Microeconomics Final Exam
Course Introduction
Microeconomics is the branch of economics that analyzes the decision-making behavior of individual households, firms, and markets. The course explores fundamental concepts such as supply and demand, market equilibrium, elasticity, consumer choice, production and cost theory, and the dynamics of various market structures, including perfect competition, monopoly, oligopoly, and monopolistic competition. By examining how economic agents respond to incentives and allocate resources, students will gain a deeper understanding of price determination, efficiency, and the impact of government interventions on markets.
Recommended Textbook
Microeconomics and Behavior 8th Edition by
Robert H. Frank
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Page 2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) Joe is one mile from the finish of a grueling 26 mile marathon.Tim is at the four mile mark of a five mile run.Which runner is most likely to be emotionally energized for the race to the finish line?
A)Joe
B)Tim
C)Joe and Tim should be equally energized
D)Without knowing more about the runners there is no way to predict which runner will be most energized
Answer: A
Q2) We say economists are doing positive economics when they
A)Focus on policies and rhetoric that encourage people to be optimistic about the future
B)Look for regularities and principles in economic life that can help show how the economy works
C)Claim that there is no value free social science so articulating one's values is important
D)Try to improve the welfare of all citizens
Answer: B
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Chapter 2: Supply and Demand
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Q1) Say the price of MP3 songs increases. Other things equal the:
A) Demand for MP3 songs will decrease.
B) The quantity demanded for MP3 songs will decreases.
C) The supply for MP3 songs will increase.
D) The quantity supply for MP3 songs will decrease.
Answer: B
Q2) Suppose the market for Mexican food in your neighborhood was in equilibrium.
a.Draw a diagram showing the demand and supply curve for Mexican food. Indicate the market equilibrium quantity and price in this market.
b.Suppose the government imposed a binding price ceiling in this market, with the goal of making Mexican food affordable to most residents. Add the price ceiling to your diagram, and then identify the quantity demanded and quantity supply in this market with the price ceiling.
c.Would the government be able to make Mexican food affordable to most people with the price ceiling? Explain your answer using the diagram you drew in part (b).
Answer: \[\text { Quantity of Mexican Food }\] 11ea72a4_6351_8024_9d1a_497456742490_TB3720_00_TB3720_00
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Page 4
Chapter 3: Rational Consumer Choice
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Sample Questions
Q1) Suppose your parents are thinking of buying you a brand new car as a graduation present.Economists would argue that it would be better if:
A)They gave you a cash gift equal to the value of the car regardless of how much you need a car right now
B)They gave you a cash gift equal to the value of the car long as you really don't have much use for a car right now
C)You sell the car to someone else right away in exchange for the cash
D)They ask you for what kind of car you want first and then buy it for you
Answer: A
Q2) Perfect substitutes will have indifference curves which are
A)Concave
B)Convex
C)Linear (a straight line)
D)L-shaped
Answer: C
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Chapter 4: Individual and Market Demand
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Sample Questions
Q1) One aggregates individual demand curves by
A)Adding horizontally
B)Adding vertically
C)Adding horizontally and subtracting vertically
D)Adding vertical and subtracting horizontally
Q2) On the graph below sketch the income and substitution effects of a price increase for good X
Q3) Given these two individual demand curves, what is the equation for the market demand curve?
A)i) P = 100 - 5Q ii) P = 100 - 10/3Q
B)P = 100 - 2Q
C)P = 200 - 8.33Q
D)P = 100 - 8.33Q
Q4) In the graph above, as the consumer moves from indifference curve 1 to 3, his
A)Real income is rising and his nominal income is constant
B)Real income is falling, and his nominal income is rising
C)Real income is falling and nominal income is constant
D)Real and nominal income are falling, but he can buy more anyway
Q5) Based on your sketch, is the good a normal or inferior good?
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Chapter 5: Applications of Rational Choice and Demand
Theories
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Q1) If I get 10 units of pleasure from my first ice cream cone and 2 less units than before from each succeeding cone, I will buy ____ cones and gain _____ units of consumer surplus if the price of a cone = to 5 units of pleasure.
A)4, 28
B)6, 30
C)2, 18
D)3, 9
Q2) The consumer price index overestimates inflation because it
A)Compares prices of what consumers actually buy rather than a fixed basket of goods
B)Allows consumers to move along a given indifference curve from one year to the next
C)Measures the cost of a market basket in the second year that has too many units of the most inflated items
D)Uses the second year's market basket as the base rather than the first year's basket
Q3) Show, using a sketch graph, why a consumer prefers a cash gift rather than a larger gift of merchandise.
Q4) Use the following to answer the next two questions.
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Page 7
Chapter 6: The Economics of Information and Choice
Under Uncertainty
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Q1) Where important decisions involving people we do not know well are involved,
A)Even weak signals of ability are often decisive
B)Weak signals of ability are never decisive
C)We are more likely to be risk neutral
D)We are less likely to self-insure
Q2) If the slope of a person's utility function for different money prizes is linear, the person
A)Is risk averse
B)Is a risk lover
C)Is indifferent to risk
D)We can't really say
Q3) What is the maximum you will pay the campus security for the safekeeping service now?
Q4) What is the maximum you would pay security to check in your bike?
Q5) Next suppose your utility function for value is U = 100(money).Are you risk averse, a risk lover, or risk neutral.
Q6) Your bike is worth $100 and if you park it outside at school there is a 25% chance that it will be stolen.Your utility function for money is U = (money)<sup>2</sup>.Are you a risk taker?
8
Q7) What is the maximum you will pay for the bike check-in now?
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Chapter 7: Explaining Tastes: The Importance of Altruism and
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Sample Questions
Q1) If the receiver in the "ultimate bargaining game" cares not just about his final wealth level but also about fairness,
A)The allocator will make a one-sided offer
B)The receiver will accept a one-sided offer
C)The receiver will reject a one-sided proposal
D)The receiver will always receive the full $20
Q2) Based on the present-aim standard a person who drinks gasoline and subsequently dies could be consider rational as long as:
A)Her behavior helps other peoples
B)She really likes the taste of gasoline
C)She thinks her behavior will result in more gasoline for other people
D)Her death is not painful
Q3) In evolutionary models, where each individual reproduces in proportion to its average payoff, if cooperators and defectors look exactly alike, then
A)Cooperators are destined for extinction
B)Defectors are destined for extinction
C)An equilibrium will result with more than half of the population being cooperators
D)There will be no change in the population proportions from the starting point
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Chapter 8: Cognitive Limitations and Consumer Behavior
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Sample Questions
Q1) My golfing friends and I were having a tough time trying to figure out whether to go on our annual summer golf outing in June or August this year.Both had their advantages.Then some non-teacher in the group wondered if September would be possible.Since that was after the start of school, the teachers in the group immediately came to a decision to go in August.Explain why the September dates suddenly made August the clear choice.
Q2) According to the rational choice model which of this two events should be valued more rational consumers: i.A gift of mug valued at $10
Ii)Finding the mug you thought was lost, which cost you $10 to purchase.
A)Both events should have the same value
B)Event A
C)Event B
D)There is really no way to rationally decide.
Q3) If Kahneman and Tversky are correct, I should
A)Buy individual stocks rather than put my money into a mutual fund
B)Put my money in a mutual fund instead of individual stocks
C)Be indifferent which type of investment I make
D)Have opposite strategies depending on whether my investments will rise or fall
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Chapter 9: Production
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Sample Questions
Q1) The short run is defined as that period of time during which
A)One or more inputs cannot be freely varied
B)All inputs are variable
C)All inputs are fixed
D)Labor is counted as a fixed input
Q2) Sketch a long-run production function with isoquants numbered so that the graph clearly shows increasing returns to scale over the entire range of production.
Q3) The isoquant mapping for perfect complements in production is
A)L-shaped
B)A straight line
C)A ray passing through the origin
D)Concave
Q4) Several years ago while teaching in Russia, I was using a production function like the ones used in this text.Output is a function of labor, capital and technology.One professor asked me how I could talk about production without including all the inputs that go into the process.Write a response to this professor from what you know if a production function.
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Chapter 10: Costs
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Q1) The vertical distance between the average variable cost and average total cost curves
A)Is everywhere equal to total fixed costs
B)Is everywhere equal to marginal cost
C)Increases at a decreasing rate
D)Decreases as quantity increases
Q2) Total cost is broken down into two components:
A)Average cost and marginal cost
B)Average cost and fixed cost
C)Variable cost and marginal cost
D)Variable cost and fixed cost
Q3) If the variable cost curve is a straight line then
A)The marginal cost curve will be U-shaped
B)The marginal cost curve may be U-shaped
C)The marginal cost curve will be horizontal
D)The marginal cost curve is upward sloping
Q4) If the total cost function is TC = 10Q<sup>3</sup> - 50Q<sup>2</sup> + 1000Q + 500, what is the equation for AFC
Q5) If the total cost function is TC = 10Q<sup>3</sup> - 50Q<sup>2</sup> + 1000Q + 500, what is the equation for MC
Page 12
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Chapter 11: Perfect Competition
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Q1) Some people advocate price ceilings in certain markets because they seek to
A)Expand the total of consumer and producer surplus which the market generates
B)Redistribute welfare from the producer to the consumer even if overall welfare is sacrificed
C)Redistribute welfare from the consumer to the producer even if welfare is sacrificed
D)Enhance both efficiency and distribution goals with the price ceiling
Q2) Which statement is true of the graph shown?
A)The marginal cost curve should not cross the AFC while it is falling
B)If an ATC curve was drawn in the graph it would intersect the MC curve but not any other curve
C)The shut down point of the firm would be at an output more than Q*
D)The marginal cost curve crosses the AFC curve at the lowest point of the AFC curve
Q3) In the long run
A)The firm will operate at point B
B)The firm will operate at point C
C)The firm will operate at point D
D)The total revenue curve will change its slope
Q4) What is the producer and consumer surplus in the entire market?
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Page 13
Chapter 12: Monopoly
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Q1) When the monopolists maximizes profits the price elasticity of demand for widgets is:
A)9
B)36
C)0.5
D)0.02
Q2) A single-price monopolist with a positive marginal cost will maximize profit by producing where
A)Demand is price elastic
B)Demand is price inelastic
C)Demand is unit elastic
D)Any of the above may apply
Q3) If the monopolist facing the demand curve P = 10 - Q is a perfectly discriminating monopolist and marginal cost is constant at $4, how much will the firm sell if it profit maximizes?
A)6
B)5
C)4
D)10
Q4) What is the profit (loss) of the firm in question 44 above?
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Chapter 13: Imperfect Competition: a Game-Theoretic Approach
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Q1) Oligopoly is a market structure in which
A)Firms are price takers
B)There exist many firms, each producing a product that is a close, but imperfect, substitute for the products of other firms
C)There are only a few sellers
D)There is only one seller
Q2) If one company defects the agreement and the other one doesn't, then the defecting company would make profits equal to:
A)$4,998
B)$2,500
C)$2000
D)$0
Q3) Suppose there are two firms in a market: firm A and firm B. Further, assume that they produce a homogenous product at a constant marginal cost of $10. In the Bertrand model solution, firm A will charge a price:
A)Greater than firm B
B)Smaller than firm B
C) Equal to $10
D) Greater than $10
Page 15
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Chapter 14: Labor
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Q1) Which phrase finishes this statement best? The net effect of a union increasing wages
A)Is to lower non-union wages by an offsetting amount so national income is not changed
B)Is to increase wages in both union and non-union sectors
C)Is to misallocate labor toward non-union work unless unionization enhances union worker productivity by its actions
D)Is that no one gains in the end since union shops can not compete and do not survive
Q2) Suppose workers from group A have an average productivity of $15 per hour and that employers have a productivity test that is 100% accurate 1/3 of the time, but has no value 2/3 of the time.What is the best estimate of the VMP of a worker from group A with a test score of $21 per hour?
A)$13
B)$18
C)$17
D)$21
Q3) How many laborers will be hired if the product and labor markets are both imperfect?
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Chapter 15: Capital
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Q1) If the machine cost $12,000 to purchase, should you buy it?
Q2) Suppose Chase Bank owns a truck that it leases to Ryder Inc.The truck's value is $100,000 and it is expected to deteriorate at a rate of 5 percent per year.If the real interest rate is 2 percent, then Chase's total costs of owning the truck are:
A)$7,000
B)$100
C)$5,000
D)$1,000
Q3) In the diagram above, the economic rent is represented by A)area A
B)area B
C)areas B and C
D)areas A and B
Q4) You have a mortgage that has a nominal interest rate of 7%.The inflation rate is 3.5%.Your real interest rate is _______ %.
Q5) What is the present value of the income stream from the machine?
Q6) If the going interest rate went up to 10%, how much would you be willing to pay for the machine?
Q7) What is the maximum you should be willing to pay for the machine?
Page 17
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Chapter 16: Externalities Property Rights and the Coase
Theorem
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Q1) According to the text, if diamonds represent a form of conspicuous consumption, then
A)They should be taxed
B)They should be outlawed.
C)They should be subsidized
D)The should be given for free
Q2) If negotiation costs are zero and you have the property rights to the airwaves, how loud will the music be played? The answer to the questions are to the nearest whole dial number.
A)3
B)4
C)6
D)10
Q3) Provide an example of a positive externality and explain: 1) why it should be considered a positive externality and 2) what could be done in order to internalize the externality.
Q4) Propose a solution for the town that will lead to efficiency.
Q5) Define in technical terms the tragedy of the commons.
Page 18
Q6) How much irritation is the most efficient amount for each person in the town to absorb?
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Page 19
Chapter 17: Explaining Tastes: The Importance of Altruism and
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Q1) At least in theory.the marginal productivity system generates a solution where people who are 50% more productive than others working in their same field are paid
A)equally, regardless of the field they work.
B)differently, according to how dangerous is their work.
C)equally, as long as they do not take advantage of the system.
D)differently, and according to how popular is the good provided to consumers in their field.
Q2) If you were able to increase the overall class grade point average above the 2.0 to a level of 2.5, what would you do to the distribution.
Q3) Say 6 homogenous consumers have individual willingness to pay P = 20 - 4Q. If the marginal cost of providing Q is 6Q, the optimal amount of Q is:
Q4) From your answers above make an application to the worlds income distribution using John Rawl's terms "veil of ignorance", "economic justice", and "poorest of the poor".
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Chapter 18: General Equilibrium and Market Efficiency
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Q1) The slope of the contract curve for two consumers is determined by the
A)Relative prices of goods
B)Absolute prices of goods
C)Marginal rates of substitution of the two trades
D)Income of the two traders
Q2) An allocation of resources is Pareto optimal if
A)It is possible to make one person better off without making at least some others worse off
B)No further mutually beneficial exchange is possible
C)It is below the contract curve
D)It is possible to make everyone else better off
Q3) The rate of which one input can be traded for another at a point along the production possibilities frontier is called the
A)marginal rate of technical transformation
B)marginal rate of technical substitution
C)marginal rate of substitution
D)marginal reduction rate
Q4) Sketch an Edgeworth production box where the demand for labor is greater than its supply and the supply of capital is greater than its demand.
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