Question 1

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

Accepted Answer

The value of the next best alternative forgone when making a decision.

Question 2

Suppose a country can produce either 100 units of wheat or 200 units of corn. If the country decides to produce 50 units of wheat, what is the opportunity cost in terms of corn?

Accepted Answer

100 units of corn

Question 3

Which of the following is NOT one of the three basic economic questions every society must answer?

Accepted Answer

How much profit should be made?

Question 4

A production possibilities frontier (PPF) that is bowed outward illustrates which economic concept?

Accepted Answer

Increasing opportunity cost

Question 5

If the price of a normal good increases, what is most likely to happen to the quantity demanded, according to the law of demand?

Accepted Answer

Quantity demanded will decrease.

Question 6

Which of the following would cause a shift in the demand curve for coffee to the right?

Accepted Answer

An increase in consumer income, assuming coffee is a normal good.

Question 7

Suppose the market for oranges is in equilibrium. If a disease destroys half the orange crop, what will happen to the equilibrium price and quantity?

Accepted Answer

Price will increase, quantity will decrease.

Question 8

If the price elasticity of demand for a product is $|E_d| = 2.5$, what does this imply about consumer responsiveness?

Accepted Answer

Demand is elastic; consumers are very responsive to price changes.

Question 9

Calculate the price elasticity of demand if the price of a good increases from $\$10$ to $\$12$ and quantity demanded falls from $100$ units to $80$ units. Use the midpoint formula: $E_d = \frac{(Q_2 - Q_1)}{(Q_2 + Q_1)/2} \div \frac{(P_2 - P_1)}{(P_2 + P_1)/2}$.

Accepted Answer

$E_d = -1.67$

Question 10

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

Accepted Answer

"Increasing the minimum wage will lead to higher unemployment among teenagers."

Question 11

A country can produce 10 cars or 20 trucks. Another country can produce 5 cars or 15 trucks. Which country has the absolute advantage in car production?

Accepted Answer

The first country

Question 12

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

Accepted Answer

The goods are complements.

Question 13

Which of the following would NOT shift the supply curve for wheat?

Accepted Answer

A change in the price of wheat.

Question 14

If a good has an income elasticity of demand greater than 1, it is classified as:

Accepted Answer

A luxury

Question 15

Suppose the demand for public transportation increases as income decreases. What type of good is public transportation?

Accepted Answer

Inferior good

Question 16

If both demand and supply for a product increase simultaneously, what will happen to the equilibrium quantity?

Accepted Answer

Equilibrium quantity will increase.

Question 17

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

Accepted Answer

Producing a good at a lower opportunity cost than another producer.

Question 18

If a firm faces a perfectly elastic demand curve, what happens to total revenue if the firm increases its price?

Accepted Answer

Total revenue decreases to zero.

Question 19

Which of the following is a determinant of price elasticity of demand?

Accepted Answer

The availability of close substitutes.

Question 20

A decrease in the price of gasoline leads to an increase in the quantity demanded of SUVs. What type of elasticity does this illustrate?

Accepted Answer

Cross-price elasticity of demand

Microeconomics Exam Study Guide: Core Concepts and Applications

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