Applied Microeconomics Pre-Test
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Course Introduction
Applied Microeconomics explores the practical application of microeconomic theories and concepts to real-world decision-making and policy issues. The course covers topics such as consumer and producer behavior, market structures, pricing, externalities, and the role of government in addressing market failures. Through case studies, empirical analysis, and contemporary examples, students learn how to analyze economic problems, evaluate outcomes, and formulate effective solutions in areas such as labor markets, health care, education, and environmental policy. This course emphasizes the use of data and economic models to inform decision-making in both public and private sectors.
Recommended Textbook Microeconomics 21st Edition by Campbell McConnell
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28 Chapters
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7043 Flashcards
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Chapter 1: Limits, Alternatives, and Choices
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398 Flashcards
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Sample Questions
Q1) The production possibilities curve tells us
A) the specific combination of two products that is most desired by society.
B) that costs do not change as society varies its output.
C) that costs are irrelevant in a society that has fixed resources.
D) the combinations of two goods that can be produced with society's available resources.
Answer: D
Q2) Specialization and international trade allow a nation to
A) produce a combination of goods that is beyond (or outside) its production possibilities.
B) consume a combination of goods that is beyond (or outside) its production possibilities.
C) have an upward-sloping production possibilities curve.
D) consume a lot of goods without having to produce any output.
Answer: B
Q3) An increase in immigration would shift the production possibilities curve to the left. A)True
B)False
Answer: False
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Page 3
Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) Capitalism gets its name from the fact that capital resources are mostly
A) owned by the state or government.
B) given the highest priority in the economy's income distribution.
C) treated as private property.
D) in the form of money and financial resources.
Answer: C
Q2) Firms are motivated to minimize production costs because
A) it is the most environmentally friendly way to produce goods.
B) least-cost production techniques use the smallest total quantity of resources.
C) competitive pressures in the market will drive out higher-cost producers.
D) the government provides tax credits and subsidies to low-cost producers.
Answer: C
Q3) Which of the following would not be emphasized in a capitalist economy?
A) private ownership of capital and other resources
B) competition and decentralized decisions regarding production and consumption
C) reliance on market forces to coordinate economic activity
D) prevention of firms from exposing themselves to financial risk
Answer: D
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4
Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) If two goods are complements,
A) they are consumed independently.
B) an increase in the price of one will increase the demand for the other.
C) a decrease in the price of one will increase the demand for the other.
D) they are necessarily inferior goods.
Answer: C
Q2) When an economist says that the demand for a product has increased, this means that
A) consumers are now willing to purchase more of this product at each possible price.
B) the product has become particularly scarce for some reason.
C) product price has fallen and, as a consequence, consumers are buying a larger quantity of the product.
D) the demand curve has shifted to the left.
Answer: A
Q3) The presence of ticket scalpers in popular events like concerts will hurt consumers who buy from the scalpers.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) The Coase Theorem suggests that the government does not have to be involved at all in resolving a market failure due to externalities.
A)True
B)False
Q2) The value that consumers get (from consuming a product) over and above what they actually paid for the product is called
A) consumer utility.
B) consumption expenditures.
C) consumer surplus.
D) consumer demand.
Q3) When the marginal benefits exceed the marginal costs of producing a product, then allocative efficiency is not achieved in the market.
A)True
B)False
Q4) Which of the following is an example of a public good?
A) a weather warning system
B) a television set
C) a sofa
D) a bottle of soda
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Chapter 5: Governments Role and Government Failure
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Sample Questions
Q1) The situation where "the few who yell the loudest get heard" is referred to as the
A) special-interest effect.
B) principal-agent problem.
C) moral hazard problem.
D) adverse selection effect.
Q2) Public choice theorists contend that
A) government can efficiently correct instances of market system failure.
B) the existence of cost-benefit analysis has brought about the efficient use of resources in the public sector.
C) public bureaucracies are inherently more efficient than private enterprises.
D) public bureaucracies are inherently less efficient than private enterprises.
Q3) Which of the following countries had the least corruption, as reported in the Global Corruption Barometer survey in 2013?
A) Mexico
B) Italy
C) India
D) South Africa
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Chapter 6: Elasticity
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Sample Questions
Q1) For a linear demand curve,
A) elasticity is constant along the curve.
B) elasticity is unity at every point on the curve.
C) demand is elastic at relatively low prices.
D) demand is elastic at relatively high prices.
Q2) The concept of price elasticity of demand measures
A) the slope of the demand curve.
B) the number of buyers in a market.
C) the extent to which the demand curve shifts as the result of a price decline.
D) the sensitivity of consumer purchases to price changes.
Q3) If a 10 percent increase in the price of one good results in no change in the quantity demanded of another good, then it can be concluded that the two goods are
A) complementary goods.
B) substitute goods.
C) independent goods.
D) normal goods.
Q4) Price elasticity of demand tends to be low for goods with few close substitutes.
A)True
B)False
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Chapter 7: Utility Maximization
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Sample Questions
Q1) A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit priceof X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should
A) increase consumption of product X and decrease consumption of product Y.
B) increase consumption of product X and increase consumption of product Y.
C) increase consumption of product Y and decrease consumption of product X.
D) stick with the current consumption mix because it yields maximum utility.
Q2) The substitution effect suggests that when consumers judge product quality by price, they will substitute high-priced products for low-priced products.
A)True
B)False
Q3) Total utility is best defined as the
A) change in marginal utility multiplied by the price of a product.
B) maximum amount of satisfaction from consuming a product.
C) total satisfaction received from consuming a given amount of a product.
D) additional satisfaction received from consuming one more unit of a product.
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Chapter 8: Behavioral Economics
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Sample Questions
Q1) Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers?
A) Those are the shelving locations that minimize costs.
B) Stores try to make frequently purchased items quicker and easier for consumers to access.
C) Smaller items tend to fall through shopping cart holes, so stores reduce that problem for consumers by having smaller items at the checkout stands.
D) Many of these are small items that people will buy on an impulse.
Q2) Heuristics
A) are rules of thumb that generate decisions that generally maximize net benefits. B) take a long time to develop and are therefore avoided by rational decision makers.
C) are shortcuts that save time and energy in decision making.
D) always waste mental resources by leading people to suboptimal outcomes.
Q3) Precommitments must impose costs on people to be effective.
A)True
B)False
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Chapter 9: Businesses and the Costs of Production
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Sample Questions
Q1) Which of the following holds true?
A) There is no relationship between AP and AVC.
B) When MP is rising, AVC is falling, and when MP is falling, AVC is rising.
C) When AP is rising, AVC is falling, and when AP is falling, AVC is rising.
D) When AP is rising, AVC is rising, and when AP is falling, AVC is falling.
Q2) In the short run, total output in an industry
A) is fixed at a specific level.
B) can vary as the result of using a fixed amount of plant and equipment more or less intensively.
C) may be altered by varying the size of plant and equipment which now exist in the industry.
D) can vary as the result of new firms entering or leaving the industry.
Q3) A firm doubles the quantity of all resources it employs and, as a result, output doubles. Which of the following is correct?
A) There are increasing returns to scale.
B) The long-run average total cost curve is flat.
C) The law of diminishing returns is proven wrong.
D) The example is for the short-run rather than the long-run.
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11
Chapter 10: Pure Competition in the Short Run
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Sample Questions
Q1) For an individual firm in pure competition, the firm's average revenue and marginal revenue at any output level are both equal to the product's price.
A)True
B)False
Q2) If there are many firms in an industry, then it must be a purely competitive market.
A)True
B)False
Q3) Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.
A)True
B)False
Q4) A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4.00 and the market price is $4.50. What should the firm do?
A) shut down if the minimum possible average variable cost is below $4.50
B) decrease output if the minimum possible average variable cost is below $4.50
C) increase output if the minimum possible average variable cost is below $4.50
D) decrease output if the minimum possible average variable cost is above $4.50
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Page 12
Chapter 11: Pure Competition in the Long Run
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Sample Questions
Q1) In the context of analyzing economic efficiency, we can interpret the market demand curve to be showing
A) the average cost of producing the product at each output level.
B) the marginal revenue from each extra unit of the product.
C) the marginal benefit that consumers place on each unit of the product.
D) the average variable cost of producing the product.
Q2) Which statement is correct? The long-run supply curve for a purely competitive
A) decreasing-cost industry will be upward-sloping.
B) increasing-cost industry will be perfectly elastic.
C) increasing-cost industry will be upward-sloping.
D) increasing-cost industry will be less elastic than the short-run supply curve.
Q3) If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to
A) increase, output to increase, price to decrease, and profits to decrease.
B) increase, output to increase, price to increase, and profits to decrease.
C) decrease, output to decrease, price to increase, and profits to increase.
D) increase, output to decrease, price to decrease, and profits to decrease.
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Page 13
Chapter 12: Pure Monopoly
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Sample Questions
Q1) A nondiscriminating monopolist will find that marginal revenue
A) exceeds average revenue or price.
B) is identical to price.
C) is sometimes greater and sometimes less than price.
D) is less than average revenue or price.
Q2) A purely monopolistic firm
A) has no entry barriers.
B) faces a downsloping demand curve.
C) produces a product or service for which there are many close substitutes.
D) earns only a normal profit in the long run.
Q3) When the value of a product to each user, including existing users, increases due to an increase in the total number of users-as in the case of Facebook-we refer to this as A) income transfer.
B) price discrimination.
C) simultaneous consumption.
D) network effects.
Q4) A monopolist can use its pricing strategy as a barrier to entry by other firms.
A)True
B)False
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Chapter 13: Monopolistic Competition
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Sample Questions
Q1) Long-run profits of individual firms in monopolistic competition will be larger than their short-run profits.
A)True
B)False
Q2) The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve.
A)True
B)False
Q3) Monopolistic competition resembles pure competition because
A) both industries emphasize nonprice competition.
B) in both instances firms will operate at the minimum point on their long-run average total cost curves.
C) both industries entail the production of differentiated products.
D) barriers to entry are either weak or nonexistent.
Q4) In monopolistic competition, easy industry entry and exit drives long-run profits of firms to zero.
A)True
B)False
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Chapter 14: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Negative-sum games do not exist, because neither player has an incentive to play the game.
A)True
B)False
Q2) Obstacles to collusion among oligopolists include the following, except
A) demand and costs differences among firms.
B) long-lasting economic recession and poor industry performance.
C) potential new entrants into the market.
D) "gentlemen's agreements" among the firms.
Q3) The kinked-demand curve model of oligopoly
A) assumes a firm's rivals will ignore a price cut but match a price increase.
B) embodies the possibility that changes in unit costs will have no effect on equilibrium price and output.
C) assumes a firm's rivals will match any price change it may initiate.
D) assumes a firm's rivals will ignore any price change it may initiate.
Q4) Which of the following is the best example of oligopoly?
A) women's dress manufacturing
B) automobile manufacturing
C) restaurants
D) cotton farming
Page 16
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Chapter 15: Technology, Rd, and Efficiency
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Sample Questions
Q1) The first discovery of the water-soluble material used in contact lenses is an example of A) innovation. B) invention.
C) creative destruction.
D) diffusion.
Q2) The first commercial introduction of transparent tape is an example of A) innovation.
B) invention.
C) creative destruction.
D) diffusion.
Q3) Even where imitation is possible, a firm may gain advantage from being the first to introduce an innovative product because of A) long-lasting brand-name recognition.
B) a time lag between innovation and imitation by rivals.
C) trade secrets that limit the ability of rivals to exactly imitate the product. D) all of the other answers are correct.
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Chapter 16: The Demand for Resources
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Sample Questions
Q1) Which of the following statements is most accurate about the occupations projected to be the most rapidly declining in the U.S. in terms of percentage decreases?
A) The majority are in education related professions.
B) The majority are in health care related professions.
C) The majority are in manufacturing related professions.
D) The majority are in unskilled jobs.
Q2) If a firm is selling in an imperfectly competitive product market, then
A) average product will be less than marginal product for any number of workers hired.
B) the marginal products of successive workers must be sold at lower prices.
C) the marginal products of successive workers can be sold at higher prices.
D) the marginal products of successive workers can be sold at a constant price.
Q3) Marginal resource cost is
A) the increase in variable costs resulting from producing one more unit of output.
B) the increase in fixed costs resulting from producing one more unit of output.
C) the same as the marginal cost of the product.
D) the same as the resource price when a firm is acquiring the resource in a purely competitive market.
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Page 18
Chapter 17: Wage Determination
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Sample Questions
Q1) The monopsonist in a nonunionized labor market pays a wage rate below the MRP of labor.
A)True B)False
Q2) The principal-agent problem, as applied to the management of a company, would have the
A) stockholders as the agents and the managers as the principals.
B) company as the principal and the customer as the agent.
C) stockholders as the principals and the managers as the agents.
D) customer as the principal and the company as the agent.
Q3) A firm that hires labor and sells its product both in purely competitive markets will
A) have a horizontal demand curve for labor.
B) face a downward-sloping demand curve for its product.
C) have a downward-sloping demand curve for labor.
D) have a horizontal supply curve for its product.
Q4) One reason for the high wage rates in the United States and other advanced economies is the high productivity of labor in these countries.
A)True B)False
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Chapter 18: Rent, Interest, and Profit
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Sample Questions
Q1) Which would usually not be an entrepreneurial function?
A) introducing a new product in a business
B) assuming uninsurable risks of owning a business
C) combining and directing resources in an uncertain business environment
D) managing the accounting department of a Fortune 500 corporation
Q2) In making an investment decision, a business firm is most interested in the
A) nominal interest rate.
B) real interest rate.
C) nominal interest rate minus the real interest rate.
D) future supply of loanable funds.
Q3) Henry George's single-tax movement was based on the argument that A) the tax structure should consist solely of a highly progressive tax on nonwage incomes.
B) interest is unearned income and should be taxed away by government.
C) in less-developed countries the supply of and demand for land will be such that land will be a free good and therefore capable of bearing sizable taxes.
D) a high tax on land rent is justified because land rent performs no incentive function.
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Page 20
Chapter 19: Natural Resource and Energy Economics
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Sample Questions
Q1) "Conflict diamonds" refer to the diamonds
A) that were stolen by the Nazis in WWII and are now reclaimed by the true owners.
B) mined by combatants in war zones in Africa.
C) whose authenticity is contested by experts in the industry.
D) over which major rivals are heatedly bidding against one another in the auction markets.
Q2) A profit-maximizing company should extract a nonrenewable resource in the present up to the quantity where the
A) selling price of the resource equals the extraction cost plus the user cost of the resource.
B) selling price of the resource equals the total cost plus the user cost of the resource.
C) selling price of the resource equals the extraction cost of the resource.
D) extraction cost of the resource equals the user cost of the resource.
Q3) Relative to 1800, today in the world there are
A) more people but lower per-capita consumption.
B) more people but the same per-capita consumption.
C) more people and higher per-capita consumption.
D) the same number of people but higher per-capita consumption.
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Chapter 20: Public Finance: Expenditures and Taxes
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Sample Questions
Q1) The benefits-received principle of taxation is
A) the basis for the gasoline tax.
B) easy to apply because benefits received are conveniently measurable.
C) applied in income-redistribution programs.
D) the principle behind the income tax system.
Q2) If the tax on gasoline is increased, gas stations are most likely to pass most of this increase to the consumer if the demand is
A) unitary elastic.
B) very inelastic.
C) slightly elastic.
D) perfectly elastic.
Q3) From 1960 to 2015, government purchases as a percentage of U.S. output have A) remained approximately constant.
B) decreased.
C) increased slightly.
D) increased sharply.
Q4) Corporate income taxes contribute more to federal tax revenues than do personal income taxes.
A)True
B)False
Page 22
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Chapter 21: Antitrust Policy and Regulation
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Sample Questions
Q1) Congressional representatives have called for extensive ergonomics regulations to reduce strains and injuries from repetitive activities by workers. Such regulation, if passed, would be a good example of A) industrial regulation.
B) the principal-agent problem.
C) the free-rider problem.
D) social regulation.
Q2) (Last Word) In 2015, Google was indicted by European Union antitrust officials for A) conspiring with Microsoft to ensure that Google and Microsoft products were bundled. B) using its 90 percent share of the Internet search market to favor its own price-comparison service.
C) using pricing algorithms to price-fix with other Internet sellers.
D) using its monopoly power to require all computers sold in Europe to support Google Chrome.
Q3) Price-fixing is illegal under Section 1 of the Sherman Act.
A)True
B)False
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Chapter 22: Agriculture: Economics and Policy
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Sample Questions
Q1) Agricultural price supports have been criticized because they
A) hasten the exodus of labor from agriculture.
B) subsidize consumers at the expense of farmers.
C) help large-scale farmers rather than small farmers.
D) create product shortages.
Q2) Which of the following arguments is not generally made to justify farm subsidies?
A) The "family farm" is an American institution that should be protected and nurtured.
B) Agribusiness firms need subsidies to achieve economies of scale.
C) Farmers sell their output in purely competitive markets but must buy inputs from imperfectly competitive firms.
D) Farmers cannot fully insure themselves against the risks unusual to farming, such as floods, droughts, and pests.
Q3) Farm price support programs tend to
A) benefit both farmers and consumers of the farm products.
B) benefit farmers and impose a smaller cost on consumers and taxpayers.
C) lead to net social benefits.
D) benefit farmers but impose a larger cost on consumers and taxpayers.
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Page 24
Chapter 23: Income Inequality, Poverty, and Discrimination
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Sample Questions
Q1) In 2014, the official poverty line for a household of four in the United States was
A) $24,230.
B) $32,473.
C) $12,071.
D) $26,803.
Q2) Poverty is a condition where a person or family does not have the means to A) satisfy all wants.
B) save enough for the future.
C) earn a stable income.
D) meet basic needs.
Q3) The top 20 percent of U.S. income earners receive nearly 80 percent of total U.S. income.
A)True
B)False
Q4) Which of the following would be considered part of wealth?
A) wages and salaries
B) rental payments
C) profits from a corporation
D) corporate stock holdings
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Chapter 24: Health Care
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Sample Questions
Q1) Which of the following is a demand-increasing factor in the health care market?
A) rising incomes
B) the aging of the population
C) asymmetric information
D) all of these
Q2) Proponents of the Patient Protection and Affordable Care Act (PPACA) had one major goal, which is
A) to expand the range of illnesses covered by insurance.
B) to nationalize health care in the country.
C) to extend health insurance coverage to all Americans.
D) to set prices for all health care procedures and services.
Q3) Health care expenditures coming directly out of consumers' pockets, primarily in the form of deductibles and copayments, account for what percentage of U.S. health care spending?
A) 21 percent
B) 35 percent
C) 44 percent
D) 17 percent
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Chapter 25: Immigration
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Sample Questions
Q1) Illegal immigration helps improve the standard of living for U.S. citizens by keeping prices lower.
A)True
B)False
Q2) Unimpeded immigration between two nations tends to
A) increase business income in both nations.
B) increase business income in the nation receiving immigrants but reduce it in the nation experiencing emigration.
C) reduce business income in the nation receiving immigrants but increase it in the nation experiencing emigration.
D) reduce business income in both nations.
Q3) Suppose the elasticity of labor demand is 0.6. Then a decrease in the wage rate will
A) decrease total wage income.
B) increase total wage income.
C) have no impact on total wage income.
D) have an indeterminate impact on total wage income.
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Chapter 26: International Trade
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Sample Questions
Q1) Import tariffs benefit the consumers of the product involved.
A)True
B)False
Q2) The imposition of a tariff on a product is least likely to result in a(n)
A) increase in efficiency in the domestic industry producing the product.
B) increase in the price of the product.
C) decrease in the quantity of imports.
D) decrease in the real incomes of workers in other industries.
Q3) (Consider This) According to Dallas Federal Reserve economist W. Michael Cox, taken to its extreme, the logic of "buying American" implies that
A) we should buy everything from abroad.
B) people should only consume what they can produce themselves.
C) consumers should only buy goods from other states.
D) the best quality goods are found in the United States.
Q4) If a nation exports a product, then the price of that product in the nation
A) will rise above the domestic (no-trade) equilibrium price.
B) will fall below the domestic (no-trade) equilibrium price.
C) will remain the same as the domestic (no-trade) equilibrium price.
D) may either rise or fall, depending on the product.
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Chapter 27: The Balance of Payments, Exchange Rates, and Trade Deficits
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Sample Questions
Q1) Which of the following combinations is plausible, as it relates to a nation's balance of payments?
A) Current account = +$40 billion; capital account = +$20 billion; financial account = $50 billion.
B) Current account = $50 billion; capital account = +$20 billion; financial account = +$30 billion.
C) Current account = +$10 billion; capital account = +$40 billion; financial account = +$50 billion.
D) Current account = +$30 billion; capital account = $20 billion; financial account = $50 billion.
Q2) When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a
A) credit on the current account of the U.S. balance of payments.
B) debit on the current account of the U.S. balance of payments.
C) credit on the financial account of the U.S. balance of payments.
D) debit on the financial account of the U.S. balance of payments.
Q3) A current account deficit will reduce U.S. foreign indebtedness.
A)True
B)False
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Chapter 28: The Economics of Developing Countries
Available Study Resources on Quizplus for this Chatper
249 Verified Questions
249 Flashcards
Source URL: https://quizplus.com/quiz/59406
Sample Questions
Q1) The capricious universe view indicates that
A) in the long run, "acts of God" have contained population growth and thus contributed to economic development.
B) DVCs will obtain biological and chemical weapons and force the redistribution of world wealth.
C) there is little or no correlation between one's efforts and the rewards he or she receives.
D) international and civil wars have been the primary impediment to growth.
Q2) Infrastructure is best illustrated by A) farm equipment.
B) school buildings and highways.
C) machinery and equipment for the production of consumer goods.
D) government tax revenues.
Q3) The presence of large and fast-growing populations in developing countries contributes to lower per capita incomes.
A)True
B)False
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