Undergraduate Microeconomic Analysis Exam
Review
Course Introduction
Undergraduate Microeconomic Analysis offers a comprehensive exploration of the foundational principles that govern individual and firm decision-making in market economies. The course covers key topics such as consumer behavior, production and costs, market structures, competitive equilibrium, and the allocation of resources. Emphasis is placed on developing analytical skills through the use of mathematical models and graphs to understand how markets operate, why market failures may occur, and the impact of government interventions. Through real-world examples and problem-solving exercises, students gain a solid understanding of microeconomic theory and its applications to contemporary economic issues.
Recommended Textbook Microeconomics 2nd Edition by Daron Acemoglu
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Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) Define opportunity cost.A student who has just graduated from college has three job offers: the first job pays $35,000 a year,the second job pays $23,000 a year,and the third one pays $15,000 a year.What is the student's opportunity cost of taking the first job?
Answer: Opportunity cost is the best alternative use of a resource.It is what an economic agent is giving up when he chooses a particular option.If the individual decides to take the first job,he will earn $35,000 a year.The opportunity cost of taking this job is the next-best offer that he could have taken.Therefore,the opportunity cost of the first job is $23,000 a year.
Q2) Which of the following is NOT a key principle of economics?
A) Optimization
B) Equilibrium
C) Empiricism
D) Substitution
Answer: D
Q3) Define economics.Who are economic agents?
Answer: Economics is the study of how agents choose to allocate scarce resources and how these choices affect society.An economic agent is an individual or a group that makes choices.
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Chapter 2: Economic Methods and Economic Questions
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Sample Questions
Q1) The average income of 25 employees working in a firm is $1,754 per month.What is the total income of all the employees?
A) $40,000
B) $43,850
C) $56,225
D) $63,950
Answer: B
Q2) Empirical evidence refers to ________.
A) a simplified representation of reality
B) a proposed explanation for a phenomenon
C) the process of developing and testing models
D) a set of facts established by observation and measurement
Answer: D
Q3) The slope of the line on a line chart measures the rate of change in ________.
A) only the independent variable
B) only the dependent variable
C) the dependent variable as the independent variable changes
D) the independent variable as the dependent variable changes
Answer: C
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Page 4
Chapter 3: Optimization: Doing the Best You Can
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Sample Questions
Q1) To carry out an optimization analysis,________.
A) different types of costs are measured in different units
B) only direct costs incurred in a project are to be estimated
C) only indirect costs incurred in a project are to be estimated
D) all costs are required to be converted to the same unit of measurement
Answer: D
Q2) The analysis of economic outcomes before and after some economic variable is changed is referred to as ________.
A) normative economics
B) marginal study
C) empiricism
D) before and after comparisons
Answer: D
Q3) Refer to the scenario above.Which of the following is the optimum choice?
A) Apartment Very Close
B) Apartment Close
C) Apartment Far
D) Apartment Very Far
Answer: D
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Page 5
Chapter 4: Demand, supply, and Equilibrium
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Sample Questions
Q1) Refer to the figure above.Suppose that MaxOil and MagnusPetro merged and became a single company,Empoleum.Then,all else being equal,the ________.
A) total supply curve will not change
B) total supply curve will shift rightward
C) total supply curve will shift leftward
D) quantity supplied will double at each price
Q2) Refer to the figure above.MagnusPetro is willing to sell the ________ for ________.
A) 1 millionth liter; at most 10.00 euros
B) 2.5 millionth liter; at most 10.00 euros
C) 1 millionth liter; at least 10.00 euros
D) 2.5 millionth liter; at least 10.00 euros
Q3) Refer to the table above.What is the market demand for wine when the price is $3?
A) 28 units
B) 35 units
C) 66 units
D) 50 units
Q4) Why is the competitive equilibrium price often referred to as the market clearing price?
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Chapter 5: Consumers and Incentives
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Q1) The demand for a good is relatively elastic if the responsiveness of consumers to a change in the price of ________.
A) the good is high
B) the good is low
C) a related good is low
D) a related good is high
Q2) Refer to the table above.What is the optimal combination of Soda and Hotdog for Marcus,if his weekly budget for hotdog and soda is $10?
A) 2 sodas, and 4 hotdogs
B) 3 sodas, and 3 hotdogs
C) 6 sodas, and 5 hotdogs
D) 4 sodas, and 2 hotdogs
Q3) Elasticity is ________.
A) the sum of the percentage changes in two variables
B) the difference between the percentage changes in two variables
C) the product of the percentage changes in two variables
D) the ratio of the percentage changes in two variables
Q4) In a set of indifference curves,why do the indifference curves that lie to the right represent higher levels of utility?
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Chapter 6: Sellers and Incentives
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Sample Questions
Q1) Refer to the figure above.If the market price of the product is $3.25,the firm's profit maximizing output is ________ and the firm's maximum profit is ________.
A) 1,200 units; $1,200
B) 1,200 units; $1,800
C) 1,100 units; $875
D) 1,100 units; $600
Q2) Which of the following is true for a firm that enjoys economies of scale?
A) Marginal revenue is falling as output increases.
B) Average total cost is falling as output increases.
C) Marginal cost is constant as output increases.
D) Marginal cost is increasing as output increases.
Q3) Increases in the marginal product of labor can be attributed to ________.
A) the specialization of workers
B) the depreciation of capital
C) diminishing returns to workers
D) better use of work space
Q4) Are the terms "shutdown" and "exit" synonymous? What is the optimal shutdown rule for a firm?
Q5) Differentiate between perfectly elastic supply and perfectly inelastic supply.
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Chapter 7: Perfect Competition and the Invisible Hand
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Sample Questions
Q1) Refer to the figure above.Which of the following is likely to happen if a price control of $80 is imposed in the market?
A) There will be a surplus of 25 units in the market.
B) There will be a shortage of 25 units in the market.
C) There will be a surplus of 10 units in the market.
D) There will be a shortage of 10 units in the market.
Q2) Refer to the figure above.For what price would a price floor policy create a deadweight loss of $10?
A) $8
B) $6
C) $4
D) $3
Q3) If the producer surplus in a market for a good is $36 and the consumer surplus in the market for the same good is $9,the social surplus in the market is ________.
A) $4
B) $27
C) $45
D) $324
Q4) Differentiate between double oral auctions and bilateral negotiations.
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Chapter 8: Trade
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Q1) Refer to the figure above.What is the consumer surplus before Barylia opens up to free trade?
A) $250
B) $300
C) $350
D) $400
Q2) The term "infant industries" often refers to ________.
A) foreign industries
B) fledgling domestic industries
C) public sector undertakings
D) agriculture-based industries
Q3) Refer to the figure above.In Prefecture B,the opportunity cost of producing each additional pound of tomatoes ________.
A) increases as more tomatoes are produced
B) decreases as more tomatoes are produced
C) increases up to 1 billion pounds and then decreases after 1 billion pounds
D) decreases up to 1 billion pounds and then decreases after 1 billion pounds
Q4) What are the determinants of a country's comparative advantage?
Q5) What are the infant industry arguments against free trade?
Q6) How is a production possibilities curve similar to a budget constraint?
Page 10
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Chapter 9: Externalities and Public Goods
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Sample Questions
Q1) The drainage of chemical fertilizers used on agricultural plots along the banks of the Blue River has led to the formation of a dead zone in the river that cannot support aquatic life.Without any government intervention,will the market for fertilizers produce a socially optimal quantity? Why or why not? Explain your answer with the help of suitable diagrams.
Q2) What are pecuniary externalities? Explain with the help of an example.
Q3) A Pigouvian tax is also called a(n)________.
A) subjective tax
B) objective tax
C) corrective tax
D) subsidy
Q4) Which of the following is not an example of the tragedy of the commons?
A) Extracting water extraction from aquifers
B) Cutting trees on public land
C) Fishing on a private lake
D) Eating from the office donut box
Q5) What does the Coase Theorem predict?
Q6) What is a Pigouvian tax?
Q7) When does a private solution to a negative externality fail to allocate resources efficiently?
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Chapter 10: The Government in the Economy: Taxation and Regulation
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Q1) Economists Andrei Shleifer and Robert Vishny argue that governments,like consumers and producers,are rational and self-interested; they care about staying in power and maintaining their bureaucratic empires (what the economists call the "grabbing hand")more than improving social welfare (the "helping hand").The "grabbing hand" theory of government provides an example of ________.
A) the underground economy
B) command-and-control regulation
C) government failures
D) none of the above
Q2) Refer to the table above.If Jack has an annual income of $40,000,into which tax bracket does he fall?
A) 10 percent
B) 15 percent
C) 23 percent
D) 30 percent
Q3) When is a price ceiling ineffective?
Q4) Why does a price ceiling set below the equilibrium price of a good lead to a shortage of the good in the market?
Q5) What is the opportunity cost of government work?
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Chapter 11: Markets for Factors of Production
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Sample Questions
Q1) The value of the marginal product of labor is given by ________.
A) the ratio of the marginal product of labor to the wage rate
B) the product of the marginal product of labor and the wage rate
C) the ratio of the marginal product of labor to the price of the final good produced
D) the product of the marginal product of labor and the price of the final good produced
Q2) Given that the market wage rate is $50 and both the labor and the goods market are perfectly competitive,a profit-maximizing firm should hire an additional worker if ________.
A) the marginal product of the worker is 50 units
B) the value of the marginal product of the worker is at least $50
C) the marginal product of the worker is less than 50 units
D) the value of the marginal product of the worker is less than $50
Q3) A night shift cashier getting paid more than day shift cashiers is due to ________.
A) compensating wage differentials
B) discrimination in the job market
C) differences in human capital
D) glass ceiling in the job market
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Page 13
Chapter 12: Monopoly
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Q1) Refer to the scenario above.If Tobac Co.could successfully carry out the third-degree price discrimination,the firm's maximum profit would be ________.
A) $450 million
B) $400 million
C) $320 million
D) $260 million
Q2) When a monopolist sells positive levels of output,its demand curve ________.
A) lies below its marginal revenue curve
B) lies above its marginal revenue curve
C) and marginal revenue curve overlap
D) is vertical, whereas its marginal revenue curve is horizontal
Q3) A monopolist faces ________.
A) the market demand curve
B) a horizontal demand curve at the market price
C) a vertical demand curve
D) several close substitutes for its product or service
Q4) Differentiate between the quantity effect and price effect of a price cut by a monopoly.
Q5) Does a monopolist have a supply curve? Explain your answer.
Q6) What are the different types of price discrimination?
Page 14
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Chapter 13: Game Theory and Strategic Play
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Sample Questions
Q1) In the tragedy of the commons game illustrated in the text using manufacturing firms located along the Gowanus Canal,the outcome of both firms polluting is
A) a dominant strategy equilibrium
B) a Nash equilibrium
C) dominated by the outcome of both firms choosing not to pollute
D) all of the above
Q2) A best response is ________.
A) one player's optimal action choice taken irrespective of the action of the other player
B) one player's optimal action choice taking the other player's action as given
C) an action choice that always results in a zero payoff to the opponent
D) an action choice that results in equal payoffs to all the players in a game
Q3) Refer to the scenario above.The equilibrium of this game is ________.
A) when the employer doesn't trust the worker
B) when the employer trusts the worker, and the worker works faithfully
C) when the employer trusts the worker, and the worker shirks
D) nonexistent
Q4) How do we arrive at a Nash equilibrium in a matrix game?
Q5) When does a game have a first-mover advantage?
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Chapter 14: Oligopoly and Monopolistic Competition
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Sample Questions
Q1) Refer to the table above.The maximum profit earned by the firm is ________.
A) $2,860
B) $1,420
C) $0
D) -$960
Q2) Which of the following applies to both monopolistic competition and perfect competition?
A) Firms produce a differentiated product
B) Absence of barriers to entry
C) P = MR = MC
D) Large number of firms
Q3) Refer to the table above.What is the equilibrium result in this duopoly market?
A) Firm A charging $70, and Firm B charging $70
B) Firm A charging $70, and Firm B charging $50
C) Firm A charging $50, and Firm B charging $70
D) Firm A charging $50, and Firm B charging $50
Q4) What are the possible benefits of collusion to a firm?
Q5) The market for tea in Petrovia is perfectly competitive,while the market for candy bars is monopolistically competitive.Which market is likely to have excess capacity and why? Explain your answer with the help of suitable diagrams.
Page 16
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Chapter 15: Trade-Offs Involving Time and Risk
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Sample Questions
Q1) A die is rolled,and if the outcome is an even number,a gambler receives $10.If the outcome is an odd number,the gambler loses $10.What is the expected value of this game?
Q2) Refer to the scenario above.Which of the following statements is true?
A) The present value of Option A > The present value of Option B.
B) The present value of Option A > The present value of Option C.
C) The present value of Option B > The present value of Option C.
D) The present value of Option B > The present value of Option A.
Q3) The benefit that Jack receives from consuming a portion of French fries is 10 utils.He expects the future health cost of eating French fries to be 20 utils.If Jack discounts delayed utils with a weight of \( \frac{1}{4} \) ,should he consume French fries? Explain your answer.
Q4) Refer to the scenario above.Which investment option will a risk-averse individual choose?
A) He will choose to invest in Option A.
B) He will choose to invest in Option B.
C) He will choose to invest in Option C.
D) He will be indifferent to investing in any of the three options.
Q5) What are the different categories of risk preferences? Explain.
Q6) Define utility.What are individual units of utility called?
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Chapter 16: The Economics of Information
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Sample Questions
Q1) Mark works as a business development officer for a leading electronics company.His main task is to meet potential clients at their offices and set up business deals with them.Mark earns a fixed salary every month irrespective of the number of clients approached and deals made.As his boss does not cross-check the number of clients he meets in a day,Mark often does not meet all the clients that he is supposed to.His behavior is an example of ________.
A) adverse selection
B) moral hazard
C) a positive externality
D) a pecuniary externality
Q2) Jane started eating more junk food and taking less care of her health after she bought a life insurance plan.Her behavior is an example of ________.
A) moral hazard
B) adverse selection
C) the paradox of thrift
D) the free-rider problem
Q3) How can a health insurance mandate help reduce the problem of adverse selection in the health insurance market?
Q4) Why do workers exert more effort when they are paid higher salaries?
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Chapter 17: Auctions and Bargaining
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Sample Questions
Q1) In a second-price auction,the ________ bidder wins the item.
A) second-highest
B) highest
C) first
D) lowest
Q2) Refer to the scenario above.In this case,a Nash equilibrium occurs if ________.
A) each of them bids up to their value for the good
B) Tom and Roger bid up to their value for the good while Bill and Jeff bid below their value for the good
C) Tom and Jeff bid up to their value for the good while Roger and Bill bid below their value for the good
D) Bill and Jeff bid up to their value for the good while Tom and Roger stop bidding at $100 and $200, respectively
Q3) The winner in a first-price auction pays an amount equal to ________.
A) his bid
B) the second-highest bid
C) half of his bid
D) the lowest bid
Q4) What does the revenue equivalence theorem state?
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Chapter 18: Social Economics
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Sample Questions
Q1) Economists call the influences of the decisions of others on our decisions ________.
A) peer effects
B) herd effects
C) externalities
D) cluster effects
Q2) Why do individuals decide to herd?
Q3) During the global financial crisis of 2008,as more people started selling their houses in fear of falling house prices,house prices fell further.This is an example of ________.
A) a pecuniary externality
B) a positive externality
C) an information cascade
D) moral hazard
Q4) A not-for-profit organization conducts several workshops to prevent drug addiction among teenagers.This is an example of ________.
A) indoctrination
B) backward induction
C) anchoring
D) sniping
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