Principles of Microeconomics
Test Preparation
Course Introduction
Principles of Microeconomics introduces students to the foundational concepts that underlie the economic decisions made by individuals, households, and firms. The course examines how scarce resources are allocated in markets through the forces of supply and demand, explores the role of prices as signals and incentives, and analyzes the impact of government intervention in markets. Topics include consumer and producer behavior, elasticity, market structures such as perfect competition and monopoly, and the effects of market failures and externalities. Through real-world examples and analytical frameworks, students develop a systematic understanding of how microeconomic forces shape everyday life and inform policy decisions.
Recommended Textbook
Economics for Today 5th Edition by Allan Layton
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2164 Verified Questions
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Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) Select the positive statement that completes the following sentence. 'If the competition is prohibited in the car manufacturing industry:
A) cost per unit of output will rise.'
B) cars will be priced low.'
C) the rate of inflation should hold steady.'
D) government should pay compensation to workers.'
Answer: A
Q2) Which of the following is the best example of a microeconomics topic?
A) The impact that the money supply has on inflation.
B) The effect that government budget deficits have on the interest rate.
C) The reasons for increases in the price of mobile phones.
D) The trade-off between inflation and unemployment.
Answer: C
Q3) A model is defined as a:
A) description of all variables affecting a situation.
B) positive analysis of all variables affecting an event.
C) simplified description of reality to understand and predict an economic event.
D) prediction based on historical evidence.
Answer: C
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Page 3
Chapter 2: Applying Graphs to Economics
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Sample Questions
Q1) Straight line A-D in Exhibit A1.5 shows which of the following?
A) Increasing values for X will increase the value of Y.
B) Increasing values for X will decrease the value of Y.
C) Increasing values for X does not affect the value of Y.
D) All of the above.
Answer: C
Q2) In Exhibit A1.4, the slope for straight line CD is:
A)5.
B)1.
C) -1.
D) -5.
Answer: C
Q3) An inverse relationship is a negative causation between two variables.
A)True
B)False
Answer: False
Q4) A horizontal line indicates an independent relationship between two variables.
A)True
B)False
Answer: True
Page 4
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Chapter 3: Production Possibilities and Opportunity Cost
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Sample Questions
Q1) Which of the following is true about a production possibilities curve? The curve:
A) indicates which production point will be chosen.
B) indicates only the efficient production points.
C) indicates how to eliminate scarcity.
D) indicates the feasible and non-feasible production points.
Answer: D
Q2) The production possibilities curve for the nation of Economania shifts to the right. This could have been caused by:
A) a decrease in Economania's capital stock.
B) a decrease in Economania's labour supply.
C) high unemployment in Economania for the previous time period.
D) improvement in the health and skill level of Economania's workforce.
Answer: D
Q3) In Exhibit 2.2, the opportunity cost of coffee when moving from B to C is:
A) 2 million bushels of corn.
B) 6 million bushels of corn.
C) 8 million bushels of corn.
D) 14 million bushels of corn.
Answer: A
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Page 5
Chapter 4: Market Demand and Supply
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Sample Questions
Q1) In Exhibit 3.3, which of the following could have caused the shift in the supply curve from S<sub>1</sub> to S<sub>2</sub>?
A) Increase in demand.
B) Decrease in demand.
C) Decrease in the number of suppliers in the market.
D) Increase in the number of sellers.
E) Increase in the cost of materials.
Q2) Which of the following is true about the market equilibrium?
A) As the price increases, the quantity demanded and the quantity supplied increases.
B) As the price increases, the quantity demanded and the quantity supplied decreases.
C) As the price increases, the quantity demanded increases and the quantity supplied Decreases.
D) As the price increases, the quantity demanded decreases and the quantity supplied Increases.
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6
Chapter 5: Markets in Action
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Sample Questions
Q1) If the government prevents the market price from rising above $10, it can set a/an:
A) optimum price.
B) minimum price.
C) price ceiling.
D) price floor.
Q2) Price floors are instituted because the government wants to:
A) help consumers to switch to the new product.
B) help people on low income.
C) raise tax revenue.
D) increase supply.
Q3) Which of the following is not a market failure?
A) A lack of competition in some markets.
B) Prices determined in competitive markets, where an individual consumer has no control over price.
C) The presence of externalities in some markets.
D) A lack of public goods desired by a majority of citizens.
Q4) More information on the benefits of honey will result in more honey bought.
A)True
B)False
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Chapter 6: Elasticity of Demand and Supply
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Sample Questions
Q1) A horizontal demand curve indicates perfectly elastic demand.
A)True
B)False
Q2) If the short-run price elasticity of demand for hospital care is 0.27, then the long-run price elasticity is expected to be:
A) greater than 0.27.
B) greater than 1.
C) less than 0.27.
D) equal to 0.27.
Q3) Price elasticity of demand measures:
A) the responsiveness of the quantity demanded of a good to a change in income.
B) the responsiveness of the quantity demanded of a good to a change in consumers' Preferences.
C) the responsiveness of the quantity demanded of a good to a one percent change in price.
D) the reduction in the quantity demanded of a good when the price is reduced.
Q4) The tax incidence indicates that tax is always paid by sellers.
A)True
B)False
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Chapter 7: Production Costs
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Sample Questions
Q1) The law of diminishing returns applies to which of the following segments of the marginal product of labour curve?
A) The entire curve.
B) The downward-sloping segment only.
C) The upward-sloping segment only.
D) The point where labour input is zero.
Q2) The law of diminishing marginal returns causes a firm's short-run marginal cost curve to be U-shaped.
A)True
B)False
Q3) In Exhibit 6.9, constant returns to scale only exist for output levels between:
A) 0 and 1000.
B) 1000 and 2000.
C) 2000 and 3000.
D) 3000 and 4000.
Q4) As shown in Exhibit 6.6, the average fixed cost of producing the fifth unit is:
A) $0.
B) $20.
C) $25.
D) $100.
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Chapter 8: Perfect Competition
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Sample Questions
Q1) In a perfectly competitive market, firms:
A) enter the industry in the long run.
B) exit the industry in the long run.
C) earn economic profit in a long run.
D) earn normal profit in a long run.
Q2) According to Exhibit 7.5, if the price of the good is $17, then the result for the perfectly competitive firm will be:
A) making a long-run profit.
B) making a long-run loss and so it will shut down.
C) making a short-run loss but it will continue to produce.
D) making a normal profit.
E) indeterminate.
Q3) In Exhibit 7.1, if output is 200 units per week, economic profit for the firm is:
A) zero.
B) at its minimum.
C) at its maximum.
D) average.
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Chapter 9: Monopoly
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Sample Questions
Q1) When marginal revenue is zero for a monopolist facing a downward-sloping, straight-line demand curve, the price elasticity of demand is:
A) greater than 1.
B) equal to 1.
C) less than 2.
D) equal to zero.
Q2) The only dentist in a small isolated country town is an example of a/an:
A) oligopoly.
B) monopolistically competitive firm.
C) monopoly.
D) competitive firm.
Q3) Economists:
A) mostly do not support price discrimination.
B) wholeheartedly support price discrimination.
C) are indifferent to the topic of price discrimination.
D) do not understand why price discrimination occurs.
E) are unsure whether to support price discrimination or not.
Q4) Monopolies can charge any price they like and sell as much as they want.
A)True
B)False
Page 11
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Because a monopolistically competitive firm is usually in competition with other firms producing similar goods, we generally say:
A) their demand curve is perfectly elastic.
B) their demand curve is less elastic than that for a monopolist.
C) their demand curve is more elastic than that for a monopolist.
D) their demand curve is more elastic than that for a perfectly competitive firm.
Q2) Suppose Ford, GM and Dodge make the majority of pick-up trucks sold in the United States. If they all sell for approximately the same price, and Ford offers a $2000 rebate on new truck sales, what can Ford expect to see?
A) An unprecedented increase in truck sales.
B) An immediate response by GM and Dodge.
C) A visit from the antitrust authorities of the government.
D) A revolution from Ford stockholders.
Q3) In monopolistically competitive industry, the long-run outcome is:
A) zero accounting profit.
B) zero economic profit.
C) positive economic profit.
D) negative economic profit.
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Chapter 11: Policy Issues: Housing Affordability and Climate Change
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Sample Questions
Q1) If the cap in Exhibit 10.4 increased to 50 permits, the resulting price given 'Demand 1' will be:
A) $20.
B) $30.
C) $40.
D) $50.
Q2) Which of the following is not a policy solution to reduce emissions?
A) Carbon tax.
B) Regulation of Carbon Emissions.
C) Emissions trading Permit.
D) Income tax.
Q3) In Exhibit 10.3, if the 'cap' is set at 80 permits, and the demand for the permits decreased by 20 units at each price level, the resulting price of permits is equal to:
A) $50.
B) $30.
C) $10.
D) $20
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Page 13
Chapter 12: Measuring the Size of the Economy
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Sample Questions
Q1) GDP is the sum of exports, consumer expenditure, government expenditure and taxes.
A)True
B)False
Q2) Which of the following items would be included in the calculation of GDP?
A) The value of a car produced this year within the country.
B) Purchase of a used car.
C) The value of environmental degradation.
D) Sale of Gulf War military surplus.
Q3) Which one of the following statements is true? Money flows from:
A) the government to households for taxes.
B) foreign economies to households for exports.
C) the government to firms for goods and services.
D) firms to foreign economies for exports.
Q4) Flows are measured per period of time, while stocks are measured at a particular point in time.
A)True
B)False
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Chapter 13: Business Cycles and Economic Growth
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Sample Questions
Q1) Which of the following is a coincident indicator?
A) Average work week.
B) New building approvals.
C) Stock prices.
D) Household income.
Q2) For a given state of unchanging production technologies without the technological change:
A) no further growth in living standards can be achieved at some point in time.
B) further growth in living standards can be achieved if investment is higher than Consumption.
C) further growth in living standards can be achieved at some point in time.
D) further growth in living standards can be achieved if saving is higher than investment.
Q3) According to Exhibit 12.2, the required saving rate when the capital stock per person is 172.8 units will be:
A) 35 per cent.
B) 40 per cent.
C) 30 per cent.
D) 32.5 per cent.
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15
Chapter 14: Inflation and Unemployment
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Sample Questions
Q1) Which of the following statements is true?
A) Demand-pull inflation is caused by an increase in the cost of production.
B) Cost-push inflation is caused by an increase in spending.
C) If nominal interest rates remain the same and the inflation rate falls, real interest rates decrease.
D) If real interest rates are positive, borrowers incur losses.
Q2) Which of the following can create demand-pull inflation?
A) Excessive aggregate spending.
B) Sharply rising oil prices.
C) Higher labour costs.
D) Recessions and depressions.
Q3) Cyclical unemployment can occur:
A) when the demand for certain goods and services depends on the current stage of the business cycle.
B) when the demand for certain goods and services depends on the workers' skill levels.
C) when the demand for certain goods and services has declined due to the recession.
D) when the demand for certain goods and services declines over time.
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Chapter 15: A Simple Model of the Macro Economy
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Sample Questions
Q1) When the AS curve is vertical at the full-employment GDP, the effect/s of a change in AD:
A) is a change in the price level.
B) are changes in the demand and the price levels.
C) is a change in the output level.
D) is a change in the quality.
Q2) Why is investment demand more unstable than personal consumption?
A) Because business decisions are often made based on the expectations, and moods of optimism and pessimism concerning future economic conditions.
B) Because business decisions are often made based only on interest rates.
C) Because business decisions are made more often than personal purchasing decisions.
D) Because personal purchasing decisions are often made based on the forecasts of future sales.
Q3) As the marginal propensity to consume (MPC) decreases, the spending multiplier: A) increases.
B) decreases.
C) remains constant.
D) becomes undefinable.
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Page 17
Chapter 16: The Monetary and Financial System
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Sample Questions
Q1) The precautionary demand for money is the demand for money:
A) for normal transactions purposes.
B) for normal investment purposes.
C) for special stock purchases.
D) to cover unexpected events.
Q2) The M1 money supply is defined as the sum of currency, traveller's cheques and:
A) cheque account deposits.
B) Treasury bonds.
C) savings accounts.
D) long-time deposits.
Q3) Each bank maintains:
A) good communication with the RBA.
B) strong control over the RBA's decisions.
C) an exchange settlement account with the RBA.
D) an exchange lending account with the RBA.
Q4) The currency of Australia is:
A) backed dollar for dollar by gold.
B) backed by a gold cover of 50 per cent.
C) not backed by any precious metal.
D) backed by the government's silver reserves.
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Chapter 17: Macroeconomic Policy I: Monetary Policy
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Q1) Which of the following is a belief of the monetarists?
A) They think the problems of Great Depression were solved by monetary policy.
B) They believe monetary policy is transmitted to the economy only through its effect on interest rates and planned investment.
C) They do not believe that the interest-investment curve is vertical.
D) They do not believe monetary policy is transmitted to the economy only through its effect on interest rates and planned investment.
Q2) The Australian inflation rate was:
A) the highest in 1974-75.
B) the lowest in 1974-75.
C) the highest in 1991-92.
D) the lowest in 1982-83.
Q3) The 'conditional-projections' for the growth of the monetary aggregate, M3, were conditional because:
A) they were conditional on government policies.
B) they depended on local industrial conditions.
C) they depended on the world or domestic economic conditions.
D) they depended on the climate change.
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Page 19
Chapter 18: Macroeconomic Policy II: Fiscal Policy
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Sample Questions
Q1) An expansionary fiscal policy is likely to be more effective if:
A) the government increases its spending on imports.
B) the economy is running at its full employment level of output.
C) the government increases its spending on locally produced goods and services.
D) the government increases income tax rates.
Q2) Equal increases in government expenditures and taxes will:
A) cancel each other out so that the equilibrium level of output will remain unchanged.
B) lead to an equal decrease in the equilibrium level of output.
C) lead to an equal increase in the equilibrium level of output.
D) lead to an increase in the equilibrium level of real GDP output that is larger than the initial change in government expenditures and taxes.
Q3) Unemployment benefits are an example of a/an:
A) discretionary stabiliser.
B) countercyclical stabiliser.
C) automatic stabiliser.
D) seasonal stabiliser.
Q4) The national debt is always a burden on future generations.
A)True
B)False
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Chapter 19: International Trade and Finance
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Sample Questions
Q1) An increase in the real interest rate in Australia relative to the US will most likely cause:
A) the supply of $A to shift to the right.
B) a depreciation of the $A.
C) the demand for $A to shift to the right.
D) the demand for $A to shift to the left.
Q2) Assume Australia can use a given amount of its resources to produce either 20 airplanes or eight automobiles and Japan can employ the same amount of its resources to produce either 20 airplanes or 10 automobiles. Australia should specialise in:
A) airplanes.
B) automobiles.
C) both goods.
D) neither good.
Q3) An appreciation of one's currency means that:
A) the country's exports will become less expensive.
B) the country's imports will become more expensive.
C) the country's imports will become less expensive.
D) it now requires more of this currency in exchange for one unit of another currency.
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