Introduction to Microeconomics

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Introduction to Microeconomics
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Introduction to Microeconomics explores the fundamental principles that govern

individual economic decision-making. This course examines how consumers, firms, and

governments interact within various market structures to allocate scarce resources.

Topics include supply and demand analysis, elasticity, utility maximization, production

and costs, market equilibrium, and the effects of government intervention. Students will

develop analytical skills to understand real-world economic issues and gain insights into

how markets function and respond to changes in policy, technology, and external

factors.

Recommended Textbook
Principles of Microeconomics 6th Canadain Edition by N. Gregory Mankiw

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22 Chapters
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) The "broken window fallacy"
A) explains why inflation is so high.
B) is a justification for the government to print more money.
C) is illustrated when a government program is justified not on its merits but on the
number of jobs it will create.
D) has nothing to do with public policy.
Answer: C

Q2) Bridget drinks three sodas during a particular day.The marginal benefit she enjoys
from drinking the third soda
A) can be thought of as the total benefit Bridget enjoys by drinking three sodas minus
the total benefit she would have enjoyed by drinking just two sodas.
B) determines Bridget's willingness to pay for the third soda.
C) is likely different from the marginal benefit provided to Bridget by the second soda.
D) All of the above are correct.
Answer: D

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Page 3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Refer to Figure 2-10.The shift of the production possibilities frontier from A to B
illustrates
A) simultaneous technological advances in the book and DVD industries.
B) a reallocation of resources away from the production of DVDs and toward the
production of books.
C) economic growth.
D) All of the above are correct.
Answer: C

Q2) It is possible for an economy to increase its production of both goods if the economy
A) moves downward and to the right along its production possibilities frontier and the
frontier is bowed outward.
B) moves upward and to the left along its production possibilities frontier and the frontier
is bowed outward.
C) moves in either direction along its production possibilities frontier and the frontier is a
straight line.
D) moves from a situation of inefficient production to a situation of efficient production.
Answer: D

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Page 4
Chapter 3: Interdependence and the Gains from Trade
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Sample Questions
Q1) Refer to Table 3-4.Assume that the farmer and the rancher each has 24 labor hours
available.If each person spends all his time producing the good in which he has a
comparative advantage,then total production is
A) 3 pounds of meat and 4 pounds of potatoes.
B) 8 pounds of meat and 12 pounds of potatoes.
C) 11 pounds of meat and 16 pounds of potatoes.
D) 15 pounds of meat and 12 pounds of potatoes.
Answer: B

Q2) Refer to Table 3-11.Varick has a comparative advantage in the production of

A) wheat.
B) cloth.
C) both goods.
D) neither good.
Answer: B

Q3) Refer to Table 3-1.For the farmer,12.8 pounds of

A) meat is the opportunity cost of 10.6 pounds of potatoes.
B) meat is the opportunity cost of 16.0 pounds of potatoes.
C) potatoes is the opportunity cost of 6.8 pounds of meat.
D) potatoes is the opportunity cost of 8.0 pounds of meat.
Answer: D

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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Refer to Figure 4-7.The graphs show the demand for cigarettes.In Panel (a),the
arrows are consistent with which of the following events?
A) The price of marijuana, a complement to cigarettes, increased.
B) Mandatory health warnings were placed on cigarette packages.
C) Several foreign countries banned U.S. cigarettes in their countries.
D) A tax was placed on cigarettes.

Q2) Refer to Figure 4-6.The movement from D' to D in the market for potato chips could
be caused by a(n)
A) decrease in the price of potato chips.
B) decrease in income, assuming that potato chips are a normal good.
C) announcement by the FDA that potato chips cause cancer.
D) increase in the price of a pretzels.

Q3) A rightward shift of a supply curve is called a(n)

A) increase in supply.
B) decrease in supply.
C) decrease in quantity supplied.
D) increase in quantity supplied.

Q4) It is not possible for demand and supply to shift at the same time.
A)True
B)False

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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) When studying how some event or policy affects a market,elasticity provides
information on the
A) equity effects on the market by identifying the winners and losers.
B) magnitude of the effect on the market.
C) speed of adjustment of the market in response to the event or policy.
D) number of market participants who are directly affected by the event or policy.

Q2) Which of the following statements helps to explain why government drug
interdiction increases drug-related crime?
A) The direct impact is on buyers, not sellers.
B) Successful drug interdiction policies reduce the demand for illegal drugs.
C) Drug addicts will have an even greater need for quick cash to support their habits.
D) In the short run, both equilibrium quantities and prices will fall in the markets for illegal
drugs.

Q3) A government program that reduces land under cultivation hurts farmers but helps
consumers.
A)True
B)False

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Page 7
Chapter 6: Supply, Demand, And Government Policies
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Sample Questions
Q1) Refer to Figure 6-16.Suppose a tax of $5 per unit is imposed on this market.What will
be the new equilibrium quantity in this market?
A) less than 25 units
B) 25 units
C) between 25 units and 50 units
D) greater than 50 units

Q2) Refer to Figure 6-11.If the government imposes a price ceiling at $3,it would be
A) binding if market demand is Demand A or Demand B.
B) non-binding if market demand is Demand A or Demand B.
C) binding if market demand is Demand A and non-binding if market demand is
Demand B.
D) non-binding if market demand is Demand A and binding if market demand is
Demand B.

Q3) Who bears the majority of a tax burden depends on whether the tax is placed on the
buyers or the sellers.
A)True
B)False

Q4) How does elasticity affect the burden of a tax? Justify your answer using supply and
demand diagrams.

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Page 8
Chapter 7: Consumers, Producers, and the Efficiency of

Markets
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Sample Questions
Q1) Consumer surplus can be measured as the area between the demand curve and
the supply curve.
A)True
B)False

Q2) If Rosa is willing to pay $450 for hockey tickets and has consumer surplus of $175,the
price of the tickets is $625.
A)True
B)False

Q3) Abraham drinks Mountain Dew.He can buy as many cans of Mountain Dew as he
wishes at a price of $0.55 per can.On a particular day,he is willing to pay $0.95 for the
first can,$0.80 for the second can,$0.60 for the third can,and $0.40 for the fourth
can.Assume Abraham is rational in deciding how many cans to buy.His consumer
surplus is
A) $0.50.
B) $0.60.
C) $0.70.
D) $1.00.

Q4) Total surplus in a market is consumer surplus minus producer surplus.

A)True
Page 9
B)False

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Chapter 8: Application: The Costs of Taxation
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Sample Questions
Q1) Taxes affect market participants by increasing the price paid by the buyer and
received by the seller.
A)True
B)False

Q2) Refer to Figure 8-9.The producer surplus with the tax is

A) $3,000.
B) $6,000.
C) $9,000.
D) $12,000.

Q3) Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100.If the tax
is increased to $0.25 per unit,the deadweight loss from the new tax would be
A) $200.
B) $250.
C) $475.
D) $625.

Q4) Taxes cause deadweight losses because they prevent buyers and sellers from
realizing some of the gains from trade.
A)True
B)False

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Page 10
Chapter 9: Application: International Trade
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Sample Questions
Q1) Refer to Figure 9-2.Without trade,consumer surplus is
A) $210.
B) $245.
C) $455.
D) $490.

Q2) Which of the following is the most accurate statement?

A) The one argument for restricting trade that almost all economists accept as valid is
the infant-industry argument.
B) Almost all economists insist that it is never appropriate to protect "key" industries,
even when there are legitimate concerns about national security.
C) The idea that one nation might want to threaten another nation with a trade
restriction is associated with the protection-as-a-bargaining-chip argument for
restricting trade.
D) The protection-as-a-bargaining-chip argument for restricting trade is also known as
the infant-industry argument.

Q3) Characterize the two different approaches a nation can take to achieve free
trade.Does one approach have an advantage over the other?

Q4) How does an import quota differ from an equivalent tariff?

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Page 11
Chapter 10: Externalities
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Sample Questions
Q1) Refer to Figure 10-12.Which of the following is an appropriate label for Line 2?
A) social cost
B) social value
C) private cost
D) private value

Q2) Refer to Figure 10-9,Panel (b).The market equilibrium price is

A) P2.
B) P3a.
C) P3b.
D) P3a - P3b.

Q3) When he was a candidate for president,Barack Obama proposed a cap-and-trade

system for carbon.
A)True
B)False

Q4) Negative externalities occur when one person's actions

A) cause another person to lose money in a stock market transaction.
B) cause his or her employer to lose business.
C) reveal his or her preference for foreign-produced goods.
D) adversely affect the well-being of a bystander who is not a party to the action.

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Page 12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Most goods in our economy are allocated in markets,where buyers pay for what they
receive and sellers are paid for what they provide.
A)True
B)False

Q2) Nontoll roads can be either public goods or common resources,depending upon the
degree of congestion.
A)True
B)False

Q3) The provision of public goods gives rise to

A) no externalities.
B) positive externalities.
C) negative externalities.
D) rivalries in consumption.

Q4) Some goods can be classified as either public goods or private goods depending on
the circumstances.
A)True
B)False

Q5) Why do wild salmon populations face the threat of extinction while goldfish
populations are in no such danger?

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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) Which of the following tax systems could not be structured to satisfy conditions of
vertical equity?
A) a proportional tax
B) a regressive tax
C) a progressive tax
D) a lump-sum tax

Q2) When the marginal tax rate exceeds the average tax rate,the tax is
A) proportional.
B) regressive.
C) non-egalitarian.
D) progressive.

Q3) A lump-sum tax would take different amounts from the poor and the rich.
A)True
B)False

Q4) Less economically developed countries such as India and Pakistan usually have low
tax burdens.
A)True
B)False

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Page 14
Chapter 13: The Costs of Production
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Sample Questions
Q1) If a firm uses labor to produce output,the firm's production function depicts the
relationship between
A) the number of workers and the quantity of output.
B) marginal product and marginal cost.
C) the maximum quantity that the firm can produce as it adds more capital to a fixed
quantity of labor.
D) fixed inputs and variable inputs in the short run.

Q2) Which of the following expressions is correct?

A) accounting profit = total revenue - explicit costs
B) economic profit = total revenue - implicit costs
C) economic profit = total revenue - explicit costs
D) Both a and b are correct.

Q3) Refer to Scenario 13-13.Joan's production function exhibits

A) increasing marginal product.
B) decreasing marginal product.
C) constant marginal product.
D) Any of the above could be correct.

Q4) Refer to Table 13-16.Firm B is experiencing constant returns to scale.

A)True
B)False

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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) The production decisions of perfectly competitive firms follow one of the Ten
Principles of Economics,which states that rational people
A) consider sunk costs.
B) equate prices to the average costs of production.
C) prefer to purchase products from smaller rather than larger firms.
D) think at the margin.

Q2) In the short run,a firm operating in a competitive industry will produce the quantity of
output where price equals marginal cost as long as the
A) price is less than average total cost.
B) marginal revenue exceeds the marginal cost.
C) price is greater than average variable cost.
D) price is greater than average fixed cost but less than average variable cost.

Q3) Refer to Figure 14-4.When price falls from P3 to P1,the firm finds that it
A) decreases its fixed costs.
B) should produce Q1 units of output.
C) should produce Q3 units of output.
D) should shut down immediately.

Q4) Give two reasons why the long-run industry supply curve may slope upward.Use an
example to demonstrate your reasons.

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Page 16
Chapter 15: Monopoly
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Sample Questions
Q1) Antitrust laws allow the government to
A) collect revenues through the antitrust tax.
B) break up companies.
C) purchase privately-held companies through eminent domain.
D) All of the above are correct.

Q2) For a monopoly firm,which of the following equalities is always true?

A) price = marginal revenue
B) price = average revenue
C) price = total revenue
D) marginal revenue = marginal cost

Q3) Sizable economic profits can persist over time under monopoly if the monopolist
A) produces that output where average total cost is at a maximum.
B) is protected by barriers to entry.
C) operates as a price taker rather than a price maker.
D) earns revenues that exceed variable costs.

Q4) Patents,copyrights,and trademarks

A) are examples of government-created monopolies.
B) are examples of barriers to entry.
C) allow their owners to charge higher prices.
D) All of the above are correct.

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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) Refer to Scenario 16-3.If the marginal cost of producing this good is 0,what quantity
would a profit-maximizing monopolist produce?
A) Q = 0
B) Q = 2
C) Q = 5
D) Q = 10

Q2) In perfect competition as well as in monopolistic competition,

A) marginal revenue is equal to price for each firm.
B) profit is positive in a long-run equilibrium for each firm.
C) entry and exit by firms are restricted.
D) there are many firms in a single market.

Q3) Which of the following conditions is characteristic of a monopolistically competitive

firm in both the short-run and the long run?
A) P > MC
B) MC = ATC
C) P < MR
D) All of the above are correct.

Q4) What is meant by the term "excess capacity" as it relates to monopolistically

competitive firms?

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Page 18
Chapter 17: Oligopoly
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Sample Questions
Q1) Which of these situations produces the largest profits for oligopolists?
A) The firms reach a Nash equilibrium.
B) The firms reach the monopoly outcome.
C) The firms reach the competitive outcome.
D) The firms produce a quantity of output that lies between the competitive outcome
and the monopoly outcome.

Q2) Refer to Scenario 17-4.What will these two companies do if they behave as individual
profit maximizers?
A) Neither company will advertise.
B) Both companies will advertise.
C) One company will advertise, the other will not.
D) There is no way of knowing without knowing how many customers are stolen through
advertising.

Q3) Refer to Table 17-22.Which of the following statements is correct?

A) Matt's dominant strategy is to charge a low price.
B) Brian's dominant strategy is to charge a high price.
C) The dominant strategy for both Brian and Matt is to charge a low price.
D) Matt's dominant strategy is to charge a high price.

Q4) Outline the purpose of antitrust laws.What do they accomplish?

Q5) Explain the practice of tying and discuss why it is controversial.

Page 19
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Chapter 18: The Market For the Factors of Production
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Sample Questions
Q1) The value of the marginal product of labor is calculated by multiplying the
A) price of output by the quantity of labor.
B) price of output by the marginal product of labor.
C) wage by the quantity of labor.
D) wage by the marginal product of labor.

Q2) If a firm experiences diminishing marginal productivity of labor,the marginal product

A) increases as total product increases.
B) decreases as total product increases.
C) increases as total product decreases.
D) decreases as total product decreases.

Q3) Consider the labor market for heath care workers.Because of the aging population in
the United States,the output price for health care services has increased.Holding all else
equal,in the labor market for health care employees the equilibrium wage
A) increases, and the equilibrium quantity of labor increases.
B) increases, and the equilibrium quantity of labor decreases.
C) decreases, and the equilibrium quantity of labor increases.
D) decreases, and the equilibrium quantity of labor decreases.

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Page 20
Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) If unskilled labor is relatively plentiful and cheap in many foreign countries,then as
the United States expands its trade with these foreign countries,the domestic demand
for
A) both skilled and unskilled labor will rise proportionately.
B) skilled labor will fall and the demand for unskilled labor will rise.
C) skilled labor will rise and the demand for unskilled labor will fall.
D) both skilled and unskilled labor will be unaffected, assuming no barriers to free trade.

Q2) Refer to Figure 19-1.Suppose the local labor market was in equilibrium to begin with
but then the largest local employer decided to change its compensation scheme to $10
as shown.Which of the following compensation schemes could the graph be illustrating?
A) An efficiency wage.
B) Discrimination.
C) A compensating differential.
D) The superstar phenomenon.

Q3) Explain why the following situation is likely to persist: soccer players in Europe are the
highest paid athletes and in the US they are among the lowest paid athletes.

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Page 21
Chapter 20: Income Inequality and Poverty
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Sample Questions
Q1) A common criticism of welfare programs is that they
A) create self-reliant individuals.
B) encourage strong family values.
C) encourage illegitimate births.
D) have increasing benefits over time, in real terms.

Q2) A utilitarian government will pursue policies that redistribute income from the rich to
the poor.One problem with these policies is that
A) everyone has less incentive to work hard.
B) the rich will work harder while the poor will not.
C) the poor will work harder while the rich will not.
D) everyone in the middle class ends up worse off.

Q3) "The government should choose policies to maximize the total utility of society." This
statement is most closely associated with which political philosophy?
A) liberalism
B) utilitarianism
C) libertarianism
D) welfarism

Q4) Explain the relationship between labor earnings and the distribution of income.

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Page 22
Chapter 21: The Theory of Consumer Choice
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Sample Questions
Q1) Mark spends his weekly income on gin and cocktail olives.The price of gin has risen
from $7 to $9 per bottle,the price of cocktail olives has fallen from $6 to $5 per jar,and
Mark's income has stayed fixed at $46 per week.If you measure gin on the vertical axis
and cocktail olives on the horizontal axis,then the budget constraint
A) is steeper after the price changes.
B) is flatter after the price changes.
C) is the same after the price changes.
D) shifts in a parallel fashion to the old budget constraint after the price changes.

Q2) Higher education is a normal good.If its price falls,

A) the quantity demanded of higher education will fall.
B) the substitution and income effects work in opposite directions.
C) the income effect is positive.
D) higher education will be a Giffen good.

Q3) A consumer chooses an optimal consumption point where the

A) marginal rate of substitution equals the relative price ratio.
B) slope of the indifference curve exceeds the slope of the budget constraint.
C) ratios of all the marginal utilities are equal.
D) All of the above are correct.

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Page 23
Chapter 22: Frontiers in Microeconomics
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Sample Questions
Q1) Bob is planning to sell his home.In preparation for the sale,he paints all of the ceilings
in his house to cover up water stains from his leaking roof so that potential buyers will be
unaware of this problem.This is an example of
A) moral hazard.
B) screening.
C) adverse selection.
D) the principal-agent problem.

Q2) Refer to Table 22-15.If there is a vote between a budget of $8 million and $12
million,the median voter will vote to spend
A) $8 million and the voting outcome will be $8 million.
B) $8 million and the voting outcome will be $12 million.
C) $12 million and the voting outcome will be $8 million..
D) $12 million and the voting outcome will be $12 million.

Q3) Informational asymmetry may apply to a hidden action or hidden characteristic

where the informed party may be reluctant to reveal relevant information.
A)True
B)False

Q4) Explain the Condorcet paradox.To which type of voting system does it apply?

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Page 24