Quantitative Microeconomics Practice Exam
Course Introduction
Quantitative Microeconomics focuses on the application of mathematical and statistical techniques to analyze individual and firm-level decision-making processes in markets. The course covers key microeconomic concepts such as consumer and producer theory, market equilibrium, game theory, and welfare analysis, emphasizing the use of quantitative models and computational tools. Students develop skills in formulating and solving optimization problems, interpreting empirical data, and applying econometric methods to evaluate real-world economic scenarios, preparing them for advanced research and policy analysis in economics.
Recommended Textbook
Microeconomic Theory Basic Principles and Extensions 10th Edition by Walter Nicholson
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17 Chapters
334 Verified Questions
334 Flashcards
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Chapter 1: Preferences and Utility
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Sample Questions
Q1) If an individual's utility function is quasi-concave,his or her MRS will
A)diminish as x is substituted for y.
B)increase as x is substituted for y.
C)be undefined except in special cases.
D)always depend only on the ratio of x to y.
Answer: A
Q2) If utility is given by \(U ( x , y ) = \sqrt { x y }\) ,then the person's MRS at the point x = 5,y = 2 is given by
A)0.4.
B)1.0.
C)2.5.
D)5.0.
Answer: A
Q3) Which of the following utility functions represent the same preferences as \(U ( x , y ) = \sqrt { x \cdot y }\)
A) \(U ( x , y ) = 10 \sqrt { x y }\) .
B)U(x,y)= x . y.
C)U(x,y)= ln x + ln y.
D)All of these represent the same preferences.
Answer: D
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Chapter 2: Utility Maximization and Choice
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Sample Questions
Q1) The slope of the budget constraint line is
A)the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
B)the negative of the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
C)the ratio of income divided by price of y (I/p<sub>y</sub>).
D)none of these is correct.
Q2) Suppose that at current consumption levels an individual's marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 2.Then the MRS (of soft drinks for hot dogs)-- that is,the number of hot dogs the individual is willing to give up to get one more soft drink-is
A)5.
B)2.
C)1/2.
D)1/5.
Q3) If the price of x falls,the budget constraint
A)shifts outward in a parallel fashion.
B)shifts inward in a parallel fashion.
C)rotates outward about the x?intercept.
D)rotates outward about the y?intercept.
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4
Chapter 3: Income and Substitution Effects
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Sample Questions
Q1) Assume x and y are the only two goods a person consumes.If after a rise in p<sub>x</sub> the quantity demanded of y increases,one could say
A)the income effect dominates the substitution effect.
B)the substitution effect dominates the income effect.
C)it is still impossible to determine whether the substitution or income effect dominates.
D)none of these answers is correct.
Q2) Consider the two following statements:
I.x is an inferior good.
II.x exhibits Giffen's Paradox.
Which of the following is true?
A)I implies II,but II does not necessarily imply I.
B)II implies I,but I does not necessarily imply II.
C)I and II are statements of the same phenomenon.
Q3) The price elasticity of demand for good x is defined as
A)percentage change in p<sub>x</sub> / percentage change in x.
B)percentage change in x /percentage change in p<sub>x</sub> .
C)percentage change in x/percentage change in income.
D)percentage change in x /percentage change in p<sub>y</sub> .
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Chapter 4: Demand Relationships Among Goods
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Sample Questions
Q1) Quasi-concavity of utility functions insures that with only two goods,these goods must be
A)gross substitutes.
B)gross complements.
C)net substitutes.
D)net complements.
Q2) Symmetry of net substitution effects is one of the principal conclusions of the theory of utility maximization.Which two mathematical theorems are used to prove this symmetry?
A)Taylor's Theorem and Fundamental Theorem of Calculus.
B)Cauchy's Theorem and DeMonre's Theorem.
C)Lagrangian Theorem and Fundamental Theorem of Calculus.
D)Envelope Theorem and Young's Theorem.
Q3) The elasticity of the compensated demand curve \(\left( e _ { x , p _ { \lambda } } \right)\) can be computed as
A)\(l - e _ { x , p _ { \lambda } }\)
B)\(l - e _ { x , p _ { x } } - e _ { x , p _ { y } }\)
C)\(s _ { x } e _ { x , I } + e _ { x, p _ { { x } } }\)
D)\(s _ { x } \left( e _ { x , I } - e _ { x , p _ { x } } \right) .\)
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Page 6
Chapter 5: Uncertainty and Information
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Sample Questions
Q1) A risk averse individual is offered a gamble that promises a gain of $1000 with probability 0 .25 and a loss of $300 with probability 0.75 .Given this situation,he or she will
A)definitely take the gamble.
B)definitely not take the gamble.
C)definitely take the gamble if his or her income is high enough.
D)take an action that cannot be determined given the information available.
Q2) More risk averse people will
A)hold fewer risky assets because marginal utility is rapidly diminishing.
B)hold fewer risky assets because marginal utility is greater.
C)hold fewer risky assets because rates of return are more uncertain.
D)hold fewer risky assets because marginal utility is negative.
Q3) An individual will never buy complete insurance if
A)he or she is risk averse.
B)insurance premiums are unfair.
C)he or she is a risk taker.
D)insurance premiums are fair.
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Chapter 6: Strategy and Game Theory
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Sample Questions
Q1) Which statement is true of the Battle of the Sexes game?
A)It is a coordination game.
B)The mixed-strategy Nash equilibrium provides players with lower expected payoffs than other equilibria.
C)The first mover has an advantage in the sequential version.
D)All of these answers are correct.
Q2) In experimental tests of the ultimatum game,
A)the proposer often offers an even split of the "pie",and responders often reject smaller offers,consistent with the predictions of game theory.
B)the proposer often offers an even split of the "pie",and responders often reject smaller offers,in contrast to the predictions of game theory.
C)the proposer often offers an unfair split,taking the lion's share of the "pie" for him or herself,and responders often accept such offers,consistent with the predictions of game theory.
D)the proposer often offers an unfair split,taking the lion's share of the "pie" for him or herself,and responders often accept such offers,in contrast to the predictions of game theory.
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Page 8
Chapter 7: Production Functions
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Sample Questions
Q1) For a fixed proportion production function,at the vertex of any of the (L-shaped)isoquants the marginal productivity of either input is
A)constant
B)zero.
C)negative.
D)a value that cannot be determined.
Q2) Which of the following production functions exhibits a constant elasticity of substitution?
A)q = 3k + 2l.
B) \(q = k ^ { 0~5 } l ^ { 0~5 }\) .
C) \(q = l - \frac { l } { k } - \frac { l } { l }\) .
D)All of these production functions have a constant elasticity of substitution.
Q3) The marginal physical productivity of labor is
A)the slope of the total output curve at the relevant point.
B)the negative of the slope of the total output curve at the relevant point.
C)the slope of the line connecting the origin with the relevant point on the total output curve.
D)the negative of the slope of the line connecting the origin with the relevant point on the total output curve.
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Page 9
Chapter 8: Cost Functions
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Sample Questions
Q1) An increase in the wage rate will have a greater effect on average costs
A)the larger the proportion labor costs are of total costs and the easier it is to substitute capital for labor.
B)the larger the proportion labor costs are of total costs and the harder it is to substitute capital for labor.
C)the greater is the diminishing marginal product of labor.
D)the greater are returns to scale.
Q2) For the cost function \(C = q ^ { \cdot 8 }~~ v ^ { .4} ~~w ^ { .6 }\) consider the following statements:
I.The function exhibits decreasing average cost.
II.The function is homogeneous of degree 1 in v and w.
III.The elasticity of marginal cost with respect to v exceeds the elasticity with respect to w.
A)None is true.
B)All are true.
C)Only I is true.
D)Only I and II are true.
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Chapter 9: Profit Maximization
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Sample Questions
Q1) Short-run producer surplus can be caluculated by integration as (where q* is the firm's profit maximizing output level and MC(q)is its marginal cost function)
A) \(\int _ { 0 } ^ { q ^ { * } } M C ( q ) d q - p\) .
B) \(\int _ { 0 } ^ { q ^ { * } } [ M C ( q ) - p q ] d q\) .
C) \(\int _ { 0 } ^ { q ^ { * } } p q - M C ( q ) d q\) .
D) \(\int _ { 0 } ^ { q ^ { * } } [ p - M C ( q ) ] d q\) .
Q2) Which of the following conditions would result in the short run marginal cost curve not correctly reflecting the supply behavior of a profit-maximizing firm?
A)The firm is a price taker.
B)Price exceeds average total cost.
C)The elasticity of demand facing the firm is -3.
D)The firm can vary several inputs in the short run.
Q3) A profit-maximizing firm will never hire that quantity of a factor of production for which that factor has an increasing marginal productivity because
A)it would not be maximizing output.
B)it would not be maximizing the productivity of labor.
C)it would not be minimizing costs.
D)it would not be maximizing profits.
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Chapter 10: The Partial Equilibrium Competitive Model
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Sample Questions
Q1) In the opening of free trade,if world prices of a good are less than domestic prices of that same good,
A)domestic consumers will experience a loss of surplus.
B)domestic prices will drop to the world price level.
C)all domestic producers of that good will try to find another market because they can't compete with foreign producers.
D)domestic producers will increase the quantity supplied in order to crowd out the foreign-produced good.
Q2) If the market for bottled spring water is characterized by a very elastic supply curve and a very inelastic demand curve,an outward shift in the supply curve would be reflected primarily in the form of
A)higher prices.
B)higher output.
C)lower prices.
D)lower output.
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Chapter 11: General Equilibrium and Welfare
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Sample Questions
Q1) Each of the following factors might interfere with the efficiency of perfect competition except:
A)increasing returns to scale.
B)imperfect price information.
C)externalities.
D)diminishing returns to scale.
Q2) In a two-good world every allocation would be efficient only if
A)both individuals were identical.
B)both individuals regard the two goods as perfect substitutes.
C)both individuals were identical and regard the two goods as perfect complements.
D)both individuals were identical and regard the two goods as perfect substitutes.
Q3) The "Classical Dichotomy" refers to
A)a distinction between "value in use" and "value in exchange."
B)separate theories of demand and supply.
C)the possibility of Giffen's Paradox
D)determination of relative prices independent of the nominal price level.
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Chapter 12: Monopoly
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Sample Questions
Q1) Which of the following is not a technical barrier to entry in a monopolized market?
A)A patent.
B)Decreasing average cost.
C)A low cost method of production known only by monopolist.
D)Increasing returns to scale.
Q2) A monopoly's economic profits are represented by
A)(price minus marginal cost)times number of units sold.
B)(price minus average cost)times number of units sold.
C)(marginal revenue minus price)times number of units sold.
D)(marginal cost minus price)times number of units sold.
Q3) Relative to single price policy third degree price discrimination
A)always reduces welfare.
B)always increases welfare.
C)may increase welfare if total output falls.
D)may increase welfare if total output rises.
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Chapter 13: Imperfect Competition
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Sample Questions
Q1) Each firm in a cartel has an incentive to chisel because market price exceeds A)marginal cost.
B)average cost.
C)average variable cost.
D)average fixed cost.
Q2) The more a firm invests in a new production technology,the lower its marginal costs.Which of the following scenarios involving this incumbent firm and a potential entrant makes the least economic sense?
A)The incumbent overinvests to deter entry when this investment is observable to the entrant.
B)The incumbent overinvests to deter entry when this investment is unobservable to the entrant.
C)The incumbent underinvests to accommodate entry when this investment is observable and they compete in prices.
D)The incumbent overinvests to accommodate entry when this investment is observable and they compete in quantities.
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15
Chapter 14: Labor Markets
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Sample Questions
Q1) Adoption of a guaranteed annual income with benefits (B)given by B = 20,000 -.5 (earnings)
Would be expected to reduce work effort by low wage workers because
A)the income effect would outweigh the substitution effect of the plan.
B)the substitution effect would outweigh the income effect of the plan.
C)both substitution and income effects would operate to reduce work effort.
D)the plan would make working financially unattractive.
Q2) Which of the following strategies that a union might pursue would result in the lowest wage rate for its members?
A)Maximizing the total wage bill.
B)Maximizing employment of its members.
C)Restricting union membership severely.
D)Maximizing the total economic rent obtained by its members.
Q3) For a monopsonistic hirer of labor the gap between labor's marginal revenue product and its wage rate will be greater
A)the more elastic the supply curve for labor.
B)the more inelastic the supply curve for labor.
C)the more elastic the firm's demand for labor.
D)the more inelastic the firm's demand for labor.
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Page 16
Chapter 15: Capital and Time
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Sample Questions
Q1) If the interest rate rises,the present discounted value of a stream of payments owed in the future
A)rises.
B)stays constant.
C)falls.
D)may rise or fall depending on the shape of the stream.
Q2) Rate of return refers to
A)the increase in future output made possible by investing one unit of current output in capital accumulation.
B)the dividend payments made on corporate issued stock.
C)the increase in current output made possible by investing in units of future output in capital accumulation.
D)the rate at which capital depreciates.
Q3) Accelerated depreciation laws may increase firms' investment in equipment because
A)machines will wear out more rapidly.
B)profits will be increased.
C)the rental rate on capital will be reduced.
D)the price of machines will fall.
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Chapter 16: Asymmetric Information
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Sample Questions
Q1) Suppose you were competing in a sealed-bid,second-price auction for a Vermeer painting,which you happen to value at $100,000.What bid should you submit?
A)Exactly $100,000.
B)Somewhat lower than $100,000 depending on the number of other bidders.
C)Somewhat higher than $100,000 depending on the number of other bidders.
D)Cannot say which of a),b),or c)is right without further information.
Q2) Consider a firm composed of 5 workers,each with a utility function of the form \(U ( l ) = w l - l ^ { 2 }\) where l is hours worked and w is the wage.Suppose the firm can monitor the number of hours worked by each worker and pays them \(w = 20\) per
hour.How many hours will each worker choose to work?
A)2 hours.
B)4 hours.
C)8 hours.
D)10 hours.
Q3) Which contracting party gains from the use of a more sophisticated contract?
A)The principal,who offers the contract.
B)The agent,who accepts the contract.
C)Both parties may lose.
D)Both parties gain equally.
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Page 18
Chapter 17: Externalities and Public Goods
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Sample Questions
Q1) A perfectly competitive steel mill that produces large amounts of a pollution (a negative externality)will,from a social point of view,produce
A)too little steel.
B)the socially optimal quantity of steel.
C)too much steel.
D)too much steel only if it installs pollution control equipment.
Q2) Each of the following provides incentives to reduce a negative externality except
A)merger with affected firms.
B)subsidizing consumption of the good being produced.
C)bargaining among firms.
D)taxation of the externality.
Q3) In the case of a negative externality,the social marginal cost will
A)exceed the private marginal cost.
B)be equal to private marginal cost.
C)fall short of private marginal cost.
D)bear no significant relation to private marginal cost.
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