Question 1

Which of the following best describes an opportunity cost?

Accepted Answer

The value of the next best alternative foregone when making a choice.

Question 2

Suppose a consumer is deciding between buying coffee and tea. If the price of coffee increases, what is most likely to happen to the demand for tea, assuming they are substitutes?

Accepted Answer

The demand for tea will increase.

Question 3

A perfectly competitive firm maximizes profit by producing the quantity where:

Accepted Answer

$$MC = MR$$

Question 4

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

Accepted Answer

They are substitutes.

Question 5

Which of the following is an example of a public good?

Accepted Answer

A city park that is open to everyone.

Question 6

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

Accepted Answer

A shortage will occur.

Question 7

If a firm in a perfectly competitive market is producing at a level where $$P \u003c AVC$$, what should the firm do in the short run?

Accepted Answer

Shut down production immediately.

Question 8

Which of the following best explains the concept of diminishing marginal returns?

Accepted Answer

As more units of a variable input are added to fixed inputs, the additional output from each new unit eventually decreases.

Question 9

A negative externality in production, such as pollution, leads to which of the following outcomes in a competitive market?

Accepted Answer

The market produces more than the socially optimal quantity.

Question 10

If the price elasticity of demand for a product is $$|E_d| \u003e 1$$, what does this imply about the demand for the product?

Accepted Answer

Demand is elastic.

Question 11

Suppose a country can produce either 10 units of wheat or 20 units of corn with all its resources. What is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

2 units of corn

Question 12

Which of the following is a characteristic of a monopoly market structure?

Accepted Answer

There are significant barriers to entry.

Question 13

If a firm faces the following cost structure: $$TC = 100 + 5Q$$, what is the marginal cost ($$MC) of $$producing one more unit?

Accepted Answer

$$MC = 5$$

Question 14

Which of the following best describes the 'Tragedy of the Commons'?

Accepted Answer

A situation where common resources are overused because individuals do not bear the full cost of their actions.

Question 15

If the government wants to correct a negative externality, which of the following policies is most likely to achieve an efficient outcome?

Accepted Answer

Imposing a tax equal to the marginal external cost.

Question 16

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 17

If a good has an income elasticity of demand less than zero, it is considered:

Accepted Answer

An inferior good.

Question 18

Suppose the market for gasoline is initially in equilibrium. If the government imposes a binding price floor above the equilibrium price, what will happen?

Accepted Answer

There will be a surplus of gasoline.

Question 19

Which of the following is true about the deadweight loss ($$DWL) $$caused by a monopoly?

Accepted Answer

$$DWL$$ arises because the monopolist produces less than the socially optimal quantity.

Question 20

If the marginal product of labor ($$MP_L) is $$decreasing as more workers are hired, but still positive, what does this imply about total output?

Accepted Answer

Total output is increasing at a decreasing rate.

Microeconomics Study Guide: Core Concepts and Market Structures

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