Question 1

Suppose the market for electric cars is initially in equilibrium. A new government subsidy makes electric car batteries cheaper to produce. What is the most likely immediate effect on the market for electric cars?

Accepted Answer

The supply curve shifts to the right, leading to a lower equilibrium price and higher equilibrium quantity.

Question 2

Which of the following best describes the difference between a change in quantity demanded and a change in demand?

Accepted Answer

A change in quantity demanded is a movement along the demand curve due to a price change, while a change in demand is a shift of the demand curve due to non-price factors.

Question 3

A bakery faces the following costs: $$\100$ in fixed costs and $$\$$2$$ per loaf of bread in variable costs. If the bakery sells each loaf for $$\3$, what is the profit-maximizing quantity if the bakery can sell up to 200 loaves per day?

Accepted Answer

200 loaves, because marginal cost ($$\2$) is less than price ($$\$$3) $$for all units up to 200.

Question 4

Which of the following is an example of a positive externality?

Accepted Answer

A homeowner plants a garden, and neighbors benefit from the improved appearance and air quality.

Question 5

Suppose Denmark can produce either 10 tons of cheese or 20 tons of butter with its resources. Sweden can produce either 8 tons of cheese or 32 tons of butter. What is Denmark's opportunity cost of producing 1 ton of cheese?

Accepted Answer

$$2$$ tons of butter

Question 6

Which of the following best explains why a monopoly is considered inefficient compared to perfect competition?

Accepted Answer

A monopoly restricts output and raises prices, resulting in deadweight loss.

Question 7

A firm is deciding whether to shut down in the short run. Which condition should the firm use to make this decision?

Accepted Answer

If price is less than average variable cost ($$P \u003c AVC$$), the firm should shut down.

Question 8

Which of the following goods is both non-excludable and non-rivalrous?

Accepted Answer

National defense

Question 9

If a country has a comparative advantage in producing wheat, what does this imply?

Accepted Answer

It can produce wheat at a lower opportunity cost than other countries.

Question 10

Which of the following is a pecuniary externality?

Accepted Answer

A surge in demand for housing in a city raises rents for all residents.

Question 11

A monopolist faces the following demand curve: $$P = 100 - 2Q. $$Its marginal cost is constant at $$MC = 20. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 12

Which of the following is NOT a barrier to entry in a monopoly market?

Accepted Answer

Perfect information available to all firms

Question 13

Suppose a competitive market is in long-run equilibrium. What happens if new firms enter the market?

Accepted Answer

Market supply increases, price falls, and economic profits are driven to zero.

Question 14

Which of the following best describes the 'tragedy of the commons'?

Accepted Answer

Overuse of a common resource leads to its depletion because individuals act in their own self-interest.

Question 15

If the government imposes a tax on a good with a negative externality, what is the intended effect?

Accepted Answer

To internalize the externality by raising the price and reducing the quantity consumed.

Question 16

Which of the following is true about producer surplus?

Accepted Answer

It is the area above the supply curve and below the market price.

Question 17

A country can produce either 100 cars or 200 computers. If it trades 1 car for 3 computers with another country, is this an acceptable term of trade?

Accepted Answer

Yes, because the opportunity cost of 1 car is 2 computers, so 3 computers is better than producing domestically.

Question 18

Which of the following is an example of price discrimination by a monopoly?

Accepted Answer

An airline charges higher prices for last-minute tickets than for advance purchases.

Question 19

If a firm earns zero economic profit, which of the following must be true?

Accepted Answer

Total revenue equals total cost, including opportunity costs.

Question 20

Which of the following is a private solution to an externality problem?

Accepted Answer

Negotiation between affected parties to reach a mutually beneficial agreement.

Principles of Microeconomics: Final Exam Study Guide

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