Question 1

Which of the following best describes the law of demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

Question 2

Suppose the market for coffee is in equilibrium. If a new study reveals that coffee consumption significantly reduces the risk of heart disease, what is the most likely effect on the equilibrium price and quantity of coffee?

Accepted Answer

Equilibrium price increases and equilibrium quantity increases.

Question 3

If the price elasticity of demand for a product is $$-2$$, what does this imply about consumer responsiveness?

Accepted Answer

A 1% increase in price leads to a 2% decrease in quantity demanded.

Question 4

Which of the following is NOT a determinant of supply?

Accepted Answer

Consumer income

Question 5

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, since marginal cost is always less than price.

Question 6

Which of the following best explains why monopolies can earn long-run economic profits?

Accepted Answer

They have barriers to entry that prevent competition.

Question 7

If a government imposes a binding price ceiling below the equilibrium price, what is the most likely outcome in the market?

Accepted Answer

A shortage will occur.

Question 8

Suppose the cross-price elasticity of demand between two goods is $$+0.8. $$What does this indicate about the relationship between the two goods?

Accepted Answer

They are substitutes.

Question 9

A firm’s marginal cost is given by $$MC = 4Q. If $$the market price is $$P = 20$$, what is the profit-maximizing output for a perfectly competitive firm?

Accepted Answer

$$Q = 5$$

Question 10

Which of the following statements about consumer surplus is correct?

Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay.

Question 11

If the government imposes a per-unit tax on sellers, which curve shifts and in which direction?

Accepted Answer

The supply curve shifts to the left.

Question 12

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

Accepted Answer

Vaccination against infectious diseases

Question 13

Suppose a firm’s total revenue is $$TR = 100Q$$ and its total cost is $$TC = 20 + 60Q. $$What is the firm’s profit when $$Q = 10$$?

Accepted Answer

$$200$$

Question 14

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

Accepted Answer

The value of the next best alternative forgone.

Question 15

If a firm in monopolistic competition is earning economic profits in the short run, what will happen in the long run?

Accepted Answer

New firms will enter, driving economic profits to zero.

Question 16

Which of the following is a characteristic of a public good?

Accepted Answer

It is non-excludable and non-rival in consumption.

Question 17

Suppose the demand for a product is given by $$Q_D = 50 - 2P$$ and the supply is $$Q_S = 10 + 3P. $$What is the equilibrium price?

Accepted Answer

$$P = 10$$

Question 18

Which of the following best describes diminishing marginal utility?

Accepted Answer

As a consumer consumes more of a good, marginal utility decreases.

Question 19

If a firm’s average total cost is minimized at $$Q = 100$$ units, and the firm is producing $$Q = 50$$ units, what can be said about its average total cost?

Accepted Answer

Average total cost is decreasing.

Question 20

Which of the following is most likely to cause a rightward shift in the supply curve for electric cars?

Accepted Answer

A technological breakthrough that reduces production costs.

ECN 143: Principles of Microeconomics – Course Syllabus and Study Guide

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