Question 1

Suppose the price of coffee increases. According to the law of demand, what is the most likely effect on the quantity of coffee demanded, ceteris paribus?

Accepted Answer

The quantity demanded will decrease.

Question 2

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

Accepted Answer

The value of the next best alternative foregone when a choice is made.

Question 3

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

Accepted Answer

They are substitutes.

Question 4

A market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 5

Suppose the government imposes a price ceiling below the equilibrium price on rental apartments. What is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 6

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

Accepted Answer

Demand is elastic; consumers are very responsive to price changes.

Question 7

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

Accepted Answer

National defense.

Question 8

Suppose a factory emits pollution that affects nearby residents. This is an example of:

Accepted Answer

A negative externality.

Question 9

If a firm in a perfectly competitive market faces a market price of $\$10$ per unit and its marginal cost is $\$8$ at the profit-maximizing output, what should the firm do to maximize profit?

Accepted Answer

Increase output.

Question 10

Which of the following best explains why monopolies can earn long-run economic profits, unlike firms in perfect competition?

Accepted Answer

Barriers to entry prevent new firms from entering the market.

Question 11

Suppose the government imposes a tax on the sale of gasoline. Which of the following is most likely to occur?

Accepted Answer

The equilibrium price increases and the equilibrium quantity decreases.

Question 12

A firm’s total revenue is $TR = P 	imes Q$ and its total cost is $TC = FC + VC$. If a firm sells 100 units at $\$5$ each, has fixed costs of $\$200$, and variable costs of $\$2$ per unit, what is its profit?

Accepted Answer

$\$100$

Question 13

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

Accepted Answer

An increase in the price of gasoline.

Question 14

If the marginal benefit of consuming an additional unit of a good is less than the marginal cost, what should a rational consumer do?

Accepted Answer

Decrease consumption.

Question 15

Which of the following best describes the 'invisible hand' as proposed by Adam Smith?

Accepted Answer

Individuals pursuing their own self-interest can lead to positive outcomes for society.

Question 16

Suppose a country can produce either 100 units of wheat or 200 units of corn with all its resources. What is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

2 units of corn.

Question 17

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

There are many buyers and sellers.

Question 18

If a firm faces the following cost structure: $TC = 100 + 5Q$, what is the marginal cost (MC)?

Accepted Answer

$MC = 5$

Question 19

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

Accepted Answer

A homeowner planting a garden that beautifies the neighborhood.

Question 20

Suppose the government wants to correct a negative externality. Which policy is most likely to achieve this goal?

Accepted Answer

Imposing a tax equal to the external cost.

Microeconomics 1201: Course Syllabus and Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards