Microeconomic Theory Exam Practice Tests
Course Introduction
Microeconomic Theory explores the foundational principles governing individual and firm decision-making processes in markets. The course covers topics such as consumer and producer behavior, utility maximization, cost minimization, market structures (perfect competition, monopoly, oligopoly), and the interactions between supply and demand. Analytical tools such as constrained optimization and comparative statics are used to rigorously analyze how prices and quantities are determined and how resources are allocated in various market scenarios. Emphasis is placed on developing a deep understanding of market efficiency, welfare analysis, and the implications of market failures.
Recommended Textbook
Microeconomics 2nd Edition by Dean Karlan
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Page 2
Chapter 1: Economics and Life
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Sample Questions
Q1) Your sister always brags about how savvy of a grocery shopper she is.She believes that she saves lots of money by paying with coupons and making her grocery purchases at multiple stores to get the lowest prices on all goods.She may overestimate her savings because:
A) she does not count the value of the time it took to sort and clip coupons as a cost. B) she does not count the cost of the gas used driving extra miles to multiple grocery stores.
C) she does not count the value of the extra time it takes to stand in multiple lines at multiple stores and use multiple coupons compared to a trip to one store with no coupons.
D) All of these.
Answer: D
Q2) Which of the following statements best describes the study of economics?
A) Economics studies how the Federal Reserve handles fluctuation in business cycles.
B) Economics studies how individuals and groups manage scarce resources.
C) Economics studies how people maximize returns in the stock market.
D) Economics studies how governments determine appropriate tax rates.
Answer: B
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Page 3
Chapter 2: Specialization and Exchange
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Sample Questions
Q1) When a producer has an absolute advantage at producing a good,it means the producer:
A) can produce more of that good than others with the same amount of resources.
B) has the ability to produce a good or service at a lower opportunity cost than others.
C) has no reason to trade with others.
D) is less efficient than other producers.
Answer: A
Q2) People will choose to specialize and trade if they can acquire the goods they want:
A) at a lower cost than it would cost them to make the goods themselves.
B) at a higher cost than it would cost them to make the goods themselves.
C) from someone who is willing to trade with them.
D) from a capitalistic system of exchange.
Answer: A
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4
Chapter 3: Markets
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Sample Questions
Q1) After getting a raise at work,Jennie now regularly buys steak instead of hamburger.Based on this behavior,we can assume:
A) steak is a normal good, and hamburger is an inferior good for Jennie.
B) steak is an inferior good, and hamburger is a normal good for Jennie.
C) steak and hamburger are complementary goods for Jennie.
D) steak and hamburger are normal goods for Jennie.
Answer: A
Q2) The best example of a standardized good would be:
A) corn.
B) a handbag.
C) an autographed baseball.
D) breakfast cereal
Answer: A
Q3) A supply curve is a:
A) graph that visually displays the supply schedule.
B) graph depicting various price-quantity combinations of multiple goods.
C) graph that shows the quantities of a particular good or service that producers will sell at one price.
D) table that displays various price-quantity combinations of a good or service.
Answer: A
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Chapter 4: Elasticity
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Sample Questions
Q1) When price was 5,quantity demanded was 10.When price increased to 6,quantity demanded decreased to 9.Therefore,when price increased,total revenue
A) decreased from 54 to 50, indicating that demand is inelastic.
B) decreased from 54 to 50, indicating that demand is elastic.
C) increased from 50 to 54, indicating that demand is inelastic.
D) increased from 50 to 54, indicating that demand is elastic.
Q2) A perfectly inelastic demand:
A) means people will quickly change the quantity they purchase when price changes. B) means people will not respond to any change in price.
C) is demonstrated by a perfectly horizontal demand curve. D) has an absolute value greater than 1.
Q3) If the price of jelly increases 10 percent and the amount of peanut butter purchased decreases 20 percent,then the cross-price elasticity of these goods is:
A) 0.5.
B) 2.
C) 0.5
D) 2
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Chapter 5: Efficiency
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Sample Questions
Q1) Assume there are three hardware stores,each willing to sell one standard model hammer in a given time period.House Depot can offer their hammer for a minimum of $7.Lace Hardware can offer the hammer for a minimum of $10.Bob's Hardware store can offer the hammer at a minimum price of $13. Given the scenario described,if the market price of hammers increased from $6 to $7:
A) total producer surplus would increase.
B) total producer surplus would remain unchanged.
C) total producer surplus would decrease.
D) total producer surplus cannot be determined with the information given.
Q2) A buyer always wants to:
A) buy for a price that is as high as possible, but never higher than his willingness to pay.
B) buy for a price that is as low as possible, but never lower than his willingness to pay.
C) buy for a price that is as low as possible, but never higher than his willingness to pay.
D) buy for a price that is as high as possible, but never lower than his willingness to pay.
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Chapter 6: Government Intervention Microeconomics
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Sample Questions
Q1) Because a price floor causes:
A) a shortage, some form of rationing must occur.
B) a surplus, some producers may ultimately lose because they won't have enough customers.
C) a shortage, rent-seeking will occur.
D) a surplus, everyone will be better off.
Q2) Does a tax on sellers affect the supply curve?
A) Yes, it shifts to the left by the amount of the tax.
B) Yes, it shifts to the right by the amount of the tax.
C) Yes, it shifts up by the amount of the tax.
D) No, there is change in the quantity supplied, but the supply curve does not move.
Q3) One way to allocate the scarce good created from an effective price ceiling is to:
A) offer it on a first-come, first-served basis.
B) ration a certain quantity per household.
C) give them to the friends and family of the producers.
D) All of these are examples of allocating using non-price methods.
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Chapter 7: Consumer Behavior
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Sample Questions
Q1) Bart is seen standing in front of the cooler that contains containers of iced tea and lemonade.Moments later,we see Bart drinking iced tea,and we conclude Bart is getting more utility from that drink than lemonade.We drew that conclusion based on what economic concept?
A) Revealed preference
B) Utility minimization
C) Satisfaction scales
D) Rational behavior
Q2) A budget constraint:
A) is the same across all individuals with the same income constraints.
B) is different for each individual with the same income constraints.
C) is the same across all individuals with the same tastes and preferences.
D) is different for each individual with the same tastes and preferences.
Q3) Which of the following statements is true about individuals and utility?
A) Individuals seek to maximize utility.
B) Individuals seek to maximize their income, not utility.
C) Individuals will either minimize or maximize utility depending on the situation.
D) Individuals rarely try to maximize their utility.
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9
Chapter 8: Behavioral Economics: A Closer Look at Decision Making
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Sample Questions
Q1) Walter rents some ice time at the local hockey rink for 2 hours.After skating for an hour,he finds himself cold,tired,and hungry.If Walter decides to skate around for the other hour before leaving,it is likely because he:
A) is ignoring the sunk cost of the rink time.
B) is focusing on the sunk cost of the rink time.
C) is weighing his opportunity costs of the second hour against the benefits of the second hour of skating.
D) None of these is true.
Q2) People will consistently sit through terrible movies at the theater instead of leaving early.This behavior makes no sense because it implies people are:
A) ignoring sunk costs, which is irrational.
B) focusing on sunk costs, instead of thinking at the margin.
C) thinking at the margin, instead of focusing on sunk costs.
D) not thinking at the margin, which is rational.
Q3) The implicit cost of ownership:
A) is a cognitive bias if it goes ignored.
B) leads people to value things more once they possess them.
C) is a nonmonetary opportunity cost that is often overlooked.
D) All of these are true.
Page 10
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Chapter 9: Game Theory and Strategic Thinking
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Sample Questions
Q1) An ultimatum game is:
A) one in which one player makes an offer and the other player has the simple choice of whether to accept or reject.
B) one in which one player makes an offer and the other player has the choice of whether to accept or offer a counteroffer.
C) a repeated sequential game.
D) the only game played by unions in reality.
Q2) All games involve which of the following?
A) A predictable outcome
B) Payoffs
C) Full information
D) A game master
Q3) An ultimatum game:
A) is a repeated game.
B) is a simultaneous move game.
C) is when one player makes an offer and the other has to accept or reject.
D) is a realistic way of modeling union negotiations.
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Chapter 10: Information
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Sample Questions
Q1) User reviews of products on store websites that reassure buyers of the quality is an example of:
A) screening.
B) building a reputation.
C) statistical discrimination.
D) None of these statements is true.
Q2) The key to a successful positive signal is that:
A) it is costly to fake.
B) it is hidden information.
C) it builds trust between the principal and the agent.
D) All of these statements are true.
Q3) Wearing a suit to a job interview is an example of a:
A) positive signal.
B) negative signal.
C) positive screen.
D) negative screen.
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Chapter 11: Time and Uncertainty
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Sample Questions
Q1) Value of a loan amount X with interest r after one period equals:
A) (X * 1)/(X * r)
B) X * (1 + r)
C) X/(1 + r)
D) All of these are true.
Q2) Someone is considered to exhibit risk-seeking behavior if he:
A) has a high willingness to take on situations with risk.
B) has a low willingness to take on situations with risk.
C) will only participate in high-risk situations.
D) will always choose the riskier venture when given two choices.
Q3) Present value:
A) is always greater than the future value of money.
B) does not account for inflation.
C) is how much an amount of money obtained in the future is worth today.
D) All of these statements are true.
Q4) Investing all your money in one company is an example of:
A) risk diversification.
B) risk pooling.
C) risk aversion.
D) None of these statements is true.
Page 13
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Chapter 12: The Costs of Production
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Sample Questions
Q1) Suppose Bev's Bags makes two kinds of handbags-large and small.Bev rents an industrial space where she keeps the fabric,the industrial sewing machine,her measuring board and cutting shears,extra needles,thread and buttons,and labels.Which of the following would be considered a variable cost of this company?
A) The rent
B) The fabric
C) The cutting shears
D) None of these would be considered a variable cost.
Q2) When accounting profits are zero,which of the following is most likely to be true?
A) Economic profits could be zero.
B) Economic profits could be positive.
C) Economic profits are negative.
D) All of these are likely.
Q3) Explicit costs are costs that:
A) require a firm to spend money.
B) are zero when no output is produced.
C) do not depend on the quantity of output produced.
D) depend on the quantity of output produced.
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Chapter 13: Perfect Competition
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Sample Questions
Q1) If the demand increases in a perfectly competitive market,firms will likely:
A) experience a loss due to increased competition.
B) set prices artificially higher permanently.
C) enter the market in hopes of capturing some profits.
D) have to engage in more advertising in order to further stimulate the increase in demand.
Q2) If a firm is earning a positive economic profit,it means that it:
A) is using its resources in the most profitable way.
B) should invest its resources in other business opportunities.
C) has an opportunity cost that is larger than what the firm is currently earning.
D) operating in the long run in a perfectly competitive market.
Q3) In a perfectly competitive market,when the price is greater than the minimum average total cost for all firms:
A) positive economic profits are being earned.
B) firms will enter, causing the price to increase.
C) firms will exit, causing the price to drop.
D) None of these is true.
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Chapter 14: Monopoly
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Sample Questions
Q1) The monopolist's cost curves differ from those of a perfectly competitive firm in that the:
A) marginal cost curve is downward sloping instead of flat.
B) average total cost curve is not necessarily minimized where it crosses marginal cost.
C) average variable cost in no longer equal to marginal cost.
D) The cost curves are the same for a firm regardless of market structure.
Q2) In the real world,price discrimination is more difficult because:
A) it is difficult to identify and verify different groups.
B) to perfectly discriminate, the firm must read people's minds to know their willingness to pay.
C) it can be challenging to prevent the resale of goods from one group to another.
D) All of these statements are true.
Q3) The profit-maximizing decision for the monopoly is:
A) to choose the quantity where marginal cost equals marginal revenue.
B) the same as that of the perfectly competitive firm.
C) to choose price according to demand.
D) All of these statements are true.
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Chapter 15: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) In the long run,firms in a monopolistically competitive market operate at:
A) an efficient scale.
B) a less-than-efficient scale.
C) a more-than-efficient scale.
D) Any of these could be true, depending on the individual firm.
Q2) In the short run,monopolistically competitive firms:
A) can earn positive economic profits by acting like a monopolist.
B) can earn positive economic profits by acting like a perfectly competitive firm.
C) will earn zero economic profits by acting like a monopolist.
D) will earn zero economic profits by acting like a perfectly competitive firm.
Q3) It is important for a business owner to understand the market structure in which they operate because:
A) it defines how much freedom they have to set prices.
B) it will tell how much attention to pay to competitors' behavior.
C) it can help in deciding whether to advertise.
D) All of these statements are true.
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Chapter 16: The Factors of Production
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Sample Questions
Q1) The labor supply could decrease when wages increase only if the:
A) price effect outweighs the income effect.
B) income effect outweighs the price effect.
C) substitution effect outweighs the income effect.
D) price effect outweighs the substitution effect.
Q2) If Donald receives a pay raise and the income effect outweighs the price effect on his labor supply decisions,he will work:
A) more hours.
B) less hours.
C) the same amount.
D) less hours initially but eventually work more.
Q3) A worker will become indifferent between spending the next hour on work or leisure if the benefit of another hour of work is:
A) greater than the opportunity cost.
B) exactly equal to the opportunity cost.
C) less than the opportunity cost.
D) constant for each additional hour worked.
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Chapter 17: International Trade
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Sample Questions
Q1) As workforces become more educated in countries with comparative advantage in labor-intensive products,the comparative advantage for the production of those labor-intensive goods shifts:
A) toward other countries with less cheap labor relative to the other factors of production.
B) away from countries with more cheap labor relative to other factors of production.
C) toward other countries with more cheap labor relative to the other factors of production.
D) toward countries with more capital for production.
Q2) Technology or production processes developed in a particular country:
A) may give that country a temporary comparative advantage.
B) may set that country back until they earn back the research and development costs.
C) will give that country a permanent comparative advantage.
D) generally are not transferrable to other nations.
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Chapter 18: Externalities
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Sample Questions
Q1) A tax on cigarettes:
A) increases total surplus.
B) increases efficiency in the market.
C) will increase both total surplus and efficiency in the market.
D) like any tax, will always reduce surplus and efficiency in markets.
Q2) If the social benefit is greater than the private benefit in a particular market,then the socially optimal equilibrium will be at a quantity:
A) greater than the private level.
B) equal to the private level.
C) less than the private level.
D) greater than or less than the private level, depending on the size of the external costs.
Q3) One problem with the effectiveness of Pigovian taxes is:
A) the tax does not directly compensate those who are affected by the externality.
B) knowing whether to impose it on the consumer or producer.
C) the tax is always used to benefit those who bear the externalities.
D) none of the above is a problem of Pigovian taxes.
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Chapter 19: Public Goods and Common Resources
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Sample Questions
Q1) Which of the following is likely to cause market failure and be undersupplied?
A) Research
B) Orange juice
C) River water
D) Grazing pasture
Q2) Goods that are rival in consumption,but not excludable are:
A) a common resource.
B) a private good.
C) a public good.
D) an artificially scarce good.
Q3) In a market where the tragedy of the commons arises,the equilibrium quantity is both individually ____________ and collectively __________.
A) inefficient; rational
B) rational; inefficient
C) irrational; efficient
D) efficient; irrational
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Chapter 20: Taxation and the Public Budget
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Sample Questions
Q1) Deadweight loss is minimized when a tax is levied on something for which people:
A) are not likely to change their behavior much in response to a price change.
B) are very likely to change their behavior in response to a price change.
C) have a large income elasticity of demand.
D) have a small income elasticity of demand.
Q2) A tax that takes the same percentage of tax from all taxpayers is called a:
A) proportional tax.
B) progressive tax.
C) regressive tax.
D) lump-sum tax.
Q3) When considering different tax levels,the revenue-maximizing point will be reached more:
A) slowly when demand is more elastic.
B) quickly when demand is more elastic.
C) quickly when demand is less elastic.
D) quickly if demand is unit elastic.
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22
Chapter 21: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) Between 1960 and 1995,Social Security benefits:
A) increased, which increased the poverty rate among the elderly.
B) decreased, helping reduce the poverty rate among the elderly.
C) increased, helping reduce the poverty rate among the elderly.
D) decreased, which increased the poverty rate among the elderly.
Q2) The goal of programs such as government-subsidized housing,food stamps,and Medicaid are to:
A) spur economic growth.
B) redistribute wealth from the rich to the poor.
C) reduce the time people spend in transient poverty.
D) None of these is true.
Q3) In recent decades,countries with high economic growth have experienced _______ inequality,and those with low rates of growth have experienced __________ inequality.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing
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23
Chapter 22: Political Choices
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Sample Questions
Q1) Compared to proportional-representation systems,two-party systems are thought to:
A) lead to more diverse views in the policy process.
B) offer a wider variety of platforms among which voters can choose.
C) create unwieldy combinations of policies within one platform.
D) be much less efficient and lead to very few compromises when voting.
Q2) The Condorcet paradox is a situation in which the preferences of each individual member of a group are ___________,and the collective preferences of the group are
A) not transitive; not transitive
B) transitive; not transitive
C) transitive; transitive
D) not transitive; transitive
Q3) We refer to situations in which individuals need to act collectively to reach solutions that will make everyone better off as:
A) collective-action problems.
B) free-rider problems.
C) moral hazard problems.
D) public-mind problems.
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Page 24
Chapter 23: Public Policy and Choice Architecture
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Sample Questions
Q1) By studying the effects of choice architecture,we can:
A) expand the simplifying assumption that people always make the choices that are best for themselves.
B) blend the ideas of psychology with core economic beliefs.
C) open the possibility that we can no longer tell if someone is making a mistake or choosing something that is maximizing his utility.
D) All of these statements are true.
Q2) Cyndi says to you,"I'm wondering if I should study abroad in France." You studied in Germany two years ago,and found the cost of living (not counting tuition)to be about $5,000 for a semester,so you say,"I bet it will cost you about $5,000,not counting tuition." Your answer demonstrates:
A) biased expectations.
B) anchoring.
C) using a piece of information loosely related and applying it to your guess.
D) All of these statements are true.
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