Microeconomics Exam Practice Tests
Course Introduction
Microeconomics is the study of how individuals, households, and firms make decisions regarding the allocation of limited resources. This course explores key concepts such as supply and demand, market equilibrium, consumer and producer behavior, elasticity, production costs, and the various market structures including perfect competition, monopoly, monopolistic competition, and oligopoly. Students will analyze how prices are determined in different types of markets and how government intervention can impact economic outcomes. Through theoretical models and real-world applications, the course aims to provide a foundational understanding of the decision-making processes that underpin economic activity on a small scale.
Recommended Textbook
Foundations of Economics 6th Edition by Robin Bade
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Chapter 1: Getting Started
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Sample Questions
Q1) The ________ of something is the gain or pleasure that it brings.
A) opportunity cost
B) benefit
C) marginal cost
D) rational choice
E) rational margin
Answer: B
Q2) Economists measure opportunity cost
A) only when it is on the margin.
B) as the best thing given up.
C) as the sum of all forgone opportunities.
D) as the same as marginal benefit.
E) as equal to the sum of all the sunk costs.
Answer: B
Q3) What is a positive statement? Give an example.
Answer: A positive statement addresses "what is" and can be tested.An example of a positive statement is "An increase in the price of gasoline decreases the quantity of gasoline demanded."
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Chapter 2: The Usand Global Economies
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Sample Questions
Q1) ________ choose the quantities of factors of production to hire and ________ choose the quantities of goods and services to produce.
A) Entrepreneurs; firms
B) Firms; firms
C) Markets; markets
D) Factor markets; goods markets
E) Firms; households
Answer: B
Q2) An item that is purchased to increase businesses' productive resources is
A) an export.
B) a government good.
C) a capital good.
D) a consumption good.
E) a productive good.
Answer: C
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Chapter 3: The Economic Problem
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Sample Questions
Q1) The figure above shows a nation's production possibilities frontier.In the figure,point B shows
A) an unattainable point.
B) an attainable point.
C) a point with a free lunch.
D) a point with no trade off.
E) a point at which there are unemployed resources.
Answer: A
Q2) Liz has a comparative advantage in ________ because ________.
A) smoothies; her opportunity cost of producing smoothies is lower than Joe's B) salads; her opportunity cost of producing salads is lower than Joe's
C) smoothies; she can produce more smoothies per hour than Joe can
D) salads; she can produce more salads per hour than Joe can
E) both goods; she can produce more of both goods per hour than Joe can
Answer: A
Q3) Are all points inside the production possibilities frontier unattainable?
Answer: No,all points within the production possibilities frontier are attainable,though there are unemployed resources at these points.
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Chapter 4: Demand and Supply
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Sample Questions
Q1) The table above shows the situation in the gasoline market in Tulsa,Oklahoma.If the price of a gallon of gasoline is $3.73,then
A) there is a surplus of gasoline in Tulsa.
B) there is a shortage of gasoline in Tulsa.
C) the gasoline market in Tulsa is in equilibrium.
D) without more information we cannot determine if there is a surplus, a shortage, or an equilibrium in the gasoline market in Tulsa.
E) there is neither a surplus nor a shortage, but the market is NOT in equilibrium.
Q2) The above figure shows the market for game day t-shirts.If the price of t-shirts is $10,then
A) there is a surplus and the price of t-shirts will rise.
B) there is a shortage and the price of t-shirts will rise.
C) there is a shortage and the price of t-shirts will fall.
D) there is a surplus and the price of t-shirts will fall.
E) the market is in equilibrium.
Q3) The above table gives the demand and supply schedules for cat food.If the supply increases by 20 tons at every price,what is the new equilibrium price and quantity?
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Chapter 5: Elasticities of Demand and Supply
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Sample Questions
Q1) Sergio's rentals of Blu-ray movies increase by 10 percent when her income increases by 30 percent.Based on this information,we know that for Sergio Blu-ray movies
A) are complements.
B) are substitutes.
C) are inferior goods.
D) have an inelastic demand.
E) are normal goods.
Q2) If a 30 percent price increase generates a 20 percent decrease in quantity demanded,then demand is A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Q3) When does a decrease in supply raise the price more: When demand is elastic or when demand is inelastic? When OPEC decreases the supply of oil,the price of gasoline skyrockets.Hence is the demand for gasoline elastic or inelastic?
Q4) Explain the total revenue test.
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) The figure above shows the market for brooms.If the market is efficient, A) 0 brooms are produced.
B) 600 brooms are produced.
C) more than 1000 brooms are produced.
D) between 0 and 600 brooms are produced.
E) between 600 and 1000 brooms are produced.
Q2) "If there is an inefficient level of nursing care in South America,a deadweight loss exists." Is this statement true or false?
Q3) The figure above shows Kaley's marginal benefit from swimming with manatees and Scott's marginal cost of providing manatee swimming tours.For Kaley and Scott,allocative efficiency is achieved at what point?
A) A
B) B
C) C
D) D
E) Either point A or point D
Q4) The demand curve is the same as another curve.Which curve is the same as the demand curve? Why are the curves the same?
Q5) What allocation method is the primary method used in the United States?
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Chapter 7: Government Actions in Markets
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Sample Questions
Q1) A rent ceiling below the equilibrium rent
A) increases the quantity of housing supplied.
B) is an example of a price floor.
C) has no effect on the housing market because the ceiling is below the equilibrium.
D) can create a black market.
E) limits search because people need no longer search for cheap apartments.
Q2) A price ceiling
A) creates market efficiency by making a good cheaper.
B) helps all producers by increasing the price of the good.
C) can create a black market for the good.
D) reduces search activity.
E) benefits all people who want to buy the good.
Q3) In the figure above,the number of workers employed is ________,and the wage paid is ________.
A) 3,000; $7 per hour
B) 7,000; $7 per hour
C) 5,000; $5 per hour
D) 5,000; $7 per hour
E) 3,000; $5 per hour
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Chapter 8: Taxes
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Sample Questions
Q1) The proposition that people should pay taxes according to how easily they can bear the burden is known as the ________ principle.
A) regressive tax
B) benefits
C) ability-to-pay
D) fairness
E) incidence of fairness
Q2) The figure above shows the labor supply and labor demand curves for personal trainers in the state of Florida.The initial equilibrium hourly wage is $10.Suppose the state of Florida institutes an income tax on labor income of $6 an hour in order to buy voting machines for the next election.With the tax in place,the labor supply curve will
A) remain at LS.
B) shift to LS .
C) shift to LS .
D) change so that it becomes the same as LD.
E) None of the above answers is correct.
Q3) Ali earns $20,000 and pays $2,000 in taxes; Maria earns $40,000 and pays $4,000 in taxes.Is this tax progressive,regressive,or proportional?
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Chapter 9: Global Markets in Action
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Sample Questions
Q1) The above figure shows the U.S.market for 1 carat diamonds.Area C is the A) decrease in consumer surplus due to the import quota.
B) importers' profit from the quota.
C) deadweight loss from the import quota.
D) increase in producer surplus due to the import quota.
E) gain in total surplus due to the import quota.
Q2) Goods and services that the United States buys from other nations are called A) exports.
B) imports.
C) bartered goods.
D) exchanges.
E) world goods.
Q3) The above figure shows the U.S.market for chocolate.With no international trade,producer surplus is equal to
A) area A + area B + area C + area D.
B) area B + area C + area D + area E.
C) area B + area C + area D.
D) area C + area D.
E) area E.
Q4) How do exports affect buyers' consumer surplus?
Page 11
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Chapter 10: Externalities
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Sample Questions
Q1) The benefit the consumer of a good or service receives is the A) social benefit.
B) external benefit.
C) private benefit.
D) public benefit.
E) consumption benefit.
Q2) If a good has an external cost,the
A) unregulated competitive market outcome is efficient.
B) marginal private cost reflects the external cost.
C) unregulated competitive market outcome is inefficient.
D) marginal social benefit is equal to the marginal social cost when the market is in equilibrium.
E) external benefit must equal the external cost.
Q3) Which of the following is NOT an example of a good with an external cost?
A) electricity generation that produces carbon dioxide emissions that contribute toward global warming
B) logging that pollutes a nearby river
C) Jess smoking near her non-smoking roommate
D) Ahmed working at a bank and he gets a flu shot each fall
E) noise pollution from aircraft
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) What are the differences between public goods and private goods?
Q2) The marginal benefit of a public good ________ as more of the good is produced. A) increases B) decreases C) stays the same
D) None of the above is correct because the marginal benefit could increase, decrease, or not change depending on whether the marginal cost increases, decreases, or does not change as more is produced.
E) None of the above is correct because the marginal benefit could increase, decrease, or not change depending on whether more, fewer, or the same number of people consume the good as more is produced.
Q3) The table above provides information about the marginal cost and marginal benefit of streetlights,which are a public good.
a.What quantity would a private company provide? Why?
b.What is the efficient quantity?
Q4) What is rational ignorance?
Q5) "The problem with a common resource is that no one gets to use the resource." Comment on the preceding assertion.
Q6) How is the efficient quantity of public goods determined?
Page 13
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Chapter 12: Markets With Private Information
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Sample Questions
Q1) Moral hazard results from _____ information and adverse selection results from _____ information.
A) private; private
B) private; public
C) public; private
D) public; public
E) None of the above answers are correct because both are the result of the lemons problem.
Q2) In the used car market,with a pooling equilibrium the price of a lemon is ________ the price of a good used car and with a separating equilibrium the price of a lemon is ________ the price of a good used car.
A) less than; equal to B) equal to; less than C) equal to; more than D) more than; more than E) equal to; equal to
Q3) Explain the concept of moral hazard.Give an example.
Q4) "People buy insurance do protect themselves from moral hazard." True or false? Explain.
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Chapter 13: Consumer Choice and Demand
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Sample Questions
Q1) For a consumer to maximize utility,in part the consumer must
A) allocate the entire available budget.
B) make the marginal utility per dollar from each good as much different as possible for all goods.
C) make the marginal utility per dollar from each good as small as possible for all goods.
D) spend as little of the budget as possible.
E) Answers A and B are both correct.
Q2) The table above shows Buffy's utility from wooden stakes and cloves of garlic.If Buffy increases her consumption of wooden stakes from 4 to 5 stakes,her marginal utility from the 5th stake is
A) 65.
B) 7.
C) 58.
D) 7 ÷ 5 = 1.29.
E) None of the above answers is correct.
Q3) Why do consumers prefer higher indifference curves?
Q4) Does the fact that diamonds are so expensive imply that the demand curve for diamonds has a positive slope? Use marginal utility theory to answer the question.
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Chapter 14: Production and Cost
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Sample Questions
Q1) The opportunity cost of a firm using its own capital is
A) economic depreciation.
B) self ownership depreciation.
C) economic loss.
D) normal loss.
E) capital loss.
Q2) When marginal cost is positive,total cost is ________ as output increases.
A) increasing
B) decreasing
C) constant
D) negative
E) undefined
Q3) The marginal product of labor is
A) total product divided by labor.
B) the change in total product divided by the increase in labor.
C) a measure of labor.
D) output that does not meet quality specifications.
E) total product minus the quantity of labor.
Q4) What are diseconomies of scale and why might they occur?
Q5) What does the average product of labor equal?
Page 16
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Chapter 15: Perfect Competition
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Sample Questions
Q1) If Henry,a perfectly competitive lime grower in Southern California,can sell his limes at a price greater than his average total cost,Henry will
A) incur an economic loss.
B) incur an accounting loss.
C) have an incentive to shut down.
D) make an economic profit.
E) make zero economic profit.
Q2) As a result of firms leaving the perfectly competitive frozen yogurt market in the early 2000s,the market
A) supply curve shifted leftward.
B) supply curve did not change.
C) demand curve shifted rightward.
D) supply curve shifted rightward.
E) demand curve shifted leftward.
Q3) What four conditions define a perfectly competitive market?
Q4) Why do you never see firms in a perfectly competitive market advertise their product?
Q5) What is the shape of the demand curve faced by the perfectly competitive firm,and why?
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Chapter 16: Monopoly
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Sample Questions
Q1) Give an example of price discrimination.
Q2) We define a monopoly as a market with
A) one supplier and no barriers to entry.
B) one supplier with barriers to entry.
C) many suppliers with no barriers to entry.
D) many suppliers with barriers to entry.
E) a few suppliers and barriers to entry.
Q3) What is the relationship between the marginal revenue curve and the demand curve for a single-price monopoly?
Q4) Which of the following is NOT a requirement for a firm to be able to price discriminate?
A) monopoly power
B) groups of customers with different willingness to pay for the good C) economies of scale
D) ability to keep the members of different customer groups separate
E) ability to prevent resales of the product by customers
Q5) "If a natural monopoly is regulated using a marginal cost pricing rule,the firm makes zero economic profit." Is the previous statement correct or incorrect?
Q6) What potential problem is there with rate of return pricing?
Page 18
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) If the firm in the figure above attempted to minimize its average total cost by producing 100 pairs of Tommy jeans per day at an average total cost of $20 per pair and it sold those jeans for $80 per pair,the firm would ________.
A) make zero economic profit
B) make a larger economic profit that a firm that produced 125 jeans because the ATC of producing 125 jeans is higher than the ATC of producing 100 jeans
C) incur an economic loss
D) make a smaller economic profit than a firm that produced 125 jeans
E) achieve an efficient use of resources
Q2) The Herfindahl-Hirschman Index is used as a guideline to determine if a market is competitive or concentrated.Calculate the index value for each market described below.
a.100 firms,each of which produces 1 per cent of market output
b.50 firms,each of which produces 2 per cent of market output
c.25 firms,each of which produces 4 per cent of market output
d.20 firms,each of which produces 5 per cent of market output
e.10 firms,each of which produces 10 per cent of market output
f.5 firms,each of which produces 20 per cent of market output
g.2 firms,each of which produces 50 per cent of market output
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Chapter 18: Oligopoly
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Sample Questions
Q1) The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve,the efficient scale for one firm is ________ units per hour.
A) 2,000
B) 4,000
C) 8,000
D) 6,000
E) 10,000
Q2) "Because firms in an oligopoly are so large,they do not need to consider each others actions." Is the previous statement correct or incorrect? Explain your answer.
Q3) The U.S.courts found Microsoft
A) did not violate antitrust law.
B) violated the Sherman Act.
C) violated the Cellar-Kefauver Act.
D) engaged in predatory pricing.
E) violated the price discrimination clause of the Clayton Act.
Q4) In a cartel,how does the number of firms affect the likelihood that the cartel will be able to successfully maintain a high price?
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Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) The above figure represents the market for teenage workers at fast-food restaurants in Kansas City.
a.What is the equilibrium wage rate and employment?
b.Describe the market at a wage rate of $6 per hour.
c.Describe the market at a wage rate of $12 an hour.
d.How would an increase in the number of young,married college graduates,who tend to eat at fast-food restaurants,affect the figure,the equilibrium wage rate,and employment?
Q2) What happens to the supply of labor when more people pursue education and training? Be sure to discuss what happens to both the supply of low-skilled and high-skilled labor.
Q3) Unions support immigration restrictions because the restrictions create
A) an increase in the supply of union labor.
B) a decrease in the supply of union labor.
C) unemployment.
D) an increase in the demand for union labor.
E) a decrease in the demand for union labor.
Q4) What is the Hotelling Principle? Have resource prices behaved as the principle predicts?
Q5) What tools can unions use to increase the demand for union labor?
Page 21
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Chapter 20: Economic Inequality
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Sample Questions
Q1) Since 1970 in the United States,the distribution of income has changed and the group that benefited the most has been the
A) better educated.
B) less educated.
C) low-skilled workers.
D) middle class, that is the group in the middle 20 percent of the income distribution.
E) None of the above answers is correct because all groups benefited equally.
Q2) Which is distributed more equally: income or wealth?
Q3) A Lorenz curve for income shows the
A) demand for Lorenz cough drops.
B) average income graphed against the average number of people in the household.
C) cumulative percentage of income graphed against cumulative percentage of households.
D) relationship between income and wealth.
E) total amount of income graphed against the total number of households.
Q4) What are the three ways that the government redistributes income in the United States? Briefly discuss each.
Q5) Describe how a negative income tax works.
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