Question 1

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

Accepted Answer

The highest valued alternative that must be given up to engage in an activity.

Question 2

Suppose Apple must decide whether to devote its resources to making iPhones or smartwatches. If Apple chooses to produce more iPhones, what is the opportunity cost?

Accepted Answer

The smartwatches Apple could have produced with those resources.

Question 3

A company is considering whether to open a new factory. The marginal benefit of opening the factory is $1,000,000, and the marginal cost is $800,000. According to economic theory, what should the company do?

Accepted Answer

Open the factory, because $1,000,000 is greater than $800,000.

Question 4

Which of the following equations represents the condition for a firm to maximize profit in terms of marginal analysis?

Accepted Answer

$MR = MC$

Question 5

If the government imposes a minimum wage above the equilibrium wage, what is the most likely economic outcome?

Accepted Answer

A surplus of labor (unemployment).

Question 6

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

Accepted Answer

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

Question 7

A market is defined as:

Accepted Answer

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Question 8

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

Accepted Answer

A firm produces a good at a lower opportunity cost than its competitors.

Question 9

Suppose a student is deciding whether to spend an extra hour studying for an economics exam or working at a part-time job that pays $15 per hour. If the student values the extra study hour at $20, what should the student do according to marginal analysis?

Accepted Answer

Study for the exam, because the marginal benefit ($20) exceeds the marginal cost ($15).

Question 10

Which of the following is NOT a key economic idea?

Accepted Answer

People always act in their own self-interest regardless of incentives.

Question 11

In a market economy, how are goods and services allocated?

Accepted Answer

By the decisions of households and firms as they interact in markets.

Question 12

Which of the following best describes productive efficiency?

Accepted Answer

When a good or service is produced at the lowest possible cost.

Question 13

If a company is considering whether to increase production, which calculation should it use to determine if it is optimal to do so?

Accepted Answer

Compare marginal benefit to marginal cost.

Question 14

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

Accepted Answer

"The government should redistribute income to reduce inequality."

Question 15

Suppose the marginal cost of producing an additional unit is $50, and the marginal benefit is $40. What should the firm do?

Accepted Answer

Not produce the additional unit, because marginal cost exceeds marginal benefit.

Question 16

Which of the following best describes allocative efficiency?

Accepted Answer

When production is in accordance with consumer preferences.

Question 17

A government program provides payments to retired and disabled workers. This is an example of:

Accepted Answer

Social security.

Question 18

Which of the following is a reason why centrally planned economies often fail to produce low-cost, high-quality goods and services?

Accepted Answer

They lack incentives for efficiency and innovation.

Question 19

If a firm is deciding whether to spend $1,000 on advertising, and expects the additional revenue from advertising to be $1,200, what is the marginal benefit and marginal cost of this decision?

Accepted Answer

Marginal benefit: $1,200; Marginal cost: $1,000

Question 20

Which of the following best describes the difference between positive and normative analysis?

Accepted Answer

Positive analysis describes what is, while normative analysis describes what ought to be.

Microeconomics: Introduction, Key Concepts, and Economic Models

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