Question 1

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

Accepted Answer

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

Question 2

Suppose a country can produce either 100 units of wheat or 200 units of corn with its available resources. What is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

$$2$$ units of corn

Question 3

Which of the following statements about the Production Possibilities Frontier (PPF) is correct?

Accepted Answer

Points on the PPF are efficient because all resources are fully utilized.

Question 4

Country A can produce either $$10$$ cars or $$20$$ computers. Country B can produce either $$8$$ cars or $$16$$ computers. Which country has the comparative advantage in producing computers?

Accepted Answer

Country B, because it has a lower opportunity cost for computers.

Question 5

If the demand for a product increases while the supply remains constant, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price and quantity will both increase.

Question 6

Which of the following best illustrates the law of diminishing marginal utility?

Accepted Answer

The more slices of pizza you eat, the less additional satisfaction you get from each extra slice.

Question 7

A price ceiling set below the equilibrium price will likely result in:

Accepted Answer

A shortage of the good.

Question 8

Suppose the government imposes a tax on sellers. Which of the following is true about the burden of the tax?

Accepted Answer

The burden is shared between buyers and sellers depending on the elasticities of demand and supply.

Question 9

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

Accepted Answer

A homeowner planting a garden that beautifies the neighborhood.

Question 10

According to the Coase Theorem, private solutions to externalities are most likely to be effective when:

Accepted Answer

Property rights are clearly defined and transaction costs are low.

Question 11

Which of the following goods is both non-rival and non-excludable?

Accepted Answer

National defense.

Question 12

If the marginal cost ($$MC) of $$producing a good is less than the marginal benefit ($$MB$$), what should a rational producer do?

Accepted Answer

Increase production.

Question 13

Suppose the market for gasoline is in equilibrium. If a price floor is set above the equilibrium price, what is the likely result?

Accepted Answer

A surplus of gasoline.

Question 14

Which of the following best describes the 'tragedy of the commons'?

Accepted Answer

Common resources are overused because individuals act in their own self-interest.

Question 15

If the price elasticity of demand for a product is $$|E_d| = 0.5$$, what does this imply about consumer responsiveness?

Accepted Answer

Demand is inelastic; consumers are not very responsive to price changes.

Question 16

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

Accepted Answer

"The government should provide free healthcare to all citizens."

Question 17

Suppose a market is initially in equilibrium. A sudden increase in supply, with demand unchanged, will result in:

Accepted Answer

A lower equilibrium price and higher equilibrium quantity.

Question 18

Which of the following best explains why public goods tend to be underprovided in a free market?

Accepted Answer

Because of the free-rider problem.

Question 19

If a government subsidy is provided to consumers of a good with positive externalities, what is the likely effect on the market?

Accepted Answer

The equilibrium quantity will increase, moving closer to the socially optimal level.

Question 20

A market is in equilibrium at price $$P^*$$ and quantity $$Q^*. If a $$tax $$t is $$imposed on sellers, what happens to the supply curve?

Accepted Answer

It shifts upward by $$t$$ units.

Microeconomics Core Concepts and Principles: Structured Study Notes

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