Question 1

Suppose a perfectly competitive market experiences a positive demand shock. In the short run, what is most likely to occur?

Accepted Answer

Price will rise above $$ATC_{min}$$, firms will earn positive economic profits, and new firms will be incentivized to enter in the long run.

Question 2

Which of the following best explains why the long-run supply curve in a perfectly competitive market is horizontal at $$P = ATC_{min}$$?

Accepted Answer

Because entry and exit of firms ensure that economic profit is zero and price equals minimum average total cost.

Question 3

A government imposes a per-unit tax on a good. If demand is more elastic than supply, who bears a greater burden of the tax?

Accepted Answer

Producers, because the less elastic side of the market bears more of the tax burden.

Question 4

Suppose the market for apartments in a city is subject to a binding price ceiling. Which of the following is a likely outcome?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 5

A monopolist faces the linear demand curve $$P = 100 - 2Q. $$What is the marginal revenue (MR) function?

Accepted Answer

$$MR = 100 - 4Q$$

Question 6

Which of the following statements about consumer surplus (CS) and producer surplus (PS) in perfect competition is correct?

Accepted Answer

Consumer surplus is the area below the demand curve and above the market price.

Question 7

Suppose a factory emits pollution, creating a negative externality. The market equilibrium quantity is $$Q_{market}$$, and the socially optimal quantity is $$Q_{efficient}. $$Which relationship is correct?

Accepted Answer

$$Q_{market} \u003e Q_{efficient}$$

Question 8

Country A can produce either 10 tons of wheat or 20 tons of corn with the same resources. Country B can produce either 8 tons of wheat or 16 tons of corn. Which statement is true?

Accepted Answer

Both countries have the same opportunity cost for wheat.

Question 9

A public good is characterized by which two properties?

Accepted Answer

Non-rivalry and non-excludability

Question 10

Suppose a monopolist can perfectly price discriminate (first-degree price discrimination). What is the resulting deadweight loss?

Accepted Answer

Deadweight loss is zero.

Question 11

If a country imposes a tariff on an imported good, which of the following is a likely effect?

Accepted Answer

Domestic producer surplus increases.

Question 12

In a simultaneous-move game, a dominant strategy is one that:

Accepted Answer

Is the best response regardless of what the other player does.

Question 13

Suppose the government provides a subsidy to buyers of electric cars. What is a likely consequence?

Accepted Answer

Overproduction of electric cars relative to the efficient quantity.

Question 14

Which of the following best describes the Coase Theorem?

Accepted Answer

If property rights are well-defined and transaction costs are low, private bargaining can lead to efficient outcomes regardless of the initial allocation of rights.

Question 15

A country faces a world price below its autarky price for a good. If it opens to trade, what will happen?

Accepted Answer

The country will import the good.

Question 16

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

Accepted Answer

Perfect competition

Question 17

Suppose two firms are playing a sequential game. What method should be used to solve for the subgame perfect Nash equilibrium?

Accepted Answer

Backward induction

Question 18

If the marginal cost (MC) of production is constant at $$10$$ and the market price is $$15 in $$perfect competition, what is the profit-maximizing output rule?

Accepted Answer

Produce where $$MC = MR = P$$, so produce until $$MC = 15$$

Question 19

Which of the following best describes the 'tragedy of the commons'?

Accepted Answer

Overuse of a common resource due to lack of excludability and rivalry.

Question 20

Suppose the production possibilities curve (PPC) for a country is bowed outward. What does this indicate?

Accepted Answer

Increasing opportunity costs.

Principles of Microeconomics: Final Exam Study Guide (ECON 10000-01)

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