Question 1

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 unit of wheat?

Accepted Answer

$$2$$ units of corn$

Question 2

Which of the following statements is an example of a normative economic statement?

Accepted Answer

The government should increase spending on healthcare.

Question 3

If the production possibilities curve (PPC) for a country shifts outward, which of the following could be a reason?

Accepted Answer

A technological improvement in production.

Question 4

Two countries, Alpha and Beta, can produce only cars and computers. Alpha has a comparative advantage in cars, while Beta has a comparative advantage in computers. According to the theory of comparative advantage, what should happen if they trade?

Accepted Answer

Alpha should export cars and import computers.

Question 5

In the circular flow model, which of the following best describes the flow of goods and services?

Accepted Answer

From firms to households in the product market.

Question 6

If the price of a substitute good increases, what is likely to happen to the demand for the original good?

Accepted Answer

Demand will increase.

Question 7

Suppose the demand for a product is given by $$Q_d = 100 - 2P$$ and the supply is $$Q_s = 4P. $$What is the equilibrium price?

Accepted Answer

$$P = 25$$

Question 8

If the price elasticity of demand for a product is $$-0.5$$, what does this imply about the demand for the product?

Accepted Answer

Demand is inelastic; consumers are not very responsive to price changes.

Question 9

A government imposes a price ceiling below the equilibrium price in the rental market. What is the most likely outcome?

Accepted Answer

A shortage of rental units.

Question 10

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

Accepted Answer

The goods are substitutes.

Question 11

Suppose the government imposes a tax on sellers. If demand is more inelastic than supply, who bears the greater burden of the tax?

Accepted Answer

Buyers bear the greater burden.

Question 12

Which of the following best describes allocative efficiency?

Accepted Answer

Producing the combination of goods most desired by society.

Question 13

A binding minimum wage is an example of which of the following?

Accepted Answer

A price floor.

Question 14

If a good has an income elasticity of demand of $$-1.2$$, what type of good is it?

Accepted Answer

An inferior good.

Question 15

Suppose a market is in equilibrium. If both demand and supply increase, what will happen to the equilibrium quantity and price?

Accepted Answer

Quantity will increase, price is indeterminate.

Question 16

Which of the following is NOT a cause of market failure?

Accepted Answer

Perfect competition.

Question 17

If the government sets a price floor above the equilibrium price in the agricultural market, what is the likely result?

Accepted Answer

A surplus of agricultural products.

Question 18

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what consumers are willing to pay and what they actually pay.

Question 19

Suppose the supply of a product is perfectly inelastic. If a tax is imposed on the product, who bears the entire burden of the tax?

Accepted Answer

Sellers.

Question 20

A decrease in the price of gasoline leads to a decrease in the demand for electric cars. What does this imply about the relationship between gasoline and electric cars?

Accepted Answer

They are substitutes.

Microeconomics Study Guide: Chapters 1–5 (ECON 1150 Test #1 Preparation)

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