Question 1

Suppose the government imposes a price ceiling below the equilibrium price in the bottled water market during a natural disaster. What is the most likely outcome?

Accepted Answer

A shortage of bottled water will occur, as quantity demanded exceeds quantity supplied.

Question 2

If a $5 tax is imposed on sellers in a competitive market, what is the effect on the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity decreases and buyers pay a higher price.

Question 3

Which area on a supply and demand graph represents the deadweight loss caused by a tax?

Accepted Answer

The area between the supply and demand curves that is not covered by consumer or producer surplus after the tax.

Question 4

Given the demand curve $$P = 14 - 3Q$$ and the supply curve $$P = 4 + 2Q$$, what is the equilibrium price?

Accepted Answer

$$P = 8$$

Question 5

A negative externality in production causes which of the following?

Accepted Answer

The market equilibrium quantity is greater than the socially optimal quantity.

Question 6

If the marginal cost curve ($$MC) $$intersects the average variable cost curve ($$AVC) at$$ $$Q = 10$$, what does this imply?

Accepted Answer

The $$AVC is at $$its minimum at $$Q = 10.$$

Question 7

In the long run, a perfectly competitive firm will produce at the point where:

Accepted Answer

$$P = MC = ATC$$

Question 8

If a $$5 tax is imposed in a market and the deadweight loss is 6$, what does this indicate about the elasticity of supply and demand?

Accepted Answer

Both supply and demand are relatively elastic.

Question 9

Which of the following best describes producer surplus?

Accepted Answer

The area above the supply curve and below the market price.

Question 10

Suppose the government provides a $10 subsidy to consumers in a market with a negative externality. What is the likely effect?

Accepted Answer

The equilibrium quantity will increase, worsening the externality.

Question 11

If the total cost curve for a firm is flat for some range of output, what does this indicate about marginal cost in that range?

Accepted Answer

Marginal cost is zero.

Question 12

A price floor set above the equilibrium price will:

Accepted Answer

Create a surplus in the market.

Question 13

If the government imposes a tax on sellers, which of the following is true?

Accepted Answer

The supply curve shifts upward by the amount of the tax.

Question 14

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

Accepted Answer

Firms earn positive economic profit.

Question 15

If the market demand curve is $$P = 20 - 0.5Q$$ and there are 10 identical firms, what is the equilibrium price when each firm supplies 2 units?

Accepted Answer

$$P = 10$$

Question 16

Which of the following best explains why the marginal cost curve is typically U-shaped?

Accepted Answer

Increasing and then diminishing marginal returns to variable inputs.

Question 17

If a firm’s average total cost is minimized at $$Q = 8$$, what is true about marginal cost at $$Q = 8$$?

Accepted Answer

Marginal cost equals average total cost at $$Q = 8.$$

Question 18

Which of the following is a real-world example of a negative externality?

Accepted Answer

Air pollution from a factory affecting nearby residents.

Question 19

If the government wants to correct a negative externality, which policy is most likely to achieve the socially optimal outcome?

Accepted Answer

Imposing a tax equal to the external cost.

Microeconomics Midterm 2: Study Guide and Key Concepts

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