Question 1

Suppose the government sets a rent ceiling below the equilibrium rent in a city. Which of the following is the most likely outcome in the housing market?

Accepted Answer

There will be a shortage of apartments, and allocation may occur through non-price mechanisms such as waiting lists or personal connections.

Question 2

A minimum wage is set above the equilibrium wage rate in a labor market. What is the most likely effect?

Accepted Answer

The quantity of labor supplied will exceed the quantity demanded, resulting in unemployment.

Question 3

Which of the following best describes the concept of tax incidence?

Accepted Answer

The division of the burden of a tax between buyers and sellers, regardless of who is legally responsible for payment.

Question 4

A government imposes a production quota on a good. What is the most likely effect on the market?

Accepted Answer

Quantity produced will decrease and price will rise.

Question 5

Which of the following is a likely consequence of a government subsidy to producers?

Accepted Answer

Marginal social cost will rise above marginal social benefit, creating a deadweight loss.

Question 6

Suppose Country A can produce either 10 units of wheat or 20 units of cloth with the same resources, while Country B can produce either 8 units of wheat or 16 units of cloth. Which country has a comparative advantage in wheat?

Accepted Answer

Country A, because its opportunity cost of producing wheat is lower than Country B's.

Question 7

Which of the following is NOT a method a country can use to restrict international trade?

Accepted Answer

Lowering health and safety standards

Question 8

Dumping is considered an unfair trade practice. Why is it difficult to justify protectionist policies based on dumping?

Accepted Answer

It is virtually impossible to determine a firm's costs, and global monopolies are rare.

Question 9

A firm’s opportunity cost of production includes which of the following?

Accepted Answer

Both explicit costs and implicit costs, including normal profit.

Question 10

Which of the following best distinguishes technological efficiency from economic efficiency?

Accepted Answer

Technological efficiency is about using the least amount of inputs, while economic efficiency is about producing at the lowest cost.

Question 11

Which of the following is an example of the principal–agent problem?

Accepted Answer

A CEO making decisions that benefit themselves rather than the shareholders.

Question 12

Which market structure is characterized by many firms selling identical products?

Accepted Answer

Perfect competition

Question 13

Which of the following best describes economies of scope?

Accepted Answer

A firm can produce a range of different goods at a lower cost by using specialized inputs.

Question 14

Which of the following is true about sunk costs?

Accepted Answer

They do not affect a firm’s current decision because they cannot be changed.

Question 15

Suppose a firm’s total product increases from 100 to 120 units when labor increases from 5 to 6 workers. What is the marginal product of the sixth worker?

$$	ext{Marginal Product} = \frac{\Delta 	ext{Total Product}}{\Delta 	ext{Labor}}$$

Accepted Answer

$$20$$

Question 16

A firm’s total fixed cost is $$100$$, and its total variable cost is $$200$$ when producing $$50$$ units. What is the average total cost (ATC)?

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

Accepted Answer

$$4$$

Question 17

Which of the following best explains why the marginal cost curve is U-shaped?

Accepted Answer

Marginal cost decreases at low outputs due to specialization and increases at high outputs due to the law of diminishing returns.

Question 18

If a firm experiences constant returns to scale, what happens to its long-run average cost as output increases?

Accepted Answer

Long-run average cost remains constant.

Question 19

A firm increases both capital and labor by 10%, and output increases by less than 10%. This is an example of:

Accepted Answer

Diseconomies of scale

Question 20

Which of the following is true about the long-run average cost (LRAC) curve?

Accepted Answer

It shows the lowest attainable average total cost for each output level when all inputs are variable.

Microeconomics Study Notes: Government Actions, Global Markets, Production, and Costs

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