Question 1

Which of the following best describes opportunity cost?

Accepted Answer

The monetary cost of an item plus the value of all alternatives given up to obtain it.

Question 2

Suppose the government imposes a price ceiling below the equilibrium price in the market for gasoline. Which of the following is most likely to occur?

Accepted Answer

A shortage, because quantity demanded will exceed quantity supplied.

Question 3

If the demand for a normal good increases due to a rise in consumer income, what will happen to the equilibrium price and quantity, ceteris paribus?

Accepted Answer

Equilibrium price and equilibrium quantity will both increase.

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 of the neighborhood.

Question 5

Which of the following statements best distinguishes between microeconomics and macroeconomics?

Accepted Answer

Microeconomics studies individual markets and decision-makers, while macroeconomics studies the economy as a whole.

Question 6

Suppose the supply curve for wheat shifts to the left due to a drought. What will happen to the equilibrium price and quantity of wheat, holding demand constant?

Accepted Answer

Equilibrium price will increase and equilibrium quantity will decrease.

Question 7

A market is in equilibrium at price $$P^*$$ and quantity $$Q^*. If a $$new technology reduces production costs, which of the following will most likely occur?

Accepted Answer

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

Question 8

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 9

If the price of coffee increases, what is likely to happen to the demand for tea, assuming coffee and tea are substitutes?

Accepted Answer

The demand for tea will increase.

Question 10

Which of the following is NOT an assumption made in economic models?

Accepted Answer

People always act irrationally.

Question 11

Suppose the market price of a good is $$10. A consumer is willing to pay 15 $$for the good. What is the consumer surplus for this consumer?

Accepted Answer

$5

Question 12

If a new tax is imposed on sellers in a perfectly competitive market, which of the following will most likely occur?

Accepted Answer

The supply curve will shift to the left, increasing equilibrium price and decreasing equilibrium quantity.

Question 13

Which of the following best describes producer surplus?

Accepted Answer

The difference between the price a seller receives and the minimum price they are willing to accept.

Question 14

If both the demand and supply curves for a good shift to the right at the same time, what can we say for certain about the new equilibrium?

Accepted Answer

Equilibrium quantity will increase, but the change in equilibrium price is ambiguous.

Question 15

A market is currently at equilibrium. If a natural disaster destroys part of the supply, but at the same time, consumer incomes fall (and the good is a normal good), what will happen to equilibrium price and quantity?

Accepted Answer

Equilibrium quantity will decrease, but the change in equilibrium price is ambiguous.

Question 16

Which of the following is an example of a normative statement?

Accepted Answer

"The government should increase the minimum wage to improve living standards."

Question 17

Suppose the area under the demand curve and above the market price up to quantity $$Q is$$ $$A$$, and the area above the supply curve and below the market price up to quantity $$Q is$$ $$B. $$What is the total economic surplus at quantity $$Q$$?

Accepted Answer

$$A + B$$

Question 18

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

Accepted Answer

Demand decreases.

Question 19

Which of the following best describes allocative efficiency?

Accepted Answer

Resources are allocated so that the last unit provides a marginal benefit equal to marginal cost.

Question 20

Suppose the slope of a straight line is calculated as $$m = \frac{\Delta y}{\Delta x}. If$$ $$y$$ increases from 10 to 20 as $$x$$ increases from 2 to 6, what is the slope?

Accepted Answer

$$m = \frac{20 - 10}{6 - 2} = \frac{10}{4} = 2.5$$

Microeconomics Exam One Study Guide: Chapters 1, 3, and 4

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