Question 1

Suppose the government sets a price ceiling below the equilibrium price for a popular medication. What is the most likely immediate effect on the market for this medication?

Accepted Answer

A shortage will occur because quantity demanded will exceed quantity supplied.

Question 2

Which of the following best describes the usefulness of the R-squared statistic in regression analysis?

Accepted Answer

It indicates the proportion of variance in the dependent variable explained by the independent variable(s).

Question 3

Why does the supply curve typically slope upward in most markets?

Accepted Answer

Producers require higher prices to justify increased production due to increasing marginal costs.

Question 4

Which of the following scenarios represents a shift of the demand curve rather than movement along the demand curve?

Accepted Answer

An increase in consumer income for a normal good.

Question 5

If the price elasticity of demand for a product is $$-2$$, what does this imply?

Accepted Answer

A 1% increase in price leads to a 2% decrease in quantity demanded.

Question 6

Which of the following is NOT a property of consumer preferences assumed in microeconomic theory?

Accepted Answer

Indifference

Question 7

Why do indifference curves slope downward?

Accepted Answer

Because to maintain the same utility, consuming more of one good requires consuming less of the other.

Question 8

Given the utility function $$U = X 	imes Y$$, what is the Marginal Rate of Substitution (MRS) between $$X$$ and $$Y$$?

Accepted Answer

$$MRS = \frac{MU_X}{MU_Y}$$

Question 9

If the Marginal Rate of Transformation (MRT) between two goods is $$-2$$, what does this mean?

Accepted Answer

Producing one more unit of good X requires giving up two units of good Y.

Question 10

At the optimal consumer bundle, which condition must be satisfied?

Accepted Answer

$$MRS = \frac{P_X}{P_Y}$$

Question 11

Which of the following best describes a budget constraint?

Accepted Answer

It shows the combinations of goods a consumer can afford given their income and the prices of goods.

Question 12

In the short-run, which input is typically fixed for a firm?

Accepted Answer

Capital

Question 13

If the Marginal Product of Labor (MPL) is greater than the Average Product of Labor (APL), what happens to APL?

Accepted Answer

APL is rising.

Question 14

Which statement best describes the Law of Diminishing Marginal Returns?

Accepted Answer

As more units of a variable input are added to fixed inputs, the marginal product of the variable input will eventually decrease.

Question 15

The Marginal Rate of Technical Substitution (MRTS) is calculated as:

Accepted Answer

$$MRTS = -\frac{MP_L}{MP_K}$$

Question 16

Which of the following describes increasing returns to scale?

Accepted Answer

Output increases more than proportionally to input increases.

Question 17

If a firm's revenues are less than total costs but greater than total variable costs, should the firm continue operating in the short run?

Accepted Answer

Yes, because it can cover its variable costs and some fixed costs.

Question 18

What are sunk costs?

Accepted Answer

Costs that have already been incurred and cannot be recovered.

Question 19

Which of the following best describes a natural monopoly?

Accepted Answer

A market where one firm can supply the entire market at a lower cost than multiple firms due to economies of scale.

Question 20

If a firm produces a good at constant marginal cost, what does its long-run average cost curve look like?

Accepted Answer

It is horizontal.

Core Microeconomics and Macroeconomics Concepts: Study Guide

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