Question 1

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

Accepted Answer

2 units of corn

Question 2

Which of the following best describes the law of increasing opportunity cost as illustrated by a bowed-out Production Possibility Frontier (PPF)?

Accepted Answer

As more of one good is produced, the opportunity cost of producing additional units increases.

Question 3

A bakery is considering producing one more loaf of bread. The marginal cost of the loaf is $$2, and the marginal benefit to consumers is 3. $$What should the bakery do, and why?

Accepted Answer

Produce the loaf, because marginal benefit exceeds marginal cost.

Question 4

If the price of coffee increases, what is the most likely effect on the demand for tea, assuming tea is a substitute for coffee?

Accepted Answer

The demand for tea will increase.

Question 5

Suppose the market for gasoline is in equilibrium. If a government imposes a price ceiling below the equilibrium price, what is the most likely outcome?

Accepted Answer

A shortage of gasoline will occur.

Question 6

The price elasticity of demand for a product is $$-2. If $$the price increases by 10%, what is the expected percentage change in quantity demanded?

Accepted Answer

$$-20\%$$

Question 7

Which of the following is true about perfectly inelastic demand?

Accepted Answer

Quantity demanded does not change as price changes.

Question 8

A government introduces a minimum wage above the equilibrium wage. What is the most likely effect in the labor market?

Accepted Answer

A surplus of labor (unemployment) will result.

Question 9

If a country imposes a tariff on imported steel, what is the most likely short-run effect on domestic steel producers and consumers?

Accepted Answer

Domestic producers benefit, while consumers face higher prices.

Question 10

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 11

A government subsidy on electric cars will most likely have which of the following effects?

Accepted Answer

Increase the equilibrium quantity and lower the effective price for consumers.

Question 12

Suppose a firm faces the following total cost function: $$TC = 100 + 5Q + Q^2$. What is the marginal cost (MC) when Q = 3$?

Accepted Answer

$$MC = 11$$

Question 13

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

Accepted Answer

National defense

Question 14

If a negative externality exists in the production of a good, what is the result in a free market without government intervention?

Accepted Answer

The good will be overproduced relative to the socially optimal level.

Question 15

A consumer allocates their budget between two goods, X and Y. The marginal utility per dollar spent on X is greater than that on Y. What should the consumer do to maximize total utility?

Accepted Answer

Buy more of X and less of Y.

Question 16

If the present value (PV) of $100 received one year from now at an interest rate of 5% is calculated, which formula should be used?

Accepted Answer

$$PV = \frac{100}{1.05}$$

Question 17

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

Accepted Answer

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

Question 18

Suppose a firm can hire workers at a wage of $$10 per hour. The marginal product of the last worker hired is 5 units per hour, and the price of the product is 3 $$per unit. Should the firm hire more workers?

Accepted Answer

Yes, because the value of the marginal product ($$15) exceeds the wage (10).$$

Question 19

Which of the following is most likely to cause a movement along the demand curve for a product?

Accepted Answer

A change in the price of the product itself.

Question 20

If a market is allocatively efficient, which condition must be satisfied?

Accepted Answer

$$MB = MC$$

Microeconomics Course Syllabus and Core Concepts Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards