Microeconomics for Public Policy Final Test Solutions
Course Introduction
Microeconomics for Public Policy explores the fundamental principles of microeconomics and their application to the design, analysis, and evaluation of public policies. The course covers topics such as consumer and producer behavior, market structures, externalities, public goods, taxation, and regulatory interventions. Emphasis is placed on how individual decision-making and market mechanisms impact resource allocation and social welfare, equipping students with analytical tools to assess the efficiency and equity effects of policy choices. Through real-world case studies and policy discussions, students learn to apply microeconomic reasoning to solve contemporary public policy challenges.
Recommended Textbook
Microeconomics 2nd Edition by Dean Karlan
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23 Chapters
3122 Verified Questions
3122 Flashcards
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Chapter 1: Economics and Life
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Applying for a loan in five-person groups is an example of:
A) family and friends lending.
B) party of five lending.
C) group responsibility.
D) trade-off.
Answer: C
Q2) In order to understand when a model may not be accurate,which is not an important action to take?
A) Identify what important details were omitted when developing a model.
B) Make sure assumptions made in the model are clear and accurate.
C) Test the model for accuracy.
D) Make sure the model all includes all possible details.
Answer: D
Q3) A car dealer advertises free satellite radio for one year with the purchase of a new car.This is an example of:
A) bait and switch.
B) marginal sales.
C) an incentive.
D) voluntary exchange.
Answer: C
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Chapter 2: Specialization and Exchange
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139 Flashcards
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Sample Questions
Q1) Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year.Country A has 100 workers.Suppose a worker in Country B can make either 2 iPods or 10 tablets each year.Country B has 200 workers.Suppose Country B's population of workers increased to 600.We can say:
A) Country B now possesses the absolute advantage in the production of both goods.
B) Country B now possesses the absolute advantage in tablets only.
C) Country B now has the comparative advantage in iPod production.
D) Country B has no need to trade now.
Answer: A
Q2) Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year.Country A has 100 workers.Suppose a worker in Country B can make either 2 iPods or 10 tablets each year.Country B has 200 workers.Country A would be using resources efficiently if it produced:
A) (500 iPods, 100 tablets).
B) (500 iPods, 150 tablets).
C) (500 iPods, 200 tablets).
D) (500 iPods, 250 tablets).
Answer: D
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Chapter 3: Markets
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158 Flashcards
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Sample Questions
Q1) The price of dog collars has gone down,and all other variables have remained constant.This change can be shown graphically as a:
A) shift in the demand curve to the right.
B) shift in the demand curve to the left.
C) movement along the demand curve to the right.
D) movement along the demand curve to the left.
Answer: C
Q2) In economic terminology,a buyer or seller who cannot affect the market price is called a:
A) price taker.
B) price maker.
C) price setter.
D) price signaler.
Answer: A
Q3) An increase in the price of ice cream is likely to cause:
A) a movement to the left along the demand curve for ice cream.
B) an inward shift of the demand curve for ice cream.
C) an outward shift of the demand curve for ice cream.
D) a movement to the right along the demand curve for ice cream.
Answer: A
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Chapter 4: Elasticity
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Sample Questions
Q1) The demand for a movie ticket is probably _________________ than is the demand for a Broadway show ticket because ______________.
A) less price elastic; a movie ticket requires a smaller portion of one's income.
B) more price elastic; a movie ticket requires a smaller portion of one's income.
C) less price elastic; a movie ticket has fewer available substitutes.
D) more price elastic; a movie ticket has fewer available substitutes.
Q2) Suppose when the price of pineapples goes from $5 to $3 per pineapple,production decreases from 3,500 pineapples to 2,000 pineapples per year.Using the mid-point method,the percentage change in price would be:
A) 0.50
B) 50 percent
C) 0.54
D) 54 percent
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6
Chapter 5: Efficiency
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Sample Questions
Q1) Assume a market that has an equilibrium price of $5.If the market price is set at $9,producer surplus:
A) rises for some producers because of the increased price.
B) decreases for some producers because of fewer transactions taking place.
C) Both A and B are true.
D) Neither of these statements is true.
Q2) If Sam's opportunity cost of a sweater is $37,which of the following prices would he have to observe in the market in order to sell a sweater?
A) $37
B) $37.01
C) $50
D) Sam would sell a sweater at any of these prices.
Q3) Each seller's opportunity costs are:
A) determined monetarily, which is why they can never be zero.
B) determined by a number of factors, none of which is monetary.
C) determined by a number of factors, including monetary considerations.
D) less than the monetary costs of manufacturing the good or service.
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Chapter 6: Government Intervention Microeconomics
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Sample Questions
Q1) If the demand curve is more elastic than the supply curve,then:
A) the buyers will bear a greater tax incidence than sellers.
B) the sellers will bear a greater tax incidence than buyers.
C) tax incidence will be shared equally by buyer and seller.
D) None of these is true.
Q2) In general,price controls have a:
A) larger effect in the long run because demand and supply become more elastic over time.
B) larger effect in the short run since demand and supply become more elastic over time.
C) smaller effect in the long run since demand and supply become less elastic over time.
D) smaller effect in the short run because demand and supply become less elastic over time.
Q3) Who benefits from a subsidy to buyers?
A) Only sellers benefit from any kind of subsidy.
B) Only consumers benefit, since it is their subsidy.
C) The benefit is shared depending on the elasticity of the supply and demand curves.
D) None of these statements is true.
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Page 8
Chapter 7: Consumer Behavior
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Sample Questions
Q1) Elijah has just eaten his second popsicle.Using the concept of marginal utility,we can say:
A) the utility he will gain from his third will reduce his total utility.
B) the utility he will gain from his third will not reduce his total utility.
C) the utility he will gain from his third will be less than that of his second but will increase his total utility.
D) the utility he will gain from his third will be less than that of his second and may reduce his total utility.
Q2) In general,a change in the price of a good:
A) causes a substitution effect only.
B) causes an income effect only.
C) causes both an income and substitution effect.
D) usually has no effect.
Q3) Reciprocity means:
A) responding to another's actions with a similar action.
B) deriving utility from an action that will cause another's utility to increase.
C) doing good things for people and asking nothing in return.
D) deriving utility from the action of a stranger.
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Chapter 8: Behavioral Economics: A Closer Look at Decision Making
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100 Verified Questions
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Sample Questions
Q1) Scott and Tom have dinner together at a new restaurant,and they discover that the portions are huge but taking home leftovers is not allowed.When both decide they are full,Scott forces himself to finish the rest of the food on his plate even though he doesn't really want to,while Tom asks the waiter to remove his plate while it still contains some food.How would an economist describe this behavior?
A) Scott acted rationally, because the food otherwise would have been thrown away.
B) Tom acted rationally, maximizing his utility.
C) Both Tom and Scott acted rationally.
D) Both Tom and Scott acted irrationally.
Q2) Behavioral economists recommend mechanisms to help people actually do things they say they want to do but often don't.Such mechanisms are often called A) savings rates.
B) charitable donations.
C) self-control.
D) commitment devices.
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Chapter 9: Game Theory and Strategic Thinking
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Sample Questions
Q1) Games:
A) will always have a dominant strategy.
B) are always zero sum.
C) will always have several stable outcomes.
D) None of the above are true.
Q2) Collusion:
A) occurs only when no dominant strategy is present.
B) is a cooperative outcome between competitors.
C) is observed, but economists cannot theoretically model it.
D) is a theoretical concept that is rarely observed.
Q3) First-mover advantage is:
A) more important in a repeated game than in a sequential game.
B) more important in a repeated sequential game than in a one-round sequential game.
C) more important to those who have less to bargain with.
D) more important in an ultimatum game than in a repeated game.
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Chapter 10: Information
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141 Flashcards
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Sample Questions
Q1) If the cost of acquiring more information outweighs the benefit of having more information about a good,then we can predict:
A) the exchange will definitely not take place.
B) the exchange may take place anyway.
C) the exchange will not benefit anyone.
D) the exchange will take place, but will be regretted in the future.
Q2) Building a good reputation in the marketplace:
A) is easy to fake.
B) can take a long time to establish.
C) is not a significant value to a seller.
D) All of these statements are true.
Q3) Statistical discrimination is not always:
A) legal.
B) ethical.
C) useful.
D) All of these statements are true.
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Chapter 11: Time and Uncertainty
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Sample Questions
Q1) If someone has a high willingness to take on situations with risk,he is considered:
A) risk-averse.
B) risk-seeking.
C) low-risk.
D) high-compensation.
Q2) Suppose Jack and Kate are at the town fair and are choosing which game to play.The first game has a bag with four marbles in it-1 red marble and 3 blue ones.The player draws one marble from the bag; if it is red,they win $20 and if it is blue,they win $1.The second game has a bag with 10 marbles in it-1 red,4 blue,and 5 green.The player draws one marble from the bag; if it is red,they win $20; if it is blue,they win $5; and if it is green,they win $1.Both games cost $5 to play.Kate decides to play the second game.Kate's expected value of payoff is:
A) $5.00.
B) $5.75.
C) $4.50.
D) $4.00.
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Chapter 12: The Costs of Production
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Sample Questions
Q1) Imagine Tom's annual salary as an assistant store manager is $30,000,he owns a building that rents for $10,000 yearly,and his financial assets generate $1,000 per year in interest.One day,after deciding to be his own boss,he quits his job,evicts his tenants,and uses his financial assets to establish a bicycle repair shop.To run the business,he outlays $15,000 in cash to cover all the costs involved with running the business,and earns revenues of $50,000.Has Tom made the best decision?
A) Yes, because he's earning an accounting profit of $35,000.
B) No, because he's earning an economic profit of $6,000.
C) Yes, because his accounting profit is larger than his economic profit.
D) No, because his accounting profit is larger than his economic profit.
Q2) The larger the implicit costs of a business:
A) the greater accounting profit will be.
B) the smaller economic profit will be.
C) the more likely it will be a successful venture.
D) the smaller the explicit costs will be.
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Chapter 13: Perfect Competition
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Sample Questions
Q1) If a firm in a perfectly competitive market is producing at a level of output where marginal costs exceed marginal revenue,its profits:
A) must be negative.
B) are maximized.
C) will increase if it produces less.
D) cannot be determined.
Q2) In the short run,the relevant costs for a firm to consider whether to shut down production are:
A) average total costs.
B) average variable costs.
C) average fixed costs.
D) fixed costs.
Q3) If demand increases in a perfectly competitive market,then in the short run supply will:
A) increase.
B) decrease.
C) not change.
D) either increase or decrease.
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15
Chapter 14: Monopoly
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Sample Questions
Q1) The monopolist's outcome happens at a:
A) lower quantity than the perfectly competitive one.
B) lower price than the perfectly competitive one.
C) higher quantity than the perfectly competitive one.
D) cost that is equal to a perfectly competitive one.
Q2) Government regulations:
A) always seek to increase competition.
B) sometimes protect monopoly power in certain industries.
C) never protect monopoly rights.
D) usually are ineffective.
Q3) Price discrimination exists:
A) only in perfectly competitive markets.
B) because sellers try to exploit differences in customers' willingness to pay.
C) in all industries, regardless of market structure.
D) only when demand is inelastic.
Q4) One barrier to entry into a monopoly market is:
A) very large fixed costs relative to variable costs.
B) the existence of large economies of scale.
C) the high cost of required infrastructure for an industry.
D) All of these statements are true.
Page 16
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Chapter 15: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Oligopolists need to consider:
A) the substitution effect.
B) the supply effect.
C) the price effect.
D) the income effect.
Q2) The demand curve facing the monopolistically competitive firm is:
A) flat.
B) vertical.
C) U-shaped.
D) None of these statements is true.
Q3) Standardized products can appear:
A) only in perfectly competitive markets.
B) in perfectly competitive and monopolistically competitive markets.
C) in monopolistically competitive and oligopoly markets.
D) in perfectly competitive and oligopoly markets.
Q4) In the long run,firms in a monopolistically competitive market operate:
A) at lowest average total costs possible.
B) at full capacity.
C) at less than full capacity.
D) on an efficient scale.
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Chapter 16: The Factors of Production
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Sample Questions
Q1) When labor is substitutable between two markets,we should expect:
A) the two markets to pay the same or similar equilibrium wage.
B) those markets to produce substitutable outputs.
C) the workers in the two markets to commit to one at the start of their career and stick with it, despite the similarities.
D) All of these statements are true.
Q2) The increase in the quantity of labor supplied in response to a higher wage is called the:
A) price effect.
B) labor effect.
C) income effect.
D) substitution effect.
Q3) In the capital market,the purchase price is what a:
A) producer pays to use a factor of production for a certain period or task.
B) producer pays to gain permanent ownership of a factor of production.
C) consumer pays to use labor or land services for a certain period or task.
D) consumer pays to gain permanent ownership of a factor of production.
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Chapter 17: International Trade
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Sample Questions
Q1) Every government's set of policies used to govern their economy:
A) vary widely from one another, making international trade a simple process.
B) vary widely from one another, making international trade sometimes difficult.
C) are largely the same, making international trade a simple process.
D) are similar in most respects, but different in a few areas, making international trade sometimes difficult.
Q2) The fair trade movement:
A) attempts to inform and influence consumers' choices.
B) is a set of laws around production processes in other nations.
C) is designed to stop unfair trade practices.
D) a big hindrance to international trade.
Q3) A common tool for restricting trade through taxation is:
A) a tariff.
B) immigration restrictions.
C) international waters use policies.
D) quota.
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Chapter 18: Externalities
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Sample Questions
Q1) A network externality is:
A) a direct effect on an economic decision maker.
B) an indirect effect on an economic decision maker.
C) the effect that an additional user of a good or participant in an activity has on the value of that good or activity for others.
D) an uncompensated effect on someone other than the person who caused it.
Q2) If a negative externality were present in a market,the social benefit curve would be:
A) above the private demand curve.
B) below the private demand curve.
C) the same as the private demand curve.
D) Cannot say without more information.
Q3) When private benefits equal social benefits,it means that:
A) positive externalities are present in the market.
B) negative externalities are present in the market.
C) positive externalities are not present in the market.
D) no externality of any kind is present in the market.
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Page 20
Chapter 19: Public Goods and Common Resources
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Sample Questions
Q1) An example of a good that is rival in consumption is:
A) a sweater.
B) bottled water.
C) tap water.
D) All of these goods are rival in consumption.
Q2) Bans or quotas that limit the use of common resources are straightforward public-policy approaches to solving the problem of overuse if:
A) the community agrees to aid in its enforcement.
B) countries have the resources to enforce them.
C) the community affected participates in setting the punishments for breaking the policy.
D) None of these statements is true.
Q3) One way the government decides how to pay for a public good is:
A) the ease of collecting payout.
B) if they can make the good excludable and charge its users.
C) the transfer of surplus.
D) All of these are ways the government allocates payment of public goods.
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Chapter 20: Taxation and the Public Budget
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Sample Questions
Q1) The two sources that contribute roughly 80 percent together of total tax revenues are:
A) personal income tax and payroll tax.
B) personal income tax and corporate income tax.
C) corporate income tax and payroll tax.
D) personal income tax and excise tax.
Q2) When raising taxes,the price effect tells us that the:
A) higher tax rate causes fewer units to be sold.
B) government gets more revenue per units sold.
C) government gets less revenue per unit sold.
D) higher tax rate causes more units to be supplied.
Q3) It is more likely at lower tax rates than higher tax rates that the:
A) quantity effect will outweigh the price effect.
B) quantity effect will outweigh the income effect.
C) price effect will outweigh the quantity effect.
D) income effect will outweigh the price effect.
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Chapter 21: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) When a society is more equal:
A) the more the economy grows, so the best economy is the most equal.
B) the more everyone gains when the economy improves, but that doesn't mean the most equal society is the best society.
C) economic growth will create imbalance, and the government will need to work to equalize incomes.
D) economic growth will provide the most resources for its disadvantaged members .
Q2) Research suggests that about ______ percent of people living under the poverty line in any given year are chronically poor.
A) 3
B) 8
C) 13
D) 38
Q3) In the United States,an example of a common in-kind transfer would be:
A) public housing.
B) earned income tax credit.
C) Aid to Families with Dependent Children.
D) All of these are in-kind transfers.
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23
Chapter 22: Political Choices
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Sample Questions
Q1) Which of the four criteria for an ideal voting system is demonstrated when everyone in a town prefers spending on improved public transportation systems instead of public parks,and transportation spending wins?
A) No dictator
B) Unanimity
C) Transitivity
D) Independence of irrelevant alternatives
Q2) Rent-seeking behavior creates:
A) waste and inefficiency.
B) waste, but is efficient.
C) inefficiencies, but not waste.
D) efficiency without waste.
Q3) Which theorem tells us that no voting system is perfect?
A) Arrow's impossibility theorem
B) Median-voter theorem
C) Condorcet paradox
D) Bowman's problematic theorem
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Page 24
Chapter 23: Public Policy and Choice Architecture
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Sample Questions
Q1) Choice architecture is the:
A) organization of the context and process in which people make decisions.
B) choices that force utility-maximizing decisions for individuals.
C) political framework under which policy is made.
D) the internal mental framework people use in order to make all their decisions.
Q2) Choice architecture focuses on such factors as:
A) the timing of choices.
B) how different options are described.
C) Both A and B are true.
D) Neither A nor B is true.
Q3) The success of the SMarT program has proven that changing the way we present options can:
A) affect people's behavior.
B) help people overcome mental biases.
C) avoid regret.
D) All of these statements are true.
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