Question 1

Which of the following best describes opportunity cost?

Accepted Answer

The value of the next best alternative forgone when making a choice.

Question 2

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

Accepted Answer

$2$ units of corn

Question 3

If the demand for diamonds increases while the supply remains constant, what will happen to the equilibrium price and quantity?

Accepted Answer

Both price and quantity will increase.

Question 4

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

Accepted Answer

Significant barriers to entry.

Question 5

A production possibilities frontier (PPF) is bowed outward because:

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 6

If a country is operating inside its production possibilities frontier (PPF), what does this indicate?

Accepted Answer

Some resources are unemployed or underutilized.

Question 7

Which of the following best explains the law of demand?

Accepted Answer

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

Question 8

Suppose the price elasticity of demand for gasoline is $-0.4$. If the government increases the gasoline tax, what is the likely effect on total revenue from gasoline sales?

Accepted Answer

Total revenue will increase because demand is inelastic.

Question 9

Which of the following is an example of a public good?

Accepted Answer

A city park.

Question 10

The tragedy of the commons occurs because:

Accepted Answer

Common resources are rival and non-excludable, leading to overuse.

Question 11

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

Accepted Answer

The goods are substitutes.

Question 12

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what consumers are willing to pay and what they actually pay.

Question 13

Suppose a price ceiling is set below the equilibrium price in the market for apartments. What is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 14

Which of the following is true about the marginal cost (MC) curve in the short run?

Accepted Answer

It intersects the average total cost (ATC) curve at its minimum point.

Question 15

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

Accepted Answer

New firms will enter, driving profits to zero.

Question 16

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

Accepted Answer

A factory emitting pollution into the air.

Question 17

Suppose the government imposes a tax on sellers of a good. Who bears the greater burden of the tax if demand is more inelastic than supply?

Accepted Answer

Buyers bear the greater burden.

Question 18

Which of the following best describes the Coase Theorem?

Accepted Answer

Private bargaining can solve externalities if property rights are well-defined and transaction costs are low.

Question 19

If the income elasticity of demand for a good is negative, the good is:

Accepted Answer

An inferior good.

Question 20

Which of the following statements about the law of diminishing marginal utility is correct?

Accepted Answer

Marginal utility decreases as more units are consumed.

Key Concepts and Study Guide for Microeconomics Exam

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