Question 1

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

Accepted Answer

A shortage of gasoline will occur because quantity demanded exceeds quantity supplied.

Question 2

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

Accepted Answer

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

Question 3

If the demand for a product increases while the supply remains constant, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price and equilibrium quantity will both increase.

Question 4

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Products are differentiated.

Question 5

A monopolist faces the following demand curve: $$P = 100 - 2Q. $$Its marginal cost is constant at $$MC = 20. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 30$$

Question 6

Which of the following best explains why the production possibilities curve (PPC) is typically bowed outward?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 7

Suppose 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 immediately.

Question 8

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

Accepted Answer

National defense

Question 9

If a negative externality is present in the production of a good, what is the likely result in a free market?

Accepted Answer

The good will be overproduced.

Question 10

Which of the following best describes diminishing marginal utility?

Accepted Answer

Marginal utility decreases as more units are consumed.

Question 11

A firm’s short-run supply curve in perfect competition is given by:

Accepted Answer

The portion of its marginal cost curve above average variable cost.

Question 12

Which of the following is a source of monopoly power?

Accepted Answer

Barriers to entry

Question 13

If the cross-price elasticity of demand between two goods is positive, the goods are:

Accepted Answer

Substitutes

Question 14

Which of the following is an example of price discrimination?

Accepted Answer

A movie theater charging different prices for children and adults.

Question 15

Suppose the marginal cost (MC) of producing a good is given by $$MC = 10 + 2Q. If $$the market price is $$P = 30$$, how many units should a perfectly competitive firm produce to maximize profit?

Accepted Answer

$$Q = 10$$

Question 16

Which of the following is a likely result of the tragedy of the commons?

Accepted Answer

Overuse and depletion of a common resource.

Question 17

If a country can produce more of both goods than another country, but has a lower opportunity cost in producing one good, it should:

Accepted Answer

Specialize in the good for which it has a comparative advantage.

Question 18

Which of the following is true about the long-run equilibrium in a perfectly competitive market?

Accepted Answer

Firms earn zero economic profit.

Question 19

A negative externality can be corrected by:

Accepted Answer

Imposing a tax equal to the external cost.

Question 20

Which of the following best describes the law of demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases.

Principles of Microeconomics: Final Exam Study Guide

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