Sample questions based on Problems in Microeconomics

Here are a few sample exam questions that use Problems in Microeconomics directly. The easiest way to get the diagrams out of the Excel workbooks is quite cumbersome. First, once you get the graph on the spreadsheet the way you want it for a question, take a screen shot of the whole Excel spreadsheet page. Then paste the result into the Windows Paint program. Crop and edit, if you wish, the portion of the screen you want to keep, and make the change the image colors to black and white. Finally save the image as a gif or jpeg.

The arrows in the images below were added by first pasting the raw image into Word, drawing the arrows, grouping the raw image and arrows, and finally saving the result as a web page. This puts the image in a special directory that you will find with the saved html file.

There must be an easier way.

1. [Based on problem set #2] The diagram at the right shows demand curves for spaghetti, a normal good. The change from "baseline" to "current" could be caused by

1. a decrease in the price of spaghetti.
2. a decrease in the price of tacos, a substitute for spaghetti.
3. an increase in the price of wine, a complement with spaghetti.
4. an increase in income.

2. [Based on problem set #16.] The diagram above shows the total product curve (on the left), and the corresponding total cost curve (on the right) for the production of apartment cleaning services. The change in the total cost curve has only a single source. The shift downward in the TC curve might be caused by

1. an improvement in the productivity of labor.
2. a decrease in the wage rate for labor.
3. an increase in output.
4. a tax on the labor used in producing the good.

3. [Based on problem set #4.] The diagram at the right shows supply curves for spaghetti. The change from "baseline" to "current" is most likely caused by

1. an increase in the price of labor, an input into spaghetti.
2. a per unit subsidy paid to spaghetti producers.
3. a decrease in consumer income.
4. none of the above.

4. [Based on problem set #18.]The diagram at the right shows the cost and revenue curves for a competitive firm. The current output is 30, and the market price is 50. We know that if profits are to be maximized then the firm

1. should increase output.
2. should decrease output.
3. should keep output at 30.
4. should change output, but we can't tell whether it should be an increase or decrease without getting more information.

5. [Based on problem set #20.] The diagram above shows the short-run supply and demand curves in the market for wine. Economists predict that the market demand for wine will fall in the near future. Which of the following is true?

1. The market price will fall, and the market quantity will fall.
2. The firm will want to produce less.
3. The firm will see a fall in its profits.
4. All of a., b., and c. are true. e. a., and b. are true, but c. is not true.

6. The diagram for the last question shows the short-run supply and demand curves in the market for wine. Economists predict that a tax of $10 per bottle of wine will be placed in the near future on all wine produced and sold. Which of the following is true?

1. The market supply curve and the firm's marginal cost curve will shift up by exactly $10.
2. Market price will rise by less than $10, and the firm will reduce output, and have its total profit fall.
3. The market demand curve will rise, and price will rise by less than $10 per bottle.
4. The firm will have its profits increase as it increases output in response to the tax.
5. Both a. and b. are true.

7. [Based on problem set #10.] The diagram at the right shows the marginal private cost (MPC), marginal social cost (MSC), marginal social benefit (MSB), and marginal external cost (MEC) for the production of paper. The current output of paper is shown as 4,050 units. In a competitive market for paper, the price is shown as $72.40, and the MSC is $85.72. Which of the following statements is true?

1. The socially best price for paper is more than $72.40 and less than $85.72.
2. The socially best price for paper is $72. 40.
3. The socially best price for paper is $85.72.
4. None of the above is true.

8. For the diagram in the last question, the marginal external cost (MEC) is $13.32 per unit of output. Which of the following statements is true?

1. The socially best output is 4,050, and the best price is $72.40.
2. The socially best output is less than 4,050, and the best price is greater than $72.40.
3. The socially best output is less than 4,050, and the best price is less than $72.40.
4. The socially best output is more than 4,050, and the best price is greater than $72.40.
5. The socially best output is more than 4,050, and the best price is less than $72.40.

9. For the diagram in the last question, where the MEC is $13.32, which of the following policies would most economists prefer to achieve the socially best price and quantity of paper?

1. No intervention at all if the market for paper is competitive.
2. A subsidy of $13.32 for each unit of paper produced.
3. A tax of $13.32 on each unit of paper produced.
4. A tax of $72.40 on each unit of paper produced.
5. A subsidy of $85.72 for each unit of paper produced.

10. [Based on problem set #36.] The diagram at the right shows the production possibilities curves for flag and water production in France and the U.S. Which of the following statements is true?

1. France has an absolute advantage in the production of flags, and a comparative advantage in the production of water.
2. France has an absolute advantage in the production of water, and a comparative advantage in the production of water.
3. The U.S. has an absolute advantage in the production of flags, and a comparative advantage in the production of water.
4. The U.S. has an absolute advantage in the production of water, and a comparative advantage in the production of flags.

11. Based on the diagram in the last question, economists would predict that France will be an exporter of water and an importer of flags.

1. True.
2. False.
3. Cannot be determined without more information.