Microeconomics Quiz

Question 1: Rare earth metals are used to manufacture some important electronic components in popular products like cell phones. These
metals are not really rare, but they are expensive to extract from the ground. What happens to the market for the rare earth metals if
these extraction costs increase?

A. Supply curve shifts rightward
B. Supply curve shifts leftward
C. Demand curve shifts rightward
D. Demand curve shifts leftward

Solution: Supply curve shifts leftward

Question 2: When the current price is above the market-clearing level we would expect:
A. greater production to occur during the next period.
B. a shortage.
C. quantity supplied to exceed quantity demanded.
D. quantity demanded to exceed quantity supplied.

Solution: quantity supplied to exceed quantity demanded.

Question 3:Microeconomics is the branch of economics that deals with which of the following topics?

A. The behavior of individual consumers
B. Unemployment and interest rates
C. The behavior of individual firms and investors
D. A and C

Solution: A and C

Question 4: he price elasticity of gasoline supply in the U.S. is 0.4. If the price of gasoline rises by 8%, what is the expected change in the quantity of gasoline supplied in the U.S.?

A. +0.32%
B. +3.2%
C. +32.0%
D. -3.2%

Solution: +3.2%

Question 5:In a perfectly competitive market:

A. there is a cartel
B. there is a single seller
C. no single buyer or seller can significantly affect the market price
D. there are a few buyers

Solution: no single buyer or seller can significantly affect the market price

Question 6: The income elasticity of demand refers to:

A. the percentage change in quantity demanded resulting from a 1-percent increase in income.
B. a change in income following a change in quantity demanded.
C. the change in income required for quantity demanded to change by 1%.
D. the substitution of one good for another as income changes

Solution: the percentage change in quantity demanded resulting from a 1-percent increase in income.

Question 7: Arbitraging price differences between two markets is generally not possible if:

A. there are positive costs of transporting the products from one market to the other.
B. the transportation costs are larger than the difference in prices.
C. the government has prohibited exchange between the two markets.
D. B and C above

Solution: B and C above

Question 8: Which of the following is a normative statement?

A. The taxes paid by the poor should be reduced in order to improve the income distribution in the U.S.
B. State governments should not subsidize corporations by training welfare recipients.
C. Presidential candidates should not be given funds from the federal government to run campaigns.
D. all of the above

Solution: all of the above 

Question 9: When 1983 is the CPI base year, the CPI value is 82.4 for 1980 and 172.2 for 2017. Suppose we want to convert this CPI series to have a base year of 2017 (that is, CPI2017 = 100). What is the value of the revised CPI for 1980?

A. 100
B. 47.9
C. 172.2
D. 209.0

Solution: 47.9

Question 10: The problem of scarcity means that people face trade-offs. Which of the following trade-offs are the concern of microeconomics?

A. Trade-offs faced by consumers in the purchase of goods
B. Trade-offs faced by workers between work and leisure
C. Trade-offs faced by firms in what goods to produce
D. all of the above

Solution: all of the above

Question 11: The "constant dollar" price is:

A. the real price of a good.
B. the nominal price of a good adjusted for inflation.
C. the "current dollar" price adjusted for inflation.
D. all of the above

Solution: all of the above

Question 12: Suppose the nominal price of gasoline was $0.90 per gallon in 1987. To convert this value to the real price of 1987 gasoline in 2017 dollars, we should:

A. multiply by the 1987 CPI and divide by the 2017 CPI.
B. multiply by the 2017 CPI and divide by the 1987 CPI.
C. not do anything because this is the real price in 2017 dollars.
D. none of the above

Solution: multiply by the 2017 CPI and divide by the 1987 CPI.

Question 13: The battery packs used in electric and hybrid automobiles are one of the largest cost components for manufacturing these cars. As the price of these batteries decline, we expect that the:

A. demand curve for electric and hybrid autos will shift rightward.
B. supply curve for electric and hybrid autos will shift leftward. .
C. supply curve for electric and hybrid autos will shift rightward.
D. demand curve for electric and hybrid autos will shift leftward.

Solution: supply curve for electric and hybrid autos will shift rightward.

Question 14: The demand for books is: Qd = 120 - P
The supply of books is: Qs = 5P
What is the equilibrium quantity of books sold?

A. 75
B. 50
C. 25
D. 100

Solution: 100

Question 15: The demand for books is: Qd = 120 - P
The supply of books is: Qs = 5P
What is the equilibrium price of books?

A. 5
B. 10
C. 15
D. 20

Solution: 20

Question 16:  Assume that the current market price is below the market clearing level. We would expect:

A. a surplus to accumulate.
B. upward pressure on the current market price.
C. downward pressure on the current market price.
D. lower production during the next time period.

Solution: upward pressure on the current market price.

Question 17: As long as the actual market price exceeds the equilibrium market price, there will be:

A. downward pressure on the market price.
B. upward pressure on the market price.
C. no purchases made.
D. Both A and C are correct.

Solution: downward pressure on the market price.

Question 18: A supply curve reveals:

A. the quantity of output that producers are willing to produce and sell at each possible market price.
B. the maximum level of output an industry can produce, regardless of price.
C. the difference between quantity demanded and quantity supplied at each price.
D. the quantity of output consumers are willing to purchase at each possible market price.

Solution: the quantity of output that producers are willing to produce and sell at each possible market price.

Question 19: The price of good A goes up. As a result, the demand for good B shifts to the left. From this we can infer that:

A. good B is used to produce good A.
B. good A is used to produce good B.
C. goods A and B are substitutes.
D. goods A and B are complements.

Solution:  goods A and B are complements.

Question 20: Elasticity measures:

A. sensitivity of price to a change in quantity.
B. the percentage change in one variable in response to a one percent increase in another variable.
C. the inverse of the slope of a demand curve.
D. the slope of a demand curve.

Solution: the percentage change in one variable in response to a one percent increase in another variable.

Question 21: Which of the following is a positive statement?

A. When the price of a good goes up, consumers buy less of it.
B. When the price of a good goes up, firms produce more of it.
C. When the Federal government sells bonds, interest rates rise and private business investment is reduced
D. all of the above

Solution: all of the above

Question 22: Firms face trade-offs in production, including decisions related to:

A. which products to produce.
B. how much of a particular product to produce.
C. the best way to produce a given amount of output.
D. all of the above

Solution: all of the above

Question 23: Along any downward-sloping straight-line demand curve:

A. both the price elasticity and slope vary.
B. the slope varies, but the price elasticity is constant.
C. the price elasticity varies, but the slope is constant.
D. both the price elasticity and slope are constant.

Solution: the price elasticity varies, but the slope is constant.

Question 24: What does it mean when the CPI is higher this year than last?

A. Real prices have increased.
B. Real prices have decreased.
C. The rate of inflation has increased.
D. There has been inflation since last year.

Solution: There has been inflation since last year. 

Question 25: You are analyzing the demand for good X. Which of the following will result in a shift to the right of the demand curve for X?

A. A decrease in the price of X
B. An increase in the price of a good that is a complement to good X
C. An increase in the price of a good that is a substitute for X
D. all of the above

Solution: An increase in the price of a good that is a substitute for X

Question 26: Assume that steak and potatoes are complements. When the price of steak goes up, the demand curve for potatoes:

A. shifts to the right initially and then returns to its original position.
B. shifts to the right.
C. shifts to the left.
D. remains constant.

Solution: shifts to the left.

Question 27: For automobile demand in the U.S., the income response tends to be larger in the:

A. long run.
B. short run.
C. The income response is the same in the long run and the short run.
D. We do not have enough information to answer this question.

Solution: short run.

Question 28:  When an industry's raw material costs increase, other things remaining the same,

A. output decreases and the market price also decreases.
B. the supply curve shifts to the left.
C. the supply curve shifts to the right.
D. output increases regardless of the market price and the supply curve shifts upward.

Solution: the supply curve shifts to the left.

Question 29: If two goods are substitutes, the cross-price elasticity of demand must be:

A. zero
B. infinite
C. negative.
D. positive.

Solution: positive.

Question 30:  Due to the recent increase in the price of natural gas, the quantity of coal demanded by electric power generation plants has increased. Based on this information, coal and natural gas are:

A. complements.
B. substitutes.
C. independent goods.
D. none of the above

Solution: substitutes