Question 1

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

Accepted Answer

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

Question 2

Suppose a country can produce either 100 units of wheat or 200 units of corn with its available resources. What is the opportunity cost of producing one unit of wheat?

Accepted Answer

2 units of corn

Question 3

Which of the following statements about the Production Possibilities Frontier (PPF) is correct?

Accepted Answer

Points outside the PPF are unattainable with current resources.

Question 4

If the demand for electric cars increases due to a rise in gasoline prices, what will happen to the equilibrium price and quantity of electric cars, ceteris paribus?

Accepted Answer

Both equilibrium price and quantity increase.

Question 5

A binding price ceiling is imposed on apartment rents in a city. Which of the following is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 6

Suppose the government imposes a per-unit tax on sellers. Which of the following best describes the effect on the supply curve?

Accepted Answer

The supply curve shifts to the left by the amount of the tax.

Question 7

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

Accepted Answer

Vaccination against infectious diseases.

Question 8

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

Accepted Answer

When property rights are clearly defined and transaction costs are low.

Question 9

Which of the following goods is best described as a public good?

Accepted Answer

National defense.

Question 10

If the price elasticity of demand for a product is $$-2$$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will decrease.

Question 11

Suppose the market for oranges is in equilibrium. A disease destroys a large portion of the orange crop. What is the most likely effect on the equilibrium price and quantity?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases.

Question 12

Which of the following best explains why competitive markets are efficient?

Accepted Answer

They maximize the sum of consumer and producer surplus.

Question 13

A country has a comparative advantage in producing a good if:

Accepted Answer

It can produce the good at a lower opportunity cost than other countries.

Question 14

If the government sets a price floor above the equilibrium price in the wheat market, what is the likely result?

Accepted Answer

A surplus of wheat.

Question 15

Which of the following is NOT an assumption of most economic models?

Accepted Answer

Resources are unlimited.

Question 16

Suppose the demand function for a good is $$Q_d = 100 - 2P$$ and the supply function is $$Q_s = 4P. $$What is the equilibrium price?

Accepted Answer

$$P = 20$$

Question 17

Which of the following is an example of a common resource?

Accepted Answer

Fish in the ocean.

Question 18

If a market is not in equilibrium, which of the following is most likely to occur?

Accepted Answer

There will be either a shortage or a surplus.

Question 19

Which of the following best describes the effect of a negative externality in a market?

Accepted Answer

The market equilibrium quantity is greater than the socially optimal quantity.

Question 20

Suppose the government wants to correct a negative externality from pollution. Which policy would be most effective?

Accepted Answer

Imposing a tax equal to the external cost.

Microeconomics: Foundations, Market Systems, and Efficiency

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