Applied Microeconomics
Exam Preparation Guide
Course Introduction
Applied Microeconomics explores the practical application of microeconomic theories and models to real-world issues and decision-making processes in various sectors, such as business, government, and public policy. The course examines topics including consumer and producer behavior, market structures, pricing strategies, labor markets, and welfare analysis. By integrating theoretical concepts with empirical analysis, students develop the skills to analyze and interpret economic data, assess the impact of market interventions, and provide insights into policy and managerial decisions. Case studies and contemporary issues are used extensively to illustrate how microeconomic tools are used to solve practical problems.
Recommended Textbook
ECON Micro 2 2nd Edition by William A. McEachern
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21 Chapters
3947 Verified Questions
3947 Flashcards
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Chapter 1: The Art and Science of Economic Analysis
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Microeconomics is the study of
A) marginal or inferior products
B) the economic behavior of individual decision makers
C) the behavior of the economy as a whole
D) how to use the fewest natural resources to produce goods and services
E) government's role as a producer in the economy
Answer: B
Q2) An economic model
A) omits critical elements
B) must be presented in mathematical terms
C) simplifies reality in order to focus on its essential elements
D) can never be proven wrong if its assumptions are realistic
E) produces poor predictions if it includes an unrealistic assumption
Answer: C
Q3) Secondary effects are consequences of economic actions that develop slowly over time as people react to events.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Economic Tools and Economics Systems
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185 Verified Questions
185 Flashcards
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Sample Questions
Q1) An improvement in technology would
A) enable the economy to produce outside its original production possibilities frontier
B) enable the economy to move along its original production possibilities frontier
C) eliminate scarcity;therefore,the production possibilities frontier would no longer exist
D) have no effect on the production possibilities frontier
E) change the production possibilities frontier to a line with a positive slope
Answer: A
Q2) Eileen has a comparative advantage over Jan in piano tuning but not in shoe polishing.Therefore,
A) Jan must have an absolute advantage in piano tuning
B) Eileen must have an absolute advantage in shoe polishing
C) Jan must have a lower opportunity cost of shoe polishing
D) Eileen must have an absolute advantage in shoe polishing and in piano tuning
E) Eileen must have an absolute advantage in piano tuning
Answer: C
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4
Chapter 3: Economic Decision Makers
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196 Flashcards
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Sample Questions
Q1) Harold,a delivery man,washes and irons his own shirts.Sarah,his boss,sends her clothes to a laundry.Which is the most plausible economic explanation for this difference?
A) Harold must enjoy ironing more than Sarah does.
B) Harold must be better at ironing than Sarah is.
C) The opportunity cost of ironing is greater for Harold.
D) Harold probably has an absolute advantage in ironing.
E) Sarah has a higher opportunity cost of laundering her clothes than Harold does. Answer: E
Q2) Which of the following is not an example of a business operated by a consumer cooperative?
A) grocery store
B) apartment building
C) Sunkist,a farm cooperative owned and operated by citrus growers
D) health plan
E) electric power facility
Answer: C
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Page 5
Chapter 4: Demand, supply, and Markets
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222 Verified Questions
222 Flashcards
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Sample Questions
Q1) If a surplus exists in the market for swimwear,an economist would predict that
A) the price of swimwear will rise
B) producers will increase the production of swimwear
C) the supply of swimwear will increase
D) the price of swimwear at retail outlets will begin to fall
E) buyers will react to the surplus by increasing their demand for swimwear
Q2) As the use of DVDs becomes more widespread,we would expect all of the following except one.Which is the exception?
A) The prices of CDs will decrease.
B) The demand curve for CD players will shift leftward.
C) The supply curve of CD players will shift rightward.
D) The demand curve for CDs will shift leftward.
E) Firms will move their resources away from CD production to DVD production.
Q3) Which of the following will not shift the demand curve for movie tickets?
A) a change in the cost of babysitting services
B) a change in the price of movie tickets
C) a change in the quality of television programs
D) a change in the income of movie-goers
E) a change in the number of consumers
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Page 6
Chapter 5: Elasticity of Demand and Supply
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238 Flashcards
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Sample Questions
Q1) Price elasticity of demand is useful because it measures _____ responsiveness to changes in _____.
A) taxpayers';demand
B) producers';supply
C) consumers';price
D) consumers';demand
E) producers';income
Q2) For which of the following products is the consumer's demand curve most likely to be vertical?
A) lobster,for a seafood lover
B) cars,for high school students
C) insulin,for a diabetic
D) compact disks,for a music lover
E) beef,for a food lover
Q3) For which of the following is demand most likely to be price inelastic?
A) lamb
B) meat
C) veal
D) pork
E) beef
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Chapter 6: Consumer Choice and Demand
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164 Verified Questions
164 Flashcards
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Sample Questions
Q1) As a consumer allocates income between good A and good B,total utility is maximized when
A) the marginal utility of A = the marginal utility of B
B) the marginal utility of A = the marginal utility of B = 0
C) the price of A = price of B
D) marginal utility of A/price of A = marginal utility of B/price of B = 0
E) marginal utility of A/price of A = marginal utility of B/price of B
Q2) Your willingness to pay additional money for time-saving goods depends primarily on
A) the opportunity cost of your time
B) your wealth and property
C) your social status
D) the number of people in your household
E) the distance between your home and your workplace
Q3) At point a in Exhibit 6-9,total expenditure on neckties is
A) $5
B) $9
C) $20
D) $26
E) $45
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Chapter 7: Production and Cost in the Firm
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) The short run is a period of time
A) less than one year
B) greater than one year
C) during which all resources are variable
D) during which at least one resource is fixed
E) during which at least one resource is variable
Q2) Which of the following are implicit costs for a typical firm?
A) insurance costs
B) electricity costs
C) opportunity costs of capital owned and used by the firm
D) cost of labor hired by the firm
E) the cost of raw materials
Q3) If the Baloney Store earns more than a normal profit,its
A) economic profit must be greater than its accounting profit
B) economic profit is positive
C) economic profit is,therefore,equal to its accounting profit
D) accounting profit is zero
E) accounting profit is less than its economic profit
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9
Chapter 8: Perfect Competition
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250 Flashcards
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Sample Questions
Q1) Marginal revenue is the change in total revenue from using one more unit of an input in the short run.
A)True
B)False
Q2) At output level a in Exhibit 8-6
A) a loss would be incurred
B) positive economic profit would be earned
C) economic profit would be zero
D) economic profit would be smaller than at point e
E) the firm cannot cover its fixed cost
Q3) Peg's Kegs sells kegs in a perfectly competitive market.Because low demand forced price below average variable cost,Peg has made the short-run decision to shut down.Her current loss is
A) zero
B) greater than if she had kept operating
C) the same as the losses she was incurring while operating
D) equal to fixed cost
E) less than her total revenue
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Chapter 9: Amonopoly
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257 Verified Questions
257 Flashcards
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Sample
Questions
Q1) In Exhibit 9-17,which area represents monopoly profit with perfect price discrimination?
A) area a
B) area b
C) area a + b + e
D) area b + e
E) area b + e + c + f
Q2) Suppose that a price-discriminating monopolist divides its market into two segments.In each market segment,price is determined by finding the level of output where that market's
A) average revenue equals average total cost
B) average revenue equals average variable cost
C) marginal revenue equals average total cost
D) marginal revenue equals marginal cost
E) marginal cost equals average total cost
Q3) Rent-seeking activities are socially wasteful because they use scarce resources but do not add to society's output.
A)True
B)False
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Page 11
Chapter 10: Monopolistic Competition and Oligopoly
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219 Verified Questions
219 Flashcards
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Sample Questions
Q1) In a game that can be repeated,the optimal solution is
A) dependent upon each firm's decision in the first round of decision making
B) independent of the decisions that competitive firms made on the first round
C) to maximize profits regardless of what competitors do
D) to minimize costs regardless of what competitors do
E) to select the solution that minimizes the potential losses from a decision
Q2) A cartel's marginal cost curve is the
A) highest of all the individual firms' marginal cost curves
B) lowest of all the individual firms' marginal cost curves
C) horizontal sum of all the individual firms' marginal cost curves
D) average of all the individual firms' marginal cost curves
E) product of all the individual firms' marginal cost curves
Q3) A cartel's profit-maximizing price is
A) on the demand curve at the quantity where marginal cost equals marginal revenue
B) on the demand curve where it intersects its marginal cost curve
C) the highest price possible
D) determined by using the cost-plus pricing model
E) where the kink in the demand curve occurs
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Chapter 11: Resource Markets
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210 Verified Questions
210 Flashcards
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Sample Questions
Q1) A curve that shows the cost to the firm of hiring an additional unit of a resource is known as a
A) marginal product curve
B) marginal revenue product curve
C) total revenue product curve
D) marginal revenue curve
E) marginal resource cost curve
Q2) Resource owners supply resources in ways that
A) maximize their utility
B) maximize their income
C) minimize the amount of work
D) maximize the amount of work
E) maximize the demand for their resource
Q3) Which of the following are complementary resources?
A) margarine and butter used in baking
B) sugar and honey used in cereals
C) a teacher and a chalkboard
D) rye and wheat bread used in a sandwich shop
E) a typewriter and a personal computer used in an office
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Page 13
Chapter 12: Labor Markets and Labor Unions
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211 Verified Questions
211 Flashcards
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Sample Questions
Q1) Craft unions typically attempt to increase wages by
A) setting a wage floor
B) reducing labor supply
C) increasing labor demand
D) reducing initiation fees
E) expanding new union memberships
Q2) In many cities,garbage collectors earn more than social workers.What could explain this wage differential?
A) Social work provides more nonmonetary rewards than garbage collecting does.
B) There is a greater demand for social workers.
C) There is a greater supply of trash collectors.
D) Collecting garbage requires less skill.
E) Social work is a less prestigious profession.
Q3) Abby maximizes utility by allocating time among leisure,market work,and nonmarket work so that the
A) total utility of each is equal
B) average utility of each is equal
C) total utility per hour of each is equal
D) marginal utility per hour of each is equal
E) maximum amount of goods and services can be acquired
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Chapter 13: Capital, interest, and Corporate Finance
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183 Verified Questions
183 Flashcards
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Sample Questions
Q1) Exhibit 13-4 shows data gathered by Memo Co.as it prepares to purchase personal computers for its sales offices.Given the data in Exhibit 13-4,Memo Co.
A) must be a perfectly competitive seller of output
B) must be a monopoly seller of output
C) must be a perfectly competitive buyer of personal computers
D) cannot be a perfectly competitive buyer of personal computers
E) may or may not be a perfectly competitive buyer of personal computers
Q2) If you own a perpetuity of $100 and if the discount rate is 5 percent,then its present value
A) cannot be determined unless we know the number of years
B) is $95.21
C) is $105
D) is $2,000
E) is infinite
Q3) A self-employed editor and writer is thinking about purchasing a new computer to use for work.In making this investment decision,the person should take time into account.
A)True
B)False
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Page 15
Chapter 14: Transaction Costs, imperfect Information, and Market Behavior
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) By requiring that policyholders pay a deductible on a claim,insurers guard against
A) symmetrical information
B) adverse selection
C) natural selection
D) moral hazard
E) the winner's curse
Q2) Which of the following would lead a utility-maximizing consumer to search for additional information?
A) an increase in income
B) an increase in the marginal cost of information
C) improved technology (e.g. ,Internet search programs)
D) a reduction in the dispersion of prices
E) an increase in the consumer's wage rate
Q3) Managers experience bounded rationality when they focus narrowly on maximizing their firm's profits and ignore the broader perspective of society's preferences.
A)True
B)False
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Page 16
Chapter 15: Economic Regulation and Antitrust Policy
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) The purpose of antitrust laws is to
A) reduce anticompetitive activities
B) increase anticompetitive activities
C) guarantee worker safety
D) promote quality products
E) prevent large-scale production
Q2) Most local phone companies
A) face a horizontal demand curve
B) are regulated
C) are called public utilities
D) have tremendous economies of scale
E) are natural monopolies
Q3) The welfare loss associated with the unregulated natural monopoly in Exhibit 15-2 is shown by the area
A) cef
B) abc
C) adf
D) dfeg
E) bcfd
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Page 17
Chapter 16: Public Goods and Public Choice
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) General Motors benefits from tariffs on imported automobiles.Companies that use many automobiles,such as rental agencies,want to get them cheaply.In this case,the issue of tariff legislation involves
A) a simple majority because it promises concentrated costs and benefits
B) competing interests because it promises concentrated costs and benefits
C) a simple majority because it promises concentrated benefits and widespread costs
D) competing interests because it promises concentrated benefits and widespread costs
E) competing interests because it promises concentrated costs and widespread benefits
Q2) The total welfare cost of a monopoly that engages in rent-seeking activities
A) equals only the portion of lost consumer surplus that is not transferred to the monopolist
B) includes the use of resources devoted to rent seeking
C) equals the total reduction in consumer surplus
D) equals the total economic profit earned by the monopolist
E) excludes the use of resources devoted to rent seeking
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Chapter 17: Externalities and the Environment
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187 Verified Questions
187 Flashcards
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Sample Questions
Q1) The price of a pollution right is
A) determined by consumers
B) determined by government
C) a user charge
D) determined by supply and demand
E) a subsidy
Q2) When a system of pollution rights is in effect,polluters have no economic incentive to reduce the amount of pollution they generate.
A)True
B)False
Q3) When consumption of a good creates positive externalities,
A) the private demand curve shifts rightward
B) the private demand curve shifts leftward
C) the private demand curve is below the marginal social benefit curve
D) the private demand curve is above the marginal social benefit curve
E) the equilibrium quantity determined by the free private market is too high
Q4) Environmental problems result when social costs and benefits are different from private costs and benefits.
A)True
B)False
Page 19
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Chapter 18: Income Distribution and Poverty
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Sample Questions
Q1) Research indicates that daughters from welfare families are more likely than daughters in other families to participate in the welfare system themselves.
A)True
B)False
Q2) Which of the following would not account for the observed wage differential between African Americans and whites in the United States?
A) differences in the quantity of on-the-job training
B) differences in the quality of education
C) discrimination by employers
D) differences in job experience
E) differences in access to public assistance programs
Q3) The normal life-cycle pattern of income reflects differences in earnings based on
A) race and education
B) gender and education
C) age and education
D) race
E) household size
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Chapter 19: International Trade
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161 Verified Questions
161 Flashcards
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Sample Questions
Q1) In determining comparative advantage,cost is measured in terms of
A) foreign currency
B) domestic currency
C) gold only
D) units of weight and measure
E) opportunities forgone
Q2) Exhibit 19-8 shows the demand and supply of shirts for the country of Eragos.If the world price is $4 per shirt,and the government of Eragos imposes a tariff of $1,the consumer surplus is:
A) Increasing by $4
B) Decreasing by $4
C) Not changing
D) Increasing by $16.5
E) Decreasing by $16.5
Q3) It is possible for one country to have a comparative advantage in the production of all products.
A)True
B)False
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21
Chapter 20: International Finance
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224 Verified Questions
224 Flashcards
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Sample Questions
Q1) The exchange rate is the
A) total yearly amount of money changed from one country's currency to another country's currency
B) total monetary value of exports minus imports
C) amount of a country's currency that can be exchanged for one ounce of gold
D) sum of net unilateral transfers
E) price of one country's currency in terms of another country's currency
Q2) Under the gold standard,all except one of the following are true.Which is not true?
A) Paper currency was convertible into gold at a fixed rate.
B) A balance-of-payments deficit would result in a loss of gold.
C) A balance-of-payments surplus would result in an inflow in gold.
D) The money supply of any country was largely determined by flows of gold.
E) A surplus country experienced a rise in its money supply and a drop in its price level.
Q3) Flexible exchange rates are more volatile than floating ones.
A)True
B)False
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Chapter 21: Developing and Transitional Economies
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105 Flashcards
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Sample Questions
Q1) A World Bank study suggest a strong link in Africa between governments that _____ special-interest groups and _____ rates of economic growth.
A) cater to,high
B) cater to,moderate
C) cater to,low
D) ignore,low
E) ignore,moderate
Q2) Education makes people more receptive t new ideas and methods,which leads to economic development.
A)True
B)False
Q3) Which of the following is not an example of an institution (rules of the game)?
A) formal rules of behavior
B) government takeover of private corporations
C) a constitution
D) informal constraints on behavior
E) traditions
Q4) Export promotion has been more successful than import substitution.
A)True
B)False
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