Microeconomics for Policy Analysis
Midterm Exam
Course Introduction
Microeconomics for Policy Analysis introduces students to the core concepts, models, and analytical tools of microeconomics, with a focus on their application to public policy issues. The course explores how individuals and firms make decisions regarding consumption, production, and resource allocation, and examines the role of markets and government in addressing market failures such as externalities, public goods, and asymmetric information. Students will learn to critically assess the efficiency and equity implications of various policy interventions, using microeconomic theory to analyze real-world policy challenges in areas such as healthcare, education, regulation, and taxation.
Recommended Textbook
Microeconomics 21st Edition by Campbell McConnell
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28 Chapters
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Chapter 1: Limits, Alternatives, and Choices
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Sample Questions
Q1) Which of the following is considered to be an entrepreneur?
A) a self-employed person
B) an MBA graduate hired by a firm to be its CEO
C) a production-line worker
D) a customer of a firm
Answer: A
Q2) One basic difference between "labor" and "entrepreneur" is that
A) labor is hired by a firm, whereas the entrepreneur owns the firm.
B) an entrepreneur has high-level skills, whereas labor does not.
C) labor performs manual work, whereas an entrepreneur performs mental work.
D) education is important for an entrepreneur but not for labor.
Answer: A
Q3) In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of A) scarcity and opportunity costs.
B) money and real capital.
C) complementary economic goals.
D) full production.
Answer: A
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Page 3
Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) If a nation restricts trade with other nations, then the most likely effect is
A) lower prices of goods and services in the nation.
B) increased specialization of production.
C) expanded economic wealth of the nation.
D) consumers in the nation are made worse off.
Answer: D
Q2) The term dollar votes in a market system means
A) inflation will occur if consumers don't spend wisely.
B) voters may be offered dollars to help elect certain political candidates.
C) government is responsible for determining what will be considered legal tender.
D) consumers "vote" for certain products to be produced by how they spend their incomes.
Answer: D
Q3) A characteristic of centrally planned economies is that
A) the price is relatively unimportant in allocating resources.
B) profits are the main measure of success of a firm.
C) entrepreneurship is quite prevalent and highly rewarded.
D) there are many incentives for innovation and hard work.
Answer: A
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Page 4
Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) Last year the price of corn was $3 a bushel and the quantity of corn demanded was 10 million bushels. This year the price of corn was $4.00 a bushel and the quantity demanded was 9 million bushels. Is this evidence that the law of demand does not apply to corn?
A) Yes, because there is a direct relationship between the price of corn and the quantity supplied.
B) Yes, because there is an inverse relationship between the price of corn and the quantity demanded.
C) No, because the other-things-equal assumption was violated over the two-year period.
D) No, because the evidence indicates that there is a shortage of corn.
Answer: C
Q2) (Advanced analysis) The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. The equilibrium quantity is A) 10.
B) 20.
C) 15.
D) 30.
Answer: C
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Page 5
Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) When the government bails out large banks when the banks become unstable, it could lead to a moral hazard problem in banking.
A)True
B)False
Q2) Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.
A)True
B)False
Q3) When producers do not produce the efficient amount of a product because they are unable to charge consumers what they need to get in order to produce the efficient amount, then we have a
A) demand-side market failure.
B) supply-side market failure.
C) competitive market.
D) monopolistic market.
Q4) An effective antipollution policy from the economic perspective requires that all pollution be eliminated and banned.
A)True
B)False
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Chapter 5: Governments Role and Government Failure
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Sample Questions
Q1) Government's ability to force people to do things involuntarily is
A) unconstitutional in the United States and other market economies.
B) always going to lead to lower economic efficiency.
C) beneficial if it is used to improve economic efficiency.
D) always beneficial in reducing the deadweight loss in the economy.
Q2) Political corruption occurs whenever
A) logrolling is used to secure votes for controversial legislation.
B) government officials use unlawful misdirection of governmental resources for their own personal gain.
C) special interest groups contribute to elected officials, who in turn support legislation that benefits the special interest group.
D) there is pork barrel politics involved.
Q3) Regulatory capture often occurs because of which of the following?
A) Government officials want stronger control over industry regulation.
B) Nearly everyone with expertise works in the regulated industry.
C) Patent law allows firms to gain monopoly power easily and therefore control a market.
D) Consumer groups are effective at lobbying the government for industry regulation.
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Chapter 6: Elasticity
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Sample Questions
Q1) When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition
A) have elastic demand and students who use financial aid have inelastic demand.
B) have inelastic demand and students who use financial aid have elastic demand.
C) view a college education as an inferior good and students who use financial aid view it as a normal good.
D) view a college education as a normal good and students who use financial aid view it as an inferior good.
Q2) Sony is considering a 10 percent price reduction on its HD TV sets. If the price-elasticity coefficient for the sets in this price range is 0.75, then the price cut will cause
A) sales quantity to increase and revenues to also increase.
B) sales quantity to increase but revenues to decrease.
C) sales quantity to decrease and revenues to also decrease.
D) sales quantity to decrease but revenues to increase.
Q3) An income elasticity coefficient of 1.8 means the product is a normal good.
A)True B)False
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Page 8
Chapter 7: Utility Maximization
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Sample Questions
Q1) With diminishing marginal utility, if a consumer reduces her consumption of a good, then her marginal utility from that good would increase.
A)True
B)False
Q2) Utility refers to the
A) satisfaction that a consumer derives from a good or service.
B) rate of decline in a product demand curve.
C) relative scarcity of a product.
D) usefulness of a product.
Q3) If a product has a diminishing, but positive, marginal utility, then
A) total utility decreases at an increasing rate.
B) total utility will become negative.
C) total utility increases at a diminishing rate.
D) total utility decreases at a diminishing rate.
Q4) From the viewpoint of potential criminals, the probability of being fined or imprisoned
A) raises the marginal utility of criminal behavior.
B) lowers the marginal utility of criminal behavior.
C) raises the marginal cost or "price" of criminal behavior.
D) lowers the marginal cost or "price" of criminal behavior.
Page 9
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Chapter 8: Behavioral Economics
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Sample Questions
Q1) The status quo effect suggests that giving people more options is always good for them.
A)True
B)False
Q2) Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?
A) There is little difference, as fairness considerations lead to similar splits of the money in both games.
B) The dictator game tends to result in a more even split of the money.
C) The ultimatum game tends to result in a more even split of the money.
D) Self-interest is revealed more strongly in the ultimatum game than in the dictator game.
Q3) People's tendency to prefer the "default" option over other options is known in prospect theory as
A) the anchoring effect.
B) the mental accounting effect.
C) status quo bias.
D) confirmation bias.
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10
Chapter 9: Businesses and the Costs of Production
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Sample Questions
Q1) 3-D printers are capable of producing real output like chairs or machine parts using a computer-controlled special printer at low cost even if you produce only one unit of output.
A)True
B)False
Q2) The total output of a firm will be at a maximum where
A) MP is at a maximum.
B) AP is at a minimum.
C) MP is zero.
D) AP is at a maximum.
Q3) The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of one reason for A) economies of scale.
B) diminishing returns to scale.
C) diminishing marginal returns.
D) increasing marginal cost.
Q4) Economic profit is found by subtracting accounting costs from total revenue.
A)True
B)False
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Chapter 10: Pure Competition in the Short Run
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Sample Questions
Q1) In the short run, fixed costs are important in determining a competitive firm's optimal level of output.
A)True
B)False
Q2) Average revenue and marginal revenue are equal at each output level in A) pure competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.
Q3) In the short run, a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.
A)True
B)False
Q4) If a purely competitive firm is producing a level of output greater than its profit-maximizing output, then its profits must be negative.
A)True
B)False
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12
Chapter 11: Pure Competition in the Long Run
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Sample Questions
Q1) If the price in a competitive market falls and goes below the equilibrium price, then consumer surplus might increase, but producer surplus will definitely decrease.
A)True
B)False
Q2) If the long-run supply curve is upward-sloping, it indicates that resource prices fall when
A) production in the industry decreases in the long run.
B) production in the industry increases in the long run.
C) new firms enter the industry.
D) short-run profits in the industry are positive.
Q3) Productive efficiency refers to a condition where marginal cost is equal to marginal revenue in the long run.
A)True
B)False
Q4) The short-run supply curve of a purely competitive industry tends to be steeper than the long-run supply curve.
A)True
B)False
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Chapter 12: Pure Monopoly
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Sample Questions
Q1) The nondiscriminating pure monopolist's demand curve
A) is the industry demand curve.
B) shows a direct or positive relationship between price and quantity demanded. C) tends to be inelastic at high prices and elastic at low prices.
D) is identical to its marginal revenue curve.
Q2) The problem with adopting a fair-return pricing policy for a natural monopoly is that
A) economic profits will be positive.
B) economic profits will be negative.
C) it is not productively efficient.
D) it is not allocatively efficient.
Q3) The nondiscriminating monopolist's demand curve
A) is less elastic than a purely competitive firm's demand curve.
B) is perfectly elastic.
C) coincides with its marginal revenue curve.
D) is perfectly inelastic.
Q4) Price discrimination is illegal in the United States under all circumstances due to antitrust regulations.
A)True
B)False
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Chapter 13: Monopolistic Competition
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Sample Questions
Q1) Brand names and packaging are forms of product differentiation under monopolistic competition.
A)True
B)False
Q2) Communist central planners didnâ t care about product differentiation, opting instead for a uniform design of products in order to achieve A) higher prices and profits for their firms.
B) mass production and lower costs.
C) allocative efficiency in society.
D) purely competitive markets.
Q3) Product variety is likely to be greater in A) monopolistic competition than in pure competition.
B) pure competition than in monopolistic competition.
C) homogeneous oligopoly than in monopolistic competition.
D) homogeneous oligopoly than in differentiated oligopoly.
Q4) The demand curve of a monopolistically competitive producer is less elastic than that of a purely competitive producer.
A)True
B)False
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Chapter 14: Oligopoly and Strategic Behavior
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Sample Questions
Q1) (Last Word) Microsoft
A) dominates the primary Internet markets.
B) is attempting to gain market share in the Internet, smartphone, and tablet markets in an effort to offset a shrinking PC market.
C) has colluded with Amazon and Google to fix online advertising prices.
D) holds a near-monopoly in the Internet search market.
Q2) Which of the following is an illustration of differentiated oligopoly?
A) the aluminum industry
B) the steel industry
C) the soft drink industry
D) retail stores in large cities
Q3) Concentration ratios measure the
A) geographic distribution of the largest corporations in each industry.
B) degree to which a particular firm accounts for sales in a given metropolitan area.
C) percentage of total industry sales accounted for by the largest firms in the industry.
D) dependence of an industry on its resource suppliers.
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16
Chapter 15: Technology, Rd, and Efficiency
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Sample Questions
Q1) Creative destruction may either increase or reduce competition, depending on whether the innovation is done by start-up firms or existing dominant firms.
A)True
B)False
Q2) Which of the following is a "spin-off" firm?
A) Amazon
B) Yum! Brands
C) McDonald's
D) Pepsi
Q3) Product innovation contributes to technological advance primarily by
A) decreasing allocative efficiency.
B) increasing allocative efficiency.
C) decreasing productive efficiency.
D) increasing productive efficiency.
Q4) Product innovation will be successful only if it makes the product's
A) marginal utility increase.
B) price decrease.
C) marginal-utility-to-price ratio increase.
D) marginal-utility-to-price ratio decrease.
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Chapter 16: The Demand for Resources
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Sample Questions
Q1) Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded decreased by 10 percent. Given a fixed labor demand curve, we can conclude that
A) the labor demand curve is upsloping.
B) labor demand is elastic.
C) labor demand is unit-elastic.
D) the coefficient of elasticity of labor demand is less than 1.
Q2) Elasticity of resource demand is measured by dividing "percentage change in resource price" by "percentage change in resource quantity."
A)True
B)False
Q3) An increase in the price of capital will reduce the demand for labor if capital and labor are complementary resources.
A)True
B)False
Q4) If MRP of labor < wage rate, a firm should hire more workers.
A)True
B)False
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Chapter 17: Wage Determination
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Sample Questions
Q1) Assume the Ajax Mining Company hires 80 percent of the nonunion labor force of Mother Lode, New Mexico. Also, suppose that this labor force is highly immobile. Economists would describe this employer as a(n)
A) monopolist.
B) oligopolist.
C) monopsonist.
D) monopolistic competitor.
Q2) Which union status provides the weakest form of union security?
A) open shop
B) agency shop
C) union shop
D) closed shop
Q3) The marginal cost of a productive resource is equal to the price of the resource if a firm is
A) a price taker in the output market.
B) a price taker in the resource market.
C) able to influence the price of the product by producing more or less of it.
D) able to influence the price of the factor by buying more or less of it.
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19
Chapter 18: Rent, Interest, and Profit
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Sample Questions
Q1) One effect of a usury law is that it will
A) benefit lenders.
B) penalize borrowers.
C) increase the efficiency of investment.
D) subsidize borrowers with high incomes.
Q2) Which of the following would cause an increase in interest rates in credit markets?
A) a decrease in business demand for credit
B) an increase in the supply of consumer saving
C) an increase in the supply of business saving
D) an increase in consumer demand for credit
Q3) If Kelly deposits $10,000 into an account that pays 8 percent interest, compounded annually, and she makes no further deposits or withdrawals, how much will Kelly have in her account at the end of 5 years?
A) $14,000
B) $14,482
C) $14,693
D) $15,000
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Page 20
Chapter 19: Natural Resource and Energy Economics
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Sample Questions
Q1) From 1950 to 2014, according to data from the U.S. Energy Information Administration, the ratio of real GDP to energy consumption in the United States has been
A) relatively constant.
B) slowly decreasing.
C) decreasing steeply.
D) rising significantly.
Q2) The cost of not being able to extract and sell a nonrenewable resource in the future (because it is being extracted in the present) is known by natural resource economists as the
A) extraction cost.
B) future cost.
C) conservation cost.
D) user cost.
Q3) If a country has a total fertility rate of 1.8, then, all else equal, we would expect
A) population in that country to rise over time.
B) population in that country to fall over time.
C) the replacement rate to also equal 1.8.
D) the population to remain stable over time.
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Chapter 20: Public Finance: Expenditures and Taxes
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Sample Questions
Q1) The maximum federal marginal tax rate on taxable personal income is, as of 2016, A) 50 percent.
B) 39.6 percent.
C) 35 percent.
D) 28 percent.
Q2) A nationâ s "tax burden" is measured by the A) total amount of tax dollars paid by the citizens.
B) average tax rate on taxable income in the nation.
C) governmentâ s tax revenues as a percentage of GDP.
D) average of personal-income and corporate-income tax rates.
Q3) Assume that in year 1 you pay an average tax rate of 20 percent on a taxable income of $20,000. In year 2, you pay an average tax rate of 25 percent on a taxable income of $30,000. Assuming no change in tax rates, the marginal tax rate on your additional $10,000 of income is
A) 5 percent.
B) 12 percent.
C) 35 percent.
D) 42 percent.
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Chapter 21: Antitrust Policy and Regulation
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Sample Questions
Q1) One main difference in the rulings on the 1945 Alcoa case and the 1956 DuPont cellophane case is that the Alcoa case
A) focused on structure, whereas the DuPont case focused on behavior.
B) focused on behavior, whereas the DuPont case focused on structure.
C) defined the market broadly, whereas the DuPont case defined the market narrowly.
D) defined the market narrowly, whereas the DuPont case defined the market broadly.
Q2) The Celler-Kefauver Act of 1950
A) outlawed price-fixing.
B) amended the Sherman Act.
C) amended the Clayton Act.
D) created the Civil Aeronautics Board (CAB).
Q3) Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10 percent, respectively. The Herfindahl index for the industry is
A) 1,900.
B) 2,400.
C) 90.
D) 10,000.
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Chapter 22: Agriculture: Economics and Policy
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Sample Questions
Q1) The Freedom to Farm Act of 1996 aimed to eliminate agricultural price supports and acreage allotments for many crops.
A)True
B)False
Q2) The demand for most agricultural products is
A) elastic with respect to price but inelastic with respect to income.
B) inelastic with respect to price but elastic with respect to income.
C) elastic with respect to both price and income.
D) inelastic with respect to both price and income.
Q3) The inelastic demand for agricultural products means that
A) large changes in agricultural production result in no change in farm prices and incomes.
B) small changes in agricultural production result in no change in farm prices and incomes.
C) large changes in agricultural production result in relatively smaller changes in farm prices and incomes.
D) small changes in agricultural production result in relatively larger changes in farm prices and incomes.
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24
Chapter 23: Income Inequality, Poverty, and Discrimination
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Sample Questions
Q1) Social Security is financed
A) by state income tax revenues.
B) by payroll taxes on employees and employers.
C) by federal excise taxes.
D) out of general tax revenues.
Q2) Government transfer programs result in a U.S. Lorenz curve that is closer to the diagonal line than would be the case without the programs.
A)True
B)False
Q3) The greater the area between the Lorenz curve and the diagonal in the Lorenz curve diagram, the
A) smaller is the Gini ratio and the greater is the degree of income inequality.
B) larger is the Gini ratio and the greater is the degree of income inequality.
C) smaller is the Gini ratio and the lesser is the degree of income inequality.
D) larger is the Gini ratio and the lesser is the degree of income inequality.
Q4) The Lorenz curve portrays
A) the functional distribution of income.
B) the ratio of labor to capitalist income.
C) the personal distribution of income.
D) income equality.
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Chapter 24: Health Care
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Q1) What health care program provides payment for medical benefits to certain low-income people, including the blind, the elderly, persons with disabilities, children, and adults with dependent children?
A) Medicaid
B) Medicare
C) HMOs
D) PPOs
Q2) Studies in industrially advanced nations indicate that a 3 percent increase in incomes will generate a
A) 1 percent increase in the amount of health care demanded.
B) 1.5 percent increase in the amount of health care demanded.
C) 3 percent increase in the amount of health care demanded.
D) 6 percent increase in the amount of health care demanded.
Q3) About three-fourths of all health care costs are paid out of pocket by patients.
A)True
B)False
Q4) The fee-for-service arrangement for paying doctors is one way to reduce health care costs.
A)True
B)False
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Chapter 25: Immigration
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Q1) (Consider This) According to the Council of Economic Advisers,
A) skilled immigrants regularly displace domestic-born workers.
B) skilled immigrants pay more in taxes than they receive in services from the government.
C) immigration is a net drain on the U.S. economy and should be more tightly restricted.
D) children of immigrants frequently lack the skills to perform well academically, particularly in math and science.
Q2) Business income will decrease in the nation from which workers emigrate.
A)True
B)False
Q3) If unemployed workers leave a nation, the standard of living (national income per capita) will rise in that nation.
A)True
B)False
Q4) In 2013, refugees constituted a bigger portion of total legal immigration into the U.S. than employment-based immigrants.
A)True
B)False
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Chapter 26: International Trade
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Q1) In the theory of comparative advantage, a good should be produced in that nation where
A) the production possibilities line lies further to the right than the trading possibilities line.
B) its cost is least in terms of alternative goods that might otherwise be produced.
C) its absolute cost in terms of real resources used is least.
D) its absolute money cost of production is least.
Q2) Which of the U.S. industries below has not seen major shutdowns and layoffs because of free foreign trade?
A) textiles
B) financial services
C) steel
D) apparel
Q3) Economists generally view offshoring as detrimental to the U.S. economy.
A)True
B)False
Q4) Import tariffs benefit the consumers of the product involved.
A)True
B)False
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Chapter 27: The Balance of Payments, Exchange Rates, and Trade Deficits
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Q1) If there is a small surplus in the combined current account plus capital and financial account for a certain year, then to make the two accounts balance, there will be
A) an increase in the exchange rate.
B) a decrease in the exchange rate.
C) an increase in official reserve holdings.
D) a decrease in official reserve holdings.
Q2) In 2015, the United States' balance on goods was about
A) $760 billion.
B) +$710 billion.
C) $486 billion.
D) +$1,513 billion.
Q3) Assume that, under a system of floating exchange rates, Mexicans decide to increase their investments in the United States. As a result,
A) the peso and the dollar will both depreciate.
B) the peso and the dollar will both appreciate.
C) the peso will depreciate and the dollar will appreciate.
D) the peso will appreciate and the dollar will depreciate.
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Page 29
Chapter 28: The Economics of Developing Countries
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Q1) Most nations of the world are now IACs, not middle- and low-income DVCs.
A)True
B)False
Q2) Which of the following countries had the highest per capita energy consumption in 2013?
A) India
B) China
C) Japan
D) United States
Q3) All of the following contribute to low investment spending in DVCs except
A) low rates of saving.
B) inadequacy of public capital goods (infrastructure).
C) political instability.
D) expensive labor.
Q4) Income gains in the poorest DVCs may increase population growth initially, at least for a while, due to the following reasons except
A) declining death rates
B) increasing birth rates
C) reduced infant mortality
D) decreasing life expectancy
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