Applied Microeconomics Test
Questions
Course Introduction
Applied Microeconomics focuses on the practical application of microeconomic theories and principles to real-world situations and policy issues. The course covers topics such as consumer and producer behavior, market structures, labor and capital markets, and the impact of government intervention. Students will learn to use analytical tools and economic models to evaluate various problems in industries, resource allocation, pricing strategies, and market failures, developing the ability to apply microeconomic reasoning to make informed decisions in business, policy, and personal contexts.
Recommended Textbook Principles of Microeconomics 2nd Edition by Lee Coppock
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Page 2
Chapter 1: Five Foundations of Economics
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Sample Questions
Q1) The basic goal of economics is to
A) control the effects of government action.
B) determine how to distribute all that is produced in an economy.
C) address the scarcity problem created because the population's desire for goods exceeds the ability to produce them.
D) match limited resources to people's limited wants and needs.
E) control tastes and wishes so that there will be enough resources to produce all the goods and services that people want.
Answer: C
Q2) Which of the following is NOT a type of incentive?
A) positive
B) negative
C) complementary
D) indirect
E) direct
Answer: C
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Chapter 2: Model Building and Gains From Trade
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Sample Questions
Q1) Why doesn't our society invest more resources into the production of capital goods to enhance the level of growth in our future production possibilities frontier (PPF)?
Answer: Capital goods are great because they lead to economic growth.Consumer goods are great because we get satisfaction now.Production of either one comes at an opportunity cost; in a world of scarce resources we have to give up current consumption in order to produce capital goods.It may be that the political process or our own biases and time preferences sometimes distort the allocation of resources between present consumption and investment in capital for the future,but it is not the case that it is always better to invest more for the future.Consumers also value current consumption.Ultimately,it depends on the marginal benefit versus the marginal cost of the actual capital and consumption production point.
Q2) Which of the following represents an inefficient point?
A) point A
B) point B
C) point C
D) point D
E) point F
Answer: A
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Page 4
Chapter 3: The Market at Work: Supply and Demand
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Sample Questions
Q1) Shoes are considered to be a normal good.What would happen to the equilibrium price and equilibrium quantity of shoes if income increases and the cost of labor to produce shoes increases?
A) The equilibrium price will go up and equilibrium quantity will go up.
B) The equilibrium price will be indeterminate and equilibrium quantity will go up.
C) The equilibrium price will go down and equilibrium quantity will be indeterminate.
D) The equilibrium price will go up and equilibrium quantity will be indeterminate.
E) The equilibrium price will be indeterminate and equilibrium quantity will go down.
Answer: D
Q2) Inputs are
A) goods that are used together.
B) goods that are used in place of one another.
C) goods that one demands more of as one's income increases.
D) goods that one demands less of as one's income increases.
E) resources that firms use in the production of final goods and services.
Answer: E
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Chapter 4: Elasticity
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Sample Questions
Q1) Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand?
A) purses and backpacks
B) sofas and dining room tables
C) manicures and pedicures
D) shoes and socks
E) trucks and sedans
Q2) The introduction of new gaming systems that can compete effectively with the Nintendo console will make the demand for the Nintendo console become
A) more price elastic.
B) more price inelastic.
C) perfectly price elastic.
D) perfectly price inelastic.
E) unchanged.
Q3) If we know that the price elasticity of demand is:
a.-5,graph the demand curve.
b. -S1U1P11S1S1P0/S1U1B12S1U1B0 ,graph the demand curve.
c.infinite,graph the demand curve.
Q4) What is the price elasticity of demand? How is it calculated?
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Chapter 5: Market Outcomes and Tax Incidence
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Sample Questions
Q1) Butter and margarine are substitute goods.A tax on butter will have what effect on the market for margarine?
A) The supply of margarine will increase,causing its price to fall.
B) The demand for margarine will increase,causing its price to rise.
C) The demand for margarine will decrease,causing its price to fall.
D) Both the supply and demand of margarine will decrease,causing price to fall.
E) The supply of margarine will decrease,causing price to rise.
Q2) Supply and demand both tend to become more elastic in the long run.What does this mean for the deadweight loss and tax revenue from a tax in the long run compared to the short run?
Q3) A(n)________ in the elasticity of supply or demand in a market for a good that is taxed would tend to ________ who is legally responsible for paying the tax.
A) decrease; broaden
B) decrease; have no effect on C) increase; broaden
D) increase; narrow
E) increase; have no effect on
Q4) Why will a government-imposed quantity restriction in the market for a good usually reduce social welfare?
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Chapter 6: Price Controls
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Sample Questions
Q1) What is a black market? Under what conditions does such a market emerge? How do the prices charged on the black market compare to the conditions that exist in the legal market?
Q2) If a store sells a good at the market price,even though the government authorities have set the minimum price that can be charged,the store is selling the good in a(n)
A) black market for a market price that is higher.
B) black market for a market price that is lower.
C) effort to eliminate a surplus of the good.
D) legal market for a market price that is higher.
E) legal market for a market price that is lower.
Q3) The minimum wage law is an example of a
A) price floor.
B) price ceiling.
C) law that requires quantity demanded to equal quantity supplied.
D) law that allows individual employers and employees to make free decisions.
E) law that sets the minimum number of hours that an employee must work for wages during the week.
Q4) Are price controls based on positive or normative economic thinking? Explain.
Q5) How would a free market be characterized?
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Chapter 7: Market Inefficiencies: Externalities and Public Goods
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Sample Questions
Q1) When a negative externality exists and the government does not intervene,which point best identifies the market equilibrium?
A) A
B) B
C) C
D) D
E) either C or D
Q2) The market overproduces common-resource goods because private decision makers consider ________ costs but society experiences ________ costs.
A) only internal; only external
B) only internal; internal and external
C) only external; only internal
D) only external; internal and external
E) internal and external; only external
Q3) Draw a graph to illustrate the market equilibrium and the social optimum in the case where there is a negative externality.Explain why the social optimum is preferred to the market equilibrium.
Q4) How does a government subsidy for the consumption of a good shift the demand curve for that good?
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Chapter 8: Business Costs and Production
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Sample Questions
Q1) Total revenue minus total cost is equal to
A) producer surplus.
B) dividends.
C) consumer surplus.
D) profit.
E) retained earnings.
Q2) If a firm experiences diminishing marginal product of labor,its marginal cost
A) increases at an increasing rate.
B) decreases at a decreasing rate.
C) increases at a constant rate.
D) decreases at a constant rate.
E) increases at a decreasing rate.
Q3) Lisette owns a bakery.Her total costs are $150,000 per year,and her variable costs are $85,000.This means that her fixed costs are
A) $65,000.
B) $150,000.
C) $85,000.
D) $235,000.
E) $70,000.
Q4) Explain how the long-run average cost curve is constructed graphically.
Page 10
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Chapter 9: Firms in a Competitive Market
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Sample Questions
Q1) Which of the following is NOT a characteristic of a perfectly competitive industry?
A) The firms produce a homogenous product.
B) Sellers have better information about the product than consumers.
C) There is a large number of buyers and sellers.
D) The firms earn zero profit.
E) Firms can easily enter or exit the industry.
Q2) Where is a perfectly competitive firm's break-even output level?
A) at the intersection of the marginal cost curve with the marginal revenue curve
B) at the intersection of the total cost curve with the marginal revenue curve
C) at the minimum point of the average total cost curve
D) at the minimum point of the marginal cost curve
E) at the minimum point of the average variable cost curve
Q3) When profits are maximized,profits are equal to
A) $5.
B) $3.
C) $2.
D) $10.
E) $9.
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11
Chapter 10: Understanding Monopoly
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Sample Questions
Q1) Control of resources,problems raising capital,and economies of scale are all examples of
A) government-created barriers.
B) market structures.
C) patents and copyright laws.
D) price makers.
E) natural barriers.
Q2) Make the case for government regulation of high-speed Internet service,using the concept of elasticity of demand.
Q3) Rent seeking occurs when
A) resources are used to deregulate a market through the political process.
B) resources are used to maximize profits.
C) resources are used to secure monopoly rights through the political process.
D) two firms try to enter the same market.
E) landlords attempt to raise the rent on tenants.
Q4) Explain a situation in which,when holding costs constant,a monopolist that was earning economic profits in the past can later incur an economic loss.
Q5) Compare and contrast natural barriers to entry and government-created barriers to entry.
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Chapter 11: Price Discrimination
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Sample Questions
Q1) If SkyMasters could charge two different prices based on the age of the customer,what would those prices be?
A) $300 and $200
B) $350 and $200
C) $400 and $150
D) $400 and $200
E) $250 and $100
Q2) For the consumer who might have to pay based on "where you live and who you are," perfect price discrimination may feel unfair because it results in a
A) decrease in total welfare.
B) loss of consumer surplus.
C) loss of producer surplus.
D) decrease in deadweight loss.
E) loss of market efficiency.
Q3) Why would a theme park practice discrimination by age for admission but not for souvenirs?
Q4) Explain the relationship between price elasticity and price discrimination.
Q5) Explain the welfare effects of perfect price discrimination.
Q6) List and explain the conditions for price discrimination.
Page 13
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Chapter 12: Monopolistic Competition and Advertising
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Sample Questions
Q1) A generic product would be best described as one that is
A) perfectly differentiated.
B) completely undifferentiated.
C) heavily advertised.
D) sold in a monopoly market.
E) produced only in a perfectly competitive industry.
Q2) If a monopolistically competitive firm wants to maximize profits,it will increase production until marginal
A) revenue is greater than average variable cost.
B) revenue equals average total cost.
C) cost is greater than marginal revenue.
D) revenue equals average revenue.
E) revenue equals marginal cost.
Q3) The greeting card industry is
A) most likely a competitive market and has low markups.
B) most likely a monopoly and has high markups.
C) most likely monopolistically competitive and has substantial markups.
D) most likely an oligopoly with low markups.
E) characterized by firms that advertise and are mutually interdependent.
Q4) In economic terms,what is the ultimate goal of advertising?
Page 14
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Chapter 13: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Do all two-player,simultaneous-move games have exactly one unique Nash equilibrium? If not,support your answer by drawing a game tree and explaining the mechanics of a game that has either no Nash equilibrium or more than one Nash equilibrium.
Q2) When more firms enter into a market that was previously characterized as a duopoly,it will
A) be easier for firms in the market to form a successful cartel.
B) be more difficult for firms in the market to form a successful cartel.
C) be just as difficult for firms in the market to form a successful cartel as it was before the new firms entered.
D) be impossible for firms in the market to form a successful cartel,whereas before the new firms entered,it would have been possible.
E) still be impossible for firms in the market to form a successful cartel.
Q3) Deidra ________ a dominant strategy,and this game ________ a Nash equilibrium.
A) has; has
B) has; does not have
C) does not have; has D) does not have; does not have E) might have; might have
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Chapter 14: The Demand and Supply of Resources
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Sample Questions
Q1) At a wage of ________,________ workers are demanded.
A) $5; 10
B) $10; 35
C) $15; 40
D) $40; 10
E) $45; 45
Q2) The labor market for doctors can be represented with the following two equations:
L<sub>S</sub> = 5 + 3W
L<sub>D</sub> = 30 - 2W
Graph this labor market,highlighting equilibrium wages W* and quantity of labor L*.Label the wages where a shortage and a surplus would exist if the wage deviates from W*.
Q3) About what percent of the U.S.income is earned in wages and benefits?
A) 40
B) 72
C) 67
D) 33
E) 60
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Chapter 15: Income,inequality,and Poverty
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Sample Questions
Q1) The ________ is a measurement of the income distribution of a country's residents.
A) Lorenz curve
B) pillar coefficient
C) Gini index
D) OECD ratio
E) income ladder
Q2) Diminishing marginal returns explain the reduction of value in additional exertions of effort.The concept of ________ indicates the opposite-that the ultimate marginal production can result in disproportionate wage increases.
A) productivity discrimination
B) winner-take-all
C) efficiency wages
D) inclining marginal utility
E) maximum human capital
Q3) Why is it problematic to compare the income inequality ratio over a lengthy period of time but more valid to make such a comparison over a shorter period of time?
Q4) Briefly describe microcredit and the role it plays in a developing economy.
Q5) Why is the minimum wage an ineffective means of reducing poverty?
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Chapter 16: Consumer Choice
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Sample Questions
Q1) In many competitive eating contests,participants must keep their food "down" in order to have a chance to win.If competitors are unable to meet this qualification,it is probable that marginal utility is
A) negative.
B) positive.
C) zero.
D) decreasing.
E) slowing.
Q2) Is considering marginal utility a natural process experienced by humans?
A) No.Only economists engage in this sort of "bean counting" involving utils.
B) No.Humans don't all think the same way,so it follows that decision making is also relative.
C) Maybe.Good consumers consider marginal utility,while poor consumers don't.
D) Yes.Conscious calculations involving utils are a part of every decision.
E) Yes.Humans have an instinct,as self-interested,rational beings,to seek the most satisfaction.
Q3) Fireworks vendors are well known for the "Buy 1,Get n Free" sales tactic.Based on the concept of diminishing marginal utility,why is this an effective strategy?
Q4) Draw the indifference curves for two goods that are perfect complements.
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Chapter 17: Behavioral Economics and Risk Taking
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Sample Questions
Q1) A bank sends out a notice that as a result of a customer survey,the long-standing policy of the bank will change from "one monthly fee" to cover the usual customer banking activities,to a "fee for service," so that each individual service is charged a separate fee.The bank claims that the average amount of fees per customer will decrease.Many customers (almost all who didn't complete the survey)now complain in favor of the "one monthly fee" by saying "that's the way we've always had it." What behavioral economics concept would describe the complaining customers' behavior?
Q2) Most economic theory proceeds as though economic actors are all rational,self-interested decision-makers.Economists refer to this hypothetical rational,self-interested decision maker as
A) Homo consumus.
B) Homo microcus.
C) Homo demandcurvius.
D) Homo economicus.
E) Homo elasticious.
Q3) According to the traditional model of risk behavior,if one suffered an unexpected loss of $100 on the same day that he or she received an unexpected gift of $100,how would that person react?
Q4) Give some examples of how rationality is bounded in economic decision-making.
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Chapter 18: Health Insurance and Health Care
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Sample Questions
Q1) In a single-payer system,which of the following is true?
A) The single payer is able to act as a monopsonist.
B) Medical care tends to be rationed through pricing.
C) Physicians' wages are generally higher than in a multipayer system.
D) The single payer is able to act as a monopolist.
E) Medical care is available promptly to all who want it.
Q2) How do heroic end-of-life efforts represent a fundamental struggle in managing healthcare costs?
Q3) Why is the demand for health care very inelastic?
Q4) Which of the following is one of the central questions that society must answer regarding medical care is?
A) What is the optimal mix of medical care expenses?
B) Should funding be increased?
C) Should funding be tied to medical results?
D) To what extent should funding be decreased?
E) Should health insurance companies be abolished?
Q5) Using facts to justify your point of view,discuss whether the U.S.government should be the primary financier of healthcare expenses.
Q6) Would there be a benefit to a high-deductible,high copayment insurance plan?
Page 20
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Chapter 19: International Trade
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Sample Questions
Q1) Based on the scenario,Rosa's opportunity cost of one basketball is ________ football(s).
A) one-third of a
B) one
C) six
D) four
E) eight
Q2) Based on the scenario,Rosa has
A) a comparative advantage in producing basketballs,but not footballs.
B) a comparative advantage in producing footballs,but not basketballs.
C) a comparative advantage in producing both goods.
D) a comparative advantage in producing neither good.
E) no absolute advantage.
Q3) By the principle of comparative advantage,Natasha should specialize in producing A) both cheese and houses.
B) cheese.
C) houses.
D) neither cheese nor houses.
E) a little of both goods.
Q4) What are the rationales for trade-restrictive policies?
Page 21
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