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 Country A can produce either 10 cars or 20 computers with its resources, and Country B can produce either 8 cars or 16 computers. Which country has the comparative advantage in producing cars?

Accepted Answer

Country A, because its opportunity cost for producing one car is 2 computers, while Country B's is also 2 computers.

Question 3

A price ceiling set below the equilibrium price in a competitive market will:

Accepted Answer

Create a shortage of the good.

Question 4

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

Accepted Answer

Total revenue will decrease.

Question 5

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

Accepted Answer

A neighbor planting flowers that beautify the neighborhood.

Question 6

The law of demand states that, ceteris paribus:

Accepted Answer

As the price of a good increases, the quantity demanded decreases.

Question 7

If a tax is imposed on the sellers of a good, which of the following will occur?

Accepted Answer

The supply curve will shift to the left by the amount of the tax.

Question 8

Which of the following best describes a public good?

Accepted Answer

A good that is non-rival and non-excludable.

Question 9

Suppose the government sets a price floor above the equilibrium price in the wheat market. What is the likely result?

Accepted Answer

A surplus of wheat.

Question 10

If the cross-price elasticity of demand between two goods is positive, what does this imply?

Accepted Answer

The goods are substitutes.

Question 11

Which of the following is an example of government failure?

Accepted Answer

A government program that benefits a small group at the expense of the general public.

Question 12

If a good is both rival in consumption and non-excludable, it is best described as:

Accepted Answer

A common resource.

Question 13

Which of the following is NOT a determinant of demand?

Accepted Answer

Technology.

Question 14

Suppose a consumer receives a total utility of 50 from consuming 5 units of a good and a total utility of 58 from consuming 6 units. What is the marginal utility of the 6th unit?

Accepted Answer

$$8$$

Question 15

Which of the following best explains why the production possibilities curve (PPC) bows outward from the origin?

Accepted Answer

Resources are specialized, so opportunity costs increase as more of one good is produced.

Question 16

If the government imposes a Pigouvian tax on a good, what is the intended effect?

Accepted Answer

To internalize a negative externality by making producers or consumers pay the social cost.

Question 17

Which of the following is an example of rent-seeking behavior?

Accepted Answer

A company lobbying the government for special tax breaks.

Question 18

If the income elasticity of demand for a good is $$-0.5$$, what type of good is it?

Accepted Answer

An inferior good.

Question 19

Which of the following best describes the 'Invisible Hand' as proposed by Adam Smith?

Accepted Answer

Individuals pursuing their own self-interest unintentionally benefit society as a whole.

Question 20

Suppose the government imposes a tax on a good, and the supply is perfectly inelastic. Who bears the entire burden of the tax?

Accepted Answer

Producers.

Microeconomics Midterm Study Guide: Core Principles and Applications

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