Question 1

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 2

Suppose the market for coffee is in equilibrium. If a frost destroys a large portion of the coffee crop, what is the most likely immediate effect on the market?

Accepted Answer

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

Question 3

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

Accepted Answer

Products are differentiated.

Question 4

If the cross-price elasticity of demand between two goods is positive, what does this imply?

Accepted Answer

The goods are substitutes.

Question 5

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 6

Which of the following is an example of price discrimination?

Accepted Answer

A movie theater charges lower prices for children and seniors.

Question 7

If a country has a comparative advantage in producing wheat, it means:

Accepted Answer

It can produce wheat at a lower opportunity cost than other countries.

Question 8

Which of the following would cause a movement along the supply curve for cars?

Accepted Answer

An increase in the price of cars.

Question 9

The Production Possibilities Curve (PPC) is bowed outward because:

Accepted Answer

Resources are specialized and opportunity costs increase as more of one good is produced.

Question 10

Which of the following best explains why monopolies can earn long-run economic profits?

Accepted Answer

There are significant barriers to entry.

Question 11

Suppose a firm in a perfectly competitive market is producing where $$P \u003c AVC. $$What should the firm do in the short run?

Accepted Answer

Shut down immediately.

Question 12

Which of the following is true about the long-run equilibrium in a perfectly competitive market?

Accepted Answer

Price equals marginal cost and minimum average total cost.

Question 13

If the government imposes a price ceiling below the equilibrium price, what is the likely result?

Accepted Answer

A shortage will occur.

Question 14

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

Accepted Answer

National defense.

Question 15

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

Accepted Answer

Decrease output.

Question 16

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

Accepted Answer

The value of the next best alternative forgone.

Question 17

A firm practicing perfect price discrimination will:

Accepted Answer

Capture all consumer surplus as profit.

Question 18

Which of the following is NOT a source of market failure?

Accepted Answer

Perfect competition.

Question 19

If a tax is imposed on the sellers of a good, what happens to the supply curve?

Accepted Answer

It shifts to the left.

Question 20

Which of the following is true about the relationship between marginal cost (MC) and average total cost (ATC)?

Accepted Answer

When $$MC = ATC$$, $$ATC is at $$its minimum.

Final Exam Study Guide: Principles of Microeconomics

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