Microeconomics Exam Practice Tests
Course Introduction
Microeconomics is the branch of economics that analyzes the decision-making processes of individual agents, such as consumers, firms, and workers, and how their interactions shape the allocation of resources in markets. This course examines fundamental concepts including supply and demand, market equilibrium, elasticity, consumer choice, production and costs, and the behavior of firms in various market structures. Students will explore how prices are determined, how markets respond to external factors, and the impact of government interventions on efficiency and welfare. Through theoretical foundations and real-world applications, the course provides a framework for understanding the micro-level foundations of economic activity.
Recommended Textbook
Essentials of Economics 4th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following is a problem inherent in centrally planned economies?
A)There are no problems and everyone, including consumers, is satisfied.
B)There is too much production of low-cost, high-quality goods and services.
C)Production managers are more concerned with satisfying government's orders than with satisfying consumer wants.
D)Unemployment is too high.
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 model?
Answer: An economic model is a simplified version of reality used to analyze real-world economic situations.
Q4) 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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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Sample Questions
Q1) The payment received by suppliers of entrepreneurial skills is called wages. A)True
B)False
Answer: False
Q2) Refer to Table 2-20.Japan has a comparative advantage in the production of A)rice.
B)wristwatches.
C)both products.
D)neither product.
Answer: A
Q3) Refer to Table 2-10.What is Fred's opportunity cost of making a pogo stick?
A)1/3 unicycle
B)3 unicycles
C)6/7 pogo stick
D)1/2 unicycle
Answer: A
Q4) The basis for trade is absolute advantage,not comparative advantage. A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Assume there is a shortage in the market for digital music players.Which of the following statements correctly describes this situation?
A)The demand for digital music players is greater than the supply of digital music players.
B)Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.
C)The price of digital music players will rise in response to the shortage; as the price rises the quantity demanded will increase and the quantity supplied will decrease.
D)the shortage will cause an increase in the equilibrium price of digital music players. Answer: B
Q2) Which of the following is evidence of a surplus of bananas?
A)Firms raise the price of bananas.
B)The price of bananas is lowered in order to increase sales.
C)The equilibrium price of bananas rises due to an increase in demand.
D)The quantity demanded of bananas is greater than the quantity supplied.
Answer: B
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) Refer to Figure 4-9.What area represents the deadweight loss after the imposition of the price floor?
A)C + D + G
B)F + G
C)C + D
D)C + D + F + G
Q2) The social cost of a good or service is the cost borne by the producer.
A)True
B)False
Q3) One problem with using a command and control approach to pollution reduction is that the monitoring costs may be too high.
A)True
B)False
Q4) Refer to Figure 4-11.What is the value of the deadweight loss after the imposition of the price floor?
A)$600
B)$1,800
C)$2,700
D)$3,300
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) If a doctor knows that an insurance company will pay for most of a patient's bill,the doctor has more of an incentive to require additional medical procedures and tests,even if the patient may not require them.This is an example of
A)moral hazard.
B)the principle-agent problem.
C)asymmetric information.
D)adverse selection.
Q2) The cost of group health insurance is lower than if an individual buys a policy on his own because
A)the problem of adverse selection is reduced.
B)moral hazard costs of a group tend to move to a low average.
C)it is easier for the company to deny claims from a large group.
D)insuring a group eliminates the problem of buyers having more information than the seller.
Q3) Refer to Figure 5-2.The efficient equilibrium price is
A)$60.
B)$50.
C)$40.
D)<$40.
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Chapter 6: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He is considering setting up his business as a sole proprietorship.What is one advantage to Jeremy of setting up his business as a sole proprietorship?
A)As a sole proprietor, Jeremy would face limited liability.
B)As a sole proprietor, Jeremy would have the ability to share risk with shareholders.
C)As a sole proprietor, Jeremy would have both ownership and control over the business.
D)All of the above would be advantages of setting up his business as a sole proprietorship.
Q2) Which type of businesses earns the majority of profits in the United States?
A)corporations
B)partnerships
C)sole proprietorships
D)none of these
Q3) Define a corporation.
Q4) If you own a bond with a 3 percent coupon rate and new bonds are paying 8 percent,what will happen to your bond's market price?
Q5) Define a sole proprietorship.
Page 8
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Of the following,which is the best example of good with a perfectly inelastic demand?
A)the demand for tickets in New York City when the Mets or Yankees are in the World Series
B)the demand for gasoline
C)a diabetic's demand for insulin
D)the demand for a college education by a student who has a full scholarship to an Ivy League school
Q2) A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.
A)True
B)False
Q3) If the demand for a life-saving drug was perfectly inelastic and the price doubled,the quantity demanded would
A)also double.
B)decrease by 50%.
C)be cut in half.
D)remain constant.
Q4) Briefly explain the economic concept of elasticity.
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) Refer to Table 8-3.The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny's House of Boxes.The capital used to produce the boxes is fixed.Diminishing returns to labor are first observed in this example after Manny hires the ________ worker.
A)second
B)third
C)fourth
D)fifth
Q2) If an airport decides to expand by building an additional passenger terminal,and in doing so it lowers its average cost per airplane landing,it was previously operating at A)minimum efficient scale.
B)more than minimum efficient scale.
C)less than minimum efficient scale.
D)minimum capacity.
Q3) As output increases,average fixed cost gets smaller and smaller.
A)True
B)False
Q4) In economics,what is the difference between the short run and the long run?
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Chapter 9: Firms in Perfectly Competitive Markets
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Q1) If in a perfectly competitive industry,the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue
A)the industry supply will not change.
B)new firms are attracted to the industry.
C)some existing firms will exit the industry.
D)firms are breaking even.
Q2) Which of the following describes a situation in which a good or service is produced at the lowest possible cost?
A)productive efficiency
B)allocative efficiency
C)marginal efficiency
D)profit maximization
Q3) For a firm in a perfectly competitive market,price is
A)equal to both average revenue and marginal revenue.
B)equal to average revenue but greater than marginal revenue.
C)greater than marginal revenue but less than average revenue.
D)less than both average revenue and marginal revenue.
Q4) Under what conditions should a competitive firm shut down in the short run?
Q5) What is meant by the term "long-run competitive equilibrium?
Page 11
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Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) If we use a narrow definition of monopoly,then a monopoly is defined as a firm
A)that has been granted special production rights by the government.
B)that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products.
C)that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.
D)that has the largest market share in an industry.
Q2) Refer to Figure 10-12.If this industry was organized as a perfectly competitive industry,the market output and market price would be
A)output = 62; price = $24.
B)output = 83; price = $22.
C)output = 62; price = $18.
D)output = 104; price = $20.80.
Q3) How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.
Q4) What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve?
Q5) Identify four reasons for high entry barriers? Briefly explain each reason.
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Because of the shortcomings of concentration ratios,some economists prefer another measure of competition called
A)the Competition Index.
B)the Marginal Revenue-Marginal Cost Index.
C)the Economic Profit Index.
D)the Herfindahl-Hirschman Index.
Q2) A prisoner's dilemma leads to a noncooperative equilibrium.
A)True
B)False
Q3) Is a monopolistically competitive firm allocatively efficient?
A)No, because it does not produce at minimum average total cost.
B)Yes, because it produces where marginal cost equals marginal revenue.
C)No, because price is greater than marginal cost.
D)Yes, because price equals average total cost.
Q4) Refer to Table 11-2.What is Eco Energy's profit?
A)$125
B)$140
C)$145
D)$150
Q5) What is meant by "excess capacity"? How does it relate to consumer utility?
Page 13
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Chapter 12: Gdp: Measuring Total Production and Income
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Sample Questions
Q1) In a small economy,gross investment in 2013 is $1,500,consumption spending is $6,000,net investment is $200,government spending is $1,500,exports are $2,000 and imports are $1,000.What is GDP for this economy in 2013?
A)$10,700
B)$10,300
C)$10,200
D)$10,000
Q2) Investment spending includes spending on A)stocks.
B)food.
C)changes in business inventories.
D)transfer payments.
Q3) The output of Mexican citizens who work in Texas would be included in the A)gross domestic product of Mexico.
B)gross national product of Mexico.
C)gross national product of the United States.
D)net national product of the United States.
Q4) Give two reasons why GDP does not reflect total production in an economy.
Q5) If the GDP deflator is less than 100,which will be higher: nominal GDP or real GDP? Why?
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest.If the inflation rate was 4%,what was the real interest rate you paid?
A)16 percent
B)12 percent
C)8 percent
D)6 percent
Q2) Jack just received a promotion at work and now works 50 hours per week instead of 35.As a result,
A)the unemployment rate increased.
B)the unemployment rate decreased.
C)the labor force participation rate increased.
D)neither the unemployment rate nor the labor force participation rate changed.
Q3) Suppose you obtain a fixed rate mortgage during a period of relatively high inflation.During the next ten years,inflation falls.Are you a winner or a loser due to inflation? Explain why.
Q4) Refer to Table 13-12.Consider a simple economy that produces only three products: burritos,flashlights,and golf balls.Use the information in the table to calculate the inflation rate for 2013,as measured by the consumer price index.
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Chapter 14: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) The sum of public and private saving in an economy is equal to A)Y - C - T.
B)T - TR - G.
C)Y - C - G.
D)I - C - G.
Q2) Centrally-planned economies tend to grow more quickly than market economies.
A)True
B)False
Q3) An increase in the demand for loanable funds will occur if there is
A)an increase in the real interest rate.
B)a decrease in the real interest rate.
C)an increase in expected profits from firm investment projects.
D)an increase in the nominal interest rate accompanied by an equal increase in inflation.
Q4) How does a decrease in the tax rate on income earned on saving affect saving,investment,the interest rate,and economic growth?
Q5) How has economist Robert Fogel explained that economic growth is connected to life expectancy? Based on this connection,in what country would you expect to have a longer life expectancy,the United States or India? Explain.
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) In the dynamic aggregated demand and aggregate supply model,inflation occurs if
A)AD shifts faster than SRAS.
B)AD shifts slower than SRAS.
C)SRAS shifts faster than AD.
D)LRAS shifts faster than AD.
Q2) A decrease in aggregate demand results in a(n)________ in the ________.
A)recession; long run
B)expansion; long run
C)expansion; short run
D)recession; short run
Q3) New Keynesian macroeconomic theory emphasizes the role of "sticky" prices in the economy.
A)True
B)False
Q4) Inflation will
A)increase aggregate demand.
B)increase the quantity of real GDP demanded.
C)decrease aggregate demand.
D)decrease the quantity of real GDP demanded.
Q5) What is a supply shock,and why might a supply shock lead to stagflation?
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Chapter 16: Money, banks, and the Federal Reserve System
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Q1) A central bank like the Federal Reserve in the United States can help banks survive a bank run by
A)printing money.
B)acting as a lender of last resort.
C)raising the discount rate.
D)increasing the required reserve ratio.
Q2) Which of the following functions of money would be violated if inflation were high?
A)unit of account
B)store of value
C)certificate of gold
D)medium of exchange
Q3) A bank's largest liability is its
A)short-term borrowing.
B)long-term debt.
C)deposits of its customers.
D)shareholder equity.
Q4) What is the principle monetary policy tool used by the Fed.Why?
Q5) Suppose you withdraw $1,000 from your savings account and put it under your mattress.Briefly explain how this will affect M1 and M2.
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Chapter 17: Monetary Policy
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Q1) Expansionary monetary policy refers to the ________ to increase real GDP.
A)government's increasing spending and lowering taxes
B)government's decreasing spending and raising taxes
C)Federal Reserve's increasing the money supply and decreasing interest rates
D)Federal Reserve's decreasing the money supply and increasing interest rates
Q2) Refer to the Article Summary.The Fed announced that it would postpone winding down its $85 billion per month bond purchasing program.The Fed's purchasing of long-term treasury bonds and other government-backed securities in an effort to keep long-term interest rates low is a strategy known as
A)securitization.
B)contractionary spending.
C)indirect finance.
D)quantitative easing.
Q3) The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.
A)True
B)False
Q4) Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market sale of Treasury securities.
Page 19
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Chapter 18: Fiscal Policy
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Q1) Which of the following would increase the size of the government purchases multiplier?
A)an increase in the tax rate
B)an increase in the quantity of imports purchased by households from an increase in income
C)a decrease in the amount of consumption spending by households from an increase in income
D)a decrease in the amount saved by households from an increase in income
Q2) Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and the Congress to conduct contractionary fiscal policy.Briefly explain the condition of the economy and what the president and the Congress are attempting to do.
Q3) If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?
Q4) How can tax simplification be beneficial to the economy?
Q5) What is the difference between federal purchases and federal expenditures?
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Q1) Refer to Table 19-6.Select the statement that accurately interprets the data in the table.
A)Celeste has a comparative advantage in making spurs.
B)Mateo has a comparative advantage in making spurs.
C)Celeste has a comparative advantage in making saddles and making spurs.
D)Neither Mateo nor Celeste has a comparative advantage in making spurs.
Q2) When Sophie,a French citizen,purchases a Dell computer in Paris that was produced in Texas,the purchase is
A)both a U.S.and an French import.
B)a U.S.import and an French export.
C)a U.S.export and an French import.
D)neither an export nor an import for either country.
Q3) A tax imposed by a government on imports of a good into a country is called a A)tariff.
B)quota.
C)value added tax.
D)sales tax.
Q4) a.Define the term "globalization."
b.Describe the benefits of globalization.
c.Who is likely to oppose globalization and why?
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