Question 1

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

Accepted Answer

The value of the next best alternative that must be given up to engage in an activity.

Question 2

Suppose a country can produce either 10 units of wheat or 20 units of corn with its available resources. What is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

$$2$$ units of corn

Question 3

A market is in equilibrium when:

Accepted Answer

The quantity demanded equals the quantity supplied at the market price.

Question 4

If the price of peanut butter increases, what is the likely effect on the demand for jelly, assuming they are complements?

Accepted Answer

The demand for jelly will decrease.

Question 5

Which of the following statements about comparative advantage is correct?

Accepted Answer

A country has a comparative advantage in producing a good if it can produce it at a lower opportunity cost than another country.

Question 6

Suppose the price elasticity of demand for a product is $$-2.5. If $$the price increases by $$10\%$$, what will happen to the quantity demanded?

Accepted Answer

It will decrease by $$25\%.$$

Question 7

A firm in a perfectly competitive market will maximize profit by producing the quantity at which:

Accepted Answer

$$MC = MR$$

Question 8

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 of the good.

Question 9

Which of the following best describes the law of diminishing marginal returns?

Accepted Answer

As more of a variable input is added to a fixed input, the additional output from each new unit of input eventually decreases.

Question 10

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 11

If the cross-price elasticity of demand between two goods is positive, the goods are:

Accepted Answer

Substitutes

Question 12

Suppose a firm’s total cost is given by $$TC = 100 + 5Q$$, where $$Q is $$the quantity produced. What is the firm’s average total cost (ATC) when $$Q = 10$$?

Accepted Answer

$$ATC = 15$$

Question 13

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

Accepted Answer

Products are differentiated.

Question 14

If a tax is imposed on sellers in a market, the burden of the tax will fall more heavily on:

Accepted Answer

The side of the market that is more inelastic.

Question 15

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

Accepted Answer

There are barriers to entry that prevent other firms from entering the market.

Question 16

Suppose the price of a normal good increases. What is the expected effect on the quantity demanded, and which law does this illustrate?

Accepted Answer

Quantity demanded decreases; Law of Demand

Question 17

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

Accepted Answer

An inferior good

Question 18

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

Accepted Answer

National defense

Question 19

Suppose a firm faces the following total revenue and total cost: $$TR = 200$$, $$TC = 180. $$What is the firm’s profit?

Accepted Answer

$$20$$

Question 20

Which of the following best describes the circular flow diagram in a market economy?

Accepted Answer

It shows how households buy goods and services from firms and sell factors of production to firms.

Microeconomics: Core Concepts and Principles – Study Notes

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