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Exercise - micro midterm

Introduction to Micro Economics (Trường Đại học Quốc tế, Đại học Quốc gia Thành phố
Hồ Chí Minh)

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1) Which of the following is NOT included in the decisions that every society must make?
a. what goods will be produced
b. what determines consumer preferences
c. who will produce goods
d. who will consume the goods
2) The adage, “There is no such thing as a free lunch,” means:
a. To get something we like, we usually have to give up another thing we like.
b. Even people on welfare have to pay for food these days.
c. The cost of living is always increasing.
d. All costs are measured in dollars.
3) Daniel decides to spend an hour playing basketball rather than working at $6 per hour. His
tradeoff is
a. nothing, because he enjoys playing basketball more than working.
b. the increase in skill he obtains from playing basketball for that hour.
c. the $6 he could have earned.
d. nothing, because he spent $6 for admission into the sports complex to play
basketball.
4) Efficiency means that
a. society is getting the most it can from its scarce resources.
b. society is conserving resources in order to save them for the future.
c. society’s goods and services are distributed fairly among society’s members.
d. society has lessened its dependence on foreign energy sources.
5) When the government redistributes income from the rich to the poor,
a. efficiency is improved.
b. both rich people and poor people benefit directly.
c. people work less and produce fewer goods and services.
d. rich people consume fewer goods and poor people consume more goods, resulting
in no real change.

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6) People make decisions at the margin by

a. following tradition.
b. comparing costs and benefits.
c. experience.
d. calculating dollar costs.
7) One advantage market economies have over central planning is that market economies
a. are more efficient.
b. solve the problem of scarcity.
c. establish government economic control.
d. provide an equal distribution of goods and services to consumers.
8) The invisible hand works to promote general well-being in the economy primarily through
a. government intervention.
b. the political process.
c. self interest.
d. altruism.
9) When the government prevents prices from adjusting naturally to supply and demand,
a. it stabilizes the economy.
b. it adversely affects the allocation of resources.
c. the improvement in equity justifies the reduction in efficiency.
d. the reduced uncertainty associated with fixed prices is worth more than the cost in
lower efficiency.
10) The two best reasons for a government to intervene in a market are
a. to raise revenues and to promote stability.
b. to promote equity and to raise revenues.
c. to promote efficiency and to raise revenues.
d. to promote equity and to promote efficiency.

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1) Which is the best statement about the way economists study the economy?
a. They study the past, but do not try to predict the future.
b. They devise theories, collect data, then analyze the data to test the theories.
c. They use a probabilistic approach based on correlations between economic
events.
d. They use controlled experiments in much the same way a biologist or physicist
does.
2) Economists use models in order to
a. learn how the economy works.
b. make their profession appear more precise.
c. make economics difficult for students.
d. make sure that all of the details of the economy are included in their analysis.
3) In a circular-flow diagram,
a. taxes flow from households to firms, and transfer payments flow from firms to
households.
b. income payments flow from firms to households, and sales revenue flows from
households to firms.
c. resources flow from households to firms, and goods and services flow from firms
to households.
d. b and c
4) In the circular-flow diagram,
a. firms are sellers in the resource market and the product market.
b. households are sellers in the resource market.
c. firms are buyers in the product market.
d. spending on goods and services flow from firms to households.

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5) In the circular-flow diagram shown, which arrow shows the flow of goods and services?
a. A
b. B
c. C
d. D
6) In the circular-flow diagram shown, which arrow shows the flow of the factors of production?
a. A
b. B
c. C
d. D
7) In the circular-flow diagram shown, which arrow shows the flow of income payments?
a. A
b. B
c. C
d. D

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8) The production possibilities frontier is

a. a map which shows the frontier beyond which agriculture is unprofitable.
b. a map which shows areas of the world in which capitalist production is now
possible.
c. a graph that shows the various combinations of output the economy can possibly
produce given the available resources and technology.
d. a graph which shows the various combinations of resources that can be used to
produce a given level of output.

9) On the production possibilities frontier shown, which point or points are possible for this
economy to produce?
a. A, B, C, D
b. A, B, C, F
c. A, B, C, D, E, F
d. D
10) On the production possibilities frontier shown, which point or points are efficient?
a. A, B, C
b. A, C, F
c. E
d. D

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11) On the production possibilities frontier shown, the opportunity cost to the economy of getting
10 additional roller blades by moving from point A to point B is
a. 15 bikes.
b. 10 bikes.
c. 5 bikes.
d. It is impossible to know the opportunity cost without knowing the cost of the
resources used to produce the additional roller blades.
12) On the production possibilities frontier shown, the opportunity cost of getting 5 additional
bikes by moving from point A to point C is
a. 15 roller blades.
b. 10 roller blades.
c. 5 roller blades.
d. It is impossible for the economy to move from point A to point C.

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13) In the production possibilities frontier shown, the shift of the frontier from A to B was most
likely caused by which of the following?
a. more capital available in the economy
b. more labor available in the economy
c. a general technological breakthrough
d. technological improvement in the production of clothing
14) Which of the following is an example of a normative statement?
a. If the price of a product decreases, quantity demanded increases.
b. Reducing tax rates on the wealthy would be good for the country.
c. If the national saving rate were to increase, so would the rate of economic growth.
d. All of the above are normative statements.
15) Which of the following is an example of a positive statement?
a. If welfare payments increase, the world will be a better place.
b. Prices rise when the government prints too much money.
c. Inflation is more harmful to the economy than unemployment.
d. The benefits to the economy of improved equity are greater than the costs of
reduced efficiency.

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1) Without trade
a. a country is better off.
b. a country’s production possibilities frontier is also its consumption possibilities
frontier.
c. a country can still benefit from international specialization.
d. more product variety is available in a country.
2) A country’s consumption possibilities frontier can be outside its production possibilities
frontier
a. with trade.
b. by allocating resources differently.
c. by producing a greater variety of goods and services.
d. by lowering unemployment in the country.
3) A production possibilities frontier will be linear and not bowed out if
a. no tradeoffs exist.
b. the tradeoff between the two goods is always at a constant rate.
c. unemployment is zero.
d. resources are allocated efficiently.
4) Comparative advantage is based on
a. capital costs.
b. labor costs.
c. opportunity costs.
d. dollar price.
5) Trade can benefit society as a whole because it allows
a. for a more efficient use of resources.
b. for goods to be obtained at a lower opportunity cost.
c. people to specialize in activities in which they have a comparative advantage.
d. All of the above are correct.

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6) Refer to the tables shown. The opportunity cost of 1 bottle of perfume for Nancy is
a. 4/3 yards of cloth.
b. 3/4 yard of cloth.
c. 1 yard of cloth.
d. 1/4 yard of cloth.
7) Refer to the tables shown. The opportunity cost of 1 bottle of perfume for Roger is
a. 3 yards of cloth.
b. 2 yards of cloth.
c. 1/3 yard of cloth.
d. 1/2 yard of cloth.
8) Refer to the tables shown. For Nancy the opportunity cost of 1 yard of cloth is
a. 4/3 bottles of perfume.
b. 1 bottle of perfume.
c. 3/4 bottle of perfume.
d. 1/3 bottle of perfume.
9) Refer to the tables shown. Nancy has a comparative advantage in __________ and Roger has
an absolute advantage in __________.
a. perfume, cloth
b. perfume, both goods
c. cloth, both goods
d. cloth, perfume

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10) Refer to the tables shown. Nancy and Roger both could benefit by Nancy specializing in
__________ and Roger specializing in __________.
a. perfume, cloth
b. cloth, perfume
c. perfume, perfume
d. cloth, cloth

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1) A market is
a. a place where only buyers come together.
b. a place where only sellers meet.
c. a group of demanders and suppliers of a particular good or service.
d. a group of people with common desires.
2) A competitive market is
a. a market in which there are many buyers and many sellers so that each has a
negligible impact on price.
b. a market where consumers cannot freely interact with sellers.
c. a market where suppliers are under no government restrictions.
d. a market with many buyers but few sellers.
3) Firms that sell their products in a competitive market have limited pricing power because
a. sellers have reason to charge more than their competitors.
b. each buyer has a significant influence on the price of the product.
c. other sellers are offering very similar products.
d. None of the above are correct.
4) Which of the following would NOT be a determinant of demand?
a. the price of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good
5) If a good is “normal,” then an increase in income will result in
a. no change in the demand for the good.
b. a decrease in the demand for the good. only in inferior

c. an increase in the demand for the good.

d. a lower market price.

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6) If the price of a substitute to good X increases, then

a. the demand for good X will increase.
b. the market price of good X will decrease.
c. the demand for good X will decrease.
d. the demand for good X will not change.
7) What will happen in the rice market if buyers are expecting higher prices in the near future?
a. The demand for rice will increase.
b. The demand for rice will decrease.
c. The demand for rice will be unaffected.
d. The supply of rice will increase.
8) A demand curve is
a. the downward-sloping line relating the price of the good with the quantity
demanded.
b. the upward-sloping line relating price with quantity supplied.
c. the curve that relates income with quantity demanded.
d. None of the above answers is correct.
9) Sally tells you that she thinks the price of her favorite stationery will increase in the near
future. She will probably respond by
a. decreasing her current demand for the stationery.
b. increasing her current demand for the stationery.
c. not changing her demand for stationery currently.
d. currently refusing to buy anymore stationery.
10) A dress manufacturer is expecting higher prices for dresses in the near future. We would
expect
a. the dress manufacturer to supply more dresses now.
b. the demand for this manufacturer’s dresses to fall.
c. the dress manufacturer to supply fewer dresses now.
d. the demand for this manufacturer’s dresses to rise.

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11) If, at the current price, there is a shortage of a good,

a. the price is below the equilibrium price.
b. the market can be in equilibrium.
c. sellers are producing more than buyers wish to buy.
d. All of the above answers are correct.
12) Suppose there is an earthquake that destroys several corn canneries. Which of the following
would NOT occur as a direct result of this event?
a. Sellers would not be willing to produce and sell as much as before at each
relevant price.
b. The supply would decrease.
c. Buyers would not be willing to buy as much as before at each relevant price.
d. The equilibrium price would rise
13) Suppose that the number of buyers in a market increases and a technological advancement
occurs also. What would we expect to happen in the market?
a. The equilibrium price would increase, but the impact on the amount sold in the
market would be ambiguous.
b. The equilibrium price would decrease, but the impact on the amount sold in the
market would be ambiguous.
c. Both equilibrium price and equilibrium quantity would increase.
d. Equilibrium quantity would increase, but the impact on equilibrium price would
be ambiguous.
14) In market economies,
a. prices guide economic decisions and thereby allocate scarce resources.
b. prices ensure that quantity supplied and quantity demanded are in balance.
c. prices influence how much of a good buyers choose to purchase and how much
sellers choose to produce.
d. All of the above answers are correct.

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1) The price elasticity of demand measures

a. how responsive buyers are to a change in income.
b. how responsive sellers are to a change in price.
c. how responsive buyers are to a change in price.
d. how responsive sellers are to a change in buyers' income.
2) Demand is said to be elastic
a. if the price of the good responds substantially to changes in demand.
b. if demand shifts substantially when the price of the good changes.
c. if the quantity demanded responds substantially to changes in the price of good.
d. if buyers don't respond much to changes in the price of the good.
3) Holding all other forces constant, when the price of gasoline rises, the number of gallons of
gasoline demanded would fall substantially over a ten year period because
a. buyers tend to be much less sensitive to a change in price when given more time
to react.
b. buyers will have substantially more income over a ten year period.
c. buyers tend to be much more sensitive to a change in price when given more time
to react.
d. None of these answers are correct.
4) The demand for a good tends to be more elastic
a. the greater the availability of close substitutes.
b. the narrower the definition of the market.
c. the longer the period of time.
d. All of the above are correct.
5) Suppose the price of product X is reduced from $1.45 to $1.25 and, as a result, the quantity of
X demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of
demand for X in the given price range is
a. 2.00.
b. 1.55.
c. 1.00.
d. .64.

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6) Economists compute the price elasticity of demand as

a. the percentage change in the price divided by the percentage change in quantity
demanded.
b. the percentage change in the quantity demanded divided by the percentage change
in price.
c. the change in quantity demanded divided by the change in the price.
d. the percentage change in the quantity demanded divided by the percentage change
in income.

7) In the graph shown, the section of the demand curve labeled A represents
a. the elastic section of the demand curve.
b. the inelastic section of the demand curve.
c. the unit elastic section of the demand curve.
d. the perfectly elastic section of the demand curve.
8) In the graph shown, the point on the demand curve labeled B represents
a. the elastic section of the demand curve.
b. the inelastic section of the demand curve.
c. the unit elastic section of the demand curve.
d. the perfectly elastic section of the demand curve.

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9) In the graph shown, as price falls from PA to PB, which demand curve is most elastic?
a. D1
b. D2
c. D3
d. All of the above are equally elastic.
10) In the graph shown, as price falls from PA to PB, which demand curve is least elastic?
a. D1
b. D2
c. D3
d. All of the above are equally elastic.
11) When demand is elastic in the current price range,
a. an increase in price would increase total revenue because the decrease in quantity
demanded is less than the increase in price.
b. an increase in price would decrease total revenue because the decrease in quantity
demanded is greater than the increase in price.
c. a decrease in price would decrease total revenue because the increase in quantity
demanded is smaller than the decrease in price.
d. a decrease in price would not affect the total revenue.

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12) Last year, Joan bought 50 pounds of hamburger when the household income was $40,000.
This year, the household income was only $30,000 and Joan bought 60 pounds of hamburger. All
else constant Joan's income elasticity of demand for hamburger is
a. positive, so Joan considers hamburger to be an inferior good.
b. positive, so Joan considers hamburger to be a normal good and a necessity.
c. negative, so Joan considers hamburger to be an inferior good.
d. negative, so Joan considers hamburger to be a normal good.
13) In the long run, the quantity supplied of most goods
a. can respond substantially to a change in price.
b. cannot respond much to a change in price.
c. cannot respond at all to a change in price.
d. will naturally increase regardless of what happens to price.
14) Suppose a producer is able to separate customers into two groups, one having a price
inelastic demand and the other having a price elastic demand. If the producer's objective is to
increase total revenue, she should
a. increase the price charged to customers with the price elastic demand and
decrease the price charged to customers with the price inelastic demand.
b. decrease the price charged to customers with the price elastic demand and
increase the price charged to customers with the price inelastic demand.
c. charge the same price to both groups of customers.
d. increase the price for both groups of customers
15) Food and clothing tend to have
a. small income elasticities because consumers, regardless of their incomes, choose
to buy these goods.
b. small income elasticities because consumers will buy proportionately more at
higher income levels than they will at low income levels.
c. large income elasticities because they are necessities.
d. large income elasticities because they are relatively cheap.

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1) Price controls are

a. usually enacted when policymakers believe that the market price of a good or
service is unfair to buyers or sellers.
b. used to make markets more efficient.
c. nearly always effective in eliminating inequities.
d. established by firms with monopoly power.
2) If a price ceiling is not binding,
a. the equilibrium price is above the ceiling.
b. the equilibrium price is below the ceiling.
c. it has no legal enforcement mechanism.
d. people must voluntarily agree to abide by it.

3) In the figure shown, a binding price ceiling is shown in

a. panel (a).
b. panel (b).
c. both panel (a) and panel (b).
d. neither panel (a) nor panel (b).
4) In which panel(s) in the figure shown would there be a shortage for CDs at the market price?
a. panel (a)
b. panel (b)
c. panel (a) and panel (b)
d. neither panel (a) nor panel (b)

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5) If a price ceiling is a binding constraint on the market,

a. the equilibrium price must be below the price ceiling.
b. the equilibrium price must be above the price ceiling.
c. the forces of supply and demand must be in equilibrium.
d. it will have no effect on supply or demand.

6) According to the graph shown, when the supply curve for gasoline shifts from S1 to S2
a. the price will increase to P3.
b. a surplus will occur at the new market price of P2.
c. the market price will stay at P1 due to the price ceiling.
d. a shortage will occur at the price ceiling of P2.
7) Workers with high skills and much experience are not affected by the minimum wage because
a. they belong to unions.
b. they are not legally guaranteed the minimum wage.
c. they generally earn wages less than the minimum wage.
d. their equilibrium wages are well above the minimum wage.

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8) In the figure shown, which of the panels represents a binding price floor?
a. panel (a)
b. panel (b)
c. panel (a) and panel (b)
d. neither panel (a) nor panel (b)
9) In panel (b), at the actual price there will be
a. a shortage of wheat.
b. equilibrium in the market.
c. a surplus of wheat.
d. an excess demand for wheat.

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10) According to the graph shown, the equilibrium price in the market before the tax is imposed
is
a. $8.00.
b. $6.00.
c. $5.00.
d. $3.50.
11) According to the graph, the price buyers will pay after the tax is imposed is
a. $8.00.
b. $6.00.
c. $5.00.
d. $3.50.
12) According to the graph, the amount of the tax imposed in this market is
a. $1.00.
b. $1.50.
c. $2.50.
d. $3.00.

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13) According to the graph, the amount of the tax that buyers would pay would be
a. $1.00.
b. $1.50.
c. $2.00.
d. $3.00.
14) According to the graph, the amount of the tax that sellers would pay would be
a. $1.00.
b. $1.50.
c. $2.00.
d. $3.00.

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