Question 1

Suppose an economy can produce only two goods: computers and wheat. If the production possibility frontier (PPF) is bowed outward, what does this imply about the opportunity cost of producing computers as more computers are produced?

Accepted Answer

The opportunity cost of producing computers increases as more computers are produced.

Question 2

A student spends one hour studying for an economics exam instead of working at a job that pays $15 per hour. What is the opportunity cost of studying for the exam?

Accepted Answer

The $15 the student could have earned at the job.

Question 3

If the price of coffee increases, which of the following best describes what happens in the market for coffee, ceteris paribus?

Accepted Answer

The quantity demanded of coffee decreases, resulting in a movement up along the demand curve.

Question 4

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

Accepted Answer

A decrease in the price of batteries, a key input for electric cars.

Question 5

Suppose the government imposes a binding price ceiling on rental apartments. Which of the following is a likely outcome?

Accepted Answer

A shortage of rental apartments.

Question 6

A minimum wage is an example of which of the following, and what is its likely effect if set above the equilibrium wage?

Accepted Answer

A price floor; it causes a surplus of labor (unemployment).

Question 7

If the price elasticity of demand for a product is $$-2$$, what will happen to total revenue if the price increases by 10%?

Accepted Answer

Total revenue will decrease.

Question 8

Suppose the cross-price elasticity of demand between tea and coffee is $$+0.5. $$What does this imply about the relationship between tea and coffee?

Accepted Answer

They are substitutes.

Question 9

Which of the following cost curves is always downward sloping as output increases?

Accepted Answer

Average fixed cost (AFC)

Question 10

If a firm's marginal cost (MC) is below its average total cost (ATC), what happens to ATC as output increases?

Accepted Answer

ATC decreases.

Question 11

A perfectly competitive firm maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 12

In the short run, a perfectly competitive firm's supply curve is the portion of its marginal cost curve that:

Accepted Answer

Lies above the average variable cost curve.

Question 13

If a perfectly competitive firm is earning positive economic profit in the short run, what will happen in the long run?

Accepted Answer

New firms will enter, driving economic profit to zero.

Question 14

Which of the following is true for a monopoly but not for a perfectly competitive firm?

Accepted Answer

The firm faces a downward-sloping demand curve.

Question 15

A regulated monopoly is required to set price equal to average total cost ($$P = ATC). $$What is the likely outcome?

Accepted Answer

The monopoly earns zero economic profit.

Question 16

Compared to perfect competition, a monopoly typically results in:

Accepted Answer

Higher prices and lower output.

Question 17

If the demand for labor increases due to higher demand for a firm's product, what will happen to the equilibrium wage and quantity of labor employed?

Accepted Answer

Equilibrium wage increases; quantity of labor employed increases.

Question 18

Which of the following would shift the labor supply curve to the right?

Accepted Answer

An increase in the working-age population.

Question 19

Which of the following is an example of a negative externality?

Accepted Answer

A factory emitting pollution that affects nearby residents.

Question 20

Suppose the government imposes a tax equal to the external cost of pollution. What is the likely effect on market efficiency?

Accepted Answer

The market outcome becomes efficient.

Question 21

Country A can produce 10 tons of steel or 20 tons of wheat with the same resources. Country B can produce 8 tons of steel or 16 tons of wheat. Which country has the comparative advantage in steel?

Accepted Answer

Country B, because it has the lower opportunity cost in steel.

Question 22

If the U.S. government imposes a tariff on imported cars, what is the most likely short-run effect on the domestic car market?

Accepted Answer

Domestic car prices increase and domestic production rises.

Question 23

A quota on imported sugar is likely to result in which of the following outcomes?

Accepted Answer

Higher domestic sugar production and higher prices for consumers.

Core Microeconomics Study Notes: E201 Final Exam Topics

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