Question 1

Refer to the market for cotton in Georgetan, where the government sets a production quota at 8 million pounds per year. If the equilibrium price without the quota is $$0.40 per pound and the quota raises the price to 0.60 $$per pound, what is the likely effect on consumer surplus?

Accepted Answer

Consumer surplus decreases because the price is higher and quantity is restricted.

Question 2

Suppose the marginal social cost of producing cotton in Georgetan is greater than the marginal social benefit. What does this imply about the market outcome?

Accepted Answer

The market outcome is inefficient because too much cotton is produced.

Question 3

Given the following production possibilities for Puerto Rico and Ireland:
Puerto Rico: 50 barrels of rum or 80 cases of crystal
Ireland: 100 barrels of rum or 1000 cases of crystal
If both countries specialize and trade, what is the opportunity cost for Ireland to produce 1 barrel of rum?

Accepted Answer

$$10$$ cases of crystal

Question 4

Suppose the market demand and supply for a good are given by the following equations:
$$Q_d = 100 - 2P$$
$$Q_s = 20 + 3P$$
What is the equilibrium price?

Accepted Answer

$$P = 16$$

Question 5

If a drought destroys much of the U.S. orange crop and, at the same time, the number of buyers increases, what will happen to the equilibrium price and quantity of oranges?

Accepted Answer

Price will increase, but the effect on quantity is indeterminate.

Question 6

Which of the following is NOT a factor of production?

Accepted Answer

The water used to cool a nuclear power plant.

Question 7

The ultimate cost of any choice is:

Accepted Answer

The highest-valued alternative forgone.

Question 8

Suppose the production possibilities frontier (PPF) for an economy is bowed outward. What does this indicate about opportunity cost?

Accepted Answer

Opportunity cost increases as more of a good is produced.

Question 9

In an eight-hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. Adam can produce either 8 loaves of bread or 8 pounds of butter. Who has the comparative advantage in bread?

Accepted Answer

Andy has the comparative advantage in bread.

Question 10

Homer and Teddy are stranded on a desert island. Each day, Homer can catch 100 fish or pick 150 pieces of fruit. Teddy can catch 60 fish or pick 60 pieces of fruit. Who should specialize in what for maximum total output?

Accepted Answer

Homer should specialize in catching fish and Teddy in picking fruit.

Question 11

If DVDs and CDs are substitutes in production and not related in consumption, what happens if the price of DVDs increases?

Accepted Answer

The supply of CDs decreases.

Question 12

Suppose the government of New York state promises to decrease taxes to a firm if it decides to stay in New York instead of moving to another state. This policy is an example of:

Accepted Answer

An incentive; marginal benefit exceeds marginal cost.

Question 13

If the price of a compact disc is $28, and the quantity demanded is 4,000 while the quantity supplied is 36,000, what will happen in the market?

Accepted Answer

There will be a surplus and the price will fall.

Question 14

Beef and leather belts are complements in production. If people’s concern about health decreases the demand for beef, what happens in the market for leather belts?

Accepted Answer

The equilibrium price of leather belts will fall.

Question 15

Suppose you observe that the price of tomatoes decreases after the supply of tomatoes increases. You also observe that people buy more lettuce at any price. What does this suggest about the relationship between lettuce and tomatoes?

Accepted Answer

They are complements in consumption.

Question 16

If the marginal benefit of pizza in cans of soda forgone is greater than the marginal cost, what should a rational decision-maker do?

Accepted Answer

Produce more pizza.

Question 17

If the price of a fast food meal is $$5 and the price of a candy bar is 1$$, what is the relative price of a fast food meal in terms of candy bars?

Accepted Answer

$$5$$ candy bars per fast food meal

Question 18

Suppose the market for roses is shown in the figure. If incomes increase (roses are normal goods) and the price of resources used to produce roses also increases, what will happen to the equilibrium price?

Accepted Answer

The effect on equilibrium price is indeterminate without more information.

Question 19

Which of the following best describes the effect of a system of property rights on economic growth?

Accepted Answer

It encourages economic growth by creating incentives to invest in capital and to be innovative.

Question 20

Jane says, "The cost of books has increased 10 percent over the past year." This is an example of:

Accepted Answer

A positive economic statement.

Microeconomics Exam Study Guide: Multiple Choice Concepts and Applications

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