Question 1

Which of the following statements best illustrates the difference between positive and normative economics?

Accepted Answer

Positive economics describes what is, while normative economics describes what ought to be.

Question 2

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

Accepted Answer

$$\frac{20}{10} = 2$$ units of corn

Question 3

If the production possibilities frontier (PPF) is bowed outward, what does this indicate about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 4

Country A can produce 30 cars or 60 computers. Country B can produce 20 cars or 40 computers. Which country has the absolute advantage in car production, and which has the comparative advantage?

Accepted Answer

Country A has the absolute advantage in cars; both have the same opportunity cost for both goods.

Question 5

Which of the following is an example of the fallacy 'Post Hoc ergo Propter Hoc'?

Accepted Answer

Assuming that because event A happened before event B, A caused B.

Question 6

If the demand for a product increases while the supply remains constant, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will increase and equilibrium quantity will increase.

Question 7

A price ceiling is set below the equilibrium price. What is the likely result in the market?

Accepted Answer

A shortage, because quantity demanded exceeds quantity supplied.

Question 8

Suppose the market for gasoline experiences an increase in both demand and supply. What can be said about the new equilibrium price and quantity?

Accepted Answer

Equilibrium quantity will increase, but the effect on equilibrium price is indeterminate.

Question 9

Which of the following best describes the law of demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

Question 10

If a new technology reduces the cost of producing smartphones, what is the likely effect on the supply curve for smartphones?

Accepted Answer

The supply curve will shift to the right.

Question 11

A point inside the production possibilities frontier (PPF) represents:

Accepted Answer

Inefficient use of resources.

Question 12

If the marginal rate of transformation (MRT) between two goods is $$\frac{5}{2}$$, what does this mean?

Accepted Answer

To produce 1 more unit of one good, 2.5 units of the other good must be given up.

Question 13

Which of the following would cause a movement along the demand curve for coffee?

Accepted Answer

A decrease in the price of coffee.

Question 14

If the government sets a price floor above the equilibrium price in the wheat market, what will be the result?

Accepted Answer

A surplus of wheat.

Question 15

Which of the following is an example of the fallacy of composition?

Accepted Answer

Assuming that if one person stands up at a concert to see better, everyone should stand up to see better.

Question 16

Suppose the price of a substitute good increases. What is the likely effect on the demand for the original good?

Accepted Answer

Demand for the original good will increase.

Question 17

If a market is in equilibrium, which of the following must be true?

Accepted Answer

Quantity demanded equals quantity supplied.

Question 18

A rational decision maker will take an action if:

Accepted Answer

The marginal benefit of the action exceeds the marginal cost.

Question 19

Which of the following would cause the PPF to shift outward?

Accepted Answer

An improvement in technology.

Question 20

If the price of a good is above the equilibrium price, what will happen in a competitive market?

Accepted Answer

A surplus will occur, putting downward pressure on the price.

Microeconomics Exam 1 Study Guide: Foundations, Opportunity Cost, PPF, and Supply & Demand

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