Q: The price elasticity of demand for a product is calculated as:

$$\frac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}$$

Question 1

Which of the following best describes the concept of opportunity cost in economics?

Accepted Answer

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

Question 2

Suppose a country can produce either 100 units of wheat or 200 units of corn using all its resources. If the country is currently producing 100 units of wheat, what is the opportunity cost of producing 1 more unit of wheat?

Accepted Answer

$$\frac{2}{1}$$ units of corn

Question 3

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

Accepted Answer

The government should increase the minimum wage to reduce poverty.

Question 4

If the price of coffee increases and, as a result, the quantity demanded of tea increases, what is the relationship between coffee and tea?

Accepted Answer

They are substitute goods.

Question 5

A market is in equilibrium at price $$P^*$$ and quantity $$Q^*. If $$there is an increase in demand and a simultaneous decrease in supply, what will happen to the equilibrium price and quantity?

Accepted Answer

Price will increase, but the effect on quantity is indeterminate.

Question 6

The price elasticity of demand for a product is calculated as:

Accepted Answer

$$\frac{\%\ 	ext{change in quantity demanded}}{\%\ 	ext{change in price}}$$

Question 7

If the price elasticity of demand for gasoline is $$-0.2$$, what does this imply about consumer response to price changes?

Accepted Answer

Consumers are relatively unresponsive to price changes (inelastic demand).

Question 8

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

Accepted Answer

A shortage of rental apartments.

Question 9

In the short run, a perfectly competitive firm will continue to operate as long as:

Accepted Answer

Price is greater than or equal to average variable cost.

Question 10

Which of the following is a key characteristic of a monopoly?

Accepted Answer

There are significant barriers to entry.

Question 11

Which market structure is characterized by many firms selling differentiated products and free entry and exit?

Accepted Answer

Monopolistic competition

Question 12

Suppose the government increases its purchases by $$\100$ million in a closed economy with a marginal propensity to consume (MPC) of 0.8$. What is the total change in equilibrium national income?

Accepted Answer

$$\500$ million

Question 13

If the Bank of Canada wants to decrease the money supply, which of the following actions would it most likely take?

Accepted Answer

Sell government securities in the open market.

Question 14

Which of the following best explains why the aggregate demand curve is downward sloping?

Accepted Answer

As the price level falls, the purchasing power of money increases, leading to higher real spending.

Question 15

A bond has a face value of $$\1$$,000$$ and pays $$\$$50$$ per year in interest. If the market interest rate rises to $$6\%$$, what happens to the price of the bond?

Accepted Answer

The price of the bond falls below $$\1$$,000$.

Question 16

If the marginal propensity to import (MPM) is $$0.2$$ and the marginal propensity to consume (MPC) is $$0.7$$, what is the value of the simple multiplier in an open economy with no taxes?

Accepted Answer

$$\frac{1}{1 - MPC + MPM} = \frac{1}{1 - 0.7 + 0.2} = \frac{1}{0.5} = 2$$

Question 17

Which of the following is NOT a function of money?

Accepted Answer

A means of production

Question 18

In the context of the Canadian banking system, how do commercial banks create money?

Accepted Answer

By making loans that increase the money supply through the deposit creation process.

Question 19

Which of the following would shift the aggregate supply (AS) curve to the right?

Accepted Answer

A technological improvement that increases productivity.

Microeconomics Study Guide: Course Outline and Key Concepts

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