Question 1

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

Accepted Answer

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

Question 2

Suppose a consumer is deciding between buying a concert ticket or a new book. The concert ticket costs $$50 and the book costs 30. If $$the consumer chooses the concert ticket, what is the opportunity cost?

Accepted Answer

The enjoyment and value the consumer would have received from the book.

Question 3

In a perfectly competitive market, which of the following is true about the price?

Accepted Answer

It is determined by the intersection of market supply and market demand.

Question 4

If the marginal benefit (MB) of consuming an additional unit of a good is less than the marginal cost (MC), what should a rational consumer do?

Accepted Answer

Decrease consumption of the good.

Question 5

Which formula correctly calculates economic profit?

Accepted Answer

$$Economic\ Profit = Total\ Revenue - (Explicit\ Cost + Implicit\ Cost)$$

Question 6

A firm in a perfectly competitive market will maximize profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 7

If the price of a normal good increases, what happens to the quantity demanded?

Accepted Answer

It decreases.

Question 8

Which of the following best explains the law of diminishing returns?

Accepted Answer

Adding more of a variable input to a fixed input will eventually decrease the marginal product of the variable input.

Question 9

Suppose the cross-price elasticity of demand between two goods is positive. What does this indicate?

Accepted Answer

The goods are substitutes.

Question 10

A consumer’s budget constraint can be represented by which equation?

Accepted Answer

$$P_x Q_x + P_y Q_y = I$$

Question 11

If a firm’s average total cost (ATC) is $$10 and the market price is 8$$, what should the firm do in the short run?

Accepted Answer

Continue producing if price covers average variable cost (AVC).

Question 12

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

Accepted Answer

National defense.

Question 13

Suppose the income elasticity of demand for a good is -0.5. What type of good is this?

Accepted Answer

Inferior good.

Question 14

Which of the following best describes the free-rider problem?

Accepted Answer

When individuals benefit from a good without paying for it.

Question 15

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 16

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

Accepted Answer

Demand is elastic.

Question 17

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

There are many buyers and sellers.

Question 18

Suppose a government imposes a price ceiling below the equilibrium price. What is the likely outcome?

Accepted Answer

A shortage of the good.

Question 19

Which equation represents the marginal cost (MC)?

Accepted Answer

$$MC = \frac{\Delta TC}{\Delta Q}$$

Question 20

If a firm faces a downward-sloping demand curve and can set prices, which market structure is it most likely operating in?

Accepted Answer

Monopoly.

Comprehensive Study Notes for Microeconomics: Principles, Optimization, Markets, Incentives, and More

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