Question 1

Which of the following statements best distinguishes microeconomics from macroeconomics?

Accepted Answer

Microeconomics studies the behavior of individual households and firms, while macroeconomics focuses on the economy as a whole.

Question 2

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

$$\frac{200}{100} = 2$$ units of corn

Question 3

A production possibilities frontier (PPF) is bowed outward (concave) from the origin. What does this shape indicate?

Accepted Answer

The law of increasing opportunity cost applies; producing more of one good requires giving up increasingly more of the other good.

Question 4

Which of the following is a positive economic statement?

Accepted Answer

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

Question 5

If the price of coffee increases, what is likely to happen to the demand for tea, assuming they are substitutes?

Accepted Answer

The demand for tea will increase, shifting the demand curve for tea to the right.

Question 6

A price ceiling is set below the equilibrium price in a market. What is the most likely result?

Accepted Answer

A shortage, because quantity demanded exceeds quantity supplied at the ceiling price.

Question 7

Suppose the price elasticity of demand for a product is $$-0.8. If $$the price increases, what will happen to total revenue?

Accepted Answer

Total revenue will increase because demand is inelastic.

Question 8

Which of the following would cause the supply curve for cars to shift to the right?

Accepted Answer

A technological improvement in car manufacturing.

Question 9

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

Accepted Answer

The goods are substitutes.

Question 10

A market is in equilibrium at price $$P^*. If $$the government imposes a price floor above $$P^*$$, what will happen?

Accepted Answer

A surplus will occur because quantity supplied exceeds quantity demanded.

Question 11

Suppose the income elasticity of demand for a good is $$-0.4. $$What type of good is this, and what does it mean?

Accepted Answer

It is an inferior good; demand decreases as income rises.

Question 12

If a country opens to international trade and the world price is lower than the domestic equilibrium price, what will happen in the domestic market?

Accepted Answer

The country will import the good, and domestic producers will sell less at the lower world price.

Question 13

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 14

Given the following data, calculate the price elasticity of demand using the general formula: Price increases from $$\10$ to $$\$$12$$, and quantity demanded decreases from $$100 to$$ $$80.$$

Accepted Answer

$$\frac{(80-100)}{(100+80)/2} \div \frac{(12-10)}{(10+12)/2} = \frac{-20}{90} \div \frac{2}{11} = -2.44$$

Question 15

Which of the following is NOT a determinant of demand?

Accepted Answer

Technology used in production.

Question 16

If a technological innovation reduces the cost of producing smartphones, what will happen to the equilibrium price and quantity in the smartphone market?

Accepted Answer

Equilibrium price will decrease and equilibrium quantity will increase.

Question 17

Which of the following best describes the concept of ceteris paribus?

Accepted Answer

Holding all other variables constant except the one being studied.

Question 18

If the price elasticity of supply is perfectly inelastic, what does the supply curve look like?

Accepted Answer

A vertical line.

Question 19

Which of the following scenarios would result in a deadweight loss?

Accepted Answer

A government imposes a price floor above equilibrium, causing a surplus.

Question 20

Suppose the demand for gasoline is more elastic in the long run than in the short run. What does this imply about consumer behavior?

Accepted Answer

Consumers are more responsive to price changes over time as they find alternatives or change habits.

Microeconomics Exam I Study Guide: Core Concepts and Applications

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