Q: Suppose the nominal price of a textbook in 2010 was $120, and the Consumer Price Index (CPI) was 200 in 2010 and 250 in 2020. What is the real price of the textbook in 2020 dollars?

$$ \120$$ \times \frac{250}{200} = \$$150 $$

Q: If the nominal price of eggs in 1990 was $1.00, the CPI in 1990 was 130.7, and the CPI in 2016 was 241.7, what is the real price of eggs in 2016 dollars?

$$ 1.00 \times \frac{241.7}{130.7} \approx \1.85$$ $

Question 1

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

Accepted Answer

The analysis of the behavior of individual consumers, firms, and markets.

Question 2

A firm is deciding whether to produce more of product A or product B. This decision is an example of which microeconomic theme?

Accepted Answer

Trade-off in what to produce.

Question 3

In a market economy, how are prices generally determined?

Accepted Answer

By the interactions of consumers, workers, and firms in markets.

Question 4

Which of the following is a normative statement?

Accepted Answer

The government should increase the minimum wage to improve living standards.

Question 5

Suppose the nominal price of a textbook in 2010 was $120, and the Consumer Price Index (CPI) was 200 in 2010 and 250 in 2020. What is the real price of the textbook in 2020 dollars?

Accepted Answer

$$ \120$$ 	imes \frac{250}{200} = \$$150 $$

Question 6

Which of the following best defines a perfectly competitive market?

Accepted Answer

A market with many buyers and sellers, so that no single buyer or seller has a significant impact on price.

Question 7

A company is considering whether to include both sugar and corn syrup in the same market definition for a merger analysis. Why is the extent of a market important in this context?

Accepted Answer

It affects the identification of actual and potential competitors, which is crucial for public policy decisions.

Question 8

If the nominal price of eggs in 1990 was $1.00, the CPI in 1990 was 130.7, and the CPI in 2016 was 241.7, what is the real price of eggs in 2016 dollars?

Accepted Answer

$$ 1.00 	imes \frac{241.7}{130.7} \approx \1.85$$ $

Question 9

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

Accepted Answer

Raising taxes on cigarettes will reduce smoking rates.

Question 10

A market is considered noncompetitive if:

Accepted Answer

Individual firms can affect the price of the product.

Question 11

If the nominal price of butter increased by 300% from 1970 to 2015, but the CPI increased by 513% over the same period, what happened to the real price of butter?

Accepted Answer

The real price of butter decreased.

Question 12

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 13

Suppose the CPI in 1980 was 82.4 and the nominal price of a college education was $2,000. What is the real price of a college education in 1970 dollars if the CPI in 1970 was 38.8?

Accepted Answer

$$ 2,000 	imes \frac{38.8}{82.4} \approx \942$$ $

Question 14

Which of the following is NOT a reason why the definition of a market is important?

Accepted Answer

It sets the minimum wage for workers in the market.

Question 15

If the price of health care and college textbooks has been rising much faster than the CPI, what does this indicate about their real prices?

Accepted Answer

Their real prices have been rising.

Question 16

Which of the following best illustrates the use of economic models in microeconomics?

Accepted Answer

A mathematical representation of a firm's production process to predict output.

Question 17

A consumer faces a trade-off between current and future consumption. Which real-world scenario best illustrates this?

Accepted Answer

Choosing between buying a new phone now or saving money for retirement.

Question 18

Which of the following is an example of arbitrage?

Accepted Answer

Buying a product at a low price in one city and selling it at a higher price in another city.

Question 19

Why might two firms in a noncompetitive market charge different prices for the same product?

Accepted Answer

Because individual firms can influence the price in noncompetitive markets.

Introduction to Microeconomics: Themes, Markets, and Price Analysis

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