Question 1

Refer to the PPF diagram with points A, B, C, D, E, and F. If the economy moves from point B (100 units of food, 0 units of clothes) to point C (75 units of food, 100 units of clothes), what is the opportunity cost of producing 100 units of clothes?

Accepted Answer

25 units of food

Question 2

Which of the following best represents economic growth in a nation’s production possibilities frontier (PPF)?

Accepted Answer

An outward shift of the PPF

Question 3

If, in response to an increase in the price of chocolate, the quantity of chocolate demanded decreases, economists would describe this as:

Accepted Answer

A decrease in quantity demanded

Question 4

At a price of $10, what will happen to the market shown in the supply and demand diagram? The price of the good in this market must:

Accepted Answer

Create a shortage and rise

Question 5

Suppose the equilibrium price and equilibrium quantity of silver both decrease. Which of the following would produce such a change?

Accepted Answer

The market demand curve for silver could have decreased.

Question 6

A market is efficient if all trades take place where the marginal benefit exceeds the marginal cost, and no other trades take place. Which equation represents this condition?

Accepted Answer

$$MB = MC$$

Question 7

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called:

Accepted Answer

Consumer surplus

Question 8

In order to be binding, a price ceiling:

Accepted Answer

Must lie below the free market equilibrium price

Question 9

The government imposes a unit tax in a market. If the price consumers pay rises from $$2.50 to 2.58 $$and the price sellers receive falls from $$2.50 to 2.48$$, what is the amount of tax imposed?

Accepted Answer

$$0.10$$

Question 10

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

Accepted Answer

Planting trees along a sidewalk which add beauty and create shade

Question 11

How might society solve problems associated with externalities and market failure? If an externality is present, resulting in market failure, then:

Accepted Answer

Private solutions may reduce or correct market failure

Question 12

Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee, and Starbucks Coffee.

Accepted Answer

Starbucks Coffee, coffee, hot beverages

Question 13

Suppose the price elasticity of demand for coffee is estimated at $$-1.5. $$What happens to total revenue if the price of coffee rises?

Accepted Answer

It falls

Question 14

If higher oil prices lead firms to explore for new oil and increase production over time, what does this imply about the long-run price elasticity of supply for oil?

Accepted Answer

The elasticity coefficient is likely to be higher in the long run than in the short run

Question 15

Many economists support free international trade, maintaining that it improves economic efficiency by causing goods to be produced:

Accepted Answer

At the lowest opportunity cost

Question 16

Many economists argue that eliminating tariffs or other restrictions on free trade benefit U.S. consumers by:

Accepted Answer

Reducing the prices they pay for many goods

Question 17

A tariff:

Accepted Answer

Makes domestic consumers worse off

Question 18

Joe's Pizza Emporium made a change that involved taking better account of traffic to avoid delays in delivering pizzas. This is an example of:

Accepted Answer

Positive technological change

Question 19

Marginal cost is the:

Accepted Answer

Additional cost of producing an additional unit of output

Question 20

Which equation correctly represents the relationship between total cost, average total cost, average fixed cost, and average variable cost?

Accepted Answer

$$ATC = AFC + AVC$$

Microeconomics Final Exam Review: Production Possibilities Frontier & Opportunity Cost

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