Question 1

Which of the following best describes the circular flow model in economics?

Accepted Answer

A simplified representation of economic life showing interactions among households, businesses, and government in input and output markets.

Question 2

Which of the following is an example of a positive economic statement?

Accepted Answer

Raising taxes will reduce consumer spending, all else equal.

Question 3

According to the law of demand, what happens to the quantity demanded of a product when its price increases, ceteris paribus?

Accepted Answer

Quantity demanded decreases.

Question 4

Which of the following would cause a rightward shift in the demand curve for a normal good?

Accepted Answer

A rise in the price of a substitute good.

Question 5

If the marginal benefit of consuming an additional unit of a good is less than its price, what should a rational consumer do?

Accepted Answer

Decrease consumption of the good.

Question 6

Which of the following best explains the diamond-water paradox?

Accepted Answer

Diamonds have a higher marginal benefit because they are scarce, while water's marginal benefit is low due to its abundance.

Question 7

Suppose the price of coffee increases. According to the law of supply, what is the most likely response from coffee producers?

Accepted Answer

Increase the quantity of coffee supplied.

Question 8

Which of the following is NOT a factor that shifts the supply curve?

Accepted Answer

A change in the price of the good itself.

Question 9

A business ignores sunk costs when making forward-looking decisions because:

Accepted Answer

Sunk costs cannot be changed and do not affect future opportunity costs.

Question 10

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

Accepted Answer

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

Question 11

Which equation represents the market equilibrium condition?

Accepted Answer

$$ Q_d = Q_s $$

Question 12

A decrease in the price of a complement good will have what effect on the demand for the related good?

Accepted Answer

Increase demand for the related good.

Question 13

If a market is experiencing a surplus, what will happen to the price and why?

Accepted Answer

Price will fall because sellers compete to sell their excess supply.

Question 14

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the price consumers are willing to pay and the price they actually pay.

Question 15

A technological improvement in the production of smartphones will likely result in:

Accepted Answer

A rightward shift of the supply curve.

Question 16

If the price of a normal good is expected to rise in the future, what is the likely effect on current demand?

Accepted Answer

Current demand will increase.

Question 17

Suppose the market for electric cars is in equilibrium. If a new government subsidy increases the number of businesses producing electric cars, what is the most likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price will fall and equilibrium quantity will rise.

Question 18

Which of the following is the best example of an opportunity cost?

Accepted Answer

The value of the next best alternative forgone when making a choice.

Question 19

If the marginal cost of producing an additional unit is $$10 and the marginal benefit is 8$$, what should a profit-maximizing firm do?

Accepted Answer

Decrease production.

Question 20

Which of the following best describes the use of comparative statics in economics?

Accepted Answer

Comparing two equilibrium outcomes to isolate the effect of changing one factor at a time.

Microeconomics Midterm Review: Models, Demand, Supply, and Market Equilibrium

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