Question 1

Which of the following statements best distinguishes between positive and normative economic analysis?

Accepted Answer

Positive analysis describes what is and can be tested, while normative analysis involves value judgments about what ought to be.

Question 2

Suppose the price of coffee increases. According to the law of demand, what is the expected effect on the quantity demanded of coffee, ceteris paribus?

Accepted Answer

The quantity demanded will decrease.

Question 3

If the nominal price of a textbook was $50 in 2000 and the Consumer Price Index (CPI) was 120 in 2000 and 180 in 2020, what is the real price of the textbook in 2020 dollars?

Accepted Answer

$$\75$

Question 4

Which of the following would cause a shift to the right in the demand curve for electric vehicles?

Accepted Answer

An increase in consumer income, assuming electric vehicles are normal goods.

Question 5

If the price elasticity of demand for a product is $$-2$$, what will happen to total revenue if the price increases by 10%?

Accepted Answer

Total revenue will decrease.

Question 6

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

Accepted Answer

They are substitutes.

Question 7

A consumer maximizes utility when the marginal utility per dollar spent on each good is equal. Which equation represents this condition for two goods, $$X$$ and $$Y$$?

Accepted Answer

$$\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y}$$

Question 8

If a consumer's indifference curve is convex to the origin, what does this imply about their marginal rate of substitution (MRS)?

Accepted Answer

The MRS diminishes as the consumer substitutes one good for another.

Question 9

Suppose a consumer's income increases and the quantity demanded for ramen noodles decreases. What type of good is ramen noodles for this consumer?

Accepted Answer

Inferior good

Question 10

If two consumers have individual demand functions $$Q_1 = 10 - P$ and Q_2$ = 20 - 2P$$, what is the market demand function?

Accepted Answer

$$Q = 30 - 3P$$

Question 11

Which of the following best describes a network externality?

Accepted Answer

A situation where the demand for a good increases as more people use it.

Question 12

Which of the following is an example of a sunk cost?

Accepted Answer

The cost of a specialized machine that cannot be resold.

Question 13

If the marginal product of labor is increasing, what happens to the total product of labor?

Accepted Answer

It increases at an increasing rate.

Question 14

Which equation represents the marginal rate of technical substitution (MRTS) between labor ($$L) $$and capital ($$K$$)?

Accepted Answer

$$MRTS_{LK} = -\frac{MP_L}{MP_K}$$

Question 15

A firm experiences economies of scale when:

Accepted Answer

Long-run average cost decreases as output increases.

Question 16

If the short-run marginal cost (SMC) curve is below the short-run average cost (SAC) curve, what is happening to the SAC?

Accepted Answer

SAC is decreasing.

Question 17

Which of the following best describes the opportunity cost of attending college full-time?

Accepted Answer

The value of the next best alternative foregone, such as income from working.

Question 18

If a firm’s production function exhibits constant returns to scale, what happens to output if all inputs are doubled?

Accepted Answer

Output exactly doubles.

Question 19

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

Accepted Answer

$$MC = 5 + 2Q$$

Question 20

Which of the following best describes the long-run expansion path of a firm?

Accepted Answer

The set of input combinations that minimize cost for each level of output.

Microeconomics Exam 1 Study Guide: Core Concepts and Applications

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