Question 1

Suppose Sergio Vignetto raises cattle and llamas on land equally suitable for either animal. Based on the production possibilities frontier (PPF) graphs shown, which graph best represents his PPF?

Accepted Answer

Graph A

Question 2

Refer to the demand curve shown in the second image. If the absolute value of the price elasticity of demand $|e^d|$ at two points is 1, what is the value of $b$?

Accepted Answer

$40$

Question 3

According to the labor market diagram, if the government imposes a minimum wage equal to $W_m$, what is the effect?

Accepted Answer

A reduction in employment from $Q_e$ to $Q_m$.

Question 4

In the PPF diagram for food and plastic products, a movement from point X to point Z could occur because:

Accepted Answer

Advancements in food production technology only, with no change in the technology for plastic production.

Question 5

Refer to the DVD rental demand curve. If Isabel rents fewer DVDs per week, which of the following could explain this change?

Accepted Answer

An increase in the rental price of DVDs.

Question 6

Suppose the market is initially in equilibrium at price $P_0$ and then the government imposes a tax on every unit sold. Which statement best describes the impact of the tax, given the two demand curves $D_0$ and $D_1$?

Accepted Answer

The consumer will bear the entire burden of the tax if the demand curve is $D_1$ and the producer will bear the entire burden if the demand curve is $D_0$.

Question 7

If the supply curve for a product is upward sloping and the demand curve is vertical, what happens when a unit tax is imposed?

Accepted Answer

Buyers bear the entire burden of the tax.

Question 8

If the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6, what does this mean?

Accepted Answer

If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased.

Question 9

Adam Smith's 'invisible hand' refers to:

Accepted Answer

The process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole.

Question 10

If the price elasticity of demand is constant and equal to 0, what happens to quantity demanded and total revenue when price increases?

Accepted Answer

The quantity demanded and total revenue remain the same.

Question 11

If a consumer always buys goods rationally, then:

Accepted Answer

The marginal utility per dollar spent on all goods will be equal.

Question 12

Which of the following is a fixed cost?

Accepted Answer

Payment to hire a security worker to guard the gate to the factory around the clock

Question 13

Suppose your expenses for this term are: tuition $12,000$, room and board $6,500$, books and supplies $1,500$. You can only work part-time and earn $3,500$ instead of your full-time salary of $14,000$. What is the opportunity cost of going to college this term, assuming room and board would be the same even if you did not go?

Accepted Answer

$20,000$

Question 14

The observation that people tend to value something more highly when they own it than when they don't is called the:

Accepted Answer

Endowment effect

Question 15

The following equations represent the demand and supply for silver pendants: $Q_D = 50 - 2P$ and $Q_S = -10 + 2P$. What is the equilibrium price ($P$) and quantity ($Q$ in thousands) of pendants?

Accepted Answer

$P = 10; Q = 30$ thousand

Question 16

If the quantity of donuts supplied is represented by $S = -15 + 5Q_S$, then the corresponding price of donuts is represented by:

Accepted Answer

$P = 0.2Q_S + 3$

Question 17

China requires 100 hours to produce one digital camera and 4 hours to produce one pound of wheat. What is China's opportunity cost of producing one digital camera?

Accepted Answer

$25$ pounds of wheat

Question 18

In order to be binding, a price ceiling:

Accepted Answer

Must lie below the free market equilibrium price.

Question 19

Most people would prefer to drive a luxury car with all options, but more people buy less expensive cars even though they could afford the luxury car because:

Accepted Answer

The marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.

Microeconomics Diagnostic Mini Exam Study Guidance

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