Question 1

Which of the following statements best distinguishes between microeconomics and macroeconomics?

Accepted Answer

Microeconomics studies the behavior of individual households and firms, while macroeconomics focuses on the economy as a whole, including aggregate measures like GDP and inflation.

Question 2

Suppose a consumer is choosing between two goods, X and Y. The price of X is $$4, the price of Y is 2$$, and the consumer's marginal utility from the last unit of X is 20, while from Y it is 6. According to marginal analysis, what should the consumer do?

Accepted Answer

Buy more of good Y and less of good X.

Question 3

Which of the following is an example of a positive economic statement?

Accepted Answer

"Raising the minimum wage will increase unemployment among teenagers."

Question 4

A firm’s production function exhibits economies of scale if:

Accepted Answer

Doubling all inputs results in more than double the output.

Question 5

If the price elasticity of demand for a product is $$-0.5$$, what does this imply about the product?

Accepted Answer

Demand is inelastic; a 1% increase in price leads to a 0.5% decrease in quantity demanded.

Question 6

Suppose the government imposes a price ceiling below the equilibrium price in a competitive market. What is the most likely outcome?

Accepted Answer

A shortage will occur because quantity demanded exceeds quantity supplied.

Question 7

A firm faces the following costs: Total Fixed Cost (TFC) = $$100$$, Total Variable Cost (TVC) = $$200$$, and it produces $$50$$ units. What is the Average Total Cost (ATC)?

$$ATC = \frac{TFC + TVC}{Q}$$

Accepted Answer

$$ATC = \frac{100 + 200}{50} = 6$$

Question 8

Which of the following best describes the free rider problem?

Accepted Answer

Individuals benefit from a good without paying for it, leading to under-provision of that good.

Question 9

If a firm’s price is less than its average variable cost ($$P \u003c AVC) in $$the short run, what should the firm do?

Accepted Answer

Shut down production immediately.

Question 10

Which of the following would cause a movement along the demand curve for coffee, rather than a shift of the curve?

Accepted Answer

A decrease in the price of coffee.

Question 11

Suppose the cross-price elasticity of demand between two goods is $$+1.2. $$What does this indicate?

Accepted Answer

The goods are substitutes.

Question 12

A competitive market is in equilibrium. If a tax is imposed on sellers, which of the following will occur?

Accepted Answer

The equilibrium quantity will decrease, and the price paid by buyers will increase.

Question 13

Which of the following best explains why correlation does not imply causation?

Accepted Answer

Two variables may move together due to a third, unobserved factor.

Question 14

If the government provides a subsidy to buyers in a market, what is the likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium quantity increases and the price paid by buyers decreases.

Question 15

Which of the following is a sunk cost?

Accepted Answer

A non-refundable deposit paid last month.

Question 16

Suppose a firm’s total revenue is $$TR = 500$$, explicit costs are $$EC = 300$$, and implicit costs are $$IC = 100. $$What is the economic profit?

$$	ext{Economic Profit} = TR - (EC + IC)$$

Accepted Answer

$$100$$

Question 17

Which of the following best describes Pareto efficiency?

Accepted Answer

No one can be made better off without making someone else worse off.

Question 18

If the supply of a good is perfectly inelastic, how does a tax imposed on sellers affect the price received by sellers and the price paid by buyers?

Accepted Answer

Sellers bear the entire burden of the tax; the price received by sellers falls by the full amount of the tax.

Question 19

Which of the following is an argument in favor of consumer sovereignty?

Accepted Answer

Consumers are best positioned to know their own preferences and make choices that maximize their welfare.

Question 20

A firm is considering whether to enter a market. In the long run, firms will enter if:

Accepted Answer

Economic profit is greater than zero.

Econ 201: Introduction to Microeconomics – Midterm Review Study Guide

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