PRINCIPLES OF MICROECONOMICS CORE EXAM 2026 TEST
QUESTIONS AND SOLUTIONS RATED A+
✔✔What happens if the reservation option of landless farmers improves? - ✔✔If the
reservation option improves, Bruno will make Angela a take-it-or-leave-it offer that is
better for both.
✔✔What is Sid's total unemployment rent if he loses his job? - ✔✔Sid's total
unemployment rent is calculated based on his disutility of effort and the duration of
unemployment.
✔✔What increases an employer's power over employees? - ✔✔An employer's power
increases when the government cuts unemployment benefits, monitoring work effort
becomes easier, and the unemployment rate falls.
✔✔What is the size of area A in the Lorenz curve example? - ✔✔The size of area A can
be determined based on the income distribution of workers and owners.
✔✔What is the Gini coefficient for the hypothetical economy? - ✔✔The Gini coefficient
measures income inequality, with values ranging from 0 (perfect equality) to 1 (perfect
inequality).
✔✔Which country has the highest level of inequality in market income? - ✔✔South
Africa has the highest level of inequality in market income.
✔✔What does a price-setting firm choose? - ✔✔A price-setting firm chooses a price
above marginal cost.
✔✔What does a price-setting firm ensure? - ✔✔A price-setting firm ensures that profits
are maximized and marginal revenue equals marginal cost.
✔✔What is the shape of the demand curve for bread in a perfectly competitive market?
- ✔✔In a perfectly competitive market, each firm faces a flat demand curve.
✔✔What is not a requirement for a market to be perfectly competitive? - ✔✔A
requirement that is not necessary is the absence of external effects.
✔✔What is the equilibrium quantity of corn in the market? - ✔✔The equilibrium quantity
of corn can be determined by setting the market demand equal to the market supply.
✔✔What is the equilibrium price of corn? - ✔✔The equilibrium price of corn is found
where the quantity demanded equals the quantity supplied.
, ✔✔What happens if the price of corn is set at $4 a bushel? - ✔✔If the price is set at $4
a bushel, there would be excess demand and the price would rise.
✔✔What is consumer surplus? - ✔✔Consumer surplus is the difference between what
consumers are willing to pay for a good or service and what they actually pay.
✔✔What is producer surplus? - ✔✔Producer surplus is the difference between what
producers are willing to accept for a good or service and the actual price they receive.
✔✔What is total surplus? - ✔✔Total surplus is the sum of consumer surplus and
producer surplus, representing the overall benefit to society from the production and
consumption of goods.
✔✔Is the competitive equilibrium price and quantity efficient? - ✔✔Yes, because it
maximizes the total surplus.
✔✔What will the new, after-tax price of corn be for consumers if a $2 tax is imposed? -
✔✔The new price will depend on the original price plus the tax amount.
✔✔Will the tax increase the villagers' welfare? - ✔✔It depends on whether the benefit of
funding the school exceeds the deadweight loss in the corn market.
✔✔What are increasing marginal costs? - ✔✔Increasing marginal costs occur when
producing additional units of a good requires more resources, leading to higher costs
per unit.
✔✔If the equilibrium price of bread is $3, how many loaves will Maria produce each
day? - ✔✔Maria will produce 500 loaves each day.
✔✔What will be Maria's average cost? - ✔✔Maria's average cost will be $2.50.
✔✔How much profit will Maria earn each day? - ✔✔Maria will earn $400 each day.
✔✔Will firms enter or exit the market if they have the same costs as Maria? - ✔✔Firms
will enter because there is economic profit.
✔✔What will the price of bread be in the long run? - ✔✔The price of bread will be $2.50.
✔✔How many loaves will Maria sell each day in the long run? - ✔✔Maria will sell 800
loaves each day.
✔✔How much profit will Maria earn each day in the long run? - ✔✔Maria will earn $0 in
the long run.
QUESTIONS AND SOLUTIONS RATED A+
✔✔What happens if the reservation option of landless farmers improves? - ✔✔If the
reservation option improves, Bruno will make Angela a take-it-or-leave-it offer that is
better for both.
✔✔What is Sid's total unemployment rent if he loses his job? - ✔✔Sid's total
unemployment rent is calculated based on his disutility of effort and the duration of
unemployment.
✔✔What increases an employer's power over employees? - ✔✔An employer's power
increases when the government cuts unemployment benefits, monitoring work effort
becomes easier, and the unemployment rate falls.
✔✔What is the size of area A in the Lorenz curve example? - ✔✔The size of area A can
be determined based on the income distribution of workers and owners.
✔✔What is the Gini coefficient for the hypothetical economy? - ✔✔The Gini coefficient
measures income inequality, with values ranging from 0 (perfect equality) to 1 (perfect
inequality).
✔✔Which country has the highest level of inequality in market income? - ✔✔South
Africa has the highest level of inequality in market income.
✔✔What does a price-setting firm choose? - ✔✔A price-setting firm chooses a price
above marginal cost.
✔✔What does a price-setting firm ensure? - ✔✔A price-setting firm ensures that profits
are maximized and marginal revenue equals marginal cost.
✔✔What is the shape of the demand curve for bread in a perfectly competitive market?
- ✔✔In a perfectly competitive market, each firm faces a flat demand curve.
✔✔What is not a requirement for a market to be perfectly competitive? - ✔✔A
requirement that is not necessary is the absence of external effects.
✔✔What is the equilibrium quantity of corn in the market? - ✔✔The equilibrium quantity
of corn can be determined by setting the market demand equal to the market supply.
✔✔What is the equilibrium price of corn? - ✔✔The equilibrium price of corn is found
where the quantity demanded equals the quantity supplied.
, ✔✔What happens if the price of corn is set at $4 a bushel? - ✔✔If the price is set at $4
a bushel, there would be excess demand and the price would rise.
✔✔What is consumer surplus? - ✔✔Consumer surplus is the difference between what
consumers are willing to pay for a good or service and what they actually pay.
✔✔What is producer surplus? - ✔✔Producer surplus is the difference between what
producers are willing to accept for a good or service and the actual price they receive.
✔✔What is total surplus? - ✔✔Total surplus is the sum of consumer surplus and
producer surplus, representing the overall benefit to society from the production and
consumption of goods.
✔✔Is the competitive equilibrium price and quantity efficient? - ✔✔Yes, because it
maximizes the total surplus.
✔✔What will the new, after-tax price of corn be for consumers if a $2 tax is imposed? -
✔✔The new price will depend on the original price plus the tax amount.
✔✔Will the tax increase the villagers' welfare? - ✔✔It depends on whether the benefit of
funding the school exceeds the deadweight loss in the corn market.
✔✔What are increasing marginal costs? - ✔✔Increasing marginal costs occur when
producing additional units of a good requires more resources, leading to higher costs
per unit.
✔✔If the equilibrium price of bread is $3, how many loaves will Maria produce each
day? - ✔✔Maria will produce 500 loaves each day.
✔✔What will be Maria's average cost? - ✔✔Maria's average cost will be $2.50.
✔✔How much profit will Maria earn each day? - ✔✔Maria will earn $400 each day.
✔✔Will firms enter or exit the market if they have the same costs as Maria? - ✔✔Firms
will enter because there is economic profit.
✔✔What will the price of bread be in the long run? - ✔✔The price of bread will be $2.50.
✔✔How many loaves will Maria sell each day in the long run? - ✔✔Maria will sell 800
loaves each day.
✔✔How much profit will Maria earn each day in the long run? - ✔✔Maria will earn $0 in
the long run.
