Question 1

Suppose a factory can produce either 1000 windows or 250 doors in a day. What is the opportunity cost of producing one extra door?

Accepted Answer

$$4$$ windows per door

Question 2

If an economy is producing at a point inside its production possibilities curve (PPC), what does this indicate about resource use?

Accepted Answer

Some resources are unemployed or used inefficiently.

Question 3

If a new technology doubles the ability to produce food but does not affect clothing, how will the PPC (with food on the horizontal axis and clothing on the vertical axis) shift?

Accepted Answer

The PPC will shift outward only along the horizontal axis.

Question 4

Which of the following is an example of a change in the quantity demanded for fish?

Accepted Answer

The government closes the Atlantic cod fishery, raising fish prices.

Question 5

A medical study reports that eating chicken reduces the likelihood of heart problems. What is the likely effect on the demand for chicken?

Accepted Answer

Demand for chicken shifts to the right.

Question 6

Suppose the world price of copper rises due to increased demand from China and a supply disruption in Chile. What happens to the equilibrium price and quantity of copper?

Accepted Answer

Price rises, quantity may rise or fall depending on the magnitude of shifts.

Question 7

A severe drought in Russia reduces the world supply of wheat. What is the likely effect on Canadian wheat farmers?

Accepted Answer

They experience higher prices and higher income.

Question 8

If the price elasticity of demand for a good is less than 1, what happens to total revenue when the price decreases?

Accepted Answer

Total revenue decreases.

Question 9

Which of the following goods is likely to have the most elastic demand?

Accepted Answer

Leafy vegetables sold at your local supermarket on Wednesdays.

Question 10

Suppose a stamp dealer burns one of only two existing copies of a rare stamp. Under what condition would this action maximize the dealer’s wealth?

Accepted Answer

If the demand for the stamp is highly inelastic.

Question 11

When the price of movie tickets falls from $$14 to 11 $$and ticket sales increase from 1200 to 1350, what is the price elasticity of demand (using the midpoint formula)?

Accepted Answer

$$0.49 ($$inelastic)

Question 12

Given the demand and supply equations for gasoline: $$p = 80 - 5Q_D$$ and $$p = 24 + 2Q_S$$, what is the equilibrium price and quantity?

Accepted Answer

Price = $$40$$, Quantity = $$8$$

Question 13

If a government imposes a tax of $$14$$ cents per litre on gasoline, what is the new equilibrium quantity?

Accepted Answer

$$6$$ million litres

Question 14

Suppose the government sets a price ceiling on burritos at $$1.50$$ when the equilibrium price is $$2.50. $$What is the likely result?

Accepted Answer

A shortage of burritos.

Question 15

Given the milk market: $$p = 225 - 15Q_D$$ and $$p = 25 + 35Q_S$$, what is the equilibrium quantity of milk (in millions of litres)?

Accepted Answer

$$4$$ million

Question 16

If the government guarantees a price of $$2.00$$ per litre for milk, how much milk will the government have to buy if quantity supplied is $$5$$ million litres and quantity demanded is $$1.67$$ million litres?

Accepted Answer

$$3.33$$ million litres

Question 17

If the government issues milk quotas for $$1.67$$ million litres per month, what price will consumers pay for milk?

Accepted Answer

$$2.00$$

Question 18

Compared to a direct price support policy, are milk producers better or worse off under a quota system for $$1.67$$ million litres at $$2.00$$ per litre?

Accepted Answer

Worse off, because total revenue is lower.

Production Possibilities, Opportunity Cost, and Demand & Supply Concepts in Microeconomics

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