Question 1

Suppose the government imposes a tax on sellers of a product. Which of the following best describes the effect on the market equilibrium price and quantity?

Accepted Answer

The equilibrium price paid by buyers increases and the equilibrium quantity decreases.

Question 2

A price ceiling set below the equilibrium price will most likely result in:

Accepted Answer

A shortage of the good.

Question 3

Which formula correctly calculates consumer surplus in a market?

Accepted Answer

$$CS = \sum (WTP - P)$$, where $$WTP is $$willingness to pay and $$P is $$price paid.

Question 4

Deadweight loss from a tax is minimized when:

Accepted Answer

Both demand and supply are highly inelastic.

Question 5

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

Accepted Answer

A homeowner planting a garden that beautifies the neighborhood.

Question 6

The Coase Theorem suggests that private negotiation can lead to efficient outcomes if:

Accepted Answer

Transaction costs are low and property rights are well-defined.

Question 7

Which equation represents the socially optimal quantity in the presence of a negative externality?

Accepted Answer

$$MSC = MSB$$, where $$MSC is $$marginal social cost and $$MSB is $$marginal social benefit.

Question 8

Which of the following best describes the free-rider problem associated with public goods?

Accepted Answer

Individuals benefit from the good without contributing to its cost.

Question 9

A common resource, such as a fishery, is likely to be overused because:

Accepted Answer

It is non-excludable and rival.

Question 10

Suppose a country imposes a tariff on imported goods. What is the likely effect on domestic consumer surplus?

Accepted Answer

Domestic consumer surplus decreases.

Question 11

If a quota is imposed on a good, which of the following is true?

Accepted Answer

Quota rents may be created for those who receive the right to import.

Question 12

According to the law of diminishing returns, as more units of a variable input are added to fixed inputs, the marginal product of the variable input:

Accepted Answer

Decreases after a certain point.

Question 13

Which formula correctly expresses average total cost (ATC)?

Accepted Answer

$$ATC = \frac{TC}{Q}$$, where $$TC is $$total cost and $$Q is $$quantity.

Question 14

If a consumer is maximizing utility, which condition must be satisfied for two goods, $$A$$ and $$B$$?

Accepted Answer

$$\frac{MU_A}{P_A} = \frac{MU_B}{P_B}$$, where $$MU is $$marginal utility and $$P is $$price.

Question 15

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

Accepted Answer

The value of a social media platform increases as more people join.

Question 16

Suppose a firm faces the following costs: fixed cost $$FC = 100$$, variable cost $$VC = 200$$, and produces $$Q = 10$$ units. What is the average variable cost (AVC)?

Accepted Answer

$$AVC = \frac{VC}{Q} = \frac{200}{10} = 20$$

Question 17

Which of the following best describes the difference between marginal cost (MC) and average total cost (ATC)?

Accepted Answer

MC is the cost of producing one more unit, while ATC is the cost per unit of all units produced.

Question 18

If a firm ignores opportunity costs when making decisions, which behavioral economics bias is it exhibiting?

Accepted Answer

Failure to account for opportunity costs.

Question 19

Which of the following is true about the relationship between marginal cost (MC) and average total cost (ATC)?

Accepted Answer

When $$MC \u003c ATC$$, $$ATC is $$decreasing.

Question 20

A celebrity endorsement for a product is most likely to affect demand due to:

Accepted Answer

Network externalities.

Microeconomics Study Guide: Key Concepts and Applications

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