Question 1

Which of the following best describes opportunity cost?

Accepted Answer

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

Question 2

Suppose England can produce 8 million units of cloth or 4 million units of wine with its available labor. What is England's opportunity cost of producing 1 unit of wine?

Accepted Answer

$$\frac{8}{4} = 2$$ units of cloth

Question 3

If the demand curve for a product is $$P = 1000 - 50Q$$ and the supply curve is $$P = 300 + 10Q$$, what is the equilibrium quantity?

Accepted Answer

$$Q = 10.83$$

Question 4

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

Accepted Answer

A shortage will occur.

Question 5

Which of the following shifts the demand curve for a normal good to the right?

Accepted Answer

An increase in consumer preferences for the good.

Question 6

If the price of a good increases and the quantity demanded decreases, this is best explained by:

Accepted Answer

A movement along the demand curve.

Question 7

Suppose the government imposes a per-unit tax on sellers. Which area on the supply and demand graph represents the deadweight loss (DWL) caused by the tax?

Accepted Answer

The area between the new supply curve (after tax) and the demand curve, over the units no longer traded.

Question 8

A country has a comparative advantage in producing a good if:

Accepted Answer

It can produce the good at a lower opportunity cost than other countries.

Question 9

If the marginal utility per dollar spent on good X is greater than that of good Y, what should a consumer do to maximize utility?

Accepted Answer

Buy more of good X and less of good Y.

Question 10

If the supply curve for a product shifts to the left, which of the following is a possible cause?

Accepted Answer

An increase in expected future prices.

Question 11

Suppose the demand for a product is given by $$P = 20 - 0.2Q$$ and the supply is $$P = 2 + 0.2Q. If a $$subsidy of $$4$$ per unit is given to producers, what is the new equilibrium quantity?

Accepted Answer

$$Q = 45$$

Question 12

Which of the following best describes allocative efficiency?

Accepted Answer

Allocating resources so that net social welfare is maximized.

Question 13

If a country imposes a tariff on imports, what is the most likely effect on domestic consumer surplus?

Accepted Answer

Consumer surplus decreases.

Question 14

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

Accepted Answer

Perfect competition.

Question 15

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

Accepted Answer

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

Question 16

A binding price floor in the wheat market will:

Accepted Answer

Cause a surplus of wheat.

Question 17

If the government provides a subsidy to producers, what is the effect on the supply curve?

Accepted Answer

The supply curve shifts to the right.

Question 18

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

Accepted Answer

Coffee and tea.

Question 19

If the marginal rate of transformation (MRT) between two goods is $$3$$, what does this mean?

Accepted Answer

Producing one more unit of the first good requires giving up 3 units of the second good.

Question 20

Which of the following best explains why the production possibilities frontier (PPF) is typically concave to the origin?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Microeconomics Study Notes: Scarcity, Opportunity Cost, Comparative Advantage, Demand & Supply, and Market Interventions

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