Question 1

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

Accepted Answer

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

Question 2

Suppose a consumer is deciding between buying coffee and tea. If the price of coffee increases, which of the following is most likely to occur, ceteris paribus?

Accepted Answer

The quantity demanded for coffee will decrease.

Question 3

Which of the following statements is an example of positive economics?

Accepted Answer

Raising taxes will reduce consumer spending.

Question 4

A market is in equilibrium when:

Accepted Answer

The quantity demanded equals the quantity supplied.

Question 5

If the cross-price elasticity of demand between two goods is positive, what does this imply?

Accepted Answer

The goods are substitutes.

Question 6

Suppose the price elasticity of demand for a product is $$-2. If $$the price increases by $$10\%$$, what happens to the quantity demanded?

Accepted Answer

It decreases by $$20\%.$$

Question 7

Which of the following best explains the difference between a change in quantity demanded and a change in demand?

Accepted Answer

A change in quantity demanded is a movement along the demand curve due to a price change, while a change in demand is a shift of the demand curve due to non-price factors.

Question 8

A consumer faces the following budget constraint: $$2x + 4y = 40. $$What is the maximum number of units of $$y$$ the consumer can buy if they buy no $$x$$?

Accepted Answer

$$10$$

Question 9

If a market is experiencing a shortage, which of the following is true?

Accepted Answer

The quantity demanded is greater than the quantity supplied.

Question 10

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

Accepted Answer

The government should reduce income inequality.

Question 11

Suppose a consumer's preferences, income, and prices are known. According to the three pillars of rational decision-making, what else is needed to determine the consumer's optimal choice?

Accepted Answer

Nothing else; these three pillars are sufficient.

Question 12

If the income elasticity of demand for a good is $$-0.5$$, what type of good is it?

Accepted Answer

An inferior good.

Question 13

Which of the following best describes the scientific method in economics?

Accepted Answer

Using empirical evidence to test hypotheses and develop theories.

Question 14

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

Accepted Answer

$$\frac{MU_A}{P_A} = \frac{MU_B}{P_B}$$

Question 15

A study finds that ice cream sales and drowning incidents are positively correlated. Which of the following best explains this result?

Accepted Answer

A third factor, such as hot weather, causes both to increase.

Question 16

If the price of a substitute good increases, what is likely to happen to the demand for the original good?

Accepted Answer

It will increase.

Question 17

Suppose the supply curve for a product shifts to the right. What is the most likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases.

Question 18

A consumer's budget constraint rotates outward from the $$y-$$axis but the $$x-$$intercept remains unchanged. What could have caused this?

Accepted Answer

The price of $$y$$ decreased.

Question 19

If a firm wants to maximize its total revenue and the price elasticity of demand for its product is $$|E_d| \u003e 1$$, what should the firm do?

Accepted Answer

Decrease the price.

Question 20

Which of the following is NOT a characteristic of a good economic model?

Accepted Answer

It is overly complex and includes every possible detail.

Principles of Microeconomics: Midterm 1 Study Guide

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