Microeconomics Exam Questions
Course Introduction
Microeconomics is the study of individual decision-making units, such as households and firms, and how they interact in various types of markets to allocate scarce resources. This course explores foundational concepts including supply and demand, elasticity, consumer behavior, production and cost structures, market equilibrium, and the effects of different market structures such as competition, monopoly, and oligopoly. Students will learn to analyze real-world scenarios using economic models and develop critical thinking skills essential for understanding the complexities of economic interactions at the micro level.
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Economics USA 8th Edition Edition by Nariman Behravesh
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Page 2
Chapter 1: What is Economics
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Q1) Over time the U.S.economy has had
A) fluctuations in growth.
B) full employment without serious inflation.
C) continuous growth in output per person.
D) persistent deflation.
E) steadily increasing unemployment.
Answer: A
Q2) The purpose of an economic model is to
A) be a complex, exact replica of reality.
B) demonstrate which values and beliefs are best for the economy.
C) make predictions about the real world.
D) manage the economy like an automatic pilot.
E) set the prices in a price system.
Answer: C
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Chapter 2: Markets and Prices
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Q1) The U.S.economy may be best characterized as an example of A) market socialism.
B) opportunistic imperialism.
C) militaristic capitalism.
D) pure capitalism.
E) mixed capitalism.
Answer: E
Q2) Economic theory states that more of a good is supplied at a higher price than a lower one,yet the sales of digital cameras have increased while their prices have fallen.This statement
A) reflects the fact that economics is not a precise science and its predictions are sometimes incorrect.
B) merely illustrates that the digital camera market may be an exception to the general rule.
C) applies only to the supply side and overlooks the tremendous increase in the demand for digital cameras.
D) confuses changes in the quantity supplied with changes in supply.
E) ignores the fact that the current price may be below the equilibrium level.
Answer: D
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4
Chapter 3: The Business Firm: Organization,motivation,and
Optimal Input Decisions
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Q1) For the firm mentioned in question 68,if the marginal product of B changes to 20,the firm should
A) increase the amount of B relative to A.
B) decrease the amount of B relative to A.
C) leave the relative amounts of A and B unchanged.
D) increase both A and B but leave the relative proportions of each unchanged.
E) decrease both A and B but leave the relative proportions of each unchanged.
Answer: B
Q2) In this production function
A) total, average, and marginal products are all declining.
B) total and average products are rising.
C) total, average, and marginal products are all rising.
D) total product is rising, while average and marginal products are declining.
E) total product is rising, but the behavior of the average and marginal products cannot be determined.
Answer: D
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5
Chapter 4: Getting Behind the Demand and Supply Curves
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Q1) A rising marginal cost curve reflects a falling ________ curve.
A) total product
B) marginal product
C) average fixed cost
D) total cost
E) long-run average cost
Q2) In addition to preferences,a consumer's choice is further constrained by A) nothing.
B) a rising marginal utility curve.
C) income and commodity prices.
D) an equilibrium market where utility is minimized.
E) the fact that the optimal market basket is rarely the equilibrium market basket.
Q3) If burgers cost $1.75,fries cost $0.75,and shakes cost $1,a utility-maximizing teenager with $6 to spend on lunch will buy
A) 0 burgers, 0 fries, and 6 shakes.
B) 0 burgers, 4 fries, and 3 shakes.
C) 1 burger, 3 fries, and 2 shakes.
D) 2 burgers, 2 fries, and 1 shake.
E) 3 burgers, 1 fries, and 0 shakes.
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Page 6
Chapter 5: Market Demand and Price Elasticity
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Q1) When the oil-exporting countries of the Middle East raised the price of crude oil very sharply,tens of billions of dollars were transferred from the oil-consuming to the oil-exporting nations.From this one can conclude that
A) there is no substitute for Middle East oil.
B) the demand for crude oil is highly price elastic.
C) the demand for crude oil is highly price inelastic.
D) the demand curve for crude oil is horizontal.
E) the demand for crude oil is unit-price elastic.
Q2) If price elasticity of demand is 0.3,the demand for the commodity is
A) of unitary elasticity.
B) price postelastic.
C) price elastic.
D) price inelastic.
E) price preelastic.
Q3) Which of the following has been a major factor in keeping U.S.farm incomes low?
A) depletion of resources resulting from the war effort
B) rapid advances in technology pushing the supply curve to the right
C) growth in per capita income pushing the demand curve to the right
D) shift from an agricultural to a service-oriented society
E) large imports of agricultural products from abroad
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Chapter 6: Economic Efficiency,market Supply,and Perfect Competition
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Q1) Perhaps the biggest single criticism of price controls has been that they
A) encourage inefficient use of scarce resources.
B) tend to be harder on agriculture than on other segments of the economy.
C) invariably promote the very inflation they seek to quell.
D) are impossible to enforce in the short run.
E) have no effect on free markets.
Q2) In the short run,what adjustments take place when a perfectly competitive market in long-run equilibrium experiences an increase in demand?
A) Price and profits fall, causing new firms to enter and existing firms to expand.
B) Price and output remain fixed.
C) Price rises but output remains unchanged.
D) Price rises and firms expand output by using existing capacity more intensively.
E) New firms enter and existing firms expand capacity, leading to an increase in supply and a decline in price.
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Chapter 7: Monopoly and Its Regulation
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Q1) Which of the following conditions would most likely permit a monopolist to continue earning economic profits even in the long run?
A) a price below average variable cost for all levels of output
B) loss of patent protection
C) a total revenue that is lower than fixed cost for all levels of output
D) significant barriers to entry
E) loss of control over a basic input
Q2) If a firm's demand curve slopes downward,the firm's
A) marginal revenue will rise as price is cut.
B) marginal revenue will always be less than price.
C) total revenue will fall steadily as price is cut.
D) demand will be less than marginal revenue.
E) price will exceed total revenue.
Q3) When marginal revenue exceeds marginal cost,a monopolist should reduce A) output.
B) price.
C) demand.
D) revenue.
E) employment.
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Page 9
Chapter 8: Monopolistic Competition,oligopoly,and Antitrust Policy
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Q1) A monopolistically competitive firm is likely to produce less and charge more than a perfectly competitive firm because
A) a monopolistically competitive firm faces a downward-sloping demand curve; therefore, price is greater than marginal revenue.
B) there is less demand for the monopolistically competitive firm's product.
C) both firms equate marginal cost with average cost.
D) a monopolistically competitive firm faces excessive competition.
E) a monopolistically competitive firm faces different cost conditions.
Q2) Which of the following markets is the best example of differentiated oligopoly?
A) steel
B) cement
C) automobiles
D) electricity
E) agriculture
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Chapter 9: Pollution and the Environment
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Q1) Curve 1 represents the
A) cost of pollution to society.
B) cost of pollution control to society.
C) difference between the cost of pollution and the cost of pollution control.
D) sum of the costs of pollution and of pollution control.
E) cost of pollution divided by the cost of pollution control.
Q2) When countries ignore external diseconomies,their products
A) require too much labor to be profitable.
B) are of lower quality.
C) take longer to produce.
D) become perfectly inelastic in supply.
E) have artificially low prices.
Q3) At present,the major means by which government intervenes to remedy the country's pollution problem is
A) effluent fees.
B) direct regulation.
C) pollution taxes.
D) tax credits for pollution control equipment.
E) issuance of certificates or licenses to pollute.
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Page 11
Chapter 10: The Supply and Demand for Labor
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Q1) Blue-collar workers make up approximately ________ percent of the labor force in the United States.
A) 5
B) 15
C) 33
D) 50
E) 80
Q2) The value of the marginal product is the same as the change in
A) output from hiring one more unit of input.
B) revenue from selling one more unit of output.
C) cost from hiring one more unit of input.
D) revenue from one additional dollar of cost.
E) revenue from hiring one more unit of input.
Q3) This firm would hire no labor if the price per day rose above
A) $6.
B) $30.
C) $40.
D) $60.
E) $80.
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Page 12
Chapter 11: Interest,rent,and Profit
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Q1) The value of an asset such as a bond will rise when
A) interest rates rise.
B) interest rates fall.
C) the price of bonds falls.
D) the supply of loanable funds decreases.
E) the demand for loanable funds increases.
Q2) According to Schumpeter,the large profits often realized from innovation tend to be transitory because
A) interest rates rise, causing the value of the innovator's assets to fall.
B) the state taxes away most of these excess earnings.
C) innovators sell their businesses by going public, and stock prices are very unpredictable and unstable.
D) rival firms are induced to copy the innovations, and thus entry of new firms drives down profits.
E) they result from contrived scarcities resulting from the use of monopoly power.
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Chapter 12: Poverty,income Inequality,and Discrimination
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Q1) A controversial element of the Social Security program is that A) participation is mandatory.
B) the Social Security payments are withheld dollar for dollar.
C) to collect any Social Security benefits, workers must retire at 65.
D) it is run strictly like an ordinary insurance system that ties the level of benefits directly to the amount of an individual's contributions.
E) the Social Security tax is progressive.
Q2) In the United States,the compulsory hospitalization insurance plan for people over 65 is known as
A) Supplemental Security.
B) the Family Assistance Plan.
C) Blue Cross.
D) Medicare.
E) the Federal Security Life Insurance Copay (FSLIC) program.
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Chapter 13: Economic Growth
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Q1) Expenditures on education and training that raise per capita output are viewed as
A) conspicuous consumption.
B) public and private transfer payments.
C) investments in human capital.
D) consumer surplus.
E) normative expenditures.
Q2) The actual rate of growth of GDP is directly related to the percent of GDP devoted to Investment if
A) the marginal product of labor equals one.
B) the stock of human capital expands at an exponential rate.
C) noninflationary full employment is sustained with a constant capital-output ratio.
D) consumption is an increasing percentage of GDP.
E) net inventory investment rises at an accelerating rate.
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Chapter 14: Public Goods and the Role of the Government
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Q1) If a $100,000 household consumes 50 percent of its income whereas a $10,000 household consumes 90 percent of its income,then a 5 percent sales tax
A) affects both households equally.
B) effectively taxes the income of the low-income household at the rate of 4.5 percent and the income of the high-income household at 2.5 percent.
C) taxes the incomes of both households at the rate of 5 percent.
D) costs the low-income household $500 per year and the high-income household $5,000 per year; therefore, a greater burden is placed on the high-income household.
E) effectively duplicates the impact of a rising marginal tax rate.
Q2) The concept that those people who receive more from a certain government service should pay more in taxes to support it is known as the ________ principle.
A) benefit
B) ethical
C) ability-to-pay
D) confiscatory tax
E) tax reform
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Chapter 15: National Income and Product
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Q1) Federal taxes on gasoline and cigarettes are examples of ________ taxes.
A) active
B) beneficial
C) cost of living
D) indirect business
E) exercise
Q2) The dollar value of business sales minus the cost of intermediate products purchased from other firms equals the
A) depreciation.
B) personal income.
C) direct and indirect tax liabilities.
D) value added.
E) profit.
Q3) Which of the following is a limitation of real GDP as a measure of economic well-being?
A) Little is revealed about the distribution or composition of output.
B) Output is overstated because intermediate production is included.
C) It fails to account for the consumption of a country's productive capacity.
D) It measures only a country's expenditures, not its income.
E) It fails to account for expenditures by the public sector.
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Chapter 16: Business Fluctuations and Unemployment
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Q1) Frictional unemployment
A) exists when jobs are available for qualified workers but the unemployed lack the required qualifications.
B) refers to the social frictions caused by unemployment.
C) results from the entrance of new workers into the labor market and the voluntary movement of workers between positions.
D) was the major component of unemployment during the Great Depression.
E) can and should be completely eliminated.
Q2) According to U.S.government figures,an unemployed person is one who
A) has given up looking for a job.
B) only works part-time.
C) is actively seeking a job.
D) cannot be a member of the labor force.
E) works at jobs below his or her skills or abilities.
Q3) In general,an increase in productive capacity
A) leaves the aggregate demand and supply curves unchanged.
B) causes the aggregate supply curve to become vertical.
C) causes the aggregate demand curve to become horizontal.
D) shifts the aggregate demand curve to the left and pushes up price levels.
E) shifts the aggregate supply curve to the right and increases real output.
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Chapter 17: The Determination of National Output and the Keynesian Multiplier
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Q1) According to John Maynard Keynes and his followers,GDP is dependent mainly on A) the level of intended spending.
B) current tax rates.
C) the influence of labor unions.
D) current trends in interest payments.
E) the price level.
Q2) In the Keynesian model,supply adjusts passively to demand in the short run because A) of Say's law.
B) the equilibrium level of output automatically adjusts to the full-employment level.
C) actual saving equals actual investment at all times.
D) both consumption and investment respond to changes in interest rates when the aggregate supply curve is vertical.
E) high levels of unemployment keep wages and prices stable.
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19
Chapter 18: Fiscal Policy and National Output
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Q1) An expenditure by the government for which no products or services are received in exchange is called a
A) tax.
B) public good.
C) transfer payment.
D) multiplier.
E) stabilizer.
Q2) The greatest source of revenue for most state governments is the ________ tax.
A) personal income
B) corporate income
C) estate and gift.
D) general sales
E) property
Q3) Which of the diagrams best reflects the existence of a recessionary gap?
A) A
B) B
C) C
D) D
E) E
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Page 20
Chapter 19: Inflation
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Q1) Demand-side and supply-side inflations differ in that,in one case
A) total real output rises, and in the other, it falls.
B) the price level rises, and in the other, it falls.
C) borrowers benefit, and in the other, savers benefit.
D) businesses benefit, and in the other, householders benefit.
E) inflation is temporary, and in the other, it is permanent.
Q2) Increases in the price level accompanied by reductions in total real output mean that the economy is experiencing
A) leftward shifts in the aggregate demand curve.
B) full employment.
C) technological advances leading to increased productivity.
D) leftward shifts in the Phillips curve.
E) supply-side inflation.
Q3) The 10 percent tax surcharge of 1968 was intended to help alleviate
A) a severe recession.
B) stagflation.
C) falling interest rates.
D) demand-side inflationary pressures.
E) structural unemployment.
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Page 21
Chapter 20: Money and the Banking System
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Q1) A characteristic typical of commercial banks is that
A) depositors are completely protected, because every cent of their deposits is covered by the bank's reserves.
B) money put up by the owners is the main source of funds for making loans.
C) they lend short and borrow long.
D) they are more profitable as the percentage of demand deposits they keep as reserves rises.
E) a very large percentage of their liabilities must be paid on demand.
Q2) If the required ratio of reserves to deposits is r,then for every $1 in excess reserves,the banking system can potentially increase the money supply by A) r.
B) 1 + r.
C) 1/r.
D) 1/(1 - r).
E) (1 - r)/r.
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Chapter 21: The Federal Reserve and Monetary Policy
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Q1) The information in the table suggests that the Fed was pursuing a more restrictive monetary policy during the period from
A) 1990 to 1996.
B) 1990 to 1993.
C) 1993 to 1995.
D) 1995 to 1996.
E) January to December 1993.
Q2) The Federal Reserve's most important tool for controlling the amount of reserves in the banking system is
A) changing the discount rate.
B) moral suasion.
C) establishing margin requirements.
D) open market operations.
E) buying and selling gold certificates.
Q3) Each Federal Reserve Bank is a corporation owned by
A) the Board of Governors.
B) state governments.
C) the U.S. Treasury.
D) central banks.
E) commercial banks.
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Chapter 22: Supply Shocks and Inflation
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Q1) Which of the following best describes the relationship between unemployment and inflation as we understand it today?
A) In the short run, one tends to go up as the other goes down; in the long run, there may be little relationship.
B) In the short run, there is little relationship; in the long run, one tends to go up as the other falls.
C) One tends to go up as the other falls in both the short and long runs.
D) There is no discernible relationship in either the short or the long run.
E) Unemployment and inflation tend to rise and fall together in both the short and the long runs.
Q2) Phillips curve (2)could shift up to curve (1)as a result of
A) the decreased bargaining power of unions.
B) expectations of a higher rate of inflation.
C) a higher level of training of the labor force.
D) increased labor productivity.
E) decreased government spending.
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Chapter 23: Productivity,growth,and Technology Policy
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Q1) Advocates of supply-side tax reductions,such as a reduction in the capital gains tax,argue that these taxes currently have marginal tax rates that are
A) 0.
B) to the left of 0a.
C) between 0a and 0b.
D) to the right of 0b.
E) greater than 0e.
Q2) Most available evidence suggests that the U.S.technological lead over other countries is
A) widening.
B) narrowing.
C) the same as it has been since 1900.
D) negative (below other countries).
E) nonexistent; Japan and West Germany have caught up with it.
Q3) Critics of supply-side economic theory argue that the tax cut of 1981
A) shifted the aggregate supply curve to the left.
B) shifted the aggregate demand curve to the left.
C) caused the price level to rise with no change in real GDP.
D) led mainly to dramatic increases in the money supply.
E) did not increase the percent of total income devoted to saving.
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Chapter 24: Surpluses,deficits,public Debt,and the Federal Budget
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Q1) The 1990 budget agreement between President Bush and Congress incorporated
A) an increase in both the income tax and some excise tax rates.
B) substantial reductions in defense spending with no change in taxes.
C) a significant increase in the money supply to cover the revenue shortfall.
D) a line-item veto option the president can use to ensure a balanced budget.
E) a supply-side tax cut designed to improve worker incentives.
Q2) In general,appropriate fiscal policy would involve a budget
A) deficit during a recession and a surplus during periods of inflationary full employment.
B) balanced annually regardless of the economic climate.
C) surplus at all times.
D) that completely eliminates the national debt in a single year.
E) that makes the actual budget deficit equal to the full-employment budget surplus.
Q3) During the last 30 years,the federal government budget has
A) failed to record a surplus in any year.
B) recorded a surplus only in the year 1984.
C) had surpluses scattered over 10 of these years.
D) been in surplus annually since 1995.
E) recorded a surplus for the years 1999-2001.
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Chapter 25: Monetary Policy,interest Rates,and Economic Activity
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Q1) The money supply exerts an influence on GDP and thus on unemployment by affecting
A) the volume of government tax revenues.
B) total intended spending.
C) the rate of change in labor force participation.
D) the profitability of banking institutions.
E) the mix between currency and demand deposits.
Q2) If the rate of inflation is 8 percent and a lender receives $11,000 at the end of the year for a loan of $10,000,the real rate of interest is approximately ________ percent.
A) 13
B) 11
C) 6
D) 3
E) 2
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Chapter 26: Controversies Over Stabilization Policy
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Q1) Fine-tuning the economy
A) is made difficult because of the problem of forecasting the many destabilizing events that regularly occur.
B) has rendered business fluctuations obsolete.
C) became more effective since econometric models were replaced by the leading indicators.
D) has increased the likelihood of recurring depressions.
E) is now possible, but we lack the will to accomplish it.
Q2) The monetarist views of economic stabilization policy gained significant support during the late
A) 1930s.
B) 1940s.
C) 1950s.
D) 1960s.
E) 1970s.
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28
Chapter 27: International Trade
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Q1) The advantage of trade,both for individuals and countries
A) always nets out to zero.
B) disappears when one has an absolute advantage over the other.
C) is that trade permits specialization and specialization increases output.
D) is increased when tariffs are imposed.
E) can benefit only one party in the transaction.
Q2) Goods and services produced in other countries and sold to U.S.residents are called A) extracts.
B) implants.
C) exurbs.
D) imports.
E) exports.
Q3) Cash rebates,tax exemptions,preferential financing,and insurance arrangements are all examples of A) prohibitive tariffs.
B) voluntary quotas.
C) export subsidies.
D) terms of trade.
E) bilateral accommodations.
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Page 29
Chapter 28: Exchange Rates and the Balance of Payments
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Q1) Which diagram best illustrates the effect of an increase in the U.S.demand for Danish cheese and cookware?
A) A
B) B
C) C
D) D
E) E
Q2) If,at current exchange rates,$1 equals 0.8333 euros,a German auto that costs 90,000 euros has a dollar price of about
A) $75,000.
B) $83,000.
C) $90,000.
D) $108,000.
E) $111,000.
Q3) Under a gold standard,exchange rates
A) reflect balance-of-payments surpluses and deficits.
B) are set by the International Monetary Fund.
C) equal the amount of gold a nation needs to back its money.
D) are determined by the equation of exchange.
E) are effectively fixed.
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