Question 1

Suppose a consumer must choose between two goods, X and Y, with prices $$P_X$$ and $$P_Y$$, and a fixed income $$I. $$The consumer's budget constraint is given by $$P_X X + P_Y Y = I. If $$the price of good X decreases while income and the price of Y remain constant, what happens to the consumer's budget line?

Accepted Answer

The budget line rotates outward, becoming flatter.

Question 2

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

Accepted Answer

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

Question 3

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

Accepted Answer

They are substitutes.

Question 4

A market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 5

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

Accepted Answer

A shortage of apartments.

Question 6

The law of diminishing marginal utility states that:

Accepted Answer

Marginal utility decreases as more of a good is consumed.

Question 7

A firm in a perfectly competitive market faces a market price of $$P = 10. $$Its total cost function is $$TC = 20 + 2Q. $$What is the profit-maximizing output level?

Accepted Answer

$$Q is as $$large as possible (infinite)

Question 8

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

Accepted Answer

A city park that is open to everyone.

Question 9

If a firm’s marginal cost is less than its marginal revenue, what should the firm do to maximize profit?

Accepted Answer

Increase output.

Question 10

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

Accepted Answer

$$P = 20$$

Question 11

Which of the following best explains why externalities can lead to market failure?

Accepted Answer

They result in costs or benefits that are not reflected in market prices.

Question 12

A monopolist faces the demand curve $$P = 50 - Q$$ and has constant marginal cost $$MC = 10. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 13

Which of the following is a characteristic of an oligopoly?

Accepted Answer

A few large firms that are interdependent.

Question 14

If the price elasticity of demand for a product is $$-0.5$$, what does this imply about consumer responsiveness?

Accepted Answer

Demand is inelastic; consumers are not very responsive to price changes.

Question 15

Which of the following is most likely to be classified as a club good?

Accepted Answer

A toll road during off-peak hours.

Question 16

Suppose a firm’s total revenue is $$TR = 100Q$$ and its total cost is $$TC = 20 + 60Q. $$What is the firm’s profit when $$Q = 5$$?

Accepted Answer

$$200$$

Question 17

Which of the following best describes the difference between accounting profit and economic profit?

Accepted Answer

Accounting profit includes only explicit costs, while economic profit includes both explicit and implicit costs.

Question 18

A negative externality, such as pollution from a factory, can be corrected by:

Accepted Answer

Imposing a tax equal to the external cost.

Question 19

If a consumer is maximizing utility, the following condition must hold:

Accepted Answer

$$\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y}$$

Question 20

Which of the following is an example of bounded rationality in consumer behavior?

Accepted Answer

A consumer makes a decision based on limited information and cognitive limitations.

Principles of Microeconomics: Structured Study Notes

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