Introduction to Microeconomics Exam Preparation Guide
Course Introduction
Introduction to Microeconomics explores the fundamental principles of economic theory that explain how individuals, households, and firms make choices regarding the allocation of limited resources. The course examines core concepts such as supply and demand, elasticity, market equilibrium, consumer behavior, production costs, and different types of market structures. Students will learn to analyze how prices are determined in markets, the impact of government intervention, and the ways in which microeconomic reasoning can be applied to real-world issues, providing a foundation for further study in economics and informed participation in economic decision-making.
Recommended Textbook
Principles of Microeconomics 7th Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) The irregular and largely unpredictable fluctuations in economic activity are called A) market failure.
B) business cycle.
C) inflation.
D) unemployment.
Answer: B
Q2) The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to
A) increase efficiency and increase equality.
B) increase efficiency but decrease equality.
C) decrease efficiency but increase equality.
D) decrease efficiency and decrease equality.
Answer: C
Q3) Refer to Scenario 1-5. What is your opportunity cost of working?
Answer: The enjoyment you would have received from going to the movies with your friend.
Q4) What are the two basic types of economies?
Answer: Centrally planned economies and market economies
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Chapter 2: Thinking Like an Economist
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Q1) Refer to Figure 2-1. Which arrow represents the flow of land, labor, and capital?
A) A
B) B
C) C
D) D
Answer: C
Q2) An economic outcome is said to be efficient if the economy is
A) using all of the scarce resources it has available.
B) conserving on resources, rather than using all available resources.
C) getting all it can get from the scarce resources it has available.
D) able to produce more than what is currently being produced without additional resources.
Answer: C
Q3) An assumption an economist might make while studying international trade is A) there are only two countries.
B) countries only produce two goods.
C) technology does not change.
D) All of the above are possible assumptions.
Answer: D
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Chapter 3: Interdependence and the Gains From Trade
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Q1) When a country has a comparative advantage in producing a certain good, A) the country should import that good.
B) the country should produce just enough of that good for its own consumption.
C) the country's opportunity cost of that good is high relative to other countries' opportunity costs of that same good.
D) None of the above is correct.
Answer: D
Q2) Refer to Table 3-41. Which country has a comparative advantage in producing compasses?
Answer: Russia.
Q3) Refer to Table 3-20. Brad has a comparative advantage in the production of
A) wheat and Theresa has a comparative advantage in the production of beef.
B) beef and Theresa has a comparative advantage in the production of wheat.
C) both goods and Theresa has a comparative advantage in the production of neither good.
D) neither good and Theresa has a comparative advantage in the production of both goods.
Answer: B
Q4) Refer to Figure 3-26. Who has a comparative advantage in making muffins?
Answer: Mary
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Refer to Table 4-1. If the market consists of Michelle, Laura, and Hillary and the price falls by $1, the quantity demanded in the market increases by
A) 2 units.
B) 3 units.
C) 4 units.
D) 5 units.
Q2) What will happen in the market for shotgun-shell ammunition now if buyers expect higher shotgun-shell prices in the near future?
A) The demand for shotgun-shell ammunition will increase.
B) The demand for shotgun-shell ammunition will decrease.
C) The demand for shotgun-shell ammunition will be unaffected.
D) The supply of shotgun-shell ammunition will increase.
Q3) A group of buyers and sellers of a particular good or service is called a
Q4) Which of the following would cause price to increase?
A) an increase in supply
B) a decrease in demand
C) a surplus of the good
D) a shortage of the good
Q5) Refer to Scenario 4-1. What is the equilibrium price in this market?
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Chapter 5: Elasticity and Its Application
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Q1) Refer to Figure 5-5. Using the midpoint method, demand is unit elastic between prices of
A) $20 and $40.
B) $40 and$50.
C) $40 and$60.
D) $50 and$70.
Q2) Refer to Scenario 5-5. Total consumer spending on milk will A) increase, and total consumer spending on beef will increase. B) increase, and total consumer spending on beef will decrease. C) decrease, and total consumer spending on beef will increase. D) decrease, and total consumer spending on beef will decrease.
Q3) Which of the following is likely to have the most price elastic demand?
A) scissors
B) fruit
C) music downloads
D) toothpaste
Q4) The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.
A)True
B)False
7
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Chapter 6: Supply, Demand, and Government Policies
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Q1) Refer to Table 6-1. Suppose the government imposes a price floor of $70 on this market. What will be the size of the surplus in this market?
A) 0 units
B) 400 units
C) 600 units
D) 1000 units
Q2) Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax,
A) the actual tax incidence is unaffected by the legislated tax incidence.
B) the employer now is required by law to pay more than 50 percent of the tax.
C) the employee now is required by law to pay more than 50 percent of the tax.
D) employers are no longer required by law to pay any portion of the tax.
Q3) In an unregulated labor market, the wage adjusts to balance labor supply and labor demand.
A)True
B)False
Q4) Refer to Figure 6-31. If the government set a price ceiling at $9, would there be a shortage or surplus, and how large would be the shortage/surplus?
Q5) Define a price floor.
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) Refer to Table 7-19. If these four producers bid in an auction to supply one unit to a consumer, at what price will the good be sold?
Q2) Refer to Figure 7-15. When the price rises from P1 to P2, which area represents the increase in producer surplus due to new producers entering the market?
A) A
B) B
C) A+B
D) G
Q3) Celine buys a new MP3 player for $90. She receives consumer surplus of $15 on her purchase if her willingness to pay is
A) $15.
B) $90
C) $105.
D) $75.
Q4) Refer to Figure 7-32. If the government imposed a price floor at $35 in this market, how much is consumer surplus?
Q5) Refer to Table 7-20. How much is total consumer surplus at the equilibrium price in this market?
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Chapter 8: Application: The Costs of Taxation
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Q1) Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area
A) A.
B) C+H.
C) D+H.
D) F.
Q2) Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Rebecca and Susan worse off by a total of
A) $30.
B) $25.
C) $10.
D) $5.
Q3) When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.
A)True
B)False
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Chapter 9: Application: International Trade
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Q1) The world price of cotton is the highest price of cotton observed anywhere in the world.
A)True
B)False
Q2) Refer to Figure 9-23. With free trade, the domestic price and domestic quantity supplied are
A) $90 and 10.
B) $90 and 18.
C) $120 and 5.
D) $120 and 18.
Q3) Refer to Figure 9-6. Without trade, the equilibrium price of roses is
A) $4 and the equilibrium quantity is 300.
B) $3 and the equilibrium quantity is 200.
C) $3 and the equilibrium quantity is 400.
D) $2 and the equilibrium quantity is 500.
Q4) Refer to Figure 9-9. Producer surplus in this market after trade is
A) A.
B) A + B.
C) B + C + D.
D) d.
Page 11
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Chapter 10: Externalities
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Q1) Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 59th unit of the good is produced and consumed, social well-being increases by
A) $28.00.
B) $31.40.
C) $33.60.
D) $36.00.
Q2) If education produces positive externalities, we would expect
A) the government to tax education.
B) the government to subsidize education.
C) people to realize the benefits, which would increase the demand for education.
D) colleges to relax admission requirements.
Q3) Markets sometimes fail to allocate resources efficiently.
A)True
B)False
Q4) Refer to Scenario 10-3. What are the market equilibrium quantity and price?
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Chapter 11: Public Goods and Common Resources
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Q1) A good that is excludable but not rival is known as a club good.
A)True
B)False
Q2) The national defense of the United States is not excludable because
A) my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States.
B) my enjoyment of the national defense does diminish your enjoyment of the national defense of the United States.
C) once the nation is defended, it is impossible to prevent any single person from enjoying the benefit of this defense.
D) once the nation is defended, it is possible to prevent any single person from enjoying the benefit of this defense.
Q3) Refer to Table 11-3. If the marginal cost of police protection is constant at $72 per person-hour, what is the efficient level of police protection to provide?
A) 9 person-hours
B) 18 person-hours
C) 39 person-hours
D) 66 person-hours
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Chapter 12: The Design of the Tax System
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Q1) A payroll tax is also referred to as a social insurance tax.
A)True
B)False
Q2) An advantage of a consumption tax over the present tax system is that a consumption tax
A) raises more revenues.
B) would save the government millions in administrative costs.
C) places more of the tax burden on the wealthy.
D) does not discourage saving.
Q3) Refer to Table 12-10. If Miss Kay has $80,000 in taxable income, her average tax rate is
A) 18.5%.
B) 20.2%.
C) 21.8%.
D) 25.0%.
Q4) Refer to Table 12-23. Which of the three tax systems is regressive?
A) Tax System A
B) Tax System B
C) Tax System C
D) None of the systems are regressive.
Page 14
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Chapter 13: The Costs of Production
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Q1) Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?
A) ATCA
B) ATCB
C) ATCC
D) ATCD
Q2) An example of an explicit cost for the owner of a tattoo parlor would be the wages that she could earn if she worked as a graphic artist for an advertising agency.
A)True
B)False
Q3) Profit is defined as total revenue
A) plus total cost.
B) times total cost.
C) minus total cost.
D) divided by total cost.
Q4) Several related measures of cost can be derived from a firm's total cost.
A)True
B)False
Q5) Refer to Table 13-18. What is the marginal product of the third worker?
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Chapter 14: Firms in Competitive Markets
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Q1) Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run
A) more firms will enter the market.
B) some firms will exit from the market.
C) the equilibrium price per unit will rise.
D) average total costs will fall.
Q2) Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should
A) operate his business as long as he rents at least 7 boats per month.
B) operate his business as long as he rents at least 1 boat per month.
C) operate his business as long as he rents all 10 boats each month.
D) raise the price he charges per boat rental.
Q3) The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.
A)True
B)False
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Chapter 15: Monopoly
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Q1) Suppose a monopolist charges a price of $27 for its product and sells 10 units at that price. At 10 units of production the firm has average fixed cost equal to $10 and average variable cost equal to $12. How much total profit is the firm earning at this price?
A) $5
B) $25
C) $50
D) $140
Q2) Refer to Figure 15-22. If the monopolist uses perfect price discrimination, how much profit does the firm earn?
Q3) Which of the following is an example of a barrier to entry?
A) Crystal charges a higher price than her competitors for her hair-styling services.
B) Dan charges a lower price than his competitors for his dry-walling services.
C) Jackie offers free samples of her loose-meat sandwiches to attract new customers.
D) Roseanne obtains a copyright for a short story that she wrote and published.
Q4) Refer to Table 15-22. The marginal revenue becomes negative with the production of which unit of output?
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Chapter 16: Monopolistic Competition
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Q1) Refer to Figure 16-12. If this firm minimized cost, how much output will it produce?
Q2) Free entry eliminates long-run profits for firms in competitive and monopolistic industries.
A)True
B)False
Q3) In a long-run equilibrium,
A) only a perfectly competitive firm operates at its efficient scale.
B) only a monopolistically competitive firm operates at its efficient scale.
C) neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost.
D) both a perfectly competitive firm and a monopolistically competitive firm operate at their efficient scale of production.
Q4) Because monopolistically competitive firms produce differentiated products, each firm
A) faces a demand curve that is horizontal.
B) faces a demand curve that is vertical.
C) has no control over product price.
D) has some control over product price.
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Chapter 17: Oligopoly
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Q1) Tying involves a firm
A) colluding with another firm to restrict output and raise prices.
B) selling two individual products together for a single price rather than selling each product individually at separate prices.
C) temporarily cutting the price of its product to drive a competitor out of the market.
D) requiring that the firm reselling its product do so at a specified price.
Q2) Refer to Figure 17-5. Suppose we observe that the outcome of the game is one in which each company earns a profit of $10 million. This outcome
A) is the result of each company pursuing its dominant strategy.
B) is the result of cooperation between the two companies, and we know that a cooperative outcome is easy in a game such as this one.
C) is the result of cooperation between the two companies, and we know that a cooperative outcome is difficult in a game such as this one.
D) is the most likely outcome of the game, regardless of whether the two companies cooperate.
Q3) How does the prisoners' dilemma game apply to reallife situations?
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Chapter 18: The Markets for the Factors of Production
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Q1) Refer to Table 18-6. What is the value for the cell labeled DD?
A) $100
B) $300
C) $100
D) $50
Q2) If the wages of a dentist increase,
A) so does her opportunity cost of leisure.
B) her hours of labor supplied may increase.
C) her hours of labor supplied may decrease.
D) All of the above are correct.
Q3) Refer to Table 18-1. What is the marginal product of the third worker?
A) 7
B) 8
C) 25
D) 75
Q4) In a representative labor market,
A) the wage adjusts to balance the supply and demand for labor.
B) the wage equals the value of the marginal product of labor.
C) an increase in the supply of labor increases the equilibrium wage.
D) Both a and b are correct.
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Chapter 19: Earnings and Discrimination
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Q1) The superstar phenomenon explains why professional athletes earn more than amateur athletes.
A)True
B)False
Q2) Discrimination occurs when the marketplace offers different opportunities to similar individuals who differ only by
A) race.
B) level of education.
C) attitudes toward risk.
D) All of the above are forms of discrimination.
Q3) Empirical work that does not account for differences in the productivity of workers
A) is unlikely to find evidence of wage differentials.
B) can provide strong evidence of labor market discrimination.
C) is likely to misinterpret apparent evidence of labor market discrimination.
D) is accepted as superior to empirical work that does correct for differences in productivity of workers.
Q4) Refer to Figure 19-6. Given demand, D1, and supply, S1, how much more do workers earn per hour if the supply curve shifts to S2?
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Chapter 20: Income Inequality and Poverty
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Q1) Which of the following statements is correct?
A) Followers of the liberalism political philosophy believe that society should maximize the total of individual utilities.
B) The poverty line is adjusted for regional differences in the costs of raising children.
C) One advantage to the Earned Income Tax Credit (EITC) is that it benefits the working poor.
D) Libertarians pursue policies to redistribute income from the rich to the poor.
Q2) Which political philosophy argues that the government should choose policies to maximize the total utility of everyone in society?
Q3) Economic mobility in the United States is so great that fewer than
A) 3 percent of families are poor for 8 or more years.
B) 5 percent of families are poor for 8 or more years.
C) 8 percent of families are poor for 8 or more years.
D) 10 percent of families are poor for 8 or more years.
Q4) Fewer than three percent of families are poor for eight or more years.
A)True
B)False
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Chapter 21: The Theory of Consumer Choice
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Q1) Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?
A) the budget effect
B) the preference effect
C) the substitution effect
D) the income effect
Q2) An inferior good is one in which
A) the average consumer chooses not to consume.
B) the good is not equally valued by all consumers.
C) an increase in income increases consumption of the good.
D) an increase in income decreases consumption of the good.
Q3) Refer to Figure 21-4. Which of the graphs in the figure could reflect an increase in income?
A) graph a
B) graph b
C) graph d
D) None of the above is correct.
Q4) Refer to Figure 21-31. If Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?
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Chapter 22: Frontiers of Microeconomics
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Q1) Refer to Table 22-16. Mr. Johnson recommends using a vote by majority rule and proposes first choosing between Opryland and the Grand Canyon, then choosing between the winner of the first vote and Sea World, and finally choosing between the winner of the second vote and Disneyland. If everyone votes according to their preferences,
A) the winner of the first vote will be Opryland, the winner of the second vote will be Sea World, and the winner of the final vote will be Disneyland.
B) the winner of the first vote will be Grand Canyon, the winner of the second vote will be Grand Canyon, and the winner of the final vote will be Disneyland.
C) the winner of the first vote will be Grand Canyon, the winner of the second vote will be Sea World, and the winner of the final vote will be Disneyland.
D) the winner of the first vote will be Grand Canyon, the winner of the second vote will be Grand Canyon, and the winner of the final vote will be Grand Canyon.
Q2) Refer to Scenario 22-6. Why do you suppose Shana pays Katie a wage higher than the market wage?
Q3) Refer to Scenario 22-6. What is the term for the type of wage Shana pays Katie?
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