Microeconomics Exam Practice Tests
Course Introduction
Microeconomics is the branch of economics that analyzes the behavior of individual consumers, firms, and markets. It focuses on how these economic agents make decisions regarding the allocation of limited resources, the determination of prices through supply and demand, and the formation of market structures such as perfect competition, monopoly, and oligopoly. The course examines concepts like elasticity, consumer choice, production costs, and the economic impact of government interventions, providing the foundational tools required to understand how markets function at a granular level and how various factors influence the choices of buyers and sellers.
Recommended Textbook
Microeconomics 1st Canadian Edition by R. Glenn Hubbard
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17 Chapters
2441 Verified Questions
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Chapter 1: Economics: Foundations and Models
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) Society faces a trade-off in all of the following situations except
A)when deciding who will receive the goods and services produced.
B)when deciding what goods and services will be produced.
C)when deciding how goods and services will be produced.
D)when some previously unemployed workers find jobs.
Answer: D
Q2) ________ is a situation in which a good or service is produced at the lowest possible cost.
A)Allocative efficiency
B)Productive efficiency
C)Equity
D)Optimal marginalism
Answer: B
Q3) Refer to Table 1.2.The table above shows the sales of DVD recorders in North America.Present the information using a bar graph.
Answer: 11ea474e_7377_226a_a01b_ef4d64679f5a_TB4178_00
Q4) What are some of the reasons given for the increase in coffee prices?
Answer: The reasons include bad weather in Colombia, wages, and the actions of individual firms.
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Table 2.4.What is China's opportunity cost of producing one digital camera?
A)0.04 pounds of wheat
B)4 pounds of wheat
C)25 pounds of wheat
D)40 pounds of wheat
Answer: C
Q2) Refer to Table 2.4.China has a comparative advantage in the production of A)wheat.
B)digital cameras.
C)both products.
D)neither product.
Answer: B
Q3) If the best surgeon in town is also the best at cleaning swimming pools, then according to economic reasoning, this person should
A)should pursue the activity he enjoys more.
B)specialize in cleaning swimming pools because it is more labour-intensive.
C)split his time evenly between being a surgeon and cleaning swimming pools.
D)specialize in being a surgeon because its opportunity cost is lower.
Answer: D
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Select the phrase that correctly completes the following statement."A positive change in technology caused an increase in the supply of flat-screen televisions.As a result ________."
A)the price of flat-screen televisions decreased and the demand for flat-screen televisions increased
B)the equilibrium quantity of flat-screen televisions decreased
C)the price of flat-screen televisions decreased and the quantity demanded of flat-screen televisions increased
D)the price of flat-screen televisions decreased. The lower price caused the supply of flat-screen televisions to decrease
Answer: C
Q2) Refer to Figure 3.1.If the product represented is an inferior good, an increase in income would be represented by a movement from A)A to B.
B)B to A.
C)D to D .
D)D to D .
Answer: D
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) The total amount of producer surplus in a market is equal to A)the difference between quantity supplied and quantity demanded.
B)the area above the market supply curve and below the market price.
C)the area above the market supply curve.
D)the area between the demand curve and the supply curve below the market price.
Q2) Consumers are willing to purchase a product up to the point where
A)the marginal benefit of consuming the product is equal to the marginal cost of consuming it.
B)the consumer surplus is equal to the producer surplus.
C)the marginal benefit of consuming the product equals the area below the supply curve and above the market price.
D)the marginal benefit of consuming a product is equal to its price.
Q3) Refer to Figure 4.1.What is the total amount that Arnold is willing to pay for 4 burritos?
A)$1.00
Q4) Will equilibrium in a market always result in an outcome that is economically efficient? Explain.
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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141 Flashcards
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Sample Questions
Q1) In economics, the optimal level of pollution is the level for which the net benefit from reducing the pollution is the greatest.
A)True
B)False
Q2) A major problem with using tradable emissions allowance system to control pollution is
A)that it grants firms a license to pollute.
B)the difficulty in determining the emissions target.
C)it discourages firms from implementing cost-effective pollution control technology.
D)that it does not eliminate pollution completely.
Q3) In Canada bee keepers can travel within and sometimes between provinces renting out their bee colonies to farmers for pollination services.This is an example of
A)a Coasian solution to a positive externality problem.
B)a Pigouvian solution to a positive externality problem.
C)a tradable exchange contract.
D)command and control policy.
Q4) What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose the price of gasoline is $1.25 per litre, the quantity of gasoline demanded is 40 billion litres per year, the price elasticity of demand for gasoline is -0.06, and the federal government decides to increase the excise tax on gasoline by $0.75 per litre, which increases the price of gasoline by $0.50 per litre.What is the new equilibrium quantity of gasoline demanded after the tax is imposed?
A)37.67 billion gallons per year
B)38.91 billion gallons per year
C)39.21 billion gallons per year
D)40.52 billion gallons per year
Q2) Suppose at a price of $50, Yoshi's Jazz Bar sells 20 tickets to its nightly jazz performance and at a price of $40, it sells 25 tickets.Based on this information, the demand for Yoshi's jazz performance is elastic.
A)True
B)False
Q3) Explain the relationship between price elasticity of demand and total revenue.
Q4) List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Distinguish between a voluntary export restraint and a quota.
Q2) The first example used to explain comparative advantage used two countries (England and Portugal)and two goods (wine and cloth)to show that
A)each country would be better off from trade if it had an absolute advantage in producing one of the goods.
B)each country would have a comparative advantage in the production of the good for which it had an absolute advantage.
C)mutually beneficial trade was possible between two countries even if one had an absolute advantage in the production of both goods.
D)mutually beneficial trade was possible between two countries even if one had a comparative advantage in the production of both goods.
Q3) Refer to Figure 7.3.What is the area that represents the deadweight loss as a result of the quota?
A)G + H
B)G + H + I + J
C)E + I + J + M
D)E + M
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Chapter 8: Consumer Choice and Behavioral Economics
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154 Verified Questions
154 Flashcards
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Sample Questions
Q1) Refer to Table 8.1.What is Keegan's optimal consumption bundle?
A)3 pita wraps and 3 bubble teas
B)3 pita wraps and 4 bubble teas
C)4 pita wraps and 2 bubble teas
D)5 pita wraps and 0 bubble teas
Q2) What is a Giffen good?
Q3) Arnold Kim began blogging about Apple products during his fourth year of medical school.Kim's Website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his Website, despite the nearly $200,000 he had invested in his education.In making his decision, Kim decided to ignore the money and time he spent on his education.Economists would say that Kim made a A)rational decision to ignore these sunk costs.
B)poor decision since he had already invested his time and money on his medical career.
C)poor decision since doctors are in greater demand than bloggers.
D)hasty decision by not waiting to recoup his financial investment before giving up his medical career.
Q4) List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.
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Chapter 9: Technology, Production, and Costs
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Sample Questions
Q1) An isoquant shows
A)the combinations of two goods that yield the same total satisfaction.
B)the combinations of two inputs that yield the same total product.
C)the combinations of two inputs that cost the same total quantity of money.
D)the combination of two goods that cost the same amount of money.
Q2) Academic book publishers hire editors, designers, and production and marketing managers who help prepare books for publication.Because these employees work on several books simultaneously, the number of people the company hires will not go up and down with the quantity of books the company publishes during any particular year.The salaries and benefits of people in these job categories will be included in
A)fixed cost and marginal cost but not variable cost.
B)fixed cost but not variable cost and total cost.
C)marginal cost and total cost but not fixed cost.
D)fixed cost and total cost but not variable cost.
Q3) An important reason why diseconomies of scale arise is because firms may have to hire lower skilled workers as firms expand.
A)True
B)False
Q4) Is it possible for technological change to be negative? If so, give an example.
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Chapter 10: Firms in Perfectly Competitive Markets
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153 Flashcards
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Sample Questions
Q1) The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.
A)True
B)False
Q2) The minimum point on the average variable cost curve is called the loss-minimizing point.
A)True
B)False
Q3) Both individual buyers and sellers in perfect competition
A)can influence the market price by their own individual actions.
B)can influence the market price by joining with a few of their competitors.
C)have to take the market price as a given.
D)have the market price dictated to them by government.
Q4) Refer to Figure 10.2.What is the amount of profit if the firm produces Q units?
A)It is equal to the vertical distance c to g.
B)It is equal to the vertical distance c to Q .
C)It is equal to the vertical distance g to Q .
D)It is equal to the vertical distance c to g multiplied by Q units.
Q5) Under what conditions should a competitive firm shut down in the short run?
Page 12
Q6) What is meant by the term "long-run competitive equilibrium?
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Chapter 11: Monopolistic Competition
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Sample Questions
Q1) How might a monopolistically competitive firm continually earn economic profit greater than zero?
Q2) What is the difference between the terms "marketing" and "advertising"?
Q3) What is the profit-maximizing rule for a monopolistically competitive firm?
A)to produce a quantity that maximizes market share
B)to produce a quantity that maximizes total revenue
C)to produce a quantity such that marginal revenue equals marginal cost
D)to produce a quantity such that price equals marginal cost
Q4) For a monopolistically competitive firm, price equals average revenue. A)True
B)False
Q5) If a firm faces a downward-sloping demand curve,
A)the demand for its product must be inelastic.
B)it can control both price and quantity sold.
C)it must reduce its price to sell more units.
D)it will always make a profit.
Q6) If a monopolistically competitive firm breaks even, the firm is earning as much in this industry as it could in any other comparable industry.
A)True
B)False
Page 13
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Chapter 12: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Apple and Toshiba are deciding whether to develop and sell a laptop-tablet hybrid to compete with the one developed by Intel.This best describes which of the five competitive forces?
A)the bargaining power of buyers
B)the threat from potential entrants
C)competition from substitute goods or services
D)the bargaining power of suppliers
Q2) An oligopolistic industry is characterized by a few large firms acting independently. A)True
B)False
Q3) Refer to Figure 12.4.How will Rainbow Writer respond to Odeon's two possible offers?
A)Rainbow Writer will reject either offer.
B)Rainbow Writer will only accept an offer of $30 per copy of the software package.
C)Rainbow Writer will only accept an offer of $40 per copy of the software package.
D)Rainbow Writer will accept either offer.
Q4) What is an oligopoly? Give two examples of oligopolistic industries in Canada.
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Page 14
Chapter 13: Monopoly and Antitrust Policy
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Sample Questions
Q1) Refer to Table 13.2.What is the approximate deadweight loss generated by Onawy when it produces the monopoly output?
A)$124
B)$42
C)$36
D)$12
Q2) A firm that has the ability to control to some degree the price of the product it sells A)is also able to dictate the quantity purchased.
B)faces a demand curve that is inelastic throughout the range of market demand.
C)is a price maker.
D)faces a perfectly inelastic demand curve.
Q3) A natural monopoly is characterized by large fixed costs relative to variable costs. A)True
B)False
Q4) Provide two examples of a government barrier to entry?
Q5) Identify two ways by which the government controls monopolies?
Q6) How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.
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Chapter 14: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) The most important factor contributing to wage differences in the labour market is differences in the level of education and training among workers.
A)True
B)False
Q2) Refer to Figure 14.3.Which of the following is true at W ?
A)The income effect is larger than the substitution effect.
B)The substitution effect is larger than the income effect.
C)The income effect and the substitution effect are equal.
D)The supply curve is positively sloped.
Q3) The income effect of a wage increase is observed when
A)the higher wage income causes workers to take more leisure and work less.
B)leisure's higher opportunity cost causes workers to take less leisure and work more.
C)the higher wage income causes workers to take less leisure and work more.
D)leisure's higher opportunity cost causes workers to take more leisure and work less.
Q4) If commission or piece-rate systems of compensating workers have important advantages for firms, why don't more firms use them?
Q5) What is a monopsony?
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Chapter 15: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) Which of the following tax systems would help reduce income inequality the most?
A)a regressive tax system
B)a proportional tax system
C)a progressive tax system
D)a consumption tax system
Q2) Between 1976 and 2010, income inequality in Canada has increased in part due to rapid technological change.How does technological change contribute to income inequality?
A)Advancements in technology displace skilled and unskilled workers in certain fields, leading to higher unemployment rates.
B)Technology complements the skills of the well-educated while rendering redundant the labour services of unskilled and low-skilled workers. This causes a decline in the wages of low and unskilled workers relative to other workers.
C)The opportunity cost of investing in technology is investments in human capital. The resulting decrease in labour's marginal productivity has led to lower wages.
D)Technological change favours the owners of capital and since high income individuals tend to own capital, income inequality is further exacerbated.
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Many Canadians living close to the US border regularly cross the border to buy milk, eggs, and other goods at considerably lower prices.
Is this an example of arbitrage?
A)Yes, because shoppers were able to purchase items at lower prices even after deducting their transaction costs.
B)No, "arbitrage" means buying at a low price and reselling at a higher price but no resale takes place here.
C)Yes, arbitrage applies even if no resale takes place; in this case the profits are pocketed by the customers themselves.
D)No, "arbitrage" does not apply to markets that are not in the same geographic area.
Q2) Refer to Table 16.2.What are the total profits from both markets combined?
A)$50
B)$48
C)$18
D)$15
Q3) Why is it necessary for a firm that practices price discrimination be a price maker rather than a price taker?
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Chapter 17: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) WestJet Airlines wants to raise $20 million to finance the renovation of their corporate offices, and the company wishes to raise the funds through direct finance.Which of the following methods could it use?
A)It could issue $20 million in stocks.
B)It could sell $20 million in bonds.
C)It could borrow $20 million from a bank.
D)It could choose either A or B.
Q2) How much is a bond that pays $50 in coupon payments for 3 years and $1,000 at the end of the third year worth if the interest rate is 10%?
A)$876
B)$952
C)$1,045
D)$1,150
Q3) Net worth and stockholders' equity are both equal to the difference between assets and liabilities.
A)True
B)False
Q4) How can a partnership raise funds needed for firm expansion?
Q5) What is the difference between explicit and implicit costs?
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