Applied Microeconomics
Final Test Solutions
Course Introduction
Applied Microeconomics explores how microeconomic theories and principles are used to analyze and solve real-world problems in various sectors, such as business, policy, health, and the environment. The course covers the behavior of individuals, households, and firms in markets, focusing on topics like consumer choice, production decisions, market structures, and the role of government intervention. Through case studies, empirical analysis, and practical applications, students learn to apply economic reasoning to assess market outcomes, design policies, and make informed decisions in professional settings.
Recommended Textbook
Microeconomics Principles and Applications 6th Edition by Robert E. Hall
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18 Chapters
2377 Verified Questions
2377 Flashcards
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Page 2
Chapter 1: What Is Economics
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) Suppose two economists disagree about who would be helped or hurt by certain legislation.These disagreements
A)are positive in nature
B)are minor and rarely lead to different policies or conclusions
C)are normative in nature
D)occur as the result of a mistake made by an economist
E)occur because economic models are more complex,and subject to error,than the real world
Answer: A
Q2) Society's resources include
A)land and labor
B)labor and machinery
C)land,labor,and capital
D)land,capital,and money
E)labor,capital,and money
Answer: C
Q3) Opportunity costs arise because of resource scarcity.
A)True
B)False
Answer: True
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Chapter 2: Scarcity, choice, and Economic Systems
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146 Flashcards
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Sample Questions
Q1) Productivity efficiency in saving lives
A)is not possible to today's economy
B)is guaranteed in today's economy
C)occurs when the economy is saving the maximum possible number of lives
D)requires producing on the economy's production possibilities frontier
E)occurs where the production possibilities frontier intersects the "lives saved" axis
Answer: D
Q2) A weakness of the market system of resource allocation is that
A)such economies tend to be stagnant
B)most participants in such an economy have low standards of living
C)there are no limits on an individual's freedom of action
D)it does not address the problem of initial inequities in endowments
E)its participants are free to act according to their desires
Answer: D
Q3) Specialization of labor typically leads to higher levels of productive inefficiency in an economy.
A)True
B)False
Answer: False
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Chapter 3: Supply and Demand
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184 Flashcards
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Sample Questions
Q1) Suppose that initially the market for DVDs is at point A on demand curve D in Figure 3-3.If the price of cassette tapes decreased,
A)the demand curve will shift to D
B)equilibrium will move to point B on demand curve D
C)equilibrium will move to point C on demand curve D
D)there will be no change from point A
E)the demand curve will shift to D
Answer: C
Q2) If two goods are substitutes,then
A)an increase in the demand for one of them will lead to an increase in demand for the other
B)an increase in the demand for one of them will lead to a decrease in demand for the other
C)an increase in the supply of one of them will lead to an increase in supply of the other D)an increase in the supply of one of them will lead to a decrease in supply for the other E)they cannot be produced at the same time
Answer: A
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Chapter 4: Working With Supply and Demand
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58 Flashcards
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Sample Questions
Q1) All of the following are examples of stock variables except one.Which one?
A)The amount of currency in circulation
B)The amount of money earned each week
C)The amount of money needed to construct a new building
D)The amount of money in a person's savings account
E)The amount of money at the Fed
Q2) Which of the following is an example of a stock variable?
A)The amount of cereal in a person's pantry
B)The amount of cereal a person buys each week
C)The amount of cereal a child consumes each month
D)The amount of cereal produced each day
E)None of these are stock variables
Q3) If an excise tax is imposed on shirts,
A)the number of shirts produced will exceed the number demanded
B)the number of shirts demanded will exceed the number supplied
C)the equilibrium market price will decrease
D)the amount consumers pay for each shirt will decrease
E)the net revenue producers receive from each shirt will decrease
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Chapter 5: Elasticity
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150 Flashcards
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Sample Questions
Q1) For which of the following goods is the income elasticity of demand likely to be largest?
A)poultry products
B)meals at restaurants
C)lemonade
D)used books
E)paperback mystery novels
Q2) Demand is said to be price inelastic when the coefficient of price elasticity of demand is
A)greater than +1
B)between 0 and +1
C)zero
D)infinity
Q3) For which of the following is demand likely to be the most price elastic?
A)a good for which there are no close substitutes
B)a good for which there are no easily-obtained substitutes
C)a good with close substitutes that are difficult to obtain
D)a good that is no longer being produced
E)a good for which close substitutes are easily obtained
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Page 7
Chapter 6: Consumer Choice
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) People sometimes try to limit the options they have available.This
A)is consistent with rational economic behavior.
B)can be explained by behavioral economic analysis
C)explains why demand curves are sometimes vertical
D)violates the assumption of transitive preferences
E)occurs when income and substitution effects cancel out.
Q2) A family on a trip budgets $800 for sit-down restaurant meals and fast food.The family can buy 16 restaurant meals if they don't buy any fast food.What is the price of a restaurant meal for the family?
A)$5
B)$16
C)$20
D)$50
E)it is impossible to tell from the information given
Q3) The principle of diminishing marginal utility implies that total utility falls as consumption rises above a certain level.
A)True
B)False
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8
Chapter 7: Production and Cost
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) Which of the following is irrelevant when deciding whether to undertake an action?
A)opportunity costs
B)implicit costs
C)sunk costs
D)implicit costs and explicit costs
E)fixed costs and implicit costs
Q2) Figure 7-2 shows how much a firm could produce with various amounts of labor holding capital and technology constant.What is the marginal product of labor between 20 and 30 units of labor?
A)340 units
B)220 units
C)11 units
D)110 units
E)34 units
Q3) The "short run" may vary in length from industry to industry.
A)True
B)False
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Page 9
Chapter 8: How Firms Make Decisions: Profit Maximization
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) Marginal revenue is defined as the
A)total revenue minus total cost
B)change in total revenue divided by the change in the quantity of output
C)price minus average total cost
D)total revenue over the quantity of output
E)quantity times price
Q2) Which of the following statements about the firm's total revenue is correct?
A)If the firm sold 3 units of output,it would have revenues totaling $540.
B)If the firm sold 7 units of output,it would have revenues totaling $560.
C)If the firm increased output from 2 units to 3 units,total revenue would decline.
D)If the firm decreased output from 7 units to 6 units,total revenue would decline.
E)If the firm decreased output from 6 units to 5 units,total revenue would decline.
Q3) Profit maximization occurs at the quantity where marginal cost equals marginal revenue.
A)True
B)False
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Chapter 9: Perfect Competition
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250 Verified Questions
250 Flashcards
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Sample Questions
Q1) Which of the following is true about perfect competition?
A)Each firm faces a downward-sloping demand curve.
B)Each firm must face a horizontal demand curve.
C)Firms are price-makers.
D)Marginal cost equals average cost.
E)Firms can increase sales by lowering their price.
Q2) To say that a perfectly competitive market is in short-run equilibrium is to say that
A)at least one firm is earning an economic profit
B)at least one firm is earning a normal profit
C)no consumer wishes to buy any more or any fewer units at the market price
D)each firm is earning an economic profit
E)every consumer is purchasing a positive amount of output
Q3) In the short run,each firm in a perfectly competitive market is free to
A)increase its plant size
B)vary its output level within its existing capacity
C)exit the industry without losses
D)set a price above the market price
E)decrease its plant size
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11
Chapter 10: B:Perfect Competition
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5 Verified Questions
5 Flashcards
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Sample Questions
Q1) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Q2) One of the defining characteristics of a perfectly competitive market is
A)both buyers and sellers are well informed about the market
B)a small number of buyers
C)high barriers to entry
D)a small number of buyers but a large number of sellers
E)buyers are better informed about the market than sellers
Q3) Which of the following is not a characteristic of a perfectly competitive market
A)buyers and sellers are well informed about the market
B)standardized product
C)many buyers and few sellers
D)easy exit out of the industry
E)easy entry into the industry
Q4) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Page 12
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Chapter 11: Monopolistic Competition and Oligopoly
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) The four firm concentration is a measure of
A)the percentage of total output of the four largest firms in an industry
B)the total output of the fourth largest firm in an industry
C)the percentage of total sales of the four largest firms in an industry
D)the total output or sales of the four largest firms in an industry
E)either a or c
Q2) If one were to rank the demand curve facing a firm from the least elastic to the most elastic,the ranking would be
A)monopoly,perfectly competitive,monopolistically competitive
B)monopoly,monopolistically competitive,perfectly competitive
C)perfectly competitive,monopoly,monopolistically competitive
D)monopolistically competitive,monopoly,perfectly competitive
E)perfectly competitive,monopolistically competitive,monopoly
Q3) Regardless of whether advertising is effective or not,it results in an increase in both fixed and total costs.
A)True
B)False
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13
Chapter 11: Monopoly
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214 Flashcards
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Sample Questions
Q1) The United States Postal Service is an example of a monopoly created by A)government franchise.
B)copyright.
C)control of scarce inputs.
D)rent-seeking behavior.
Q2) A profit-maximizing,single-price monopoly must lower its price in order to sell more output.
A)True
B)False
Q3) When the demand for a monopolist's output falls,the monopolist will
A)not change the price,since it has no competition.
B)raise the price in order to compensate for the lower demand.
C)charge a lower price.
D)cut its costs in order to maintain its profit margin.
Q4) A monopolist will
A)never produce at an output level where marginal revenue is positive
B)never produce at an output level where marginal revenue is constant
C)never produce at an output level where marginal revenue is negative
D)never produce at an output level where marginal cost is positive
E)ignore marginal revenue as long as average revenue is positive
Page 14
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Chapter 12: Labor Markets
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) Each of the following,except one,is a condition that characterizes a perfectly competitive labor market.Which is the exception?
A)Workers appear identical to firms.
B)Workers receive wages that are above their marginal revenue product (MRP).
C)There are no barriers to entering the labor market.
D)There are no barriers to exiting from the labor market.
E)There are many buyers of labor in the market.
Q2) Figure 12-4 shows the number of calculators that can be produced daily by various numbers of workers.What is the marginal product of hiring the fifth worker?
A)60 calculators
B)40 calculators
C)280 calculators
D)300 calculators
E)20 calculators
Q3) The term marginal revenue product (MRP)refers to the change in output if an additional worker is employed.
A)True
B)False
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15
Chapter 13: B: Labor Markets
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86 Flashcards
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Sample Questions
Q1) Positions that involve a considerable amount of personal risk
A)typically have negative compensating wage differentials
B)usually have better fringe benefits for employees
C)have higher demand by firms
D)pay lower wages
E)typically have positive compensating wage differentials
Q2) Wage rates may vary among labor markets for each of the following reasons,except one.Which is the exception?
A)differences in job risks
B)differences in social status associated with the job
C)differences in market size
D)differences in educational requirements
E)differences in job training requirements
Q3) Market forces encourage discrimination in the case of
A)statistical discrimination only
B)employee and customer prejudice only
C)employer prejudice only
D)statistical discrimination and employee or customer prejudice
E)employer prejudice and statistical discrimination
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Page 16
Chapter 14: Capital and Financial Markets
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Consider the following three bonds,Bond F,Bond J and Bond P.Bonds F and P mature in 1 year while Bond J matures in 4 years.Bond F and J have a face value of $10,000 while Bond P has a face value of $11,000.If the interest rate is 15%,rank the three bonds from highest present value to lowest present value.
A)Bond F,Bond P,Bond J
B)Bond P,Bond F,Bond J
C)Bond J,Bond F,Bond P
D)Bond P,Bond J,Bond F
E)Bond F,Bond J,Bond P
Q2) You have a bond that you can redeem for $10,000 one year from now.The interest rate is 10 percent (0.10)per year.How much is the bond worth today?
A)$9,090.91
B)$10,000.00
C)$8,264.46
D)$9,523.81
E)$9,000.00
Q3) The supply curve for a particular bond is horizontal.
A)True
B)False
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Page 17
Chapter 15: Economic Efficiency and the Competitive Ideal
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) Consider a market with a price ceiling.If the price ceiling is raised which of the following would happen?
A)The consumer surplus would increase,the producer surplus would decrease and the dead weight loss would decrease
B)The consumer surplus would increase,the producer surplus would decrease and the dead weight loss would increase
C)The consumer surplus,the producer surplus and the dead weight loss would all decrease
D)The consumer surplus,the producer surplus and the dead weight loss would all increase
E)The consumer surplus would decrease,the producer surplus would increase and the dead weight loss would decrease
Q2) Instead of throwing away a worn-out pair of jeans,a cowboy trades them in for $12.The jeans are resold for $45 to someone who likes to project a rugged image.These transactions are Pareto improvements.
A)True
B)False
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Chapter 16: Governments Role in Economic Efficiency
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Sample Questions
Q1) If a monopoly arises as a natural monopoly
A)using anti-trust law to break it up is a poor remedy
B)anti-trust law should be used to break it up
C)that is most likely due to a patent or copyright
D)it will evolve into a perfectly competitive market in the long run
E)it should be encouraged,because it is "natural"
Q2) To make a market efficient in the presence of a negative externality,a tax could be imposed that is equal to the marginal
A)social cost
B)private benefit
C)social cost minus marginal private cost
D)social cost minus marginal private benefit
E)private benefit minus marginal social benefit
Q3) To achieve economic efficiency,a pure public good
A)would have to be provided at marginal cost
B)would have to be provide at marginal revenue
C)should never be provided
D)should be provided to everyone
E)would have to be provide free of charge
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Page 19
Chapter 17: Comparative Advantage and the Gains From International Trade
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120 Flashcards
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Sample Questions
Q1) Assume the North Island of New Zealand can produce 2,000 fishing poles or 20 kayaks per day and the South Island can produce 1,000 fishing poles or 5 kayaks per day.The South Island has a comparative advantage in producing kayaks.
A)True
B)False
Q2) Suppose that for each automobile Japan produces it must forego producing 40 computers.The United States must forego producing 80 computers for each automobile it produces.Which of the following is true?
A)Japan has a comparative advantage in producing computers.
B)the U.S.has a comparative advantage in producing computers.
C)the U.S.has a comparative advantage in producing automobiles.
D)the U.S.has an absolute advantage in producing automobiles.
E)the opportunity cost of producing computers is the same for Japan and the U.S.
Q3) Both tariffs and quotas
A)benefit domestic consumers by lowering prices
B)benefit domestic consumers by expanding consumption choices
C)are illegal in the United States
D)benefit domestic producers
E)are policy tools that help bring about free trade
Page 20
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