Question 1

Suppose the government imposes a tax on sellers of gasoline. Which of the following best describes the likely effect on the market equilibrium price and quantity?

Accepted Answer

The equilibrium price paid by buyers increases, and the equilibrium quantity decreases.

Question 2

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

Accepted Answer

The government should increase the minimum wage to reduce poverty.

Question 3

If a country can produce either 10 tons of wheat or 20 tons of corn with the same resources, what is the opportunity cost of producing 1 ton of wheat?

Accepted Answer

$$2$$ tons of corn

Question 4

Which of the following is most likely to shift the demand curve for electric cars to the right?

Accepted Answer

An increase in consumer income, assuming electric cars are normal goods

Question 5

Suppose the market for apples is in equilibrium. If a disease destroys half the apple crop, what will happen in the short run?

Accepted Answer

The supply curve shifts left, causing the equilibrium price to rise and equilibrium quantity to fall.

Question 6

Which of the following best describes a public policy response to a negative externality?

Accepted Answer

Imposing a tax equal to the external cost

Question 7

If two goods are substitutes, what happens to the demand for good A if the price of good B increases?

Accepted Answer

The demand for good A increases.

Question 8

Which of the following is true about consumer surplus?

Accepted Answer

It is the area below the demand curve and above the price, up to the quantity purchased.

Question 9

According to the Coase Theorem, under what condition can private bargaining lead to an efficient outcome in the presence of externalities?

Accepted Answer

Property rights are well-defined and transaction costs are low.

Question 10

Suppose the supply and demand for a good are given by $$Q_s = 2P$$ and $$Q_d = 20 - P. $$What is the equilibrium price?

Accepted Answer

$$P = 6.67$$

Question 11

If a good is an inferior good, what happens to its demand when consumer income increases?

Accepted Answer

Demand decreases.

Question 12

Which of the following best illustrates the concept of comparative advantage?

Accepted Answer

A country produces the good for which it has the lowest opportunity cost.

Question 13

If the government provides a subsidy to buyers of solar panels, what is the likely effect on the market?

Accepted Answer

The demand curve shifts right, increasing equilibrium price and quantity.

Question 14

Which of the following is an example of a positive statement?

Accepted Answer

An increase in the minimum wage will lead to higher unemployment among teenagers.

Question 15

Suppose the production possibility frontier (PPF) for a country is bowed outward. What does this imply about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 16

If the market price is above the equilibrium price, what will result?

Accepted Answer

A surplus will occur, causing the price to fall.

Question 17

Which of the following is true about producer surplus?

Accepted Answer

It is the area above the supply curve and below the price, up to the quantity sold.

Question 18

If the government wants to internalize a positive externality, which policy is most appropriate?

Accepted Answer

Provide a subsidy equal to the external benefit.

Question 19

Which of the following best describes the gains from trade?

Accepted Answer

Both parties can consume outside their individual production possibility frontiers.

Question 20

Suppose the supply function is $$Q_s = 3P$$ and the demand function is $$Q_d = 30 - 2P. $$What is the equilibrium quantity?

Accepted Answer

$$Q = 18$$

Microeconomics Exam #1 Study Guide: Key Topics and Concepts

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