Question 1

Which of the following best illustrates the tension between self-interest and social interest in economics?

Accepted Answer

A company polluting a river to reduce costs, increasing profits but harming the community's water supply.

Question 2

Which of the following statements about economic models is correct?

Accepted Answer

Economic models are simplified representations of reality that help us understand and predict economic phenomena.

Question 3

Suppose the Production Possibility Frontier (PPF) for an economy is given by the equation $$Y = 100 - 2X$$, where $$X$$ and $$Y$$ are quantities of two goods. Which of the following is true about points on the PPF?

Accepted Answer

All points on the PPF are productively efficient.

Question 4

If the marginal benefit (MB) of producing one more unit of good A is $$MB = 10 - 0.5Q$$ and the marginal cost (MC) is $$MC = 2 + Q$$, what is the allocatively efficient quantity of good A?

Accepted Answer

Solve $$MB = MC$$: $$10 - 0.5Q = 2 + Q \implies 8 = 1.5Q \implies Q = \frac{8}{1.5} \approx 5.33$$

Question 5

Liz can make 4 smoothies or 8 salads in an hour. Joe can make 6 smoothies or 6 salads in an hour. Who has the comparative advantage in making salads?

Accepted Answer

Liz, because her opportunity cost of making a salad is lower than Joe's.

Question 6

If both Liz and Joe specialize according to their comparative advantage and trade, what is the main benefit?

Accepted Answer

Both can consume more of both goods than they could without trade.

Question 7

Which of the following best describes the law of demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

Question 8

A decrease in the price of smartphones leads to an increase in the quantity demanded of smartphones. This is an example of:

Accepted Answer

A movement along the demand curve (change in quantity demanded).

Question 9

Suppose the demand for energy bars is given by $$Q_D = 50 - 2P$$ and the supply is $$Q_S = 10 + 3P. $$What is the equilibrium price?

Accepted Answer

Set $$Q_D = Q_S$$: $$50 - 2P = 10 + 3P \implies 40 = 5P \implies P = 8$$

Question 10

If the price of microchips increases due to a supply chain disruption, what is the likely effect on the equilibrium price and quantity of new cars (assuming microchips are a key input)?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases.

Question 11

Which of the following is true about market equilibrium?

Accepted Answer

At equilibrium, quantity demanded equals quantity supplied and there is no tendency for price to change.

Question 12

If both demand and supply for a product increase, what can we say about the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity will increase, but the change in equilibrium price is indeterminate without more information.

Question 13

Which of the following is a factor that would shift the demand curve for beef to the right?

Accepted Answer

An increase in consumer income, assuming beef is a normal good.

Question 14

Suppose the supply curve for a product shifts to the left. What is the most likely result, ceteris paribus?

Accepted Answer

Equilibrium price increases and equilibrium quantity decreases.

Question 15

Which of the following best describes allocative efficiency on the PPF?

Accepted Answer

The point where marginal benefit equals marginal cost: $$MB = MC$$

Question 16

If a country decides to produce more capital goods and fewer consumer goods today, what is the likely long-term effect?

Accepted Answer

The PPF will shift outward in the future, indicating economic growth.

Question 17

Which of the following is an example of a shortage in a market?

Accepted Answer

At the current price, quantity demanded exceeds quantity supplied, causing upward pressure on price.

Question 18

Suppose the demand for a product is given by $$Q_D = 100 - 4P$$ and the supply is $$Q_S = 20 + 2P. If $$the government sets a price ceiling at $$P = 10$$, what is the resulting shortage or surplus?

Accepted Answer

At $$P = 10$$, $$Q_D = 100 - 4 	imes 10 = 60$$, $$Q_S = 20 + 2 	imes 10 = 40. $$There is a shortage of $$60 - 40 = 20$$ units.

Question 19

Which of the following best describes the principle of empiricism in economics?

Accepted Answer

Using data and evidence to test economic theories and models.

Macroeconomics Study Guide: First Midterm (Chapters 1–3)

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