Question 1

Which of the following statements is an example of normative economics?

Accepted Answer

The government should implement stricter environmental regulations.

Question 2

Suppose a country can produce either 20 tons of wheat or 10 tons of steel with its resources. What is the opportunity cost of producing 1 ton of steel?

Accepted Answer

$$2$$ \text{ tons of wheat}$

Question 3

A new technology increases the productivity of making smartphones but not laptops. What happens to the production possibilities frontier (PPF)?

Accepted Answer

The PPF rotates outward on the smartphone axis only.

Question 4

Which of the following best explains why the demand curve for a normal good slopes downward?

Accepted Answer

Because as price rises, consumers' purchasing power falls and substitutes become more attractive.

Question 5

If the price of beef increases and as a result, the demand for chicken increases, what is the relationship between beef and chicken?

Accepted Answer

They are substitutes.

Question 6

A binding price ceiling is imposed below the equilibrium price in the market for apartments. What is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 7

Suppose the price elasticity of demand for a product is $$1.5. If $$the firm increases its price, what will happen to its total revenue?

Accepted Answer

Total revenue will decrease.

Question 8

If the cross-price elasticity of demand between two goods is $$-0.8$$, what does this imply?

Accepted Answer

The goods are complements.

Question 9

A consumer is maximizing utility by purchasing apples and oranges. If the marginal utility per dollar spent on apples is $$8$$ and on oranges is $$5$$, what should the consumer do?

Accepted Answer

Buy more apples and fewer oranges.

Question 10

Which of the following is an example of a sunk cost that should be ignored in future decision-making?

Accepted Answer

The $$50$$ you spent on a non-refundable concert ticket last week.

Question 11

A firm in perfect competition faces the following costs: $$FC = 100$$, $$VC = 200 at$$ $$Q = 10. $$What is the average total cost (ATC) at this output?

Accepted Answer

$$ATC = \frac{FC + VC}{Q} = \frac{100 + 200}{10} = 30$$

Question 12

In the short run, a perfectly competitive firm should shut down if:

Accepted Answer

$$P \u003c AVC$$

Question 13

Which of the following is a characteristic of a monopoly but NOT of perfect competition?

Accepted Answer

There are high barriers to entry.

Question 14

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 15

Which of the following best describes the Nash Equilibrium in the classic prisoner's dilemma?

Accepted Answer

Both players choose their dominant strategy, resulting in a worse outcome for both.

Question 16

Which of the following is a public good?

Accepted Answer

National defense.

Question 17

Suppose a factory emits pollution that harms nearby residents. The market equilibrium results in more pollution than is socially optimal. What is the best explanation for this outcome?

Accepted Answer

There is a negative externality, so $$MSC \u003e MPC$$ and the market overproduces pollution.

Question 18

A firm’s marginal product of labor (MPL) decreases as more workers are hired, holding capital fixed. This is an example of:

Accepted Answer

The law of diminishing returns.

Question 19

If the marginal revenue product of labor (MRP) is $$50$$ and the wage rate is $$40$$, what should a profit-maximizing firm do?

Accepted Answer

Hire more workers.

Microeconomics: Core Principles, Markets, and Applications – Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards