Question 1

Suppose the market for coffee is perfectly competitive. If the price of coffee beans (an input) increases, what is the most likely short-run effect on the equilibrium price and quantity of coffee?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases.

Question 2

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 3

A consumer faces the budget constraint $P_x x + P_y y = I$. If the price of good $x$ doubles and income remains constant, what happens to the consumer's budget line?

Accepted Answer

The budget line becomes steeper, and the maximum quantity of $x$ that can be purchased decreases.

Question 4

If a firm in a perfectly competitive market faces a market price of $P = 10$, and its marginal cost is $MC = 8$ at the current output, what should the firm do to maximize profit?

Accepted Answer

Increase output until $MC = P$.

Question 5

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

Accepted Answer

A homeowner plants a garden that beautifies the neighborhood.

Question 6

Suppose the demand for a product is given by $Q_d = 100 - 2P$ and the supply is $Q_s = 20 + 3P$. What is the equilibrium price?

Accepted Answer

$P = 16$

Question 7

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

Accepted Answer

The goods are substitutes.

Question 8

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 9

Which of the following statements about price elasticity of demand is correct?

Accepted Answer

If demand is elastic, a price decrease will increase total revenue.

Question 10

Suppose a government imposes a binding 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 11

If a firm’s total cost function is $TC = 100 + 5Q$, what is the average total cost (ATC) when $Q = 10$?

Accepted Answer

$ATC = 20$

Question 12

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

Accepted Answer

Products are differentiated.

Question 13

If the marginal utility per dollar spent on apples is greater than that for oranges, what should a consumer do to maximize utility?

Accepted Answer

Buy more apples and fewer oranges.

Question 14

Suppose a firm’s production function is $Q = L^{0.5} K^{0.5}$, where $L$ is labor and $K$ is capital. If both inputs are doubled, what happens to output?

Accepted Answer

Output doubles.

Question 15

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

Accepted Answer

The value of the next best alternative forgone.

Question 16

If a tax is imposed on sellers in a market, what is the immediate effect on the supply curve?

Accepted Answer

The supply curve shifts to the left.

Question 17

A firm’s marginal cost curve intersects its average total cost curve at:

Accepted Answer

The minimum point of the average total cost curve.

Question 18

Which of the following is most likely to cause a movement along the demand curve for gasoline?

Accepted Answer

A decrease in the price of gasoline.

Question 19

Suppose the government provides a subsidy to producers of solar panels. What is the likely effect on the market equilibrium?

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases.

Question 20

If a consumer’s indifference curves are convex to the origin, what does this imply about their preferences?

Accepted Answer

The consumer prefers averages to extremes.

ECON 1010 Exam Syllabus and Preparation Guide

Study Guide - Practice Questions

Study Guide - Flashcards