Introductory Microeconomics Self Test

This page was set up for students to check their knowledge in economics. The material covered is an overview of the prerequisite Microeconomics course for graduate work in Mineral economics. If you find these questions too difficult you might want to refresh your memory by reviewing the following book:

References: Shaum's Outlines: "Principles of Economics: Theory and Problems" Dominick Salvatore and Eugene A. Diulio, 1996, Second Edition, The McGraw-Hill Companies. For more in depth material on introductory economics see Economics: Principles, Problems, and Policies, 16th edition. Campbell R McConnell and Stanley L Brue. Send corrections or additions to this exam to cdahl@mines.edu

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Microeconomics

Multiple Choice Questions:

Q1. When you estimated the costs of attending the Colorado School of Mines, you demonstrated your economic knowledge by correctly including all the opportunity costs for your education. The items on her list include all but one of the following. Which one is NOT included?

a. meals

b. tuitions

c. reduced leisure time as a student

d. income for a job she quit to attend school

Q2. A monopoly is likely to emerge and continue to monopolize its market when:

a. firms have a U-shaped total cost curve

b. income elasticity of demand for its product is high

c. fixed capital costs are small relative to total costs

d. economies of scale are large relative to market demand

Q3. The country that produces 50% of the world's copper limits its copper exports in order to increase its income from sales abroad. Which of the following conditions would contribute the most to the success of this policy?

a. inelastic demand by copper importers; inelastic supply by other copper producers

b. inelastic demand by copper importers; elastic supply by other copper producers

c. elastic demand by copper importers; inelastic supply by other copper producers

d. elastic demand by copper importers; elastic supply by other copper producers

Q4. If total revenue rises when price falls, the demand curve is:

a. elastic

b. unit-elastic

c. inelastic

d. none of the above

Q5. The demand curve for a commodity is more elastic

a. the greater the number of good substitutes available

b. the smaller the proportion of income spent on the commodity

c. the longer the period of time considered

d. all of the above

Q6. A movement along the demand curve in response to a change in price is called:

a. a change in quantity demanded

b. a change in demand

c. a change in derived demand

d. a non-price induced change

Q7. Firm Y sells 900 units of output, receiving total revenue of 2,700. When it sells 901 units, total revenue is 2,702. In this case:

a. marginal revenue is 2

b. average revenue is 2

c. marginal revenue is unknown

d. Price of the last unit sold is 2

Q8. Consider the production possibilities boundary in the Figure, describing a firm that can produce good X and/or good Y.

a. the opportunity cost of the first unit of good X is 10 units of good Y.

b. the opportunity cost of the first unit of good X is one unit of good Y.

c. the opportunity cost of the ninth unit of good X is 9 units of good Y.

d. the opportunity cost of the tenth unit of good X cannot be determined by the information given.

Q9. The basic economic problem is

a. inflation.

b. unemployment.

c. poverty.

d. scarcity.

e. lack of money.

Q10. Consider the free market described the demand and supply curves in the Figure. Assume that D1 and S1 are the original demand and supply curves, respectively, and that D2 and S2 are the current demand and supply curves respectively. Which of the following is correct?

a. the change in supply is likely to have been caused by a technological improvement.

b. the change in supply is likely to have been caused by a decrease in income.

C. the change n supply is likely to have been caused by an increase in the costs of production.

d. the change in demand is likely to have been caused by a decrease in the price of a substitute.

e. the change in demand is likely to have been caused by an increase in the price of a complement.

Q11. A simultaneous increase in demand and supply will always result in

a. a change in equilibrium price.

b. a decrease in equilibrium price.

c. an increase in equilibrium price.

d. a decrease in equilibrium quantity.

e. an increase in equilibrium quantity.

Q12. If the government wants to support the price of Kerosene in the Figure and buy 40 units what will be the market price and quantity produced?

a. P = 2 and Qs = 20

b. P = 4 and Qs = 60

c. P = 5 and Qs = 50

d. P = 6 and Qs = 60

e. none of the above

Q13. If the government sets a minimum price for kerosene of 3 in the above Figure you would expect what to happen?

a. there to be an excess quantity demand of 20 units.

b. a tendency for a black market to develop with people selling illegally at a lower price.

c. price to be 4 and Q to be 40.

d. a and b both to occur.

Q14. Support there are negative externalities such as pollution in the above Kerosene market equal to $4 per unit. Which of the following statements are true:

a. the socially optimal price = $6, the socially optimal quantity = 20.

b. the market produces too little and charges too high a price.

c. A $4 dollar subsidy in this market would make the social and the private optimum the same.

d. b and c are both true.

Q15. If demand for copper wiring increase by 20 at each price when income increases by 20% then the income elasticity of demand at quantity 100:

a. 2

b. 1/3

c. 2/5

d. 1

Use the following table to answer queswers 16 through 20. Assume the firm is a monopoly.

Quantity Sold	Price per Unit	Marginal Revenue	Marginal Cost
0	$17		$0
1	16		4
2	15		6
3	14		8
4	13		10
5	12		12

Q16. The monopoly's marginal revenue decreases as the quantity sold increases because

a. the demand curve facing the monopoly is downward-sloping.

b. the demand curve facing the monopoly is the market demand curve.

c. the monopoly must reduce price to entice more customers.

d. all of the above.

e. a and c.

Q17. The monopoly will maximize profit by selling

a. 1 unit.

b. 2 units.

c. 3 units.

d. 4 units.

e. 5 units.

Q18. The price the monopoly will charge is

a. $6.

b. $15.

c. $14.

d. $13.

e. $12.

Q19. Total revenue to the monopoly at the profit-maximizing out-put level is

a. $60.

b. $42.

c. $30.

d. $52.

e. $16.

Q20. If this were a competitive industry, how many units would be sold?

a. 1

b. 2

c. 3

d. 4

e. 5

Q21. At which price is the firm earning zero economic profit?

a. P1

b. P2

c. P3

d. P4

e. the firm is making economic profits at all of the above prices.

Q22. Assume the firm is faced with the demand curve at P1 in the above Figure. Which of the following is true?

a. the firm's revenue are not covering its variable costs.

b. the firm's fixed costs are less than its losses.

c. the firm should shut down.

d. all of the above are true.

Q23. A monopsonist is

a. one of the many buyers.

b. one of the many sellers.

c. a sole sellers.

d. a sole buyer.

e. none of the above.

Q24. A lack of competition on either the buying or selling side of the labor market for the mineral industries results in

a. higher prices for minerals.

b. lower employment opportunities in mineral industries.

c. less minerals produced.

d. a decrease in the general welfare of the community.

e. all of the above.

Q25. A monopsonist in the graph to the right will hire

a. Q2 workers and pay W2.

b. Q3 workers and pay W1.

c. Q1 workers and pay W3.

d. Q1 workers and pay W1.

e. Q1 workers and pay W2.

Q26. A perfectly competitive labor market in the graph for Q25 will hire

a. Q2 workers and pay W2.

b. Q3 workers and pay W1.

c. Q1 workers and pay W3.

d. Q1 workers and pay W1.

e. Q1 workers and pay W2.

Q27. Which of the following is a characteristic of perfectly competitive markets?

a. many sellers

b. very small market shares of firms

c. information on prices is freely available

d. freedom of entry and exit

e. all of the above.

Q28. The demand curve faced by perfectly competitive firm:

a. is perfectly inelastic.

b. is horizontal.

c. is downward sloping.

d. is perfectly elastic.

e. b and d.

Q29. The existence of economic profits induces ______ from/into an industry, which in turn _______ market supply and _______ market price.

a. exiting, increases, increases.

b. exiting, decreases, increases.

c. entry, increases, increases.

d. entry, increases, decrease.

Q30. Let the above graph represent a price leadership model. In this model if a firm raises the price above P1 = 45, no other firms will raise their price. If a firm lowers their price below P1 all firms will lower their price.If marginal costs move from MC1 to MC2 then price will:

a. not change.

b. will change from 30 to 45.

c. will change from 25 to 30.

d. will change from 15 to 30.

e. will change from 45 to 50.

Q31. The efficient level of pollution control in the graph to the right is:

a. that level associated with a zero level of pollution.

b. that level produced by the market.

c. that level where the marginal social benefits and marginal social costs of control are equal.

d. at a level where total benefits equal total costs.

e. none of the above.

Q32. If your income increases from $10,000 per year to $15,000 per year and your tax payment increases from $2,000 to $4,500, the marginal tax rate is:

a. 20 %

b. 30 %

c. 50 %

d. not able to be computed.

Q33. If the cross price elasticity of demand for good A and B is positive you would conclude that the two goods are

a. Giffen goods

b. complements

c. substitutes

d. normal goods

Q34. The individual who brings together economic resources and assumes risk in a capitalist economy is called:

a. manager

b. entrepreneur

c. Chief Executive Officer

d. chairman of the board

Q35. Which of the following will not cause a change in demand.

a. change in income.

b. change of the price of the good in question.

c. change the price of related goods such as substitutes or complements.

d. expectations of higher prices.

Q36. The figure below contain graphs that show the demand for and supply of gasoline. Which of the graphs depicts the shift that would occur as the result of a charge for pollution damage imposed on the sellers of gasoline?

a. graph 1.

b. graph 2.

c. graph 3.

d. none of the above.

Q37. The figure below to the right shows Harry's marginal benefit schedule for beer consumption. How many six-packs will Harry purchase each month if the price of a six-pack of a six - pack is $5.50?

a. 3

b. 4

c. 1

d. 2

Q38. What is the price elasticity of demand between points a and b in the graph for Q37?

a. 1

b. 3

c. 5/3

d. 1/3

Q39. Which of the following is an example of a "market failure"?

a. there are not enough tickets available to concerts of extremely popular performers.

b. the price of medical care has risen dramatically as a result of the introduction of sophisticated equipment and techniques.

c. polio shots and chest X-rays provide widespread benefits to the community as a whole as well as to the individuals who get them.

d. extensive decreases in the prices of electronic equipment resulted in large numbers of bankruptcies in the computer industry.

Q40. Suppose you have a two good world with a and b. If MU_a/P_a < MU_b/P_b, you

a. can never maximize utility.

b. have maximized total utility.

c. can increase utility by buying more of b and less of a.

d. can increase utility by buying more of a and less of b.

Q41. The production possibilities table given below show how many tons of either Uranium or Coal can be produced in India and Canada with one unit of input. To achieve gains from specialization:

	Uranium (ton)	Coal (ton)
India	10	10
Canada	40	20

a. India should export Coal to Canada and import Canadian Uranium.

b. India should export Uranium to Canada and import Canadian Coal.

c. Canada should produce both Uranium and Coal and not trade with India.

d. India should produce both Uranium and Coal and not trade with Canada.

Q42. Perfect price discrimination by a monopolist can result in a level of output _______ that produced by a competitive market, but price will equal marginal cost _______.

a. greater than, only occasionally.

b. equal to, for all levels of output.

c. less than, for all levels of output.

d. equal to, only for the last units of output sold.

Q43. Suppose the copper industry is competitive and the long run cost curves for a typical mine is shown as follow diagram. Further assume that all mines have identical long run cost curves to the diagram (i.e. assume copper mining is a constant cost industry). Which of the following would not be true for this industry.

a. the equilibrium price in this industry would be $2.

b. each firm in the industry would produce 20 tons in the long run.

c. if the demand equation for copper were Q=4000-20P. There would be 180 miners in the industry.

d. the long run supply curve is the horizontal sum of the short run marginal cost curves for each firm.

Q44. Compared to perfect competition, monopolistic competition:

a. provides greater product differentiation at the cost of some excess capacity.

b. offers less product differentiation but attains equal productive efficiency.

c. provides greater product differentiation and achieves greater productive efficiency.

d. offers less product differentiation and lower productive efficiency.

Q45. Which of the following is not a fixed cost?

a. monthly rent of $1,000 contractually specified in a one-year lease

b. an insurance premium of $50 per year, paid last month

c. an attorney's retainer of $50,000 paid at the first of the year

d. the president's salary of $100,000 per year

Q46. Which of the following is not a characteristic associated with oligopoly?

a. few firms

b. standardized or differentiated goods

c. lack of concern regarding a rival's behavior

d. barriers to entry

Q47. The total amount paid to a factor of production is economic rent in diagram:

a. 1.

b. 2.

c. 3.

d. 4.

Q48. Assume there are only two countries - the US and Japan. Which of the following is not true about the above market for dollars?

a. the demand for dollars is created by such activities as exports to Japan and Japanese investment in the US.

b. The equilibrium exchange rate in the above market is $100 = 1 yen.

c. If the dollar price were above 200 the US would have a deficit in its balance of payments.

d. If the Japanese wanted to buy more U.S. mineral products and nuclear reactors, it would cause the dollar to appreciate.

Q49. RTZ is a profit-maximizing firm selling Zinc in a competitive product market and hiring in a competitive input market. RTZ uses semi- skilled labor to mine Zinc. Below are data regarding labor productivity for the firm. Assume that the current market price per ton of Zinc is $5.

Workers	Total Product (tons/week)
0	0
10	15
20	28
30	39
40	48
50	55

Which of the following is true for the above firm?

a. Marginal product for the 10 workers is 15.

b. Marginal product for the second 10 workers is 28.

c. Marginal product of the 40th worker is 9.

d. Average product for 50 workers is 55.

e. None of the above is true

Q50. Marginal revenue products for 10, 20, 30, 40, 50 workers are respectively:

a. 50, 100, 150, 200, 250

b. 5000, 10000, 15000, 20000, 25000

c. 50, 50, 50, 50, 50

d. 75, 65, 55, 45, 35

e. none of the above

Last updated August 22, 2018.