Q: Suppose the Consumer Price Index (CPI) was 100 in 2000 and 200 in 2020. If the nominal price of a textbook was $$50 in 2000 and 120 in 2020$$, what is the real price of the textbook in 2000 dollars in 2020?

$$120 \times \frac{100}{200} = 60$$

Q: If the CPI in 1970 was 38.8 and in 2015 was 237.0, and the nominal price of butter in 2015 was $3.48, what is the real price of butter in 1970 dollars?

$$3.48 \times \frac{38.8}{237.0} = 0.57$$

Question 1

Which of the following best describes the main focus of microeconomics?

Accepted Answer

The behavior of individual economic units such as consumers, firms, workers, and investors.

Question 2

A consumer faces a trade-off between buying more of one good and less of another. This concept is central to microeconomics and is most closely related to:

Accepted Answer

The concept of opportunity cost.

Question 3

In a market economy, prices are determined by:

Accepted Answer

The interactions of consumers, workers, and firms in markets.

Question 4

Which of the following is an example of positive analysis in microeconomics?

Accepted Answer

Predicting the effect of a price increase on the quantity demanded of eggs.

Question 5

Suppose the Consumer Price Index (CPI) was 100 in 2000 and 200 in 2020. If the nominal price of a textbook was $$50 in 2000 and 120 in 2020$$, what is the real price of the textbook in 2000 dollars in 2020?

Accepted Answer

$$120 	imes \frac{100}{200} = 60$$

Question 6

Which scenario best illustrates the practice of arbitrage?

Accepted Answer

A firm purchasing corn syrup in one city at a low price and selling it in another city at a higher price.

Question 7

If the CPI in 1970 was 38.8 and in 2015 was 237.0, and the nominal price of butter in 2015 was $3.48, what is the real price of butter in 1970 dollars?

Accepted Answer

$$3.48 	imes \frac{38.8}{237.0} = 0.57$$

Question 8

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Prices are determined by government regulation.

Question 9

A company wants to understand its competitors for a new product. Which microeconomic concept is most relevant?

Accepted Answer

Market definition.

Question 10

If the real price of eggs in 1990 dollars in 2016 is calculated as $$1.34, and the real price in 1970 is 2.05$$, what is the percentage change in real price from 1970 to 2016?

Accepted Answer

$$\frac{1.34 - 2.05}{2.05} = -0.35$$

Question 11

Which of the following best describes the difference between real and nominal prices?

Accepted Answer

Real prices are adjusted for inflation, while nominal prices are not.

Question 12

In the context of microeconomics, which of the following is an example of a normative question?

Accepted Answer

Should the government increase the minimum wage?

Question 13

Which real-world example illustrates the importance of market definition for public policy decisions?

Accepted Answer

The debate over whether corn syrup and sugar are part of the same market.

Question 14

If a market contains many producers but individual firms can jointly affect the price, this market is:

Accepted Answer

Noncompetitive.

Question 15

Which of the following is a reason why the government must estimate the impact of fuel efficiency standards on the cost of producing cars?

Accepted Answer

To ensure that the standards are economically feasible for manufacturers.

Question 16

A model in economics is best described as:

Accepted Answer

A mathematical representation based on economic theory.

Question 17

Which of the following statements about the minimum wage is supported by the real wage data shown in the graph?

Accepted Answer

The nominal minimum wage has increased steadily, but the real minimum wage has declined since the 1970s.

Question 18

Which of the following best explains why the prices of health care and college textbooks have risen faster than overall inflation?

Accepted Answer

Their prices have increased about three times as fast as the Consumer Price Index.

Question 19

Which of the following is an example of a trade-off faced by workers?

Accepted Answer

Choosing between labor and leisure.

Question 20

Why is it important to keep in mind that economic theories are invariably imperfect?

Accepted Answer

Because they are based on assumptions and have limited success in making predictions.

Microeconomics: Preliminaries and Introduction to Markets and Prices

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