Question 1

Which of the following best describes the principle of optimization in economics?

Accepted Answer

Selecting the option that maximizes the difference between total benefits and total costs.

Question 2

Suppose a consumer is deciding between two goods, X and Y. The marginal utility per dollar spent on X is higher than that of Y. According to the principle of optimization at the margin, what should the consumer do?

Accepted Answer

Buy more of good X and less of good Y until the marginal utility per dollar is equalized.

Question 3

A perfectly competitive market is characterized by which of the following?

Accepted Answer

All firms sell identical products and no single buyer or seller can affect the market price.

Question 4

If the market price is above the equilibrium price, what will happen in a competitive market?

Accepted Answer

There will be a surplus, causing the price to fall.

Question 5

Which of the following equations correctly represents a firm's profit?

Accepted Answer

$$\pi = TR - TC$$

Question 6

A firm in a perfectly competitive market will maximize profit by producing the quantity at which:

Accepted Answer

$$MR = MC$$

Question 7

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

Accepted Answer

The goods are substitutes.

Question 8

Suppose the government imposes a price ceiling below the equilibrium price. What is the most likely outcome?

Accepted Answer

A shortage will occur.

Question 9

Which of the following statements about correlation and causation is correct?

Accepted Answer

Correlation does not imply causation.

Question 10

A consumer is willing to pay $$\10$ for a product but buys it for $$\$$7. $$What is the consumer surplus?

Accepted Answer

$$\3$

Question 11

If a firm’s total cost is given by $$TC = 100 + 5Q$$, what is the marginal cost?

Accepted Answer

$$5$$

Question 12

Which of the following best describes the law of demand?

Accepted Answer

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

Question 13

A market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 14

If the price elasticity of demand for a product is $$-2$$, what does this mean?

Accepted Answer

A 1% increase in price leads to a 2% decrease in quantity demanded.

Question 15

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

Accepted Answer

"Increasing the minimum wage will lead to higher unemployment among teenagers."

Question 16

Suppose a firm faces the following costs: variable costs of $$\200$, fixed costs of $$\$$100$$, and produces 10 units. What is the average total cost (ATC)?

Accepted Answer

$$ATC = \frac{TC}{Q} = \frac{200 + 100}{10} = 30$$

Question 17

Which of the following is most likely to cause a shift in the demand curve for electric cars to the right?

Accepted Answer

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

Question 18

If a market is experiencing deadweight loss, what does this indicate?

Accepted Answer

The market is not operating at maximum efficiency.

Question 19

A firm is considering two production methods. Method A has a total cost of $$\500$ and produces 100 units. Method B has a total cost of $$\$$600$$ and produces 150 units. Which method has the lower average cost per unit?

Accepted Answer

Method B: $$\frac{600}{150} = 4$$

Question 20

Which of the following best describes the invisible hand in a perfectly competitive market?

Accepted Answer

It is the process by which individual self-interest leads to outcomes that are best for society as a whole.

Microeconomics Midterm Study Guide: Principles, Models, and Market Analysis

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