Question 1

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

Accepted Answer

As a person consumes more of a good, their marginal utility from consuming additional units of that good will diminish.

Question 2

Suppose the price of a slice of pizza decreases from $$8.00 to 4.00. $$What type of movement does this represent on the demand curve?

Accepted Answer

An increase in quantity demanded

Question 3

If each person’s income increases by $100, shifting the demand curve for pizza from D1 to D2, what type of movement does this represent?

Accepted Answer

An increase in demand

Question 4

Which of the following statements is normative?

Accepted Answer

The government should raise the minimum wage to $10.

Question 5

What is the opportunity cost of choosing a burrito when your next best alternative is a rice bowl?

Accepted Answer

Rice bowl

Question 6

Which panel best describes what happens in the market for women's clothing when the wages of seamstresses rise?

Accepted Answer

Panel (c)

Question 7

Suppose the price of Snapple, a substitute for Fruitopia, decreases. What happens in the market for Fruitopia?

Accepted Answer

Demand for Fruitopia decreases

Question 8

Which formula correctly represents the calculation of price elasticity of demand?

Accepted Answer

$$Ed = \frac{\%\Delta Q}{\%\Delta P}$$

Question 9

Kalvin raises the price of his hotdogs by 5%, and quantity demanded falls by 20%. What is the price elasticity of demand for Kal’s dogs?

Accepted Answer

$$|Ed| = \frac{20\%}{5\%} = 4$$

Question 10

If the price elasticity of demand for bread is estimated at -0.40, what happens to total revenue if the price of bread rises?

Accepted Answer

It rises.

Question 11

A price ceiling is set at $1,500 per month for rent. Which areas represent consumer surplus, producer surplus, and deadweight loss?

Accepted Answer

Consumer Surplus: A + B + C; Producer Surplus: F; Deadweight Loss: D + E

Question 12

Which of the following is true about allocative efficiency?

Accepted Answer

It occurs when production is in accordance with consumer preferences and $$MB = MC.$$

Question 13

Which of the following is a positive externality?

Accepted Answer

Medical research results in a cure for malaria.

Question 14

According to the Coase theorem, which conditions are necessary for a private solution to an externality problem?

Accepted Answer

Low transactions costs and clear assignment of property rights

Question 15

A carbon tax designed to reduce pollution is an example of which type of policy?

Accepted Answer

Market-based policy

Question 16

Which of the following is an example of a command-and-control approach to reducing pollution?

Accepted Answer

The government sets a target for maximum emissions and mandates installation of specific pollution abatement equipment

Question 17

In a perfectly competitive market, the profit-maximizing level of output occurs where:

Accepted Answer

$$MR = MC$$

Question 18

If a firm’s average total cost (ATC) is below the price (P) it charges for each item sold, what will happen?

Accepted Answer

The firm will make a profit.

Question 19

Which of the following is NOT a barrier to entry for monopolies?

Accepted Answer

Perfect competition

Microeconomics: Demand, Supply, Market Equilibrium, and Government Intervention

Study Guide - Practice Questions