Question 1

Suppose a country can produce either 100 units of wheat or 200 units of corn using all its resources. If the country is currently producing 50 units of wheat and 100 units of corn, what is the opportunity cost of producing an additional 50 units of wheat?

Accepted Answer

100 units of corn

Question 2

A production possibilities curve (PPC) is bowed outward rather than a straight line. What does this shape indicate about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 3

If an economy is operating inside its production possibilities curve, what does this imply?

Accepted Answer

Resources are not being fully utilized.

Question 4

Country A can produce 10 cars or 20 computers in a day. Country B can produce 8 cars or 16 computers in a day. Which country has the comparative advantage in producing cars?

Accepted Answer

Both countries have the same opportunity cost

Question 5

If 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 increases.

Question 6

Suppose the government imposes a price ceiling below the equilibrium price. What is the most likely outcome in the market?

Accepted Answer

A shortage will occur.

Question 7

A negative externality exists in the market for gasoline. The market equilibrium quantity is $$Q_m$$, and the socially efficient quantity is $$Q_e. $$Which of the following is true?

Accepted Answer

$$Q_m \u003e Q_e$$

Question 8

If a tax is imposed to correct a negative externality, what should the size of the tax be?

Accepted Answer

Equal to the external cost per unit

Question 9

Suppose the government sets a price floor above the equilibrium price in the wheat market. What will be the effect on consumer surplus, producer surplus, and deadweight loss?

Accepted Answer

Consumer surplus decreases, producer surplus may increase or decrease, deadweight loss is created.

Question 10

If the price of a complement to good X decreases, what is the likely effect on the demand for good X?

Accepted Answer

Demand for good X increases.

Question 11

A new technology increases the productivity of making smartphones. What is the likely effect on the supply curve for smartphones?

Accepted Answer

The supply curve shifts to the right.

Question 12

If the income of consumers increases and smartphones are a normal good, what happens to the demand for smartphones?

Accepted Answer

Demand increases.

Question 13

Suppose both the demand and supply for electric cars increase simultaneously. What can be said about the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases, but the effect on price is ambiguous.

Question 14

A city imposes a $$\2$ per unit tax on a good that generates a negative externality. If the external cost per unit is $$\$$2$$, what will be the effect on the market?

Accepted Answer

The market will produce the efficient quantity.

Question 15

According to the Coase Theorem, under what condition can private parties solve the problem of externalities on their own?

Accepted Answer

When property rights are well-defined and transaction costs are low.

Question 16

If a price ceiling is set above the equilibrium price, what is the effect on the market?

Accepted Answer

There is no effect; the market remains at equilibrium.

Question 17

Suppose the market for rental apartments is in equilibrium. If the government expects rents to rise in the future, what is the likely effect on current demand?

Accepted Answer

Current demand increases.

Question 18

If the government imposes a price floor in the market for milk that is above the equilibrium price, how do you calculate the surplus created?

Accepted Answer

Surplus = Quantity supplied at price floor $$-$$ Quantity demanded at price floor

Question 19

If the demand for a good decreases while the supply remains unchanged, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price and quantity both decrease.

Question 20

Suppose a price ceiling is imposed below the equilibrium price in the market for gasoline. How do you calculate the deadweight loss created by this policy?

Accepted Answer

Deadweight loss = $$\frac{1}{2} 	imes (Q^* - Q_c) 	imes (P^* - P_c)$$, where $$Q^*$$ and $$P^*$$ are equilibrium quantity and price, and $$Q_c$$ and $$P_c$$ are quantity and price at the ceiling.

ECN 202 Midterm Exam 1 Study Guide: Microeconomics Core Concepts

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