Question 1

Which of the following best describes the concept of scarcity in economics?

Accepted Answer

Scarcity refers to the situation where limited resources are available to fulfill unlimited wants.

Question 2

Apple chooses the price of its iPhones based on expected profitability rather than randomly. This behavior illustrates which key economic idea?

Accepted Answer

People are rational.

Question 3

A government policy reduces student loan repayments from 10% to 5% of income. What unintended consequence might this create for colleges?

Accepted Answer

Colleges may have an incentive to increase tuition fees.

Question 4

Which of the following is an example of a decision made at the margin?

Accepted Answer

Deciding to study for one more hour instead of watching TV.

Question 5

If a government increases funding for space exploration, the opportunity cost is:

Accepted Answer

The highest-valued alternative forgone, such as funding cancer research.

Question 6

A music producer can choose between hiring a great singer or a mediocre singer with Auto-Tune. This scenario illustrates which economic question?

Accepted Answer

How will the goods and services be produced?

Question 7

Which of the following best describes a market economy?

Accepted Answer

An economy in which households and firms interacting in markets determine the allocation of resources.

Question 8

Productive efficiency is achieved when:

Accepted Answer

Goods and services are produced at the lowest possible cost.

Question 9

Allocative efficiency occurs when:

Accepted Answer

Production is in accordance with consumer preferences, and the marginal benefit equals the marginal cost.

Question 10

Which of the following is a caveat about market economies?

Accepted Answer

Market outcomes might ignore the desires of people not involved in transactions, such as pollution concerns.

Question 11

A government faces a trade-off between efficiency and equity. Which policy best illustrates this trade-off?

Accepted Answer

Taxing income to fund programs that aid the poor.

Question 12

Which step is NOT part of building an economic model?

Accepted Answer

Ignore all assumptions and simplifications.

Question 13

In economic models, what is the role of behavioral assumptions?

Accepted Answer

They describe how consumers and firms are expected to act, such as maximizing well-being or profits.

Question 14

Which of the following is an example of positive analysis?

Accepted Answer

Analyzing the effect of a minimum wage increase on unemployment rates.

Question 15

Suppose the price of pizza decreases from $$14 to 12$$, and the quantity demanded increases from 55 to 65 per week. What is the slope of the demand line?

Accepted Answer

$$\frac{55-65}{14-12}$$

Question 16

If a firm's total revenue is calculated by multiplying the quantity sold by the price, what is the total revenue if 125,000 bottles are sold at $2.00 each?

Accepted Answer

$$125,000 	imes 2.00 = 250,000$$

Question 17

What is the formula for calculating percentage change in an economic variable?

Accepted Answer

$$\frac{	ext{Value in the second period} - 	ext{Value in the first period}}{	ext{Value in the first period}} 	imes 100$$

Question 18

Which of the following is a normative statement?

Accepted Answer

The government should increase the minimum wage to reduce poverty.

Question 19

Which of the following best describes voluntary exchange?

Accepted Answer

A situation where both the buyer and seller are made better off by the transaction.

Microeconomics Chapter 1: Foundations and Models – Study Notes

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