit; supply curve shifts rightward
E) exit; supply curve shifts leftward
Q4) The above diagram shows the cost curves for a perfectly competitive wheat farmer.At what price does the wheat farmer shut down?
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Chapter 16: Monopoly
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Sample Questions
Q1) Fixed costs are ________ in a natural monopoly,so average total cost ________ as output increases.
A) large; increases
B) large; decreases
C) small; increases
D) small; decreases
E) nonexistent; decreases
Q2) Why do publishers print the first edition of a book by a popular author in hard cover and not in paperback?
A) Hard cover books are long lasting and paperbacks can rip easily.
B) Readers who want to read the book as soon as it comes out will be willing to pay a higher price compared to those who can wait for the paperback edition.
C) A hardcover is the publishers' way of rewarding the avid readers.
D) Publishers are not sure of the demand.
E) Publishers cannot price discriminate.
Q3) What potential problem is there with rate of return pricing?
Q4) Describe the three general types of barriers.
Q5) What is a legal barrier to entry?
Q6) What are the conditions that define a monopoly?
Page 18
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) In monopolistic competition,there is inefficiency because price is greater than marginal cost.What brings about this inefficiency?
A) high concentration, as indicated by the large concentration ratio
B) product differentiation
C) freedom of entry and exit
D) marginal cost rises as more output is produced
E) the fact there are many firms in the market
Q2) Concentration ratios
A) refer to the concentration of customers in a certain area.
B) measure whether the market is dominated by a small number of firms.
C) measure the concentration of a large number of firms in a certain area.
D) have high values for perfect competition.
E) measure how concentrated a firm's sales are among certain types of goods.
Q3) The square of the percentage market share of each firm summed over the 50 largest firms in a market is the
A) elasticity of demand value.
B) elasticity of supply value.
C) Herfindahl-Hirschman Index.
D) four-firm concentration ratio.
E) fifty-firm concentration ratio.
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Chapter 18: Oligopoly
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Sample Questions
Q1) Economists are skeptical that ________ occurs very often because firms engaging in it are certain to suffer an economic loss for a period of time.
A) a tying arrangement
B) inefficient resale price maintenance
C) predatory pricing
D) efficient resale price maintenance
E) exclusive dealing
Q2) Which of the following provisions requires a firm to buy all of a particular item from a single firm?
A) tying arrangement
B) requirements contracts
C) exclusive dealing
D) territorial confinement
E) quantity discrimination
Q3) What three characteristics do all games have in common?
Q4) The above figure shows the market for the three moving companies in a small nation.If the movers act as perfect competitors,what is the price per mile and the number of miles per year? If the movers collude and act as a single monopoly,what is the price per mile and the number of lines per year?
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Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) Which of the following shift the supply of labor curve leftward?
i.an advancement in technology
ii.a decrease in the price of the product that the labor produces
iii.a decrease in the adult population
A) i and ii
B) ii and iii
C) ii only
D) iii only
E) i, ii, and iii
Q2) Using the above table,if the wage rate for a worker in a baseball bat manufacturing plant is $18 an hour,and the price of a bat is $3,then the firm will hire ________ workers.
A) 1
B) 2
C) 3
D) 4
E) More information is needed to determine how many workers will be hired.
Q3) What is the value of marginal product of labor? What is the formula that can be used to calculate? How does the value of the marginal product affect how much labor a firm hires?
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Page 21
Chapter 20: Economic Inequality
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Sample Questions
Q1) Suppose a supply curve for high-skilled labor is drawn in the same graph as a supply curve for low-skilled labor.The vertical distance between these two curves represents the A) wage rate paid to a high-skilled worker.
B) wage rate paid to a low-skilled worker.
C) compensation the high-skilled worker requires for the cost of acquiring the skill.
D) number of high-skill workers that will be hired.
E) difference in the value of marginal product between the high-skilled workers and the low-skilled workers.
Q2) In the United States in 2010,a family of four was considered to be living below the poverty line only if its household income was less than approximately
A) $400 per year.
B) $4,000 per year.
C) $11,900 per year.
D) $22,800 per year.
E) $35,800 per year.
Q3) In the United States,do the poorest 20 percent of the households receive more or less than 5 percent of money income?
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