Question 1

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

Accepted Answer

Scarcity means that resources are limited and cannot satisfy all human wants.

Question 2

Suppose a country can produce either 100 units of wheat or 200 units of corn using all its resources. What is the opportunity cost of producing one additional unit of wheat?

Accepted Answer

$$\frac{200}{100} = 2$$ units of corn

Question 3

If a technological improvement increases the efficiency of producing only one good, what happens to the production possibility frontier (PPF)?

Accepted Answer

The PPF pivots outward from the axis of the improved good.

Question 4

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

Accepted Answer

Country A, because its opportunity cost for cars is lower.

Question 5

Which of the following would cause a movement along the demand curve for pizza, rather than a shift of the demand curve?

Accepted Answer

A decrease in the price of pizza.

Question 6

If the price of coffee increases and the demand for tea increases, what is the relationship between coffee and tea?

Accepted Answer

They are substitute goods.

Question 7

Suppose the price elasticity of demand for a product is $$|E_d| = 0.5. If $$the price increases by 10%, what happens to total revenue?

Accepted Answer

Total revenue increases.

Question 8

Using the midpoint formula, calculate the price elasticity of demand if the price of a good increases from $$\10$ to $$\$$12$$ and quantity demanded decreases from $$100 to$$ $$80.$$

Accepted Answer

$$E_d = \frac{(80-100)}{(80+100)/2} \div \frac{(12-10)}{(12+10)/2} = \frac{-20}{90} \div \frac{2}{11} \approx -1.22$$

Question 9

Which of the following is most likely to have an elastic demand?

Accepted Answer

A specific brand of breakfast cereal.

Question 10

If the cross-price elasticity of demand between two goods is $$-0.8$$, what does this indicate?

Accepted Answer

The goods are complements.

Question 11

A decrease in the price of smartphones causes the quantity demanded to increase. This is an example of:

Accepted Answer

A movement along the demand curve.

Question 12

If a good has an income elasticity of demand of $$-0.4$$, what type of good is it?

Accepted Answer

Inferior good.

Question 13

Which of the following is NOT a determinant of demand?

Accepted Answer

Technology used to produce the good.

Question 14

If both the demand and supply curves for a product shift to the right, what can we say about the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases, but the effect on price is ambiguous.

Question 15

A linear PPF implies:

Accepted Answer

Constant opportunity costs.

Question 16

If a country specializes in producing the good for which it has a comparative advantage, what is the likely outcome?

Accepted Answer

Total world production increases.

Question 17

Which of the following is the most important determinant of price elasticity of demand?

Accepted Answer

Availability of close substitutes.

Question 18

If a product has a price elasticity of demand of $$|E_d| = 1$$, what happens to total revenue if the price increases?

Accepted Answer

Total revenue remains unchanged.

Question 19

Suppose the price of a normal good increases. What is the likely effect on the quantity demanded and the demand curve?

Accepted Answer

Quantity demanded decreases; the demand curve does not shift.

Question 20

If the market price is above the equilibrium price, what will result?

Accepted Answer

A surplus.

Microeconomics Exam 1 Review: Foundations, PPF, Demand & Supply, and Elasticity

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