Fundamentals of Microeconomics
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Course Introduction
Fundamentals of Microeconomics introduces students to the essential concepts and analytical tools used to understand how individuals, households, and businesses make choices about allocating limited resources. The course covers topics such as supply and demand, market equilibrium, elasticity, consumer and producer behavior, market structures (including perfect competition, monopoly, and oligopoly), and the role of government in addressing market failures. By emphasizing real-world applications and critical thinking, this course equips students with a foundational knowledge of microeconomic principles, preparing them for advanced study and informed decision-making in both personal and professional contexts.
Recommended Textbook Principles of Microeconomics 7th Canadian Edition by McKenzie Mankiw
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Scarcity means that there is less of a good or resource available than people wish to have.
A)True
B)False
Answer: True
Q2) For most students,what is the largest single cost of a university education
A)the wages given up to attend school
B)tuition, fees, and books
C)room and board
D)transportation, parking, and entertainment
Answer: A
Q3) What is NOT included in the decisions that every society must make
A)what goods will be produced
B)who will produce the goods
C)what determines consumer preferences
D)who will consume the goods
Answer: C
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Refer to Figure 2-3.Which point or points are inefficient
A)points A and C
B)points B and C
C)point C
D)point D
Answer: D
Q2) What is the point where both x and y are zero called
A)the origin
B)the null
C)the zero coordinate
D)the tangency
Answer: A
Q3) How can the production possibilities frontiers shift outward
A)if government increases the amount of money in the economy
B)if there is an increase in technology
C)if resources can be moved from the production of one good to another
D)if opportunity costs are reduced
Answer: B
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-2.What is the opportunity cost of 1 kilogram of meat for the rancher
A)4 hours of labour
B)6 hours of labour
C)3/2 kilograms of potatoes
D)2/3 kilogram of potatoes
Answer: D
Q2) Refer to Figure 3-5.Who has a comparative or absolute advantage in what product
A)Ginger has an absolute advantage in tap shoes, and Fred has a comparative advantage in ballet slippers.
B)Ginger has an absolute advantage in both goods, and Fred has a comparative advantage in neither good.
C)Ginger has an absolute advantage in ballet slippers, and Fred has a comparative advantage in tap shoes.
D)Ginger has an absolute advantage in neither good, and Fred has a comparative advantage in both goods.
Answer: C
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Suppose that the Canadian Medical Association announces that men who shave their heads are less likely to die of heart failure.What could we expect to happen
A)the current demand for hair gel to increase
B)the current demand for razors to increase
C)the current demand for combs to increase
D)the current demand for hair dye for men to increase
Q2) Refer to the Figure 4-4.At a price of $20,which of the following would happen
A)The price would decrease and the quantity would decrease.
B)Both price and quantity would remain unchanged.
C)The price would decrease and the quantity would increase.
D)The price would increase and the quantity would decrease.
Q3) What is on the vertical axis of a demand graph
A)income
B)quantity
C)cost of production
D)price
Q4) Baseballs and baseball bats are substitute goods.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of an online clothing store.What would your first step be
A)Increase the price of everything in the store.
B)Look for ways to cut costs and increase profit for the store.
C)Determine the elasticity of demand for the store's products.
D)Suggest that the store purchase an entirely new line of clothing that they could sell more cheaply.
Q2) If a change in the price of a product results in no change in total revenue,what must be the case
A)The demand for the product must be elastic.
B)The demand for the product must be inelastic.
C)The demand for the product must be unit elastic.
D)The demand for the product must be revenue inelastic.
Q3) If a demand curve has a zero elasticity,which statement best describes the curve
A)It is perfectly inelastic and vertical.
B)It is perfectly inelastic and horizontal.
C)It is perfectly elastic and vertical.
D)It is perfectly elastic and horizontal.
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Page 7
Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) Market demand is given as Q<sub>D </sub>= 30 - P.Market supply is given as Q<sub>S </sub>= 2P.Which legally imposed price would constitute a binding price floor
A)$5
B)$8
C)$10
D)$13
Q2) What is the minimum wage an example of
A)a price ceiling
B)a price floor
C)a free-market process
D)an efficient labour allocation mechanism
Q3) Which of the following is a result of price controls
A)an equitable outcome
B)an efficient outcome
C)additional inequities
D)revenue for the government
Q4) When free markets ration goods with prices,it is both efficient and impersonal.
A)True
B)False
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Refer to Table 7-3.If the price is $1100,who would be willing to supply the product
A)Dale and Jill
B)Dale, Jill, and Denise
C)Denise, Catherine, and Jackson
D)Catherine and Jackson
Q2) What is consumer surplus
A)the quantity of a good consumers get free
B)the amount a consumer has to pay less the amount the consumer was willing to pay
C)the amount a consumer is willing to pay less the amount the consumer actually pays
D)the total value of a good to a consumer
Q3) Roger produces computer boards.His production cost is $10 per board.He sells the boards for $25 each.What is his producer surplus
A)$10 per board
B)$15 per board
C)$25 per board
D)$35 per board
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) Which tax is the most important tax in the Canadian economy,according to economists
A)the income tax
B)the tax on labour
C)the inheritance tax
D)capital gains taxes
Q2) Assume that the supply of gasoline is relatively inelastic and the supply of wheat is relatively elastic.If a tax is levied on both goods,what happens to the quantity of gasoline produced as compared to the quantity of wheat produced
A)The quantity of gasoline produced declines more than the wheat.
B)The quantity of gasoline produced declines less than the wheat.
C)The quantity of gasoline produced increases more than the wheat.
D)The quantity of gasoline produced increases less than the wheat.
Q3) Refer to Figure 8-4.Assume the tax was levied on the consumer.Which area represents the reduction in producer surplus
A)A
B)B + C
C)D + E
D)D + E + F
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Page 10
Chapter 9: Application: International Trade
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Sample Questions
Q1) Define the two approaches a nation can take to achieve free trade.Does one approach have an advantage over the other
Q2) Refer to Figure 9-6.Without trade,what would consumer surplus be
A)$210.50
B)$245.50
C)$367.50
D)$560.00
Q3) Refer to Figure 9-12.What is the free trade price and domestic quantity demanded
A)P , Q
B)P , Q
C)P , Q
D)P , Q
Q4) Refer to Figure 9-9.What is producer surplus plus consumer surplus in this market before trade
A)A + B
B)A + B + C
C)A + B + C + D
D)A + C
Q5) How is an import quota similar to,and different than,an equivalent tariff
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Chapter 10: Externalities
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Sample Questions
Q1) When does the Coase theorem suggest that private markets may NOT be able to solve the problem of externalities
A)when the number of interested parties is large and bargaining costs are high
B)when government does not actively become involved in the process
C)when the firm in the market is a monopoly
D)when some people benefit from the externality
Q2) According to the Coase theorem,how can an efficient outcome be reached
A)Private parties can bargain to reach an efficient outcome.
B)Government assistance is necessary for markets with externalities to reach an efficient outcome.
C)Both positive and negative externalities will always lead to inefficient outcomes in the markets.
D)No market will experience long-term externalities since normal market adjustments will eliminate externalities.
Q3) Which impact does positive externality have
A)It causes the product to be overproduced.
B)It provides an additional benefit to market participants.
C)It benefits consumers because it results in a lower equilibrium price.
D)It is a benefit to a market bystander.
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Page 12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) When are externalities present in a market
A)whenever a shortage exists
B)whenever the price is higher than equilibrium price
C)whenever private costs differ from social costs
D)whenever the seller is not making a profit
Q2) When does the Tragedy of the Commons result
A)when a good is rival in consumption and not excludable
B)when a good is excludable and not rival in consumption
C)when a good is both rival in consumption and excludable
D)when a good is neither rival in consumption nor excludable
Q3) When a good is excludable but not rival in consumption,what is it an example of
A)a club good
B)a private good
C)a public good
D)a common resource
Q4) What causes market failure associated with the free-rider problem
A)a problem associated with pollution
B)benefits that accrue to those who don't pay
C)losses that accrue to providers of the product
D)a project in which costs exceed benefits
Page 13
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Larry faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 40 percent on all additional income.If Larry earns $75,000,what is his average tax rate
A)20 percent
B)25.33 percent
C)30 percent
D)36.67 percent
Q2) When is the marginal tax rate for a taxpayer necessarily equal to his average tax rate
A)only when he has a very high income
B)only when he has a very low income
C)only when he is self-employed
D)only when he invests in a retirement plan
Q3) Why do taxes create deadweight losses
A)They reduce profits of firms.
B)They distort incentives.
C)They cause prices to rise.
D)They create revenue for the government.
Q4) Evaluate the statement: Tax loopholes increase the efficiency of tax systems.
Page 14
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Chapter 13: The Costs of Production
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Sample Questions
Q1) What does average total cost equal
A)change in total costs divided by quantity produced
B)change in total costs divided by change in quantity produced
C)(fixed costs plus variable costs) divided by quantity produced
D)(fixed costs plus variable costs) divided by change in quantity produced
Q2) Because of the greater flexibility that firms have in the long run,all short-run-cost curves lie on or above the long-run curve.
A)True
B)False
Q3) How would a production function that exhibits decreasing marginal product affect the shape of the total-cost curve? Explain and draw a graph.
Q4) Which of the following measures of cost is best described as "the increase in total cost that arises from an extra unit of production"
A)variable cost
B)average variable cost
C)average total cost
D)marginal cost
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) In a competitive market,what impact will the actions of any single buyer or seller have
A)They will have a negligible impact on the market price.
B)They will have little effect on overall production but will ultimately change final product price.
C)They will cause a noticeable change in overall production and a change in final product price.
D)They will affect the profitability of other firms and have an impact on the market price.
Q2) In a market with 1000 identical firms,what is the short-run market supply
A)the marginal-cost curve (above average variable cost)
B)the average-total-cost curve (above average variable cost)
C)the sum of the prices charged by each of the 1000 individual firms
D)the sum of the quantities supplied by each of the 1000 individual firms
Q3) Refer to Table 14-3.At what quantity of output is marginal revenue equal to marginal cost
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Page 16
Chapter 15: Monopoly
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Sample Questions
Q1) What shape of demand curves do monopoly firms have,and how much output can they sell
A)They have downward-sloping demand curves, and they can sell as much output as they desire at the market price.
B)They have downward-sloping demand curves, and they can sell only a limited quantity of output at each price.
C)They have horizontal demand curves, and they can sell as much output as they desire at the market price.
D)They have horizontal demand curves, and they can sell only a limited quantity of output at each price.
Q2) A monopolist faces market demand given by P = 75 - Q.For this market,MR = 90 - 2Q and MC = Q.What quantity of output will the monopolist produce in order to maximize profits
A)25.0
B)30
C)37.5
D)49.9
Q3) Why might economists prefer private ownership of monopolies over public ownership of monopolies?
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Page 17
Chapter 16: Monopolistic Competition
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Sample Questions
Q1) For many years, a certain cola brand operated a taste-test booth at local fairs across Canada. Visitors to the booth would be encouraged to take a blind taste test between the brand and its primary market competitor. The brand then used the taste-test results in advertising. What advertising theory does such an approach support? The brand no longer uses this as an advertising strategy, but rather, relies on celebrity endorsements and other forms of advertising. What advertising theory do you think now dominates the market between the brand and its primary competitor? Explain.
Q2) Which of the following is an example of a monopolistically competitive market
A)the market for hair cuts
B)the market for soybeans
C)the market for silver
D)the market for cable TV
Q3) Which statement is a theory of advertising
A)Information on price is a necessary ingredient of effective advertising.
B)The content of advertising may be irrelevant to product success in the market.
C)Celebrity advertising is not effective in retail food markets.
D)Cereal manufacturers should not advertise new cereals.
Q4) What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?
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Chapter 17: Oligopoly
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Sample Questions
Q1) What is the practice of requiring someone to buy two or more items together,rather than separately,called
A)resale maintenance
B)product fixing
C)tying
D)free-riding
Q2) Refer to Table 17-4.If both countries follow a dominant strategy,what will the value of trade flow benefits for Germany be
A)$30
B)$80
C)$280
D)$290
Q3) What is an oligopoly
A)a market in which there are only a few sellers, each offering a product similar or identical to the others
B)a market in which firms are price takers and do not advertise
C)a market in which firms are price takers and advertise
D)a market in which the actions of one seller in the market have no impact on the other sellers' profits
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Page 19
Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) Changes in supply and demand in the labour market will cause changes in wages.
A)True
B)False
Q2) Up to what point does a competitive,profit-maximizing firm hire workers
A)where the marginal product equals zero
B)where the marginal revenue product equals zero
C)where the marginal product equals the wage
D)where the value of the marginal product equals the wage
Q3) If the price of airline tickets falls,what will happen to the demand curve for flight attendants
A)The slope of the demand curve will increase.
B)The slope of the demand curve will decrease.
C)It will shift to the right.
D)It will shift to the left.
Q4) If workers respond to an increase in the opportunity cost of leisure by taking less leisure,then what is the shape of their labour supply curve
A)horizontal
B)vertical
C)downward sloping
D)upward sloping
Page 20
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) Explain the role consumers play in perpetuating discrimination in labour markets.
Q2) Regarding the possibility of labour-market discrimination,which statement is a consensus view among economists
A)All wage differences among groups are attributable to differences in human capital and compensating differentials.
B)Most wage differences among groups are attributable to discrimination.
C)Wage differences among groups are not sufficient by themselves to determine how much discrimination there is.
D)Labour-market discrimination will not exist in the long run.
Q3) Which argument likely reflects the statement "Professors are paid less than lawyers and doctors,but have similar amounts of education"
A)Education is not likely to be related to compensation.
B)Professors are affected by a compensating wage differential.
C)The jobs of doctors and lawyers provide more job satisfaction than the jobs of professors.
D)Professors must receive an equivalent wage differential.
Q4) Discuss the analogy between physical and human capital.
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Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) A person's lifetime income smooths out the highs and lows of the life cycle.Therefore,lifetime incomes are surely more equally distributed across the population than are annual incomes.
A)True
B)False
Q2) According to libertarians,what should one be primarily concerned with when considering economic fairness
A)the outcome of the system
B)the process by which outcomes arise
C)the maximin criterion
D)maximizing total social utility
Q3) According to utilitarians,what is the ultimate objective of private and public actions
A)to enhance the income of the rich
B)to ensure an egalitarian distribution of income
C)to maximize the sum of individual satisfaction toward their life
D)to provide for the betterment of the poor
Q4) What is the R-factor? How did the R-factor change from 1976 to 2011 in Canada?
Q5) Why do all welfare programs reduce the incentives to work, and what is the solution to this problem?
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Chapter 21: The Theory of Consumer Choice
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Sample Questions
Q1) Refer to Figure 21-3.In graph (a),what is the price of good Y relative to good X (i.e.,PY/PX)
A)1/4
B)1/3
C)3/4
D)3/1
Q2) The theory of consumer choice can often provide insight into the behaviour of which of the following types of individuals
A)individuals who make rational choices
B)individuals who make constrained choices
C)individuals who are unaware of how to maximize their well-being
D)individuals who are irrational consumers
Q3) What are the two "goods" used when economists analyze labour supply
A)work and leisure
B)work and consumption
C)saving and consumption
D)leisure and consumption
Q4) The marginal rate of substitution is the slope of the budget constraint.
A)True
B)False
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Chapter 22: Frontiers of Microeconomics
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Q1) Which reason is a plausible explanation for a firm paying above-equilibrium wages to its workers
A)It increases the probability that a worker who shirks will be caught.
B)It discourages workers from shirking.
C)It pays a premium for workers to work overtime.
D)It increases their costs but lowers their net taxes due.
Q2) Refer to Table 22-2.If the citizens of Elmongary use a Borda count,rather than pairwise majority voting,to decide what to build,what will they build
A)a new school
B)a new skate park
C)a new bike lane
D)nothing
Q3) The species of organism whose members always rationally weigh all the relevant costs and benefits in choosing the best course of action is called what
A)Homo economicus
B)Homo sapiens
C)Homo rationalicus
D)Homo microcosmicus
Q4) Explain the Condorcet paradox.To which type of voting system does it apply?
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