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Microeconomics Practice Quiz Chapter 1
McMaster University 1B03 — Chapter 1 Practice Quiz
This quiz is designed to help you prepare for the first midterm exam.
All questions are multiple choice. Good luck!
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Last updated: October 2, 2025
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| First submitted | September 30, 2025 |
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| Average score | 50.0% | Report this quiz | Report |
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1. When economists say people are rational, they mean:
People weigh costs and benefits and make choices they believe improve their well-being
People act like computers and have no emotions
People always make perfect decisions without mistakes
People always choose the cheapest option.
2. Which of the following best shows rational decision-making?
Buying coffee because it was the closest store.
Buying coffee because you decided the enjoyment was worth the $2 and the effort to get it.
Buying coffee only because your friends pressured you
Buying coffee even though you hate it
3. What does it mean that people respond to incentives?
People ignore financial rewards and punishments
People only respond to emotional factors
People change their behavior when the costs or benefits of an action change.
People never respond predictably
4. Canadian banks typically do not use bulletproof glass or heavy security. Which economic principle explains this decision?
The psychological comfort of customers outweighs financial costs
The expected monetary loss from robberies is less than the cost of installing extensive security
Canadian banks face fewer robberies compared to American banks
Government regulations prevent Canadian banks from installing shields
5. Which of the following best illustrates how firms respond to incentives?
A student decides to study longer to improve their grade.
A hockey team plays harder to win a championship.
A retail store lowers prices during a sale to increase customer traffic
A person buys a coffee because they like the taste
6. Which statement about incentives is most accurate?
People only respond to monetary incentives.
Incentives explain why people sometimes act against their own interests
Incentives are less important in markets than in personal decision-making
Both consumers and firms systematically adjust behavior when benefits or costs change.
7. When economists say decisions are made “at the margin,” they mean
People compare total costs and total benefits before acting
People should avoid all-or-nothing choices
People evaluate the additional benefit and additional cost of one more unit of activity.
People ignore sunk costs when making decisions
8. A student is deciding whether to watch another Netflix episode or study. Which decision rule applies?
Continue watching until grades start to decline
Stop watching once the average study time is below expectations.
Watch as long as total enjoyment is greater than total costs of studying less.
Watch another episode only if the added enjoyment outweighs the reduced study performance.
9. Suppose a firm considers producing an additional unit of output. The marginal cost is $8, and the marginal revenue is $6. What should the firm do?
Increase output, since average revenue exceeds cost.
Not produce the additional unit, since marginal cost exceeds marginal revenue
Produce the unit, since total revenue still increases.
Produce the unit if fixed costs have already been covered
10. Which of the following best explains why economics is sometimes called the “marginal science”?
Economists emphasize that small groups on the margins of society are most affected by markets.
Economists are concerned with maximizing averages rather than totals
Economists focus on how small, incremental changes affect decisions and outcomes.
Economists believe that most decisions are all-or-nothing.
11. In the Netflix binge-watching example, why is the friend’s argument (“you’ll still get 70% even if you don’t study”) flawed from an economic perspective?
It ignores the total time available for studying.
It fails to compare the marginal benefit of watching another episode with the marginal cost of studying less.
It assumes that grades are more important than enjoyment.
It places too much weight on opportunity costs.
12. According to the rationality assumption, people:
Do not intentionally make decisions that would leave them worse off.
Do not ever take into account the interests or well-being of others.
Can never consider each of the most relevant alternatives.
None of the above
13. Which of the following is a positive economic statement?
Full employment policies should be pursued.
If minimum wage rates rise, then unemployment will rise.
The government should do something to help the homeless.
Macroeconomics is more important than microeconomics
14. Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the following key economic questions are we trying to answer?
What products do we produce?
How do we produce the products?
Who consumes the products?
None of the above
15. When does productive efficiency occur?
People weigh costs and benefits and make choices they believe improve their well-being
People act like computers and have no emotions
People always make perfect decisions without mistakes
People always choose the cheapest option.
16. Tangible products like cars and televisions are referred to as __________.
Goods
Services
Factors
None of the above
17. Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the following key economic questions are we trying to answer?
How do we produce the products?
What products do we produce?
Who consumes the products?
None of the above
18. What is a hypothesis in an economic model?
An analysis concerned with what ought to be.
A statement about an economic variable that may be either correct or incorrect.
Something measurable that can have different values.
None of the above
19. __________ goods and services are those bought by businesses to be used to increase efficiency or enhance production.
Capital
Consumption
Government
Policy
20. In what way do economists assume that people are rational?
Economists assume that people generally make the correct choices.
Economists assume that people do not respond to economic incentives.
Economists assume that people use all available information as they take actions intended to achieve their goals
Economists assume that people make decisions based on total, rather than marginal, variables.
21. When economists state that people respond to economic incentives, who are the people that respond to incentives?
Customers only
Firms only
Customers and firms
None of the above
22. What does it mean to say that optimal decisions are made at the margin?
The optimal decision is to continue any activity to the end, even if the marginal benefit is less than the marginal cost.
Most decisions are made considering the marginal benefit without considering the marginal cost.
The optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost.
Most decisions are "all or nothing" and require full commitment to one activity before moving to the next.
23. A local city government offered commuters a small cash payment for using public transit instead of driving. In the first few months, transit ridership increased by almost 50 percent. However, the effect declined when commuters were required to take transit at least 5 days per week to receive the payment instead of only 2 days per week.
PART A: Why might a monetary payment affect whether or not people take public transit when the environmental benefits of reducing car use are well documented?
Environmental benefits cannot be considered incentives. Incentives only apply to monetary values.
When deciding whether or not to take public transit, people compare convenience and time lost with the relatively small environmental benefit of a single trip. A monetary payment creates an immediate incentive for each individual ride.
The payment will have a negative effect on whether people decide to take transit.
Using public transit is harmful to health, so a monetary payment is needed to convince people to use it.
24. PART B: Why might a payment not cause some people to take public transit?
A person might view a payment for using public transit as unethical and decide not to participate.
The payment is not a true incentive because environmental benefits and money cannot be compared.
Most people make decisions without considering costs or benefits.
When deciding whether or not to use transit, a person might weigh their options. If the cost of not driving their own car outweighs the reward, they may choose not to take transit.
25. Which of the following countries has an economy where households and firms make these decisions?
North Korea
Japan
Cuba
The Soviet Union
26. ____________ occurs when a good or service is produced at the lowest possible cost.
____________ occurs when production is in accordance with consumer preferences.
Productive efficiency ...... Allocative efficiency
Allocative efficiency......... Productive efficiency
None of the above
All of the above
27. MegaMart, a large discount grocery chain, is planning to expand into the city of Brookdale. While consumers welcome the lower prices, local farmers’ markets and small organic stores have strongly opposed MegaMart’s entry. They argue that MegaMart will reduce sales at local shops, put many workers out of business, and increase unemployment in the region.
Which of the following can most reasonably be concluded from the information given in the question?
Small store owners believe consumers care more about local products than lower prices.
Economic growth in Brookdale depends mainly on large retailers.
The city government will increase subsidies to farmers’ markets to protect them from MegaMart.
Opponents believe that displaced workers from local businesses will struggle to find new employment in the short term.
28. Economists use models
to answer questions and analyze issues
to disprove economic data.
to describe the real world exactly.
to prove that theories are true
29. Economic data is used
only if all relevant data is available.
to take the place of an economic model.
to test models.
to prove that a model is true.
30. Which of the following is not a step that economists use in developing a useful economic model?
Decide on the assumptions to be used in developing the model.
Use economic data to test the hypothesis.
Revise the model if it does not explain the data well.
Make a value judgement about the merits of the hypothesis.
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