Question 1

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

Accepted Answer

The value of the next best alternative foregone when making a choice.

Question 2

Suppose a country can produce either 10 cars or 20 computers with its resources. What is the opportunity cost of producing one car?

Accepted Answer

2 computers

Question 3

A production possibilities frontier (PPF) that is bowed outward (concave to the origin) illustrates which economic principle?

Accepted Answer

Increasing marginal opportunity costs

Question 4

If the government sets a price ceiling below the market equilibrium price, what is the most likely outcome?

Accepted Answer

A shortage will occur because quantity demanded exceeds quantity supplied.

Question 5

Which of the following is NOT a determinant of the price elasticity of demand?

Accepted Answer

The cost of inputs used in production

Question 6

Suppose the price of good X increases by 10% and the quantity demanded decreases by 20%. What is the price elasticity of demand for good X?

Accepted Answer

$-2$

Question 7

If a good has a price elasticity of demand equal to 1, what does this imply about total revenue when the price changes?

Accepted Answer

Total revenue remains unchanged as price changes.

Question 8

A tax is imposed on sellers in a market. Which of the following statements is correct regarding tax incidence?

Accepted Answer

The burden of the tax is shared between buyers and sellers depending on the relative elasticities of supply and demand.

Question 9

If the cross-price elasticity of demand between two goods is positive, what does this indicate?

Accepted Answer

The goods are substitutes.

Question 10

Suppose the government imposes a price floor above the equilibrium price in the wheat market. What will happen?

Accepted Answer

There will be a surplus of wheat.

Question 11

Which of the following best describes a mixed economy?

Accepted Answer

An economy that combines elements of both centrally planned and market economies.

Question 12

If a country can produce more of a good with the same resources than another country, it is said to have:

Accepted Answer

Absolute advantage

Question 13

Which of the following would cause a movement along the demand curve for coffee, rather than a shift of the curve?

Accepted Answer

A decrease in the price of coffee

Question 14

If the government imposes a tax on a good, which area on the supply and demand graph represents the deadweight loss (DWL)?

Accepted Answer

The area between the supply and demand curves that is lost due to the tax, representing trades that no longer occur.

Question 15

Suppose the price elasticity of supply for a product is 0.5. If the price increases by 20%, what is the percentage change in quantity supplied?

Accepted Answer

10%

Question 16

Which of the following best explains why the law of increasing marginal opportunity cost exists?

Accepted Answer

Some resources are better suited to producing one good than another.

Question 17

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

Inferior good

Question 18

A competitive market is characterized by which of the following?

Accepted Answer

Many buyers and sellers, with each having little influence on the market price.

Question 19

If both the demand and supply curves for a good shift to the right, what can we say for certain about the equilibrium?

Accepted Answer

Equilibrium quantity will increase.

Question 20

Suppose the market for gasoline is initially in equilibrium. A new environmental regulation increases the cost of producing gasoline, while at the same time, a recession reduces consumers' incomes. What is the most likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price may rise or fall, but equilibrium quantity will definitely fall.

Microeconomics Exam 1 Study Guide: Foundations, Trade-offs, Markets, Efficiency, and Elasticity

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