Intermediate Microeconomics Practice Exam
Course Introduction
Intermediate Microeconomics builds upon foundational economic principles to analyze the behavior of consumers, firms, and markets in greater depth. The course explores topics such as utility maximization, production and cost functions, market structures (perfect competition, monopoly, oligopoly, and monopolistic competition), and the role of government in promoting efficiency and equity. Through mathematical modeling and graphical analysis, students develop a more rigorous understanding of how prices are determined, how resources are allocated, and how market failures can arise, preparing them for advanced studies in economics and related disciplines.
Recommended Textbook Microeconomics 10th Edition by William Boyes
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Page 2
Chapter 1: The Wealth of Nations: Ownership and Economic Freedom
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Sample Questions
Q1) Which of the following would economic freedom lead to?
A)A higher standard of living
B)Better living conditions
C)Longer life expectancy
D)Better education
E)All of these
Answer: E
Q2) A person has a comparative advantage in producing a good if that person:
A)can produce the good at a lower absolute cost than anyone else.
B)can produce the good at a lower opportunity cost than anyone else.
C)can do a better job than anyone else.
D)spends more money in out-of-pocket expenses than anyone else.
E)can produce the good at a higher opportunity cost than anyone else.
Answer: B
Q3) Scarcity is a result of an unfair distribution of income.
A)True
B)False
Answer: False
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Chapter 2: Scarcity and Opportunity Costs
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Sample Questions
Q1) Which of the following ideas is illustrated by the production possibilities curve [PPC]?
A)There are no limits on the total production feasible in an economy.
B)An economy need not decrease the production of one commodity to increase the production of another.
C)It is possible to satisfy unlimited wants in an economy through proper investment in research and development.
D)When an economy chooses to produce a combination of goods and services, other combinations of goods and services are sacrificed.
E)An economy can specialize in the production of only one good.
Answer: D
Q2) If an individual can produce a good or service with a lower opportunity cost than another individual, then he or she is said to have the comparative advantage.
A)True
B)False
Answer: True
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Chapter 3: Markets and the Price System
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Sample Questions
Q1) It is absolutely necessary for at least one trader to have money for barter exchange to take place.
A)True
B)False
Answer: False
Q2) Which of the following is true of the law of supply?
A)The law of supply is the sole determinant of market prices.
B)The law of supply states that as the price of a good rises, the quantity supplied rises.
C)The law of supply holds good only in the long-run.
D)The law of supply is valid only in a market system of allocation.
E)The law of supply asserts that as the cost of producing a good rises, the quantity supplied rises.
Answer: B
Q3) A price control always benefits consumers.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Aggregate Economy
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Sample Questions
Q1) When the flow of money from the foreign countries to the domestic firms equals the flow of money from the home country to the foreign firms, _____.
A)a trade surplus exists
B)an equal amount of agricultural and manufactured products are exported
C)a trade deficit exists
D)an equal amount of goods and services are imported
E)the value of net exports is zero
Q2) According to the World Bank, low-income economies are heavily concentrated in:
A)Europe and Africa.
B)Europe and Asia.
C)Asia and Africa.
D)Asia and Australia.
E)North America and Australia.
Q3) Identify the international organization that makes loans to developing countries.
A)The World Bank
B)The Federal Reserve
C)The World Trade Organization
D)The Industrial Development Board
E)The Bank of England
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Page 6
Chapter 5: Using Economics to Understand the World
Around You
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Sample Questions
Q1) Individuals acting with self-interest:
A)always choose the same options as other rational individuals.
B)never do voluntary work.
C)always try to attain satisfaction at the expense of others.
D)choose options that give them the greatest amount of satisfaction.
E)have a perfectly elastic demand curve.
Q2) Which of the following is a possible advantage of a free market condition?
A)In a free market, consumers are offered discounts on the purchase of products.
B)In a free market, all goods and services are offered for free to households below the poverty line.
C)In a free market, continuous government intervention helps keep the price of products under control.
D)In a free market, competition among sellers helps the consumers purchase a product at the lowest possible price.
E)In a free market, consumers have limited products to choose from, thereby assuring less confusion and better quality.
Q3) Scarcity impels an individual to make choices.
A)True
B)False
Page 7
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Chapter 6: Elasticity: Demand and Supply
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Sample Questions
Q1) Since the slope of a downward-sloping demand curve is constant, the price elasticity of demand does not change when moving along this line.
A)True
B)False
Q2) If the demand for corn is elastic, then:
A)there are not many substitutes for the consumption of corn.
B)the price elasticity of demand for corn is less than -1.
C)a decrease in price will reduce total revenue for corn producers.
D)an increase in price will increase total revenue for corn producers.
E)consumers will continue buying the same quantity even if price increases.
Q3) If the demand for product R increases as the price of product S increases, then
A)consumer preferences for S have increased
B)R and S are not related goods
C)R and S are substitutes
D)R and S are complements
E)R is an inferior good
Q4) Supply tends to be more elastic in the long run than in the short run.
A)True
B)False
Page 8
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Chapter 7: Demand: Consumer Choice
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Sample Questions
Q1) In Figure 7.3, if the price of one unit of good X and one unit of good Y is $30 and $20, respectively, the consumer's income is _____.
A)$50
B)$150
C)$400
D)$600
E)$900
Q2) The principle that people would rather leave things as they are is called _____.
A)status quo
B)stand still
C)stagnation
D)pause
E)quo warranto
Q3) When total utility is at a maximum, marginal utility is:
A)increasing.
B)at a minimum.
C)equal to zero.
D)decreasing.
E)at a maximum.
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Page 9
Chapter 8: Supply: the Costs of Doing Business
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Sample Questions
Q1) If a firm experiences economies of scale throughout, it will have a horizontal long-run average-total-cost curve.
A)True
B)False
Q2) In the long run, the total variable cost of a firm:
A)is equal to its total fixed cost.
B)is equal to its total cost.
C)is equal to its average fixed cost.
D)is more than its total fixed cost.
E)is less than its total cost.
Q3) In the long run, the producer can change the entire plant size to produce a certain level of the output.
A)True
B)False
Q4) The minimum efficient scale is same across all industries irrespective of the types of goods they produce.
A)True
B)False
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Chapter 9: Profit Maximization
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Sample Questions
Q1) A(n) ____ may offer products that are either differentiated or identical.
A)monopolistically competitive firm
B)monopolist
C)oligopolistic firm
D)perfectly competitive firm
E)monopsonist
Q2) According to the information in Scenario 9.2, how much economic profit did the firm make last year?
A)$112 million
B)$30 million
C)$20 million
D)-$20 million
E)$2 million
Q3) The opportunity cost of capital is:
A)the cost of labor inputs required to operate that capital.
B)the cost of raw materials necessary to put that capital to work.
C)the payment necessary to keep that capital from moving to an alternative use.
D)the costs of maintenance necessary to keep that capital operating.
E)the cost of hiring more units of capital to generate additional units of output.
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Page 11
Chapter 10: Perfect Competition
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Sample Questions
Q1) Which of the following statements concerning perfect competition is not true?
A)Firms are price takers.
B)The demand curve facing an individual firm is horizontal.
C)A firm's demand curve is identical to its marginal revenue curve.
D)The firms produce differentiated products.
E)If a firm raises its price, it will lose all of its customers.
Q2) In the short-run, a competitive firm is said to break-even if at equilibrium the:
A)price is equal to marginal revenue.
B)price is equal to average revenue.
C)price is equal to average variable cost.
D)price is equal to the average total cost.
E)price is equal to marginal cost.
Q3) For a farmer, the long-run would be the current growing season, where she can vary the amount of irrigation, pesticides, and fertilizer on a fixed number of acres planted.
A)True
B)False
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12
Chapter 11: Monopoly
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Sample
Questions
Q1) Before World War II, Alcoa controlled the supply of bauxite in the United States. Because bauxite is a scarce resource that is vital to the production of aluminum:
A)Alcoa was bound to charge a nominal price in the U.S. aluminum market.
B)Alcoa had a monopoly in the U.S. aluminum market.
C)the U.S. aluminum market was highly competitive.
D)Alcoa can be said to have operated in a monopolistically competitive market.
E)Alcoa can be said to have operated in an oligopolistic market structure.
Q2) According to Table 11.1, Gizmo's cannot be:
A)a monopsonist.
B)a monopoly.
C)an oligopolistic firm.
D)a perfectly competitive firm.
E)a monopolistically competitive firm.
Q3) The only types of firms that cannot theoretically practice price discrimination are perfectly competitive firms.
A)True
B)False
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Chapter 12: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Which of the following is a characteristic of an oligopoly market?
A)Each firm in an oligopoly market can take independent pricing and output decisions.
B)There are many firms in an oligopoly market hence a firm cannot influence the market price.
C)In an oligopoly market, each firm's pricing and output decisions depend on those of its rivals.
D)Firms in an oligopoly market always manufacture differentiated products.
E)Barriers to entry does not exist in an oligopoly market.
Q2) If firms are successful in product differentiation:
A)their demand will become relatively elastic.
B)consumers will believe that the firms are producing more or less identical goods.
C)they can raise their prices without losing all of their customers to rivals.
D)they tend to face a horizontal demand curve.
E)they gradually emerge as price takers.
Q3) Since only a few firms dominate the oligopoly market, cutthroat competition does not exist.
A)True
B)False
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14
Chapter 13: Markets and Government
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Sample Questions
Q1) When some benefits are received by those who are not involved in a private transaction, a negative externality occurs.
A)True
B)False
Q2) Figure 13.3 represents a situation of:
A)positive externality.
B)Pareto efficiency.
C)negative externality.
D)the commons problem.
E)the free rider problem.
Q3) According to figure 13.1, the optimal subsidy is equal to:
A)0Q<sub>s</sub> -0Q<sub>p.</sub>
B)0P<sub>s</sub> - 0P<sub>p.</sub>
C)Q<sub>p</sub>a - Q<sub>p</sub>c.
D)Q<sub>s</sub>b - Q<sub>s</sub>d.
E)the distance bc.
Q4) If a gas station selling gasoline is asked to incorporate the pollution costs, its supply curve will shift to the right.
A)True
B)False
Page 15
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Chapter 14: Antitrust and Regulation
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Sample Questions
Q1) A country is likely to have investment freedom if the government allows free flow of foreign capital into the domestic economy.
A)True
B)False
Q2) Refer to Figure 14.1. If the regulatory agency sets the fair-rate-of-return price, the monopolist will:
A)suspend production.
B)just break even.
C)earn super normal profits.
D)incur losses.
E)be able to cover only the variable costs.
Q3) Under George W. Bush's administration, antitrust policy:
A)became much more strict.
B)prohibited every merger attempts.
C)focused increasingly on environmental concerns.
D)became more relaxed.
E)ignored financial regulation and corporate scandals.
Q4) The Social Security tax structure in the United States is regressive in nature.
A)True
B)False
Page 16
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Chapter 15: Resource Markets
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110 Flashcards
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Sample Questions
Q1) The greater the elasticity of supply of a resource the greater is its economic rent.
A)True
B)False
Q2) The more inelastic the supply of a particular resource:
A)the higher are its transfer earnings.
B)the higher is its economic rent.
C)the higher are its total earnings.
D)the higher is the elasticity of demand for the resource.
E)the lower is the elasticity of demand for the resource.
Q3) The value of the marginal product of a resource is equal to:
A)the marginal revenue of the firm, if the product market is perfectly competitive.
B)the market price of the product divided by the price of the resource.
C)the market price of the product divided by the marginal product of the resource.
D)the marginal revenue product of the resource, if the product market is perfectly competitive.
E)the marginal product of the resource divided by the price of the resource.
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Chapter 16: The Labor Market
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Sample Questions
Q1) When white males resist to share responsibilities with members of a minority group, it is termed as:
A)employer prejudice.
B)consumer prejudice
C)worker prejudice.
D)statistical discrimination.
E)occupational segregation.
Q2) Proponents of comparable worth justifies it on the ground that:
A)interfering with the functioning of the labor market will lead to shortages of labor.
B)interfering with the functioning of the labor market will lead to excess supplies of labor.
C)as a result of personal prejudices the market is unable to assess marginal products.
D)market correctly processes the innumerable information which is available.
E)interaction of demand and supply correctly determines the wage rate.
Q3) The policy of comparable worth has been more successful in the public sector than in the private sector.
A)True
B)False
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18
Chapter 17: The Capital Market
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Sample Questions
Q1) Dividend yield is:
A)the annual dividend payment per share.
B)the annual dividend per share divided by the price of each share.
C)the current stock price divided by the dividend per share.
D)the year-on-year change in the annual dividend payment.
E)the dollar value change in the stock price from the previous day's closing price.
Q2) In Figure 17.1, if the demand curve for capital shifts to D<sub>2</sub>, the equilibrium price and quantity of capital are:
A)P<sub>1</sub> and Q<sub>1</sub>.
B)P<sub>2</sub> and Q<sub>2</sub>.
C)P<sub>5</sub> and Q<sub>1</sub>.
D)P<sub>3</sub> and Q<sub>3</sub>.
E)P<sub>4</sub> and Q<sub>4</sub>.
Q3) Notes are debt securities which have a maturity period of:
A)0-5 years.
B)10-15 years.
C)0-1 year.
D)10-20 years.
E)1-10 years.
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Page 19
Chapter 18: The Land Market and Natural Resources
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Sample Questions
Q1) The market's role is to ensure that nonrenewable resources are allocated across time to where they are most highly valued. This implies, if more is used today then:
A)the future supply curve shifts downward.
B)financial investments offer a lower rate of return.
C)the return on saving the resource for future use rises.
D)the expected demand for the resource in the future is low.
E)technological advancement will guarantee a steady future supply.
Q2) An increase in economic rent is simply a transfer from the buyer to the seller without any change in quantity. Identify the underlying assumption.
A)Quantity supplied remains unchanged even when economic rent increases.
B)Quantity supplied is positively related to economic rent.
C)The relation between quantity supplied and economic rent is indeterminate for nonrenewable resources.
D)Bargaining power of buyers is greater than sellers.
E)Consumer surplus is a positive function of economic rent.
Q3) Privatization of common property leads to overexploitation of natural resources.
A)True
B)False
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Chapter 19: Current Issues: Income, Income Distribution, Poverty,
and Government Policy
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Sample Questions
Q1) Individuals have a tradeoff between leisure and work. When income from working is taxed, the cost of leisure is reduced in relative terms.
A)True
B)False
Q2) Measures which aim at eliminating the income disparity between the rich and the poor affect incentives to work, innovate, take risks, acquire education, and so on.
A)True
B)False
Q3) Which of the following tax structures creates a disincentive to earn more?
A)Proportional tax structure
B)Regressive tax structure
C)Digressive tax structure
D)Progressive tax structure
E)A combination of proportional and regressive tax structure
Q4) A proportional tax is a tax whose rate increases as the tax base widens.
A)True
B)False
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Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) A country has a comparative advantage when the opportunity cost of producing a good in terms of:
A)the monetary value of other forgone goods is lower than that of other nations.
B)the monetary value of other forgone goods is greater than that of other nations.
C)forgone output of other goods is higher than that of other nations.
D)forgone output of other goods is lower than that of other nations.
E)forgone output of other goods is equal to that of other nations.
Q2) According to Figure 20.2, the international equilibrium price of corn is:
A)$2.
B)$4.
C)$6.
D)$8.
E)$10.
Q3) Differences in the productivity of labor accounts for comparative advantage if:
A)the minimum wage varies across countries.
B)the size of the domestic market varies across countries.
C)the labor hours required to produce each good varies across countries
D)the strength of workforce varies across countries.
E)the laborers are paid different wages in different countries.
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Page 22
Chapter 21: International Trade Restrictions
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Sample Questions
Q1) Refer to Figure 21.1. If the government imposes a tariff such that the price of the good in the domestic market is P<sub>2</sub> while the international price is P<sub>1,</sub> the dollar value of the tariff is equal to:
A)P<sub>3</sub> - P<sub>1</sub>.
B)P<sub>2 -</sub> P<sub>3</sub>.
C)P<sub>2</sub> - P<sub>1</sub>.
D)P<sub>1</sub> - P<sub>2</sub>.
E)P<sub>1</sub> - P<sub>3</sub>.
Q2) International trade on the basis of comparative advantage maximizes world output and allows consumers to access better-quality products at lower prices than would be available in the domestic market alone.
A)True
B)False
Q3) A monopoly exists when there is only one producer in an industry, and no close substitutes for the product exist.
A)True
B)False
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Page 23
Chapter 22: Exchange Rates and Financial Links Between Countries
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Sample Questions
Q1) Countries that maintain a constant gold value for their currencies are said to be on a gold standard.
A)True
B)False
Q2) Which of the following statements concerning the International Monetary Fund is true?
A)The IMF was created to help finance economic development in poor countries.
B)One of the principal aims of the IMF is to discourage international trade and encourage countries to become self-sufficient.
C)The IMF lends money to countries experiencing large balance-of-payments surpluses.
D)When the IMF lends currencies, it always insists on the borrowing country taking action to reduce its balance-of-payments surplus.
E)The IMF obtains funds from annual membership fees charged to member countries.
Q3) When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.
A)True
B)False
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Page 24