Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The highest-valued alternative that must be given up to engage in an activity.

Question 2

Suppose the demand for apartments is given by $$ Q_D = 4,750,000 - 1,000P $$ and the supply is $$ Q_S = -1,000,000 + 1,300P . $$What is the equilibrium rent?

Accepted Answer

$$2,500$$

Question 3

If the government imposes a rent ceiling of $$1,500$$ per month, what is the resulting quantity of apartments supplied?

Accepted Answer

$$950,000$$

Question 4

Which area on a supply and demand graph represents consumer surplus?

Accepted Answer

The area below the demand curve and above the price.

Question 5

What is the deadweight loss from a rent ceiling of $$1,500$$ per month, given the equilibrium and supply/demand equations provided?

Accepted Answer

$$1,495$$ million

Question 6

Which of the following statements is a positive statement?

Accepted Answer

"Raising the minimum wage will increase unemployment among teenagers."

Question 7

If the price of a substitute good increases, what happens to the demand for the original good?

Accepted Answer

It increases.

Question 8

Which of the following is an example of a public good?

Accepted Answer

The court system

Question 9

According to the Coase theorem, when will private bargaining result in an efficient solution to externalities?

Accepted Answer

When transaction costs are low.

Question 10

If a market is in competitive equilibrium, which of the following is true?

Accepted Answer

Economic surplus is maximized.

Question 11

Suppose the government imposes a tax on a good. Who bears the greater burden of the tax if the demand curve is steeper than the supply curve?

Accepted Answer

Buyers

Question 12

Which of the following best describes a common resource?

Accepted Answer

Rival and nonexcludable

Question 13

If the supply curve shifts to the right and the demand curve shifts to the right, what happens to equilibrium quantity and price?

Accepted Answer

Quantity increases, price may increase, decrease, or remain unchanged.

Question 14

Which of the following is an example of a Pigovian tax?

Accepted Answer

A tax on cigarettes to reduce smoking due to health costs.

Question 15

What is the main reason for the 'tragedy of the commons'?

Accepted Answer

Property rights are not well defined or enforced.

Question 16

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Barriers to entry

Question 17

If the price of an input used in production increases, what happens to the supply curve?

Accepted Answer

It shifts to the left.

Question 18

Which of the following best describes allocative efficiency?

Accepted Answer

Production is in accordance with consumer preferences.

Question 19

A market outcome in which the marginal benefit to consumers of the last unit produced equals the marginal cost of production is called:

Accepted Answer

Economic efficiency

Question 20

If a good is nonrival and excludable, what type of good is it?

Accepted Answer

Quasi-public good

Microeconomics Exam I Review: Foundations, Models, and Market Analysis

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