Principles of Microeconomics Final Exam Questions
Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools of microeconomic theory. The course explores how individuals, households, and firms make decisions regarding the allocation of scarce resources, how markets function, and the role of prices in coordinating economic activity. Key topics include supply and demand analysis, consumer behavior, production and costs, market structures such as perfect competition and monopoly, and the effects of government intervention. By the end of the course, students will have a basic understanding of how microeconomic principles apply to real-world issues and the foundation necessary for further study in economics.
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Essentials of Economics 4th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) Policies based on positive economic ideas tend to decrease economic efficiency and reduce equity.
A)True
B)False
Answer: False
Q2) Voluntary exchange ________ economic efficiency because neither the buyer nor the seller would agree to a trade unless ________.
A) increases; they both benefit
B) increases; only one party benefits
C) decreases; neither benefit
D) decreases; they both benefit
Answer: A
Q3) The revenue received from the sale of ________ of a product is a marginal benefit to the firm.
A) an additional unit
B) the total number of units
C) no units
D) only profitable units
Answer: A
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Chapter 2: Choices and Trade-Offs in the Market
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Q1) In which market would you purchase a new pair of jeans?
A) Factor market
B) Input market
C) Product market
D) Resource market
Answer: C
Q2) Refer to Table 2.5.What is Barney's opportunity cost of making a pogo stick?
A) 1/2 unicycle
B) 2 unicycles
C) 1/3 unicycle
D) 1.4 pogo sticks
Answer: A
Q3) According to the production possibility model,if more resources are allocated to the production of physical and human capital,then which of the following is likely to happen?
A) Fewer goods will be produced for consumption today.
B) The production possibility frontier will be shifted inward in the future.
C) Future economic growth will decline.
D) The country's total production will fall.
Answer: A
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Explain how it would be possible for the equilibrium price and equilibrium quantity to both increase in the market for motorcycles if consumer preference for motorcycles increases and the number of motorcycle manufacturers decreases.
Answer: An increase in consumer preference will shift the demand curve to the right,which increases the equilibrium price and the equilibrium quantity.A decrease in the number of manufacturers will shift the supply curve to the left,which will increase the equilibrium price and decrease the equilibrium quantity.In both cases,the equilibrium price increases.For the equilibrium quantity to increase,the rightward shift in demand resulting from the increase in consumer preference must be more than the leftward shift in supply which results from the decrease in manufacturers.
Q2) A change in supply is represented by a shift of the supply curve.
A)True
B)False
Answer: True
Q3) A sunk cost is a cost that has already been paid and cannot be recovered.
A)True
B)False
Answer: True
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Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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Q1) For people who live near a bus route,a subway station,or a commuter rail line,public transportation provides a substitute to driving their own cars.So,for these people,the cross-price elasticity of demand between petrol and public transportation is
A) positive
B) negative
C) zero
D) infinity
Q2) Which of the following correctly comments on the following statement? 'The only way to increase the revenue from selling a product is to increase the product's price.'
A) It is not true. Revenue will increase as the price of the product increases only if demand is elastic.
B) This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic.
C) The statement is true.
D) This statement is not true. Revenue will decrease as the price of the product increases because quantity demanded will fall.
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Chapter 5: Economic Efficiency,government Price Setting and Taxes
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Q1) Refer to Figure 5.4.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following statements is true if 8 000 metrics of pecans are sold?
A) The dead-weight loss is equal to economic surplus.
B) Producer surplus equals consumer surplus.
C) The marginal benefit of each of the 8 000 metrics of pecans equals $9.
D) Marginal benefit is equal to marginal cost.
Q2) Refer to Table 5.4.If a minimum wage of $12.50 is mandated,there will be a _________.
A) shortage of 40 000 units of labour
B) surplus of 40 000 units of labour
C) shortage of 80 000 units of labour
D) surplus of 80 000 units of labour
Q3) Refer to Figure 5.3.The value of consumer surplus at a price of $18 is _______.
A) $60
B) $120
C) $180
D) $240
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Chapter 6: Technology,production and Costs
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Q1) Minimum efficient scale is defined as the level of output at which __________.
A) all economies of scale are exhausted
B) diminishing returns affect average total cost
C) the firm's long-run average total cost starts falling
D) the maximum output is produced
Q2) Marginal cost is calculated for a particular increase in output by _________.
A) multiplying the total cost by the change in output
B) multiplying the change in total cost by the change in output
C) dividing the total cost by the change in output
D) dividing the change in total cost by the change in output
Q3) If the average variable cost curve is above the marginal cost curve,then ________.
A) marginal costs must be decreasing
B) average variable costs must be increasing
C) marginal costs must be increasing
D) marginal costs can be either increasing or decreasing
Q4) Minimum efficient scale is defined as the level of output at which the short-run average total cost stops decreasing.
A)True
B)False
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Chapter 7: Firms in Perfectly Competitive Markets
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Q1) In long-run perfectly competitive equilibrium,which of the following is false?
A) There is efficient, low-cost production at the minimum efficient scale.
B) Economic surplus is maximised.
C) Firms earn economic profit.
D) Economies of scale are exhausted.
Q2) Refer to Figure 7.5.If the market price is $20,the average profit at the profit-maximising quantity is -.
A) $5
B) $6
C) $9
D) $20
Q3) Which of the following statements is true?
A) A long-run competitive equilibrium can only be achieved in constant-cost industries.
B) When an industry achieves a long-run competitive equilibrium, industry output will not change in the future.
C) A long-run competitive equilibrium outcome is not economically efficient.
D) When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even.
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Chapter 8: Monopoly Markets
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Sample Questions
Q1) The term 'trust' in antitrust refers to a board of trustees that has collusive control over different companies.
A)True
B)False
Q2) Refer to Figure 8.4.The price charged for the profit-maximising output level is
A) $13
B) $21
C) $27
D) $34
Q3) Refer to Figure 8.13.If the regulators of the natural monopoly allow the owners of the firm to break even on their investment,the firm will produce an output of ________ and charge a price of ________.
A) Q<sub>1</sub> units; P<sub>4</sub>
B) Q<sub>1</sub> units; P<sub>1</sub>
C) Q<sub>5 </sub>units; P<sub>3</sub>
D) Q<sub>3</sub> units; P<sub>3</sub>
Q4) A natural monopoly is characterised by large fixed costs relative to variable costs.
A)True
B)False
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Chapter 9: Monopolistic Competition and Oligopoly
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Q1) Which of the following is not an example of an oligopolistic market?
A) The broadcasting industry
B) Aircraft manufacture
C) University bookstores
D) Seafood restaurant chains
Q2) You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants.You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce.What is likely to happen in the restaurant market in your hometown after you open?
A) Your competitors are likely to change their menus to make their products more similar to yours.
B) The demand curve facing each restaurant owner shifts to the right.
C) The demand curve facing each restaurant owner becomes more elastic.
D) While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic.
Q3) The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.
A)True
B)False
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Page 11
Chapter 10: The Markets for Labour and Other Factors of Production
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Q1) Along an upward sloping labour supply curve,as the wage rate increases,the opportunity cost of leisure ________,causing individuals to supply a ________ quantity of labour.
A) increases; greater B) increases; lower
C) decreases; greater D) remains constant, constant
Q2) All else equal,if job turnover has people leaving jobs and finding new jobs in the same industry,this will
A) increase the demand for labour and the supply of labour.
B) increase the demand for labour and decrease the supply of labour.
C) decrease the supply of labour, but not change the demand for labour.
D) not change demand or supply in the labour market.
Q3) Refer to Figure 10.3.In Panel A,at high wages (segment iii)
A) the price of leisure is rising relative to the price of labour.
B) the price of leisure is falling relative to the price of labour.
C) labourers work more as wages increase.
D) labour suppliers take more leisure as wages increase.
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Chapter 11: Government Intervention in the Market
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Q1) Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?
A) Does the intervention program reduce pollution to zero using the least costly method?
B) Is the intervention program economically efficient?
C) Does the intervention program make the amount of economic surplus as large as possible?
D) Is the damage to the environment from government intervention as small as possible?
Q2) When a tax on output is imposed to internalise the external costs of pollution,the supply curve shifts down by the amount of the tax.
A)True
B)False
Q3) What is a private good?
A) A good that is non-excludable and rival
B) A good that is excludable and rival
C) A good that is excludable and non-rival
D) A good that is non-rival and non-excludable
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Chapter 12: Social Policy and Inequality
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Sample Questions
Q1) What is a Lorenz curve and what is a Gini coefficient?
Q2) Which of the methods below would avoid double taxation?
A) A flat tax, as opposed to a progressive tax, is levied on corporate profits
B) A system where the federal government continues to tax corporate income through the corporate income tax but allows individual taxpayers to receive, tax free, corporate dividends and capital gains
C) A system whereby a corporation calculates its annual profit and notifies each shareholder of her portion of the profits. The shareholder would then be required to include this amount as taxable income for her personal income tax. The corporation also pays tax on its corporate income
D) None of the above
Q3) Rapid economic growth tends to increase the degree of income mobility. A)True B)False
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Chapter 13: Gdp: Measuring Total Production, income and Economic Growth
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Q1) A weakness of the measurement of GDP is that it includes the value of intermediate goods,therefore some double counting occurs.
A)True
B)False
Q2) The 'GDP deflator' is a measure of the price level and is calculated by dividing ________ by ________ and multiplying by 100.
A) real GDP; nominal GDP
B) real GDP; the price level
C) nominal GDP; real GDP
D) the price level; nominal GDP
Q3) Outline the trend in real GDP per capita in Australia from 1901 to 2016.
Q4) The purchase of shares in a company is not included in the investment component of GDP.
A)True
B)False
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Chapter 14: Unemployment and Inflation
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Sample Questions
Q1) Outline the 'costs of unemployment'.
Q2) Looking at the following table,real average hourly earnings equals ________ in 2016. \[\begin{array} { | c | c | c | }
\hline \text { Year } & \begin{array} { c }
\text { Nominal Average } \\
\text { Hourly Earnings, } \$
\end{array} & \text { CPI } \\
\hline 2016 & 12 & 100 \\
\hline 2017 & 13 & 105 \\
\hline 2018 & 14 & 110 \\
\hline
\end{array}\]
A) $9.52
B) $9.00
C) $10.00
D) $12.00
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Which of the following explains why the rate of unemployment continues to rise once a recession is over?
A) Discouraged workers leave the labour force.
B) Wages rise faster than productivity increases so firms are reluctant to hire workers.
C) Firms are operating below capacity for some time after the recession is finished.
D) The unemployment rate does not continue to rise after a recession is over.
Q2) The lengths of the recession and expansion phases and which sectors of the economy are most affected will rarely be the same in any two business cycles.
A)True
B)False
Q3) The beginning of an economic contraction coincides with a/an ________ while during an economic expansion ________.
A) decrease in government spending; investment increases
B) decrease in investment; investment increases
C) decrease in government spending; government spending increases
D) increase in government spending; investment decreases
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Chapter 16: Money,banks and the Reserve Bank of Australia
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Q1) Why is the real world deposit multiplier smaller than 1/RR,where RR is the reserve ratio?
Q2) A bank holds its reserves as ________ and ________.
A) securities; loans
B) securities; deposits at the Reserve Bank of Australia
C) vault cash; deposits at the Reserve Bank of Australia
D) vault cash; loans
Q3) Explain whether a cash deposit into a bank is an 'asset' or a 'liability' for the bank.
Q4) 'Broad money' is usually less than M3 in Australia.
A)True
B)False
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Chapter 17: Monetary Policy
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Q1) When the RBA uses contractionary policy,
A) the price level rises by more than it would if the RBA did not pursue policy.
B) the price level rises by less than it would if the RBA did not pursue policy.
C) it does not change the price level.
D) it causes inflation.
Q2) The Reserve Bank of Australia is able to use monetary policy to keep real GDP exactly at its potential level.
A)True
B)False
Q3) The Reserve Bank of Australia manages the supply of cash on a daily basis to
A) ensure that banks have sufficient cash to meet the demand for funds.
B) sterilise deficits and surpluses of cash in the financial system.
C) ensure that there are no large injections of cash into or withdrawals of cash out of the financial system.
D) ensure that the interest rate changes to create equilibrium in the money market.
Q4) The main goal of monetary policy in Australia is a low inflation rate.
A)True
B)False
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Chapter 18: Fiscal Policy
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Q1) Given that the economy has moved from A to B in Figure 18.4,which of the following would be the appropriate fiscal policy to achieve potential GDP?
A) Decrease taxes
B) Decrease government spending
C) Expansionary fiscal policy
D) Increase interest rates
Q2) Accumulating debt can be a problem for the federal government because _________.
A) it is currently in danger of defaulting on the debt
B) a large debt to GDP ratio causes crowding out
C) purchases of roads and bridges add burden but no benefit to the economy
D) raising the money to borrow is difficult
Q3) If the federal budget has an actual budget surplus of $75 billion,but a structural budget surplus of $50 billion,then the economy must be above potential GDP.
A)True
B)False
Q4) The government purchases multiplier will be larger if the marginal income tax rate increases.
A)True
B)False
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Chapter 19: Comparative Advantage and the Gains From International Trade
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Q1) The first example used to explain comparative advantage used two countries (England and Portugal)and two goods (wine and cloth)to show that __________.
A) each country would be better off from trade if it had an absolute advantage in producing one of the goods
B) each country would have a comparative advantage in the production of the good for which it had an absolute advantage
C) mutually beneficial trade was possible between two countries even if one had an absolute advantage in the production of both goods
D) mutually beneficial trade was possible between two countries even if one had a comparative advantage in the production of both goods
Q2) Refer to Table 19.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded,how many hats will Belize consume?
A) 100
B) 130
C) 250
D) 400
Q3) What is dumping? Who benefits and who loses from dumping?
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Chapter 20: Macroeconomics in an Open Economy
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Q1) Suppose that the world is currently experiencing a period of strong economic growth.Both the European Union and Australia experience robust increases in income.Illustrate how this will affect the exchange rate using a graph of the demand and supply of dollars for euros.Will the dollar appreciate or depreciate against the euro? Explain why. ____________________________________________________________
Q2) If the Chinese yuan is pegged below the equilibrium exchange rate as expressed in US dollars per yuan,
A) the currency is undervalued.
B) the currency is overvalued.
C) there will be a surplus of the yuan.
D) the Chinese central bank must sell dollars to maintain the pegged rate.
Q3) A rise in the dollar price of the Chinese yuan signals an appreciation of the yuan and a depreciation of the dollar.
A)True
B)False
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