Question 1

Suppose a country can produce only two goods: wheat and cars. If all resources are used efficiently, the production possibilities boundary (PPB) is bowed outward. What does this shape of the PPB indicate about the opportunity cost of producing wheat as more wheat is produced?

Accepted Answer

The opportunity cost of producing wheat increases as more wheat is produced.

Question 2

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

Accepted Answer

The value of the next best alternative that is forgone when one alternative is chosen.

Question 3

A government imposes a price ceiling on gasoline that is below the equilibrium price. Which of the following is the most likely immediate result?

Accepted Answer

A shortage of gasoline.

Question 4

If the price elasticity of demand for a product is $\eta = 0.5$, which of the following statements is true?

Accepted Answer

Demand is inelastic, and total expenditure will increase if price rises.

Question 5

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

Accepted Answer

"Raising the minimum wage will increase unemployment among teenagers."

Question 6

Suppose the price of tea increases. If tea and coffee are substitutes in consumption, what is the likely effect on the demand for coffee?

Accepted Answer

The demand for coffee will increase.

Question 7

A scatter diagram is used in economics to:

Accepted Answer

Display the values of two variables for each observation as points on a graph.

Question 8

If a good is a normal good, which of the following must be true about its income elasticity of demand ($\eta_Y$)?

Accepted Answer

$\eta_Y$ is positive.

Question 9

Which of the following best describes the difference between a change in quantity demanded and a change in demand?

Accepted Answer

A change in demand is a shift of the demand curve, while a change in quantity demanded is a movement along the curve.

Question 10

Suppose the government imposes an excise tax on a product. If the supply of the product is perfectly inelastic, who bears the entire burden of the tax?

Accepted Answer

Producers bear the entire burden.

Question 11

Which of the following is an example of a mixed economy?

Accepted Answer

An economy where some decisions are made by firms and households and some by the government.

Question 12

If the cross elasticity of demand ($\eta_{xy}$) between two goods is negative, what does this imply about the relationship between the goods?

Accepted Answer

They are complements.

Question 13

A binding rent control is imposed in a city. In the long run, which of the following is most likely to occur?

Accepted Answer

A shortage of rental accommodations and the emergence of black markets.

Question 14

Which of the following is a characteristic of a command economy?

Accepted Answer

Most economic decisions are made by a central planning authority.

Question 15

If the absolute price of a book is $\$20$ and the absolute price of a movie ticket is $\$10$, what is the relative price of a book in terms of movie tickets?

Accepted Answer

$2$

Question 16

Which of the following best explains why division of labour increases productivity?

Accepted Answer

It enables workers to specialize in specific tasks, increasing efficiency and skill.

Question 17

Suppose the demand for a product increases. In the short run, if the supply is perfectly inelastic, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price increases, equilibrium quantity remains unchanged.

Question 18

Which of the following is an example of a flow variable?

Accepted Answer

The number of cars produced in a month.

Question 19

If a product has a price elasticity of supply ($\eta_s$) greater than 1, what does this imply about the supply curve?

Accepted Answer

Supply is elastic.

Question 20

A government sets a price floor above the equilibrium price for wheat. What is the most likely result in the wheat market?

Accepted Answer

A surplus of wheat.

Microeconomics: Core Concepts and Foundations (Chapters 1–5 Study Notes)

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