Question 1

Which of the following best describes the concept of scarcity in economics?

Accepted Answer

Scarcity refers to the situation where resources are limited and cannot satisfy all human wants.

Question 2

According to the three key economic ideas, which statement is correct?

Accepted Answer

Optimal decisions are made by comparing marginal benefits and marginal costs.

Question 3

Suppose a country can produce either 10 units of wheat or 20 units of corn. What is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

2 units of corn

Question 4

If a technological improvement increases the efficiency of producing both goods in a country, what happens to the Production Possibility Frontier (PPF)?

Accepted Answer

The PPF shifts outward.

Question 5

Country A can produce 5 cars or 10 computers. Country B can produce 2 cars or 8 computers. Which country has the comparative advantage in producing computers?

Accepted Answer

Country B, because it has a lower opportunity cost for computers.

Question 6

Which of the following is true about points inside, on, and outside the PPF?

Accepted Answer

Points on the PPF are efficient, while points inside are inefficient.

Question 7

If the price of coffee increases, what is likely to happen to the demand for tea, assuming they are substitute goods?

Accepted Answer

The demand for tea will increase.

Question 8

Which of the following would cause a shift in the demand curve for smartphones?

Accepted Answer

An increase in consumer income.

Question 9

If both the demand and supply curves are shown on a graph, what does a surplus indicate?

Accepted Answer

Quantity supplied exceeds quantity demanded.

Question 10

Which formula is used to calculate the price elasticity of demand using the midpoint method?

Accepted Answer

$$ \frac{(Q_2$ - Q_1$)}{(Q_2$ + Q_1$)/2} \div \frac{(P_2$ - P_1$)}{(P_2$ + P_1$)/2} $$

Question 11

A product has a price elasticity of demand of $$ -0.2 . $$What does this imply about the product?

Accepted Answer

The product is inelastic.

Question 12

Which determinant is most important in influencing the price elasticity of demand for a good?

Accepted Answer

The number of substitutes available.

Question 13

If the price of a brand-name cereal increases and total revenue falls, what does this indicate about the demand for the cereal?

Accepted Answer

Demand is elastic.

Question 14

Suppose the cross-price elasticity between two goods is $$ +0.8 . $$What does this indicate?

Accepted Answer

The goods are substitutes.

Question 15

If the income elasticity of demand for a product is $$ -0.5 $$, what type of good is it?

Accepted Answer

Inferior good

Question 16

A linear PPF implies:

Accepted Answer

Constant opportunity costs.

Question 17

If a country specializes in producing the good for which it has a comparative advantage, what is the likely outcome?

Accepted Answer

The country will benefit from trade and increase total output.

Question 18

Which of the following is an example of an inferior good?

Accepted Answer

Generic store-brand bread

Question 19

If the price of gasoline rises and the demand for cars decreases, what type of relationship do these goods have?

Accepted Answer

They are complement goods.

Question 20

A multi-step problem: Suppose the price of a product increases from $$10 to$$ $$12$$, and the quantity demanded decreases from $$100 to$$ $$80. $$Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$ \frac{(80 - 100)}{(80 + 100)/2} \div \frac{(12 - 10)}{(12 + 10)/2} = \frac{-20}{90} \div \frac{2}{11} = -0.222 \div 0.182 = -1.22 $$

Microeconomics Exam 1 Review: Foundations, PPF, Demand & Supply, and Elasticity

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