EC 3300
Principles of Microeconomics
MIDTERM EXAM
Q&S
©2024/2025
,1. Question: In the context of consumer theory, the substitution
effect of a price decrease can be best described as:
- A. The change in consumption resulting from a relative price
change while maintaining a constant utility level.
- B. The shift in demand due to a change in consumer income.
- C. The reduction in quantity demanded due to a price increase.
- D. Consumer preference changes over time.
Answer: A. The change in consumption resulting from a
relative price change while maintaining a constant utility level.
Rationale: This definition captures the essence of the
substitution effect, which holds utility constant and only varies
prices.
2. Question: Assume a monopolistically competitive market. In
the long run, firms in this market:
- A. Earn positive economic profits.
- B. Exit the market.
- C. Earn zero economic profits.
- D. Earn negative economic profits.
©2024/2025
, Answer: C. Earn zero economic profits.
Rationale: In the long run, monopolistically competitive firms
earn zero economic profits due to the entry of new firms reducing
demand for each individual firm.
3. Question: In game theory, a Nash Equilibrium is achieved
when:
- A. All players are cooperating to increase each other's payoffs.
- B. All players have played their dominant strategies.
- C. Each player's strategy is optimal given the strategies of other
players.
- D. The outcome is Pareto efficient.
Answer: C. Each player's strategy is optimal given the
strategies of other players.
Rationale: Nash Equilibrium describes a situation where no
player can benefit by changing strategies while the other players
keep theirs unchanged.
### Fill-in-the-Blank Questions
©2024/2025
Principles of Microeconomics
MIDTERM EXAM
Q&S
©2024/2025
,1. Question: In the context of consumer theory, the substitution
effect of a price decrease can be best described as:
- A. The change in consumption resulting from a relative price
change while maintaining a constant utility level.
- B. The shift in demand due to a change in consumer income.
- C. The reduction in quantity demanded due to a price increase.
- D. Consumer preference changes over time.
Answer: A. The change in consumption resulting from a
relative price change while maintaining a constant utility level.
Rationale: This definition captures the essence of the
substitution effect, which holds utility constant and only varies
prices.
2. Question: Assume a monopolistically competitive market. In
the long run, firms in this market:
- A. Earn positive economic profits.
- B. Exit the market.
- C. Earn zero economic profits.
- D. Earn negative economic profits.
©2024/2025
, Answer: C. Earn zero economic profits.
Rationale: In the long run, monopolistically competitive firms
earn zero economic profits due to the entry of new firms reducing
demand for each individual firm.
3. Question: In game theory, a Nash Equilibrium is achieved
when:
- A. All players are cooperating to increase each other's payoffs.
- B. All players have played their dominant strategies.
- C. Each player's strategy is optimal given the strategies of other
players.
- D. The outcome is Pareto efficient.
Answer: C. Each player's strategy is optimal given the
strategies of other players.
Rationale: Nash Equilibrium describes a situation where no
player can benefit by changing strategies while the other players
keep theirs unchanged.
### Fill-in-the-Blank Questions
©2024/2025
