Introduction to Microeconomics Exam
Solutions
Course Introduction
Introduction to Microeconomics explores the fundamental principles governing individual and firm decision-making in a market economy. The course examines concepts such as supply and demand, market equilibrium, elasticity, consumer and producer behavior, and the role of government intervention. Students will analyze how markets allocate resources, how prices are determined, and the ways in which different market structures perfect competition, monopoly, monopolistic competition, and oligopoly affect outcomes for consumers and producers. Through real-world examples and analytical tools, the course provides a foundation for understanding economic issues and policies at a micro-level.
Recommended Textbook
Economics Canada in the Global Environment 9th Edition by Robin Bade
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Chapter 1: What Is Economics
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Q1) If you take an additional class this term, you can graduate earlier. This is an example of
A)opportunity cost.
B)total cost.
C)the pursuit of social interest.
D)marginal benefit.
E)social cost.
Answer: D
Q2) Which of the following is a microeconomic topic?
A)the reasons why a consumer buys less honey
B)the reasons why the average price level in a country falls
C)the cause of increasing unemployment
D)the effect of the government budget deficit on inflation
E)the reasons why the labour force in a country decreases
Answer: A
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Chapter 2: The Economic Problem
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Q1) Suppose a hurricane causes extensive devastation, destroying houses, roads, schools and factories. What would be the effect of this hurricane on a production possibilities frontier consisting of consumption goods and capital goods?
A)It would shift outward at all points.
B)It would shift inward at all points.
C)There would be a movement along the existing production possibilities frontier towards a less capital-intensive point.
D)There would be a movement along the existing production possibilities frontier towards a more capital-intensive point.
E)There would be a movement from the existing production possibilities frontier inwards towards a point with unused or misallocated resources.
Answer: B
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4
Chapter 3: Demand and Supply
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Sample Questions
Q1) Refer to Table 3.5.2. If the price is set at $0.80 per cup, there is ________ leading to a price ________.
A)a shortage; rise
B)a shortage; fall
C)a surplus; rise
D)a surplus; fall
E)an equilibrium; rise
Answer: A
Q2) Refer to Table 3.5.3. The equilibrium price is $________ and the equilibrium quantity is ________ t-shirts per month.
A)6; 200
B)7; 220
C)8; 180
D)8; 220
E)8; 200
Answer: E
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Chapter 4: Elasticity
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Sample Questions
Q1) Supply is elastic if
A)a small percentage change in price results in a large percentage change in quantity supplied.
B)a large percentage change in price results in a small percentage change in quantity supplied.
C)a small percentage change in demand results in a large percentage change in quantity supplied.
D)the good is an inferior good.
E)the good is a normal good.
Q2) The price of oranges rises by 3 percent and quantity of oranges demanded decreases by 3 percent. We conclude that the demand for oranges is A)inelastic.
B)elastic.
C)perfectly inelastic.
D)perfect elastic.
E)unit elastic.
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Chapter 5: Efficiency and Equity
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Sample Questions
Q1) In the Canadian economy, the command system
A)is not used at all.
B)is used occasionally inside firms and government departments.
C)is used only by private companies.
D)is used extensively in place of markets.
E)is used extensively inside firms and government departments.
Q2) When the efficient quantity is produced
A)marginal social benefit equals marginal social cost.
B)the quantity demanded equals the quantity supplied.
C)resources are used in the activities in which they are most highly valued.
D)the sum of consumer surplus and producer surplus is maximized.
E)all of the above.
Q3) If you increase your consumption of pop by one additional can a week, your marginal benefit from this last can is $1.00. For you, the ________ this last can of pop is $1.00
A)price of
B)marginal cost of C)value from
D)consumer surplus from E)producer surplus
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Chapter 6: Governments Actions in Markets
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Q1) In a market with an effective production quota,
A)marginal social benefit exceeds marginal social cost.
B)marginal social benefit equals marginal social cost.
C)marginal social cost exceeds marginal social benefit.
D)marginal social cost is greater than the equilibrium price.
E)marginal social benefit is less than the equilibrium price.
Q2) Refer to Table 6.4.1. The table shows the demand and supply schedules for rice. With a production quota of 2,000 boxes a week, the price of a box of rice is ________, the marginal cost of producing rice is ________ a box, and the quantity of rice produced is ________ boxes a week.
A)$1.30; $1.60; 2,000
B)$1.60; $1.30; 2,000
C)$1.40; $1.40; 2,500
D)$1.40; $1.40; 2,000
E)$1.60; $1.30; 2,500
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8
Chapter 7: Global Markets in Action
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Sample Questions
Q1) A country opens up to trade and becomes an exporter of a good. Consumer surplus ________ and producer surplus ________.
A)decreases; increases B)increases; decreases C)remains unchanged; decreases D)remains unchanged; increases E)decreases; decreases
Q2) When Canada exports a good, Canada's consumer surplus ________ and Canada's total surplus ________.
A)increases; increases B)increases; decreases C)decreases; increases D)decreases; decreases E)decreases and Canada's producer surplus increases; does not change
Q3) The fundamental force that drives international trade is A)comparative advantage.
B)absolute advantage.
C)a countries' desire to increase their trade surplus.
D)cheap labour in countries like China and India.
E)unemployment of factors of production.
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Chapter 8: Utility and Demand
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Sample Questions
Q1) Jim has made his best affordable choice of muffins and coffee. He spends all of his income on 10 muffins at $1 each and 20 cups of coffee at $2 each. Now the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup. Jim can still afford to buy 10 muffins and 20 cups of coffee. Jim will buy ________ muffins and ________ coffee.
A)more; fewer
B)fewer more
C)more; more D)fewer; fewer
E)the same quantity of; the same quantity of
Q2) As a consumer's income decreases, marginal utility theory predicts that A)the price of normal goods falls.
B)the demand for normal goods decreases.
C)the demand for all goods decreases.
D)the demand for normal goods increases.
E)total utility increases.
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10
Chapter 9: Possibilities, Preferences, and Choices
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Sample Questions
Q1) Sam buys gasoline and coffee each week. To draw his budget line for gasoline and coffee, Sam needs to know
A)how much income he has to spend on gasoline and coffee, the price of a litre of gasoline, and the price of a cup of coffee.
B)only the price of a litre of gasoline and the price of a cup of coffee.
C)only how much coffee he wants to drink and how much gasoline he needs.
D)only how much income he has to spend on coffee and gasoline.
E)what he needs more-gasoline or coffee.
Q2) Which one of the following statements is true about the indifference curves for two goods that are perfect substitutes?
A)The indifference curves are negatively-sloped straight lines.
B)The indifference curves are L-shaped.
C)The marginal rate of substitution is zero.
D)The indifference curves are positively-sloped straight lines.
E)The marginal rate of substitution is infinity.
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11
Chapter 10: Organizing Production
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Sample Questions
Q1) The implicit rental rate to a firm of owning a building is
A)the sum of economic depreciation and foregone interest.
B)economic depreciation only.
C)foregone interest only.
D)the cost of using an alternative building.
E)the rent paid on the building.
Q2) The purpose of calculating the concentration ratio is
A)to obtain the firm's total profit.
B)to obtain the firm's production cost.
C)to measure the losses the firm incurred.
D)to measure the extent to which the market is dominated by a small number of firms.
E)to distinguish between the firm's total profit and production cost.
Q3) In a partnership, each partner is legally liable for
A)all the debts of the partnership.
B)the fraction of the debts corresponding to the fraction of ownership.
C)50 percent of the debt.
D)all debts of the partnership limited by the personal wealth of the partner.
E)an amount of debt limited to the amount of the partner's investment in the partnership.
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Page 12
Chapter 11: Output and Costs
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Sample Questions
Q1) Refer to Figure 11.3.2, which illustrates the short-run average and marginal cost curves. The average variable cost curve is curve
A)A.
B)B.
C)C.
D)D.
E)C minus curve B
Q2) If capital is a variable input in a production process, the law of diminishing marginal returns implies that
A)total product is minimized.
B)capital's marginal product is positive and less than one.
C)total product is maximized.
D)marginal product of capital eventually decreases.
E)marginal product of capital is constant.
Q3) The marginal cost curve slopes upward due to
A)diminishing marginal utility.
B)diminishing marginal returns.
C)technological inefficiency.
D)economic inefficiency.
E)none of the above
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Chapter 12: Perfect Competition
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Q1) Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. The marginal revenue received from the sale of the 4th unit of output is
A)$3.
B)$15.
C)$10.
D)$120.
E)$30.
Q2) Refer to Figure 12.4.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run,
A)firms that remain in the market will expand production.
B)market demand will increase.
C)market supply will decrease.
D)firms will exit the market.
E)firms that remain in the market will decrease production.
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14
Chapter 13: Monopoly
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Sample Questions
Q1) Prime Pharmaceuticals has developed a new asthma inhaler, for which it has a patent. An inhaler can be produced at a constant marginal cost of $2 per inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are shown in Figure 13.4.6. The patent gives Prime Pharmaceuticals a monopoly for its new inhaler. If prime Pharmaceuticals can perfectly price discriminate, producer surplus is
A)$16 million.
B)zero.
C)$32 million.
D)$64 million.
E)$24 million.
Q2) For a monopoly able to practice perfect price discrimination, the market
A)supply curve is horizontal.
B)supply curve is the same as the marginal revenue curve.
C)demand curve is the same as the marginal cost curve.
D)demand curve is the same as the marginal revenue curve.
E)demand curve is horizontal.
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15
Chapter 14: Monopolistic Competition
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Sample Questions
Q1) Excess capacity and high advertising expenditures are encountered in A)monopoly.
B)oligopoly.
C)monopolistic competition.
D)perfect competition.
E)all markets.
Q2) Refer to Fact 14.3.1. As a result of increased advertising, Talbots' markup
A)decreases by $100.
B)increases by $50.
C)increases by $75.
D)decreases by $60.
E)decreases by an unknown amount.
Q3) Refer to Figure 14.2.3. Assume this firm faces demand curve D . When the firm produces the efficient quantity, it produces
A)100 units.
B)140 units.
C)200 units.
D)220 units.
E)250 units.
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Page 16
Chapter 15: Oligopoly
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Q1) A dominant strategy equilibrium occurs when
A)there is a clear strategy for each player independent of the other player's actions.
B)each player takes the best possible action given the other player's action.
C)each player complies with the collusive agreement.
D)you cooperate until the other player cheats, and then you cheat forever.
E)the outcome is the best possible.
Q2) A market with a single firm but no barriers to entry is known as
A)a natural monopoly.
B)a contestable market.
C)a perfectly competitive market.
D)monopolistic competition.
E)an oligopoly.
Q3) In a prisoners' dilemma game, which of the following strategies gives the best outcome for both prisoners?
A)Both players deny.
B)Both players confess.
C)One player confesses and the other player denies.
D)Both players hire good lawyers.
E)None of the above
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Page 17
Chapter 16: Externalities
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Q1) Governments use subsidies
A)as a means of increasing government spending.
B)when they want to increase taxes.
C)to achieve an efficient outcome in a market with external costs.
D)to achieve an efficient outcome in a market with external benefits.
E)and pollution permits to achieve an efficient outcome in markets with external benefits.
Q2) Air pollution generated by a paper mill factory is an example of a
A)positive production externality.
B)positive consumption externality.
C)negative consumption externality.
D)marginal external benefit.
E)negative production externality.
Q3) A person driving while talking on a cellphone creates ________. A beautiful sunset creates ________.
A)a negative production externality; a positive consumption externality
B)a negative production externality; no externality
C)a negative consumption externality; a positive consumption externality
D)a negative consumption externality; no externality
E)a negative consumption externality; a positive production externality
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Chapter 17: Public Goods and Common Resources
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Q1) A good that is nonrival and excludable is a
A)private good.
B)public good.
C)government good.
D)natural monopoly good.
E)common resource.
Q2) For a common resource, the marginal private cost curve slopes ________ and the marginal social cost curve slopes ________.
A)upward; upward
B)upward; downward
C)downward; upward
D)downward; downward
E)upward or downward; in the same direction as the marginal private cost curve
Q3) In Table 17.2.1, which one of the proposals will have the greatest support?
A)Current income distribution
B)Proposal A
C)Proposal B
D)Proposal C
E)Proposal A or C
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Page 19
Chapter 18: Markets for Factors of Production
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Q1) Suppose a profit-maximizing firm hires labour in a competitive labour market. If the value of marginal product of labour is less than the wage rate, the firm should
A)increase the wage rate.
B)decrease the wage rate.
C)increase the quantity of labour it hires.
D)decrease the quantity of labour it hires.
E)shut down.
Q2) Suppose the interest rate is 5 percent per year. What is the present value of the $210 that will be received two years from today?
A)$210
B)$190.48
C)$231.53
D)$200
E)$42
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20
Chapter 19: Economic Inequality
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Q1) The main reason that wealth inequality persists across generations is that
A)people tend to marry within their own socioeconomic class.
B)intergenerational transfers can only increase wealth inequality.
C)there are differences between households in their degree of specialization.
D)rich families have equal wealth over the life cycle.
E)taxes are too high for the lower quintiles.
Q2) Refer to Figure 19.3.3. At any given level of employment for high-skilled and low-skilled workers, the vertical distance between the two supply curves
A)disappears if there is free entry into the skill market.
B)disappears if there is equal pay for work of equal value.
C)is created by discrimination against low-skilled workers.
D)is the compensation required for the cost of acquiring human capital.
E)equals the value of marginal product of skill.
Q3) A welfare trap occurs when the marginal tax rate is
A)negative.
B)zero.
C)100% or more.
D)positive.
E)less than the average tax rate.
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Page 21
Chapter 20: Measuring Gdp and Economic Growth
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Sample Questions
Q1) Which one of the following is false?
A)Y = C + I + G + M - X
B)Y - C - I - G - X + M = 0
C)X - M = Y - C - I - G
D)Y + M = C + I + G + X
E)Y = C + I + G + X - M
Q2) Refer to Fact 20.1.3. Choose the correct statement.
A)The assembly line components and robots appear as exports in Canada's GDP.
B)The assembly line components and robots appear as investment in Canada's GDP.
C)The assembly line components and robots appear as a positive entry in calculating Canada's GDP.
D)The assembly line components and robots appear as imports in Canada's GDP.
E)The assembly line components and robots appear as consumption expenditure in Canada's GDP.
Q3) Which of the following would be an example of a consumption expenditure?
A)more spending by the government on children's programs
B)an increase in welfare payments to single mothers
C)the purchase of a new car by the IPSCO steel company
D)the purchase of a new car by the Singh household
E)spending on protection services for the prime minister
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Chapter 21: Monitoring Jobs and Inflation
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Q1) In a recession, typically
A)unemployment decreases.
B)the labour force participation rate increases.
C)the employment-to-population ratio decreases.
D)the employment-to-population ratio increases.
E)the labour force participation rate does not change.
Q2) The reference base period is 2002. A consumer price index of 122 in 2014 means that A)prices of consumer goods have gone up by a factor of 12.2.
B)if the price of a good was $100 in 2002, its price in 2014 is $122.
C)prices of consumer goods have more than doubled.
D)the market basket of consumer goods that cost $122 in 2002 can be purchased for $100 in 2014.
E)the average of the prices paid by urban consumers for a fixed market basket of consumer goods and services was 22 percent higher in 2014 than it was on average during 2002.
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Chapter 22: Economic Growth
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Q1) When labour productivity decreases, there is ________ the production function and ________ in potential GDP.
A)a movement down along; no change
B)a movement down along; a decrease
C)a downward shift of; no change
D)a downward shift of; a decrease
E)neither a movement along nor a shift of; no change
Q2) Convergence between real GDP per person in Canada and Japan was relatively ________ during the 1960s; convergence has recently been ________.
A)slow; increasing B)rapid; decreasing C)rapid; increasing at an even faster rate
D)slow; decreasing E)rapidly; continuing at the 1960s pace
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Chapter 23: Finance, Saving, and Investment
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Q1) The Ricardo-Barro effect of a government budget deficit is
A)an increase in private saving.
B)a large crowding-out effect that decreases investment.
C)a large crowding-out effect that decreases national saving.
D)a decrease in net exports.
E)a decrease in private saving.
Q2) In Figure 23.2.3, if the real interest rate is constant at 6 percent and expected profit falls, the quantity of loanable funds demanded will be
A)less than $450 billion.
B)$450 billion.
C)between $450 billion and $600 billion.
D)greater than $600 billion.
E)zero.
Q3) If households believe they will experience higher income in the near future, there is a
A)rightward shift of the supply of loanable funds curve.
B)leftward shift of the supply of loanable funds curve.
C)movement up along the supply of loanable funds curve.
D)movement down along the demand for loanable funds curve.
E)rightward shift of the demand for loanable funds curve.
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Page 25
Chapter 24: Money, the Price Level, and Inflation
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Q1) Refer to Table 24.5.1. The spreadsheet provides information about the demand for money in Minland. Column A is the nominal interest rate, r. Columns B and C show the quantity of money demanded at two different levels of real GDP: Y is $10 billion and Y is $20 billion.
The quantity of money is $3 billion. Real GDP is $20 billion.
If the interest rate is greater than 4 percent a year,
A)people buy bonds, the price of a bond rises, and the interest rate rises.
B)people buy bonds, the price of a bond rises, and the interest rate falls.
C)people sell bonds, the price of a bond falls, and the interest rate rises.
D)people sell bonds, the price of a bond falls, and the interest rate falls.
E)the demand for money decreases.
Q2) Which one of the following items is not included in the M1 definition of money?
A)currency outside banks.
B)personal chequable deposits
C)non-personal chequable deposits
D)fixed term deposits
E)Neither B nor D are part of M1.
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Chapter 25: The Exchange Rate and the Balance of Payments
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Q1) Suppose that the following situation exists in the foreign exchange market: 1 Canadian dollar buys $1.01 U.S, and 1 Canadian dollar buys 6.63 South African rand. How many U.S. dollars will one rand buy?
A)$6.56
B)$1.01
C)$0.17
D)$0.15
E)$6.63
Q2) Which one of the following shifts the demand curve for dollars rightward?
A)An increase in the demand for foreign goods by Canadians
B)A decrease in the demand for Canadian goods by foreigners
C)The dollar is expected to appreciate.
D)The dollar is expected to depreciate.
E)U.S. interest rates rise.
Q3) In 2010, the largest item in the current account was A)exports.
B)imports.
C)net interest income.
D)net transfers.
E)foreign investment in Canada.
Page 27
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Chapter 26: Aggregate Supply and Aggregate Demand
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Q1) The Canadian government increases its expenditure on goods and services in a time of war or increased international tension. Starting from a position of long-run equilibrium, what effect does this event have on Canada's economy in the short run?
A)Real GDP increases and the price level rises.
B)Real GDP decreases and the price level falls.
C)Real GDP increases and the price level falls.
D)Real GDP decreases and the price level rises.
E)There is no change in either real GDP or the price level.
Q2) Full-employment equilibrium occurs when
A)aggregate demand equals short-run aggregate supply.
B)all who are willing and able to work, are working.
C)real GDP equals potential GDP.
D)real GDP equals potential GDP and the wage level is set so that the GDP deflator equals 100.
E)all who are willing and able to work are working, and the wage level is set so that the GDP deflator equals 100.
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Chapter 27: Expenditure Multipliers
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Q1) The difference in the influence of a multiplier between the short run and the long run is that
A)the multiplier effect is larger in the long run.
B)the multiplier effect is zero in the long run.
C)the multiplier effect is zero in the short run.
D)there is no multiplier effect in the short run.
E)the multiplier effect depends on potential GDP in the long run.
Q2) If aggregate planned expenditure is less than real GDP, then inventories
A)increase and real GDP increases.
B)increase and real GDP falls.
C)decrease and real GDP increases.
D)decrease and real GDP decreases.
E)remain constant and real GDP remains constant.
Q3) Refer to Figure 27.3.1. The slope of the AE curve is
A)0.75.
B)0.25.
C)0.50.
D)0.67.
E)1.33.
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Page 29
Chapter 28: The Business Cycle, Inflation, and Deflation
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Q1) The economy starts out at a full-employment equilibrium. Some events then occur that generate a cost-push inflation. Which of the following events might start a cost-push inflation?
A)a decrease in exports
B)an increase in the quantity of money
C)a decrease in government expenditure
D)an increase in the money wage rate or an increase in the money prices of raw materials
E)an increase in taxes
Q2) An increase in the price level due to an increase in the price of oil
A)creates stagflation in the short-run and will trigger a cost-push inflation.
B)creates stagflation in the short-run and may trigger off a cost-push inflation.
C)increases output above potential GDP.
D)leads to an increase in the money wage rate.
E)leads to a decrease in the money wage rate.
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Chapter 29: Fiscal Policy
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Sample Questions
Q1) Choose the correct statement.
A)Tax cuts increase aggregate supply and aggregate demand.
B)Tax cuts strengthen the incentive to work and to invest.
C)The tax multiplier becomes smaller as time passes.
D)According to Barro and Uhlig, tax cuts are a less powerful way to stimulate real GDP than spending increases.
E)Both A and B are correct.
Q2) Refer to Figure 29.3.1, which shows the outlays and revenues for the government of Pianoland. If potential GDP is $750 billion, and actual real GDP is $650 billion, the cyclical deficit is
A)zero.
B)$60 billion.
C)$40 billion.
D)equal to the structural deficit.
E)$180 billion.
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Chapter 30: Monetary Policy
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Q1) If the Bank of Canada wants to eliminate an inflationary gap, which of the following would be an appropriate policy?
A)Raise the overnight loans rate.
B)Lower the overnight loans rate.
C)Buy government securities.
D)Decease the government budget deficit.
E)Lower the exchange rate.
Q2) 25 basis points is
A)a quarter of a percentage point.
B)a quarter of the Bank of Canada's target inflation rate.
C)the spread between the savings rate and the lending rate.
D)the spread between the bank rate and the settlement balances rate.
E)the gap by which real GDP exceeds potential GDP.
Q3) When the Bank of Canada lowers the overnight loans rate, there is a ________ shift of the ________ curve.
A)rightward; AD
B)leftward; AD
C)rightward; SAS
D)leftward; SAS
E)rightward; LAS
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Chapter 31: Macro Only: International Trade Policy
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Q1) In a market that moves from a situation of no trade to a situation where a good is imported, the price of the good ________ and the quantity produced by the domestic industry ________.
A)rises; increases B)falls; decreases C)does not change; increases D)does not change; decreases E)rises; does not change
Q2) The winners from a tariff on imports are
A)producers and government.
B)producers only.
C)consumers only.
D)consumers, producers, and government.
E)government only.
Q3) Which of the following is a Canadian service export?
A)A Canadian buys dinner while travelling in Switzerland.
B)A Swiss buys dinner while travelling in Canada.
C)A Canadian buys a clock made in Switzerland.
D)A Swiss buys a computer made in Canada.
E)A Canadian buys a Canadian computer in Switzerland.
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