Question 1

Which of the following best describes the role of prices in a market economy?

Accepted Answer

Prices allocate resources by signaling where goods and services are most valued.

Question 2

Suppose the demand for electric cars increases due to environmental concerns. Using the demand and supply model, what is the most likely short-run effect on the equilibrium price and quantity of electric cars?

Accepted Answer

Equilibrium price increases and equilibrium quantity increases.

Question 3

If the market for rental housing is subject to a price ceiling below the equilibrium price, what is the most likely outcome?

Accepted Answer

A shortage of rental housing units.

Question 4

Which equation represents the consumer surplus in a market?

Accepted Answer

$$CS = \int_{0}^{Q_{eq}} [D(Q) - P_{eq}] dQ$$

Question 5

A government introduces a tax on sugary drinks. Which of the following best describes the likely effect on the market for sugary drinks?

Accepted Answer

The supply curve shifts to the left, raising prices and reducing quantity.

Question 6

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

Accepted Answer

A 1% increase in price leads to a 2% decrease in quantity demanded.

Question 7

Which of the following is an example of a positive externality?

Accepted Answer

A homeowner planting trees that improve air quality for the neighborhood.

Question 8

Suppose a firm faces the following cost function: $$TC = 100 + 5Q + 2Q^2$. What is the marginal cost (MC) function?

Accepted Answer

$$MC = 5 + 4Q$$

Question 9

In the context of microeconomics, what does the term 'market failure' refer to?

Accepted Answer

A situation where the allocation of resources by the market is not efficient.

Question 10

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

Accepted Answer

The value of the next best alternative forgone.

Question 11

A monopolist faces the following demand curve: $$P = 100 - 2Q. $$What is the marginal revenue (MR) function?

Accepted Answer

$$MR = 100 - 4Q$$

Question 12

Which of the following is most likely to result from a binding minimum wage set above the equilibrium wage in the labor market?

Accepted Answer

A surplus of labor (unemployment).

Question 13

If a country imposes a tariff on imported steel, what is the most likely effect on domestic steel producers?

Accepted Answer

Domestic producers will benefit from higher prices and increased sales.

Question 14

Which of the following equations represents the profit ($$\pi) of a $$firm?

Accepted Answer

$$\pi = TR - TC$$

Question 15

Suppose the cross-price elasticity of demand between tea and coffee is $$+0.5. $$What does this indicate?

Accepted Answer

Tea and coffee are substitutes.

Question 16

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

Accepted Answer

Products are differentiated.

Question 17

A firm in a perfectly competitive market faces a market price of $$P = 20. $$Its cost function is $$TC = 50 + 10Q. $$What is the profit-maximizing output level?

Accepted Answer

$$Q = 2$$

Question 18

Which of the following best explains why public goods are often underprovided in a free market?

Accepted Answer

Because of the free-rider problem.

Question 19

Suppose the government subsidizes the production of solar panels. What is the most likely effect on the market for solar panels?

Accepted Answer

The supply curve shifts to the right, lowering prices and increasing quantity.

Question 20

Which of the following is an example of a government intervention that can correct a market failure?

Accepted Answer

Imposing a tax on negative externalities such as pollution.

Introductory Microeconomics Syllabus and Study Guide

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