Applied Microeconomics Study Guide Questions
Course Introduction
Applied Microeconomics explores the practical application of microeconomic theories and principles to real-world issues and decision-making processes faced by individuals, firms, and public institutions. The course examines topics such as consumer behavior, production and cost analysis, market structures, game theory, and the impact of government interventions on market outcomes. Through case studies, empirical analysis, and policy evaluations, students will develop tools to analyze resource allocation, pricing, and the effects of regulation in various sectors, preparing them to critically assess economic problems and propose effective solutions.
Recommended Textbook Microeconomics 3rd Edition by R.
Glenn Hubbard
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16 Chapters
3331 Verified Questions
3331 Flashcards
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Page 2
Chapter 1: Economics Foundations and Models
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160 Flashcards
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Sample Questions
Q1) All of the following are part of an economic model except A) assumptions.
B) hypotheses.
C) data.
D) opinions.
Answer: D
Q2) The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?
A) 2 1/2 Russian tea cakes
B) 2/5 of a Russian tea cake
C) $2.50
D) $1.00
Answer: A
Q3) Suppose the extra cost for a doctor to keep his office open for one extra hour is $200. Then, the doctor should stay open for the extra hour if he can generate additional revenue of $200 for that hour.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Choices and Trade - Offs in the Market
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) If a brewery wants to raise funds to purchase a new fermenting vat, it does so in the A) factor market.
B) output market.
C) product market.
D) alcoholic beverages market.
Answer: A
Q2) Scarcity
A) stems from the incompatibility between limited resources and unlimited wants.
B) can be overcome by discovering new resources.
C) can be eliminated by rationing products.
D) is a bigger problem in market economies than in socialist economies.
Answer: A
Q3) A decrease in population shifts the production possibility frontier outwards over time. A)True
B)False
Answer: False
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Chapter 3: Where Prices Come Frome : The Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-5. At a price of $10, the quantity sold
A) is 2 units.
B) is 4 units.
C) is 6 units.
D) is 8 units.
Answer: B
Q2) In October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant?
A) The supply curve shifts to the right.
B) The supply curve shifts to the left.
C) The quantity demanded and the quantity supplied of platinum increase.
D) The demand curve shifts to the right.
Answer: A
Q3) An increase in the price of off-road vehicles will result in
A) a smaller quantity of off-road vehicles supplied.
B) a larger quantity of off-road vehicles supplied.
C) an increase in the demand for off-road vehicles.
D) a decrease in the supply of off-road vehicles.
Answer: B
Page 5
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Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then
A) the price elasticity of demand for teapots is greater than 1 in absolute value.
B) the demand for teapots is unit-elastic.
C) the price elasticity of demand for teapots is equal to zero.
D) the price elasticity of demand for teapots is less than 1 in absolute value.
Q2) Consider the following pairs of items: a. shampoo and conditioner
B. iPhones and earbuds
C. a laptop computer and a desktop computer
D. beef and pork
E. air-travel and weed killer
Which of the pairs listed will have cross-price elasticity of zero?
A) a and b only
B) c only, since most people cannot do without computers
C) e only
D) none of the pairs listed
Q3) Briefly explain the economic concept of elasticity.
Q4) Explain the relationship between price elasticity of demand and total revenue.
Page 6
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Chapter 5: Economic Efficiency , Government Price Setting and Taxes
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Sample Questions
Q1) Refer to Figure 5-5. Suppose that instead of a rent ceiling, the government imposed a price floor of $2000 per month for apartments. What is the quantity of apartments demanded at the new price?
A) 0
B) 200
C) 300
D) 500
Q2) Refer to Figure 5-1. If the market price is $3.00, what is the maximum number of burritos that Arnold will buy?
A) 0
B) 2
C) 3
D) 4
Q3) What do economists mean by an efficient tax?
Q4) The division of the burden of a tax between buyers and sellers in a market is called tax allocation.
A)True
B)False
Q5) What is economic surplus? When is economic surplus at a maximum?
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Chapter 6: Concumer Choice and Behavioural Economics
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Sample Questions
Q1) In making decisions about what to consume, a person's goal is to
A) allocate her limited income among all the products she wishes to buy so that she receives the highest total utility.
B) buy low-priced goods rather than high-priced goods.
C) maximise her marginal utility from the goods and services she wishes to buy using her limited income.
D) consume as many necessities as possible and then, if there is money left over, buy luxuries.
Q2) As a consumer consumes more and more of a product in a particular time period, eventually marginal utility
A) rises.
B) is constant.
C) declines.
D) fluctuates.
Q3) The amount of income a consumer has to spend on goods and services is known as A) purchasing power.
B) effective demand.
C) a budget constraint.
D) wealth.
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Page 8
Chapter 7: Technology , Production and Costs
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300 Flashcards
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Sample Questions
Q1) If a firm decreases its plant size and finds that its long-run average costs have decreased, then
A) its labour is more productive in a smaller plant.
B) its diseconomies of scale are less.
C) the firm should reduce its plant size even more.
D) the firm is now profitable.
Q2) The average total cost of production
A) is the extra cost required to produce one more unit.
B) equals the explicit cost of production.
C) equals total cost of production divided by the level of output.
D) equals total cost of production multiplied times the level of output.
Q3) As output increases, the distance between average total cost and average variable cost increases.
A)True
B)False
Q4) Refer to Figure 7-5. Curve G approaches curve F because
A) marginal cost is above average variable costs.
B) average fixed cost falls as output rises.
C) fixed cost falls as capacity rises.
D) total cost falls as more and more is produced.
Page 9
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Chapter 8: Firms in Perfectly Compitive Markets
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Sample Questions
Q1) Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?
A) Restaurants do not sell identical products.
B) Restaurants compete in small market areas - neighbourhoods and cities - rather than in regional or national markets. Therefore, restaurants are not small relative to their market size.
C) Restaurants usually have entry barriers in the form of zoning restrictions and health regulations.
D) Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.
Q2) Ted's Pancake Kitchen suffers a short-run loss. When should Ted decide to shut down rather than continue to produce?
A) if his Kitchen's revenue is less than its variable costs
B) if his Kitchen's revenue is less than its fixed costs
C) if his Kitchen's revenue is less than its explicit costs
D) if his Kitchen's revenue is less than its total costs
Q3) How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?
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Chapter 9: Monopoly Markets
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Sample Questions
Q1) Because a monopoly's demand curve is the same as the market demand curve for its product
A) the monopoly's marginal revenue equals its price.
B) the monopoly is a price taker.
C) the monopoly must lower its price to sell more of its product.
D) the monopoly's average total cost always falls as it increases its output.
Q2) A natural monopoly is most likely to occur in which of the following industries?
A) the pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years
B) the diamond mining and marketing industry because one firm can control a key resource
C) the software industry because of the importance of network externalities
D) an industry where fixed costs are very large relative to variable costs
Q3) Refer to Figure 9-3. Suppose the monopolist represented in the diagram above produces positive output. What is the profit/loss per unit?
A) loss of $7 per unit
B) profit of $30 per unit
C) loss of $21 per unit
D) profit of $14 per unit
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Page 11
Chapter 10: Monopolistic Competition : The Competitive Model
in More Realistic Setting
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255 Flashcards
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Sample Questions
Q1) Which of the following is true for a firm with a downward-sloping demand curve for its product?
A) Price, average revenue, and marginal revenue are all equal.
B) Price, average revenue, and marginal revenue are all different.
C) Price equals average revenue but is greater than marginal revenue.
D) Price equals average revenue but is less than marginal revenue.
Q2) Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.
A)True
B)False
Q3) When a monopolistically competitive firm lowers it price, one bad thing happens to the firm. What is this 'one bad thing' called?
A) the output effect
B) the income effect
C) the substitution effect
D) the price effect
Q4) Monopolistically competitive firms face a perfectly elastic demand curve.
A)True
B)False
12
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Chapter 11: Oligopoly : Firms in Less Competitve Markets
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186 Verified Questions
186 Flashcards
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Sample Questions
Q1) Prisoner's dilemma games imply that cooperative behaviour between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real world results?
A) Prisoner's dilemma games do not permit people or firms to renege on agreements, which often occurs in real word situations.
B) The prisoner's dilemma does not apply to most business situations that are repeated over and over.
C) Prisoner's dilemma games predict the behaviour of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity.
D) Most real world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties.
Q2) In an oligopoly, firms can increase their market power by
A) selling to buyers who have market power.
B) pursuing dominant strategies.
C) colluding to set prices.
D) undertaking heavy advertising expenditure.
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Page 13
Chapter 12: The Market for Labour and Other Factors of Production
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253 Flashcards
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Sample Questions
Q1) Competitive markets tend to eliminate economic discrimination, but there are many historical examples of firms that hired few, or no, black or female workers. Which of the following is not a reason for the persistence of this form of discrimination?
A) In many cases, white workers refused to work with black workers.
B) Some white consumers were unwilling to buy from companies that employed black workers.
C) If discrimination makes it difficult for a member of a group to be hired in a particular occupation, there is less incentive for members of the group to be trained to enter that occupation.
D) Laws passed by the federal government made it more expensive to hire black or female workers. As a result, it was less expensive for employers to hire mostly white male workers.
Q2) Which of the following is not held constant along a firm's demand curve for labour?
A) the quantity of other inputs used by the firm
B) the wage rate
C) changes in technology
D) the price of the product produced by the firm
Q3) What is a compensating differential?
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Chapter 13: International Trade
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111 Flashcards
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Sample Questions
Q1) A tariff is a tax imposed by a government on its own exports.
A)True
B)False
Q2) Economists believe the most persuasive argument for protectionism is to protect infant industries. But the argument has a drawback. What is this drawback?
A) Governments always make the level of protection for infant industries too high.
B) Governments are usually too impatient and do not allow protection to remain in place long enough to allow industries to be competitive in international markets.
C) Governments usually use tariffs, rather than quotas, to protect infant industries in order to collect tariff revenue. (Quotas do not result in government revenue).
D) Protection lessens the need for firms to become productive enough to compete with foreign firms; this often results in infant industries never 'growing up.'
Q3) a. What is the World Trade Organisation?
b. When was it established?
c. How many countries are members of the World Trade Organisation?
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) Some individuals seek to use government action to make themselves better off at the expense of others. The actions of these individuals
A) are examples of fraud; but these individuals usually avoid prosecution because of logrolling and rational ignorance.
B) are examples of rent seeking.
C) offer proof that Adam Smith's 'invisible hand' is not valid.
D) are evidence of the voting paradox.
Q2) Refer to Figure 14-1. The figure above represents the market for pecans. Assume that this is a competitive market. At a price of $9,
A) the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently low.
B) producers should lower the price to $3 in order to sell the quantity demanded of 4000.
C) the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high.
D) the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low.
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16
Chapter 15: Externalities , Environmental Policy and Public Goods
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212 Verified Questions
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Sample Questions
Q1) If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered
A) external costs.
B) transactions costs.
C) marginal benefits.
D) social costs of the pollution.
Q2) The private cost of a good or service is the cost borne by the producer.
A)True
B)False
Q3) Refer to Figure 15-7. What is the incremental cost of increasing the quantity of pollution reduction from Q<sub>B</sub><sub> </sub>to Q<sub>E </sub>units?
A) P<sub>E</sub>
B) the value of the area Q<sub>B</sub>BEQ<sub>E</sub>
C) P<sub>E</sub><sub> </sub><sub>×</sub><sub> </sub>Q<sub>E</sub>
D) the value of the area BEF
Q4) What are some of the limitations of the Coase theorem in practice?
Q5) The social cost of a good or service is the cost borne by the producer.
A)True
B)False
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) Exempting food purchases from sales tax is consistent with the ability-to-pay principle, although not necessarily consistent with vertical equity.
A)True
B)False
Q2) Exemptions and deductions are used
A) to add to taxes that must be paid.
B) by taxpayers to reduce the amount of income subject to tax.
C) to determine the type of tax structure.
D) to determine what items are subject to sales taxes.
Q3) If you pay $3000 in taxes on an income of $28 000, and $4450 in taxes on an income of $38 000, what is your marginal tax rate? Show your work.
Q4) Most economists agree that some of the burden of the corporate income tax
A) is reduced because the tax is progressive.
B) is shared by the federal government.
C) is reduced because the tax is used to attain a social objective.
D) is passed on to consumers in the form of higher prices.
Q5) Income inequality increases as the Gini coefficient approaches 1.
A)True
B)False
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