Principles of Microeconomics
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Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools used to understand decision-making by individuals, households, and firms in a market economy. The course covers the basics of supply and demand, elasticity, consumer behavior, production and cost theory, market structures (such as perfect competition, monopoly, and oligopoly), and the role of government in addressing market failures. Through real-world examples and problem-solving exercises, students gain insight into how prices are determined, how resources are allocated efficiently, and how various market mechanisms impact economic outcomes on a micro level.
Recommended Textbook
Microeconomics 5th Edition by Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) The Coffee Nook,a small cafe near campus,sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each.What is the opportunity cost of buying a cappuccino?
A) 2 1/2 Russian tea cakes
B) 2/5 of a Russian tea cake
C) $2.50
D) $1.00
Answer: A
Q2) Refer to Table 1-3.What is Santiago's marginal benefit if he decides to stay open for two hours instead of one hour?
A) $40
B) $50
C) $120
D) $190
Answer: B
Q3) One example of physical capital is the amount of savings that you have.
A)True
B)False
Answer: False
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Q1) Rayburn Reed is a highly talented photographer.He has chosen to specialize in photography because of all of the following except
A) he obviously has a comparative advantage in photography.
B) his opportunity cost of pursuing another career is very low.
C) for him, this is the most lucrative way to purchase the products that he wants to consume.
D) his photographs are highly esteemed by art lovers who are willing to pay very high prices.
Answer: B
Q2) Refer to Table 2-7.What is Barney's opportunity cost of making a unicycle?
A) 1/2 pogo stick
B) 2 pogo sticks
C) 1.75 unicycles
D) 2.8 pogo sticks
Answer: B
Q3) The payment received by suppliers of entrepreneurial skills is called wages.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Select the phrase that correctly completes the following statement."A positive change in technology caused an increase in the supply of flat-screen televisions.As a result ________."
A) the price of flat-screen televisions decreased and the demand for flat-screen televisions increased
B) the equilibrium quantity of flat-screen televisions decreased
C) the price of flat-screen televisions decreased and the quantity demanded of flat-screen televisions increased
D) the price of flat-screen televisions decreased. The lower price caused the supply of flat-screen televisions to decrease
Answer: C
Q2) Refer to Figure 3-4.At a price of $15,how many units will be sold?
A) 300
B) 400
C) 600
D) 700
Answer: B
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) What area on a supply and demand graph represents consumer surplus?
Q2) Refer to Figure 4-8.The price buyers pay after the tax is
A) $7.
B) $20.
C) $22.
D) $27.
Q3) Refer to Figure 4-4.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $3
A) economic surplus is maximized.
B) not enough consumers want to buy pecans.
C) the quantity supplied is less than the economically efficient quantity.
D) the quantity supplied is economically efficient but the quantity demanded is economically inefficient.
Q4) What is the difference between scarcity and a shortage?
Q5) Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized.
A)True
B)False
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) Refer to the Article Summary.Higher home values which result from close proximity to public transportation are an example of a ________ due to the public transportation.
A) positive externality.
B) negative externality.
C) private cost.
D) social cost.
Q2) Which of the following is an example of a common resource?
A) elephants in the wild
B) lions in a zoo
C) a college education
D) public transportation
Q3) If you burn your trash in the back yard in spite of regulations against it,then you are
A) acting economically irrationally and creating a social cost.
B) avoiding the private costs associated with disposing your trash some other way and creating a social cost.
C) acting rationally and creating a positive externality.
D) saving landfill space and creating a social benefit.
Q4) What is an externality?
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Q1) According to a study of the price elasticities of products sold in supermarkets,the price elasticity of demand for toothpaste is estimated at -0.45.Which of the following could explain why the price elasticity of demand for toothpaste is so low?
A) The toothpaste industry is highly competitive.
B) Toothpaste is relatively inexpensive.
C) Toothpaste is heavily endorsed by dentists.
D) There are few close substitutes for toothpaste.
Q2) Assume that a 50 percent gasoline tax led to a large increase in its price and only a small decrease in the quantity of gasoline demanded.Economic analysis would lead one to conclude that
A) gasoline should be taxed because the benefits of the tax would exceed the costs.
B) gasoline should not be taxed because the benefits are uncertain.
C) gasoline should not be taxed on ethical grounds since ethical benefits and costs can't be measured.
D) the benefits of taxing gasoline is a normative issue. Economic analysis can be used to contribute to discussion of this issue but cannot decide it.
Q3) Briefly explain the economic concept of elasticity.
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) In the United States from 1981 to 2011,deaths from diabetes increased largely due to the effects of
A) foreign-produced insulin.
B) stress in the workplace.
C) a larger immigrant population.
D) increasing obesity.
Q2) Refer to Figure 7-1.Marginal social benefit is represented by which curve?
A) D<sub>1</sub>
B) D<sub>2</sub>
C) Supply
D) All of the above represent marginal social benefit.
Q3) Briefly describe the most important differences between the market for health care and the market for other goods and services.
Q4) College education tends to result in a negative externality because the recipient does not receive the full benefit of the education.
A)True
B)False
Q5) What are the main sources of health insurance in the United States?
Q6) What is the principle-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) Define a corporation.
Q3) Raising funds through financial intermediaries is called
A) direct finance.
B) corporate finance.
C) indirect finance.
D) dividend reinvestment.
Q4) The volatility of a stock's market price is indicated by A) the highest stock price and the lowest stock price over the previous year.
B) the price of newly issued shares compared to the price of previously issued shares. C) the difference between the stock's selling price and its asking price.
D) the stock's price-earnings ratio.
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) The first example used to explain comparative advantage used two countries (England and Portugal)and two goods (wine and cloth)to show that
A) each country would be better off from trade if it had an absolute advantage in producing one of the goods.
B) each country would have a comparative advantage in the production of the good for which it had an absolute advantage.
C) mutually beneficial trade was possible between two countries even if one had an absolute advantage in the production of both goods.
D) mutually beneficial trade was possible between two countries even if one had a comparative advantage in the production of both goods.
Q2) ________ refers to reductions in a firm's costs that result from an increase in the size of an industry.
A) Internal economies
B) External economies
C) Autarkial dominance
D) Streamlining
Q3) Distinguish between a voluntary export restraint and a quota.
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400.Krueger found that (a)94 percent of those surveyed would not have paid $3,000 for their tickets,and (b)92 percent of those surveyed would not have sold their tickets for $3,000.These results are an example of
A) the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it.
B) the tendency for consumers to account for monetary costs but to ignore sunk costs. C) consumers placing a high value on a product because it makes them appear to be fashionable.
D) the law of demand.
Q2) Economists have noted that businesses of a certain type tend to congregate geographically,attracting workers with skills in those fields.This,in turn,lures more firms seeking employees with those skills.Some examples include commercial banking,software development,and the automobile industry.What mechanism is at work here? Briefly explain how the mechanism works to the advantage of employers and employees.
Q3) What is an indifference curve? Why can indifference curves never cross?
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Chapter 11: Technology, production, and Costs
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Q1) In a diagram showing the average total cost and average variable cost curves,the minimum point of the average total cost is
A) at the same level of output as the minimum point of the average variable cost.
B) at a larger level of output than the minimum point of the average variable cost.
C) at a lower level of output than the minimum point of the average variable cost.
D) at the same level of output as the maximum of the total product curve.
Q2) Refer to Figure 11-13.The lines shown in the diagram are isocost lines.Which of the following shows a decrease in the price of capital while the price of labor remains unchanged?
A) the movement from AF to BF
B) the movement from BF to AF
C) the movement from BF to BD
D) the movement from BF to CE
Q3) Explain why the marginal cost of production must increase if the marginal product of a variable resource is decreasing.
Q4) Describe the relationship between marginal cost and average total cost.
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) Which of the following is a characteristic of an oligopolistic market structure?
A) There are few dominant sellers.
B) Each firm sells a unique product.
C) It is easy for new firms to enter the industry.
D) Each firm need not react to the actions of rivals.
Q2) Refer to Figure 12-12.Consider a typical firm in a perfectly competitive industry that makes short-run profits.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?
A) Panel A
B) Panel B
C) Panel C
D) Panel D
Q3) Refer to Table 12-4.If the market price is $45 the firm will produce
A) 60 units.
B) 80 units.
C) 100 units
D) 120 units
Q4) In an increasing-cost industry the long-run supply curve is upward sloping.
A)True
B)False
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) Refer to Figure 13-4.What is the area that represents the total variable cost of production?
A) 0P<sub>0</sub>aQ<sub>a</sub>
B) 0P<sub>1</sub>bQ<sub>a</sub>
C) P<sub>0</sub>abP<sub>1</sub>
D) P<sub>1</sub>bdP<sub>3</sub>
Q2) In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.
A)True
B)False
Q3) Refer to Table 13-1.What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?
A) output effect = $24.00; price effect = $19.50
B) output effect = $6.50; price effect = $2.00
C) output effect = -$0.50; price effect = $5.00
D) output effect = $6.00; price effect = -$1.50
Q4) How might a monopolistically competitive firm continually earn economic profit greater than zero?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Which of the following is most likely to exert the bargaining power of a buyer?
A) Barnes and Noble purchases books from publishers for sale in its online stores.
B) Wal-Mart, The world's largest discount store, seeks vendors to supply products made exclusively for its stores.
C) Ground beef producers seek to purchase cattle from ranchers.
D) Cowgirl Creamery, a small cheese producer, seeks a dairy farm for its organic milk supplies.
Q2) Which of the following is important in determining the extent of competition in an industry?
A) the minimum level of short run average total costs of production
B) the minimum efficient scale of production relative to market demand
C) whether or not the industry product is differentiated or standardized
D) the level of market demand for the industry's product
Q3) Which of the following economists did not help to develop game theory analysis?
A) Adam Smith
B) John Nash
C) John von Neumann
D) Oskar Morgenstern
Q4) 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) Refer to Figure 15-9.What is the difference between the monopoly output and the perfectly competitive output?
A) 140 units
B) 240 units
C) 340 units
D) 560 units
Q2) Few firms in the United States are monopolies because
A) few firms experience economies of scale.
B) of antitrust laws.
C) when a firm earns profits, other firms will enter its market.
D) most products that firms produce have substitutes.
Q3) Baxter International,a manufacturer of hospital supplies,acquired American Hospital Supply,a distributor of hospital supplies.This is an example of
A) a conglomerate merger.
B) a horizontal merger.
C) a vertical merger.
D) a two-dimensional merger.
Q4) If you own the only bookstore in a small town,do you have a monopoly?
Q5) Provide two examples of a government barrier to entry.
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Chapter 16: Pricing Strategy
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Q1) Are sellers who practice arbitrage taking advantage of buyers?
Q2) What is odd pricing? Why do some merchants use odd pricing?
Q3) Cost-plus pricing may be a reasonable way to determine price when
A) marginal cost and average fixed cost are roughly equal.
B) marginal cost and average cost are about the same.
C) marginal cost differs significantly from average cost.
D) marginal cost is very low.
Q4) Refer to Table 16-2.What are the total profits from both markets combined?
A) $50
B) $48
C) $18
D) $15
Q5) With a monopolist engages in perfect price discrimination,the quantity produced and sold
A) is lower than the quantity produced and sold if it adopted a single price.
B) is larger than the quantity produced and sold if it adopted a single price.
C) is the same level as that produced and sold if it adopted a single price.
D) could be lower, higher or the same as that produced and sold if it adopted a single price.
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Q6) What three conditions must hold for a firm to successfully price discriminate?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) Wage differences can be explained by all of the following except A) compensating differentials.
B) differences in marginal revenue products.
C) economic discrimination.
D) comparable worth.
Q2) Refer to Figure 17-1.If the wage rate is $40,how many workers should Dale hire?
A) 6 units
B) 5 units
C) 4 units
D) 3 units
Q3) A firm should hire more workers to increase its profits if
A) the marginal product of labor is greater than the wage the firm will pay these workers.
B) the wage rate is less than the marginal revenue product of labor.
C) there is enough capital and other resources for the workers to use.
D) the demand for labor is elastic.
Q4) A firm's labor demand curve is also its marginal revenue product curve.For both the perfectly competitive firm and the output price maker,the labor demand curve slopes downwards.However,there is a difference in the reasons why the labor demand curve slopes downwards.What is this difference?
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Chapter 18: Public Choice,taxes,and the Distribution of Income
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Sample Questions
Q1) Between 1980 and 2011,income inequality in the United States has increased in part due to expanding international trade.How does expanding international trade contribute to income inequality?
A) It increases the demand for a wide array of products which in turn increases prices beyond the reach of average income individuals.
B) It allows producers to exploit workers and reduce the wages they are willing to pay workers.
C) Domestic firms can now hire low-skilled workers anywhere in the world, putting U.S. workers in competition with foreign workers. This has caused the wages of unskilled workers to be depressed relative to the wages of other workers.
D) It reduces the cost of producing goods and therefore lowers the value of labor's services.
Q2) The person or firm that pays a tax bears the burden of the tax.
A)True
B)False
Q3) In 2012,which type of tax raised the most revenue for the U.S.federal government? Which type of tax raised the most revenue for state and local governments?
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