Introduction to Microeconomics Study Guide Questions
Course
Introduction
Introduction to Microeconomics provides students with a foundational understanding of how individuals, households, and firms make decisions regarding the allocation of limited resources. This course explores essential concepts such as supply and demand, market equilibrium, elasticity, consumer behavior, production and cost theories, various market structures, and the impact of government interventions on markets. Through real-world examples, students will learn how microeconomic principles apply to everyday life and inform policy debates, equipping them with analytical tools to evaluate economic choices at the individual and firm level.
Recommended Textbook Microeconomics Student Value 4th Edition by
R. Glenn Hubbard
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2548 Verified Questions
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) The term "market" in economics refers to
A)a place where money changes hands.
B)a legal institution where exchange can take place.
C)a group of buyers and sellers of a product and the arrangement by which they come together to trade.
D)an organization which sells goods and services.
Answer: C
Q2) In a market economy,those who are willing and able to buy what is produced
A)receives what the government allows them to receive.
B)receive the most of what is produced.
C)receive no more than everyone else in the market.
D)solely determine what is produced.
Answer: B
Q3) What is an economic market?
Answer: An economic ic market refers to a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
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3
Chapter
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Q1) The recession of 2007-2009 would most likely be represented in a production possibilities frontier graph by
A)a point inside the frontier.
B)a point outside the frontier.
C)a point on the frontier.
D)an intercept on either the vertical or the horizontal axis.
Answer: A
Q2) In a production possibilities frontier model,a point inside the frontier is
A)allocatively efficient.
B)productively efficient
C)allocatively inefficient.
D)productively inefficient.
Answer: D
Q3) Firms
A)have no influence on the circular flow in a market economy.
B)purchase resources in the product market.
C)sell goods in the product market.
D)sell resources in the factor market.
Answer: C
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Table 3-1.The table above shows the demand schedules for Kona coffee of two individuals (Luke and Ravi)and the rest of the market.At a price of $6,the quantity demanded in the market would be
A)36 lb.
B)68 lb.
C)89 lb.
D)123 lb.
Answer: C
Q2) For each of the following pairs of products state which are complements,which are substitutes,and which are unrelated.
a.Swim fins and scuba tanks
b.Coca Cola and Volkswagens
c.Printers and ink cartridges
d.Ice and ice chests
e.Heineken and Corona
Answer: a.Complements b.Unrelated c.Complements d.Complements e.Substitutes
Q3) All else equal,as the price of a product falls,the quantity supplied decreases.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Congress passed the Freedom to Farm Act in 1996.What was the purpose of this Act?
A)to encourage more people to become farmers
B)to grant free land to farmers in order to produce crops that were particularly scarce
C)to phase out the use of price ceilings in agricultural markets
D)to phase out price floors and return to a free market in agriculture
Q2) Refer to Table 4-3.If a minimum wage of $9.50 an hour is mandated,what is the quantity of labor supplied?
A)390,000
B)380,000
C)370,000
D)340,000
Q3) If the government implements a price ceiling on insulin,this will
A)increase the price consumers will pay for insulin.
B)decrease the quantity of insulin the manufacturers will be willing to supply.
C)have to be set above the market equilibrium price to be effective.
D)encourage manufacturers to produce and sell more of insulin to increase their profits.
Q4) What is deadweight loss? When is deadweight loss equal to zero?
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) If the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost,
A)further reductions will make society better off.
B)further reduction will make society worse off.
C)pollution taxes should be imposed on producers to pay for further reductions.
D)economic efficiency will be increased if further reductions are made.
Q2) If transactions costs are low,private bargaining will always result in an efficient solution to the problem of externalities.
A)True
B)False
Q3) If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost,
A)further reductions will make society better off.
B)the marginal benefit will rise and the marginal cost will fall as further reductions are made.
C)economic efficiency will be achieved when emissions are reduced to zero.
D)private businesses,rather the consumers,should be made to pay for the cost of further reductions.
Q4) How does a positive externality in consumption reduce economic efficiency?
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) The cross-price elasticity of demand measures the
A)absolute change in the quantity demanded of one good divided by the absolute change in the price of another good.
B)percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.
C)percentage change in the price of one good divided by the percentage change in the quantity demanded of another good.
D)percentage change in the quantity demanded of one good in one location divided by the price of the same good in another location.
Q2) In order to prove that Motrin and Ibuprofen are substitutes,one should measure the ________ and get a ________.
A)cross-price elasticity; positive number
B)cross-price elasticity; negative number
C)price elasticity of demand; number greater than 1 (in absolute value)
D)price elasticity of demand; number less than 1 (in absolute value)
Q3) Explain the concepts of cross-price elasticity of demand and income elasticity of demand.What do positive and negative values indicate for each of these demand elasticities
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) The principal-agent problem is a problem
A)caused by a person (principal)who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way.
B)caused by agents pursuing their own interests rather than the interests of the principals who hired them.
C)of the power system of boss and subordinate where the boss (principal)exerts influence over his subordinates (agents)using punishment or threat.
D)that exists when a person (principal)has more information about the task than the agent he hires to perform the task.
Q2) Which of the following Nobel laureates became known for the study of asymmetric information?
A)Gary Becker
B)Michael Spence
C)George Ackerlof
D)Ronald Coase
Q3) What is asymmetric information?
Q4) How can increases in a country's total income improve health?
Q5) How do adverse selection and moral hazard affect the market for insurance?
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Chapter
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Sample Questions
Q1) A firm's accounting profit is also its A)economic profit.
B)income statement.
C)net income.
D)statement of liabilities.
Q2) Which of the following would explain why economic profit might be less than accounting profit?
A)A firm's net income is less than its accounting profit.
B)A firm has only explicit costs.
C)A firm's net income is greater than its accounting profit.
D)A firm has implicit costs as well as explicit costs.
Q3) Which of the following is not an advantage of starting a new business as a proprietorship?
A)The owner has complete control over the business.
B)A proprietorship has few government rules and regulations to comply with.
C)Business profits are only taxed once,not twice.
D)A proprietorship can easily attain additional funding.
Q4) How can a sole proprietorship raise funds needed for firm expansion?
Q5) How is economic profit found?
Q6) Define a corporation.
Page 10
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Examples of comparative advantage often begin with two countries that each produce the same two goods.Each country is then shown to have a comparative advantage in producing the good it can produce at a lower opportunity cost,and specializes in the production of the good for which it has a comparative advantage.How do these examples prove that both nations are made better off as a result of trade than they would be without trade?
Q2) Refer to Figure 9-3.If there was no quota,how many pounds of peanuts would be imported?
A)16 million
B)28 million
C)30 million
D)40 million
Q3) Once an industry becomes established in a certain area firms that locate in that area gain advantages over firms located elsewhere,leading to lower costs of production.Economists refer to the lower costs that result from increases in the size of an industry in a certain area as A)external economies.
B)positive externalities.
C)strategic advantages.
D)technological change.
Page 12
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) What happens to the absolute value of marginal rate of substitution as you move down a convex (bowed toward the origin)indifference curve?
A)increases
B)decreases
C)remains constant
D)could increase or decrease
Q2) Celebrity endorsements of products,such as Snoop Dogg's tweets about the Toyota Sienna minivan,are intended to cause the demand curve for the product to ________,which allows the product's manufacturer to ________.
A)shift to the right; lower its production costs and increase output.
B)shift to the left; lower its production costs and increase output.
C)shift to the right; sell more of the product at every price.
D)shift to the left; sell more of the product at every price.
Q3) Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card,even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?
Q4) Explain the endowment effect.
Q5) Describe the demand curve for a Giffen good.
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Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) Which of the following are examples of a firm experiencing a positive technological change?
a.A firm is able to reduce its inputs by 15 percent and still produce the same level of output.
b.A seminar attended by the firm's workers makes them more productive.
c.A firm adds 5 percent to its workforce and is able to maintain its initial level of output.
d.A firm restructures its distribution system and is able to save on its shipping times.
e.A firm rearranges its warehouse and finds that it can use fewer workers to maintain its productivity level.
Q2) The slope of an isoquant is equal to the ratio of the price of the input on the horizontal axis divided by the price of the input on the vertical axis,multiplied by -1. A)True
B)False
Q3) If a firm experiences diminishing returns its marginal product must be negative. A)True
B)False
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Use the table to answer the following questions.
A.Complete Table 12-4 by filling in the blank cells.
B.Werner is selling in a perfectly competitive market at a price of $40.What is the profit maximizing or loss-minimizing output?
C.Calculate the firm's profit or loss.
D.Should the firm continue to produce in the short run? Explain.
E.If the firm's fixed costs were $30 higher what would be the profit-maximizing output level in the short run? Indicate whether the output level will increase,decrease or remain unchanged compared to your answer in b.
F.Suppose fixed cost remains at $76.If the price of three-ring binders falls to $20 what is the profit-maximizing or loss-minimizing output?
G.Calculate the profit or loss.Should the firm continue to produce in the short run? Explain your answer.
H.Suppose the fixed cost remains at $76.What price corresponds to the shut-down point?
I.Suppose the fixed cost remains at $76.What price corresponds to the break-even point?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Sample Questions
Q1) ________ describes the actions a firm takes to maintain the differentiation of its product over time.
A)Product differentiation.
B)Brand management
C)Aggressive marketing.
D)Advertising
Q2) Which of the following is not a characteristic of monopolistic competition?
A)There are many buyers and sellers.
B)There are low barriers to entry.
C)Average revenue is equal to price.
D)The products sold by all firms are identical.
Q3) The entry and exit of firms in a monopolistically competitive market guarantee that
A)marginal revenue equals marginal cost and average total cost is minimized.
B)firms can earn economic profits in the long run.
C)price equals average total cost in the long run.
D)firms can earn economic profits in the short run.
Q4) Monopolistically competitive firms face a perfectly elastic demand curve.
A)True
B)False
Page 16
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) A consequence of the quota that has been imposed on the importation of sugar into the United States is
A)consumers are protected from eating unsafe products made from cheap imported sugar.
B)competition in the U.S.sugar market is reduced.
C)the cost of producing cereal,chocolate and candy products in the United States is reduced.
D)the market for sugar in the United States has become monopolistically competitive rather than oligopolistic.
Q2) The fraction of an industry's sales that are accounted for by the largest firms is called
A)the four-firm competition ratio.
B)the four-firm concentration ratio.
C)the four-firm industry ratio.
D)the four-firm oligopoly ratio.
Q3) Sequential games are used to analyze
A)firms that are subject to the prisoner's dilemma.
B)cartels.
C)second-price auctions.
D)situations in which one firm acts and other firms respond.
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Chapter 15: Monopoly and Antitrust Policy
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Q1) A natural monopoly is most likely to occur in which of the following industries?
A)the pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years
B)the diamond mining and marketing industry because one firm can control a key resource
C)the software industry because of the importance of network externalities
D)an industry where fixed costs are very large relative to variable costs
Q2) Natural monopolies are most likely to occur in markets where fixed costs are very large relative to variable costs.
A)True B)False
Q3) To maximize profit a monopolist will produce where
A)marginal revenue is equal to marginal cost.
B)demand for its product is unit-elastic.
C)revenue per unit is maximized.
D)average total cost is equal to average revenue.
Q4) A monopolist will maximize profit where marginal revenue equals marginal cost.
A)True B)False
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) The University of Kansas is using a two-part tariff pricing structure since they require season ticket holders for Jayhawks football games to purchase ________ to obtain seats in its new Gridiron Club.
A)tickets to preseason games as well as regular season games
B)sports mortgages in addition to the season tickets
C)a minimum of two season tickets to each home game
D)season tickets for Jayhawks basketball
Q2) Refer to Figure 16-1.What prices are charged in the two markets?
A)price in market A = price in market B = $15
B)price in market A = $10; price in market B = $15
C)price in market A = price in market B = $5
D)price in market A = price in market B = $10
Q3) Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7.What is the value of the consumer surplus enjoyed by her customers?
A)$39
B)$28
C)$11
D)$0
Q4) What conditions are required for a firm to use a price discrimination strategy?
Page 19
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) The marginal productivity theory of income distribution was developed by
A)Edward Lazear.
B)George Akerlof.
C)William Stanley Jevons.
D)John Bates Clark.
Q2) Increases in population shift the market supply curve for labor to the right.
A)True
B)False
Q3) All else equal,a decrease in the supply of labor will shift the labor supply curve to the left and decrease the equilibrium wage.
A)True
B)False
Q4) The demand curve for labor is also
A)the demand curve for the output produced with labor since the demand for labor is a derived demand.
B)the marginal product of labor curve.
C)the marginal revenue product of labor curve.
D)the supply curve for the output labor is used to produce.
Q5) Why are there superstar baseball players but no superstar chiropractors?
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Q1) According to projections for 2011 by the Tax Policy Center,the 20 percent of U.S.taxpayers who make the highest incomes
A)use loopholes and tax exemptions to reduce their share of federal income taxes to less than 20 percent.
B)pay almost 70 percent of federal income taxes.
C)pay about 90 percent of federal income taxes but only about 20 percent of Social Security and Medicare payroll taxes.
D)pay more in excise and other taxes than they pay in Social Security and Medicare payroll taxes.
Q2) In the United States,the federal income tax is an example of a
A)progressive tax.
B)regressive tax.
C)proportional tax.
D)flat tax.
Q3) In the United States,the largest source of funds for public schools is
A)the federal income tax.
B)the property tax.
C)the consumption tax.
D)sales taxes.
Page 21
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