Question 1

Which of the following statements is a normative statement?

Accepted Answer

The government should increase spending on healthcare.

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. Which cost should you consider when deciding whether to attend?

Accepted Answer

The value of your next best alternative use of your time (opportunity cost).

Question 3

A study finds that people who eat more vegetables tend to be healthier. Which of the following best explains why this correlation does not necessarily imply causation?

Accepted Answer

There may be omitted variables, such as exercise habits, that affect both vegetable consumption and health.

Question 4

If the market demand for a good is given by $$Q_D = 100 - 2P$$ and the market supply is $$Q_S = 4P$$, what is the equilibrium price?

Accepted Answer

$$P = 14.29$$

Question 5

Which of the following would cause a rightward shift in the demand curve for electric cars?

Accepted Answer

An increase in consumer income, assuming electric cars are normal goods.

Question 6

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 7

A consumer faces prices $$P_X = 2$$, $$P_Y = 4$$, and income $$I = 40. $$What is the equation for the consumer's budget constraint?

Accepted Answer

$$2X + 4Y = 40$$

Question 8

If a consumer's marginal rate of substitution (MRS) between goods $$X$$ and $$Y is 2$$, and the price ratio $$\frac{P_X}{P_Y} = 1$$, what should the consumer do to maximize utility?

Accepted Answer

Buy more of good $$Y$$ and less of good $$X.$$

Question 9

A firm’s total cost is $$TC = 100 + 5Q + Q^2$. What is the marginal cost (MC) function?

Accepted Answer

$$MC = 5 + 2Q$$

Question 10

Suppose Uber implements surge pricing during periods of high demand. Using supply and demand analysis, what is the primary effect of surge pricing?

Accepted Answer

It increases the equilibrium price, reducing excess demand.

Question 11

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

Accepted Answer

The goods are substitutes.

Question 12

Which of the following best describes the law of diminishing marginal product?

Accepted Answer

As more of an input is used, holding other inputs constant, the additional output from each extra unit of input eventually decreases.

Question 13

A firm in a perfectly competitive market faces a market price of $$p = 10. $$Its marginal cost is $$MC = 2Q. $$What is the profit-maximizing output?

Accepted Answer

$$Q = 5$$

Question 14

If a consumer’s indifference curves are strictly convex to the origin, which property of preferences does this illustrate?

Accepted Answer

Strict convexity

Question 15

Suppose the price of good $$X$$ falls. Which of the following best describes the substitution effect?

Accepted Answer

The consumer buys more of $$X$$ because it is relatively cheaper compared to other goods.

Question 16

A firm’s average total cost (ATC) is minimized at the output level where:

Accepted Answer

Marginal cost equals average total cost.

Question 17

If a firm’s long-run average cost decreases as output increases, the firm is experiencing:

Accepted Answer

Economies of scale.

Question 18

Suppose a consumer’s marginal utility per dollar spent on good $$A is $$greater than that for good $$B. $$What should the consumer do to maximize utility?

Accepted Answer

Buy more of good $$A$$ and less of good $$B.$$

Question 19

Which of the following is an example of a movement along the demand curve?

Accepted Answer

The price of the good falls, leading to an increase in quantity demanded.

Question 20

If the income elasticity of demand for a good is negative, the good is:

Accepted Answer

An inferior good.

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

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