Principles of Microeconomics Study Guide Questions
Course Introduction
Principles of Microeconomics introduces students to the fundamental concepts and analytical tools used to understand individual economic units such as consumers, firms, and industries. The course covers the basics of market mechanics demand, supply, and price determination as well as the behavior of rational decision-making by economic agents. Topics include consumer and producer theory, elasticity, market structures (perfect competition, monopoly, oligopoly), resource allocation, and government intervention. Emphasis is placed on real-world applications, economic reasoning, and critical thinking to evaluate how markets function and the implications of policy decisions on welfare and efficiency.
Recommended Textbook
Microeconomics 6th Edition by R. Glenn Hubbard
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4659 Verified Questions
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) What is a marginal cost?
Answer: Marginal cost is the additional cost associated with continuing with an activity.
Q2) Scarcity refers to a situation in which unlimited wants exceed the limited resources available to fulfill those wants.
A)True
B)False
Answer: True
Q3) Explain the economic idea that "people respond to incentives."
Answer: Human beings act from a variety of motives, including religious belief, envy, and compassion."People respond to incentives" means that people will act if they feel it is in their best economic interest to do so.
Q4) In economics, the term ________ means "additional" or "extra."
A)allocative
B)marginal
C)equity
D)optimal
Answer: B
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Table 2-6.What is Haley's opportunity cost of making a necklace?
A)3/4 of a bracelet
B)3 bracelets
C)1 1/3 necklaces
D)2 necklaces
Answer: A
Q2) Scarcity
A)stems from the incompatibility between limited resources and unlimited wants.
B)can be overcome by discovering new resources.
C)can be eliminated by rationing products.
D)is a bigger problem in market economies than in socialist economies.
Answer: A
Q3) Refer to Figure 2-1.Point A is
A)technically efficient.
B)unattainable with current resources.
C)inefficient in that not all resources are being used.
D)the equilibrium output combination.
Answer: C
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) If more insurance companies decide to cover part of the price of voluntary laser eye surgery and more doctors decide to enter the field of laser eye surgery, what will happen in the market for laser eye surgery as a result of these two factors?
A)Demand will increase, but these two factors will not shift the supply curve.
B)Supply will increase, but these two factors will not shift the demand curve.
C)Demand and supply will both increase.
D)Demand will increase and supply will decrease.
Answer: C
Q2) If consumers believe the price of iPads will decrease in the future, this will cause the demand for iPads to decrease now.
A)True
B)False
Answer: True
Q3) All else equal, as the price of a product falls, the quantity supplied increases.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Black markets only exist in developing nations.
A)True
B)False
Q2) Refer to Table 4-1.The table above lists the highest prices three consumers, Tom, Dick, and Harriet, are willing to pay for a short-sleeved polo shirt.If the price of one of the shirts is $28 dollars
A)Tom will buy two shirts, Dick will buy one shirt and Harriet will buy no shirts.
B)Tom will receive $12 of consumer surplus from buying one shirt.
C)Tom and Dick receive a total of $70 of consumer surplus from buying one shirt each. Harriet will buy no shirts.
D)Harriet will receive $25 of consumer surplus since she will buy no shirts.
Q3) Refer to Table 4-2.The table above lists the highest prices five consumers are willing to pay for a theater ticket.If the price of one of the tickets is $10,
A)everyone will buy a ticket except for Esther.
B)only Anya and Basil will buy tickets.
C)Celeste's consumer surplus is $25.
D)the total consumer surplus from the purchase of tickets will be $61.
Q4) What is producer surplus? What does producer surplus measure?
Page 6
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) Refer to Figure 5-2.The deadweight loss due to the externality is represented by the area
A)abc.
B)abf.
C)abd.
D)ade.
Q2) Some policymakers have argued that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption.If the government decided to impose a tax on soda, the government will cause A)consumers to internalize the externality.
B)producers to internalize the externality.
C)the external cost to drinking soda to become a private cost paid by the government. D)the external cost to drinking soda to become a private cost paid by producers.
Q3) When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.
A)True
B)False
Q4) How does a positive externality in consumption reduce economic efficiency?
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Q1) The midpoint formula is used to measure the elasticity of demand between two points on a demand curve
A)when demand is elastic.
B)in special cases when the percentage change in the quantity demanded is equal to the percentage change in price.
C)to ensure that the elasticity has a negative value.
D)to ensure that we have only one value of the price elasticity of demand between two points on a demand curve.
Q2) In general, a "big ticket item" such as a house or new car will
A)tend to have a more elastic demand than a lower-priced good.
B)tend to have an inelastic demand because spending on the item takes up a large share of the average consumer's budget.
C)tend to have an inelastic demand because it has many substitutes.
D)tend to have a more inelastic demand the more time that passes.
Q3) If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic.
A)True
B)False
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) All of the following are part of the "regulation of health insurance" provision of the Patient Protection and Affordable Care Act (ACA)except
A)individuals with pre-existing medical conditions are able to acquire health insurance.
B)all policies must provide coverage for dependant children up to age 26.
C)lifetime dollar maximums on coverage are prohibited.
D)limits on the size of deductibles and on waiting periods before coverage takes effect have been eliminated.
Q2) The health care system in Japan is referred to as ________, under which every resident of Japan is required to enroll in either a private, or the government-provided, health insurance program.
A)an out-of-pocket system
B)a single-payer health care system
C)a universal health insurance system
D)socialized medicine
Q3) Briefly describe the most important differences between the market for health care and the market for other goods and services.
Q4) What is moral hazard?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) What is the most common type of business?
A)corporation
B)partnership
C)sole proprietorship
D)They are equally represented because of federal laws.
Q2) Who controls a sole proprietorship?
A)stockholders
B)bondholders
C)the owner
D)all of these
Q3) The only type of business that faces limited liability is a corporation.
A)True
B)False
Q4) A corporation is the type of business that has ________ government rules and regulations affecting it.
A)no
B)the fewest
C)the most
D)only federal
Q5) Who decides who controls a corporation?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
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 9-3.Select the statement that accurately interprets the data in the table.
A)Bryce has an absolute advantage in making candles and soap.
B)Tina has an absolute advantage in making candles and soap.
C)Neither Bryce nor Tina has an absolute advantage in making candles.
D)Neither Bryce nor Tina has an absolute advantage in making soap.
Q3) What is dumping? Who benefits and who loses from dumping?
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Page 11
Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Terence has $50 per week to spend on Subway sandwiches and milkshakes.The price of a Subway sandwich is $5 and the price of a milkshake is $4.He buys 6 sandwiches and 5 milkshakes.The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24.Which of the following is true?
A)He is not maximizing his utility and should buy more milkshakes.
B)He is maximizing his utility.
C)He is not maximizing his utility and should buy more Subway sandwiches.
D)He is not maximizing his utility because he is not spending all of his income.
Q2) A consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on
A)the indifference curve that intersects the horizontal axis.
B)the indifference curve that intersects the vertical axis.
C)an indifference curve that is tangent to the budget constraint.
D)the budget constraint where it intersects one of the axes.
Q3) The slope of the indifference curve is referred to as
A)the marginal rate of substitution.
B)the price ratio.
C)the marginal rate of consumption.
D)the marginal tradeoff rate.
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Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) If a firm decreases its plant size and finds that its long-run average costs have decreased, then
A)its labor is more productive in a smaller plant.
B)its diseconomies of scale are less.
C)the firm should reduce its plant size even more.
D)the firm is now profitable.
Q2) The slope of a typical isoquant is negative because to produce a given output, a producer
A)will use more of one input only if it uses more of another.
B)can use less of one input only if the productivity of that input increases
C)can use less of one input only if it uses more of another.
D)will use more of one input only if the price of that input falls.
Q3) An isoquant is a curve that shows all the combinations of two inputs that will produce the same level of output.
A)True
B)False
Q4) Describe how UPS has used positive technological change to improve its package handling and delivery schedule.
Q5) What is the difference between total cost and variable cost in the long run?
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Firms in perfect competition are price takers because
A)one firm determines the price that all other firms in the industry will charge.
B)consumers have enough market power to set prices.
C)firms accept the price determined by the government.
D)each firm is too small relative to the market to be able to influence price.
Q2) Competition has driven the economic profits in the video rental business to zero.Surya Bacha, who owns a video rental business, would be better off leaving the industry for another alternative.
A)True
B)False
Q3) What characteristic of a competitive market has made the "long run pretty short" in the market for iPhone applications?
A)few firms in the market
B)identical products
C)ease of entry
D)blocked entry
Q4) Why are individual buyers and sellers in perfect competition called price takers?
Q5) What is meant by the term "long-run competitive equilibrium?
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Chapter 13: Monopolistic Competition: the Competitive Model
in a More Realistic Setting
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Sample Questions
Q1) A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.
A)True
B)False
Q2) You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants.Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce.What is likely to happen to your business in the long run?
A)Your competitors are likely to change their menus to make their products more similar to yours.
B)Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero.
C)If your success continues, you will be likely to establish a franchise and expand your market size.
D)If you continue to maintain consistent quality, you will be able to earn profits indefinitely.
Q3) What is meant by "excess capacity"? How does it relate to consumer utility?
Q4) What is the difference between zero accounting profit and zero economic profit?
Page 15
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad.Assume that each firm must earn a 25% return on investment to break even.Explain Pizza Hut's decision process.
Q2) Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.
A)True
B)False
Q3) Firms in an oligopoly are said to be interdependent.What does this mean?
Q4) If economies of scale are relatively unimportant in an industry, the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.
A)large; competitive
B)large; an oligopoly
C)small; competitive D)small; an oligopoly
Q5) List the competitive forces in the five competitive forces model.
Q6) Explain why OPEC is caught in a prisoner's dilemma?
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Refer to Figure 15-15.What is the economically efficient output level and what is the price at that level?
A) Q , P
B)Q , P
C)Q , P
D)Q , P
Q2) Which of following is the best example of a monopoly if we use a broader definition of monopoly?
A)Spuds McKenzie, a wealthy potato farmer in Idaho
B)Cheap Gas, one of two gasoline stations in a large rural community
C)Santos Tacos, the only taqueria in the small town of Santosville
D)Zippie Rentals, a sports car rental service in the downtown Boston area
Q3) Suppose a monopoly is producing its profit-maximizing output level.Now suppose the government imposes a lump-sum tax on the monopoly, independent of its output.As a result the monopolist will increase the price of its product to cover its higher cost.
A)True
B)False
Q4) How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Reporters from the Wall Street Journal found that the office supply store Staples charged different prices for the same product to different online customers based primarily on
A)the age of the customer.
B)how close the customer's zip code was to competitors' stores.
C)the gender of the customer.
D)how many times the customer had looked up the product on its Website.
Q2) Insurance companies typically charge women lower prices than men for automobile insurance.Is this an example of price discrimination?
A)No, because, on average, women have better driving records than men and the costs of insuring men are greater than the costs of insuring women.
B)Yes, because the costs of selling insurance to men and women are the same.
C)Yes, because insurance companies can prevent arbitrage; that is, women cannot transfer their insurance coverage to men.
D)No, because there are too many insurance companies for any one company to have market power. A firm must possess market power in order to practice price discrimination.
Q3) What is odd pricing? Why do some merchants use odd pricing?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Which of the following best explains why unemployment rates are higher in the European economies than in the United States?
A)More Europeans go to school full time and are therefore not able to participate in the labor market.
B)Unemployment benefits are more generous in Europe than in the United States.
C)Workers in Europe are less productive than workers in the United States.
D)European industries pay a lower wage rate than industries in the United States.
Q2) One reason why firms would choose a salary system rather than a commission compensation system is that their employees might become less concerned about the quality of their work.
A)True
B)False
Q3) If the income effect of a wage increase equals the substitution effect, the labor supply curve is horizontal at the equilibrium wage.
A)True
B)False
Q4) What is the marginal productivity theory of income distribution?
Q5) What is personnel economics?
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) Exempting food purchases from sales tax is consistent with the ability-to-pay principle, although not necessarily consistent with vertical equity.
A)True
B)False
Q2) Horizontal equity means that two people in identical economic situations should pay the same amount of taxes.
A)True
B)False
Q3) According to the benefits-received principle of taxation
A)individuals who receive the benefits from a government program should pay the taxes that support the program.
B)because high-income individuals receive the most benefits from government programs, they should pay more taxes than lower-income individuals.
C)people in the same economic situation should bear an equal share of the tax burden.
D)the benefits of government programs such as national defense are shared equally by all people; therefore, the burden of paying for these programs should be shared equally.
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