Question 1

Suppose a city government imposes a price ceiling on apartment rents that is below the market equilibrium price. Which of the following is the most likely outcome?

Accepted Answer

A shortage of apartments, as the quantity demanded exceeds the quantity supplied at the lower price.

Question 2

If the price elasticity of demand for a product is $$-1.5$$, what will happen to total revenue if the firm increases its price?

Accepted Answer

Total revenue will decrease because demand is elastic.

Question 3

A country can produce either 100 units of wheat or 200 units of corn with its available resources. What is the opportunity cost of producing one unit of wheat?

Accepted Answer

$$2$$ units of corn

Question 4

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

Accepted Answer

As more units of a variable input are added to fixed inputs, marginal product eventually decreases.

Question 5

A monopolist faces the following demand curve: $$P = 100 - 2Q. $$Its marginal cost is constant at $$MC = 20. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 6

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Significant barriers to entry

Question 7

Suppose the government imposes a per-unit tax on a good. If the supply of the good is perfectly inelastic, who bears the entire burden of the tax?

Accepted Answer

Sellers

Question 8

Which of the following goods is both nonrival and nonexcludable?

Accepted Answer

National defense

Question 9

If both the demand and supply curves for a good shift to the right, what can we say about the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity will increase, but the effect on price is ambiguous.

Question 10

A firm in a perfectly competitive market is producing at a level where $$P \u003c AVC. $$What should the firm do in the short run?

Accepted Answer

Shut down production immediately.

Question 11

Which of the following best explains why monopolies are considered inefficient?

Accepted Answer

They produce less than the socially optimal quantity, creating deadweight loss.

Question 12

Suppose a negative externality exists in the production of steel. Without government intervention, what will happen to the market outcome?

Accepted Answer

Steel will be overproduced relative to the socially optimal level.

Question 13

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

Accepted Answer

The goods are substitutes.

Question 14

Which of the following statements about comparative advantage is correct?

Accepted Answer

A country should specialize in the good for which it has the lowest opportunity cost.

Question 15

A firm’s marginal cost curve intersects its average total cost curve at $$Q = 50$$ units. At this quantity, which of the following is true?

Accepted Answer

Average total cost is at its minimum.

Question 16

Which of the following is an example of a market-based policy to address pollution?

Accepted Answer

A tax on carbon emissions.

Question 17

In the long run, firms in monopolistic competition earn zero economic profit because:

Accepted Answer

Entry of new firms eliminates profits.

Question 18

Which of the following best describes a dominant strategy in game theory?

Accepted Answer

A strategy that is optimal regardless of what the other player does.

Question 19

If a firm experiences positive technological change, what happens to its production possibilities?

Accepted Answer

Its production possibilities frontier shifts outward.

Question 20

Which of the following statements about elasticity is correct?

Accepted Answer

A flatter demand curve is more elastic than a steeper one.

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