Question 1

Which of the following statements is a normative statement?

Accepted Answer

The government should increase spending on education.

Question 2

Suppose you paid \$100 for a non-refundable concert ticket, but on the day of the concert you feel sick and would prefer to stay home. According to economic reasoning, what should you do?

Accepted Answer

Stay home if the benefit of resting exceeds the benefit of attending, since the \$100 is a sunk cost.

Question 3

A student is deciding how many hours to study for an exam. The marginal benefit of the 4th hour is 8 points, and the marginal cost is 10 points (in terms of lost sleep). What should the student do?

Accepted Answer

Not study the 4th hour because marginal cost exceeds marginal benefit.

Question 4

Which of the following best explains why correlation does not imply causation?

Accepted Answer

Because two variables can be related due to omitted variables, reverse causality, or selection bias.

Question 5

Suppose the market demand for pizza is given by $$Q_D = 100 - 2P$$ and the market supply is $$Q_S = 4P. $$What is the equilibrium price?

Accepted Answer

$$P = 25$$

Question 6

If the price of a substitute good increases, what happens to the demand curve for the original good?

Accepted Answer

It shifts to the right.

Question 7

A firm faces the following costs: Total Fixed Cost (TFC) = \$$100, Total Variable Cost (TVC) = \200 at $$output Q = 10. What is the Average Total Cost (ATC) at Q = 10?

Accepted Answer

$$ATC = \30$

Question 8

Which of the following best describes the law of demand?

Accepted Answer

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

Question 9

Suppose the price elasticity of demand for a product is $$-0.5. If $$the firm increases the price by 10%, what happens to total revenue?

Accepted Answer

Total revenue increases.

Question 10

If a consumer’s marginal rate of substitution (MRS) between apples and bananas is 2, and the price of apples is \$$1 while the price of bananas is \0.50$$, is the consumer maximizing utility?

Accepted Answer

No, because $$MRS \u003e \frac{P_{apple}}{P_{banana}}$$

Question 11

Which of the following is NOT an assumption of well-behaved preferences?

Accepted Answer

Increasing marginal utility

Question 12

Suppose a firm’s marginal cost (MC) curve intersects its average total cost (ATC) curve at ATC’s minimum point. Why does this occur?

Accepted Answer

Because when $$MC = ATC$$, ATC is at its minimum.

Question 13

If the cross-price elasticity of demand between two goods is $$-0.8$$, what does this imply?

Accepted Answer

The goods are complements.

Question 14

A consumer’s budget constraint is $$2X + 4Y = 40. $$What is the opportunity cost of one unit of $$X in $$terms of $$Y$$?

Accepted Answer

0.5

Question 15

Suppose Uber implements surge pricing, raising prices during periods of high demand. According to equilibrium analysis, what is the primary effect?

Accepted Answer

Quantity supplied increases, reducing shortages.

Question 16

If a firm’s marginal product of labor (MPL) decreases as more labor is hired, what happens to marginal cost (MC)?

Accepted Answer

MC increases.

Question 17

Which of the following would cause a movement along the supply curve for wheat, rather than a shift of the curve?

Accepted Answer

A change in the price of wheat.

Question 18

Suppose the income elasticity of demand for public transportation is $$-0.3. $$What type of good is public transportation?

Accepted Answer

Inferior good

Question 19

A firm in a perfectly competitive market faces a market price of \$$10. Its marginal cost at the profit-maximizing output is also \10. $$What should the firm do?

Accepted Answer

Maintain current output because $$MC = MR = P.$$

Question 20

If a firm experiences economies of scale, what happens to average total cost (ATC) as output increases?

Accepted Answer

ATC decreases.

Principles of Microeconomics: Midterm Study Guide (Chapters 1-6)

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