Question 1

Which of the following best describes a comparative advantage?

Accepted Answer

The ability to produce a good at a lower opportunity cost than another producer.

Question 2

In a command economy, which of the following is a defining characteristic?

Accepted Answer

Public ownership of the means of production.

Question 3

In a market economy, the allocation of resources is primarily determined by:

Accepted Answer

Supply and demand interactions in the market for each good.

Question 4

Suppose an economy moves from inside its production possibilities curve (PPC) to a point on the curve. Which of the following could cause this?

Accepted Answer

An increase in the amount of labor available for production.

Question 5

Trade allows countries to consume outside their production possibilities curve (PPC) because:

Accepted Answer

Countries can specialize in production and exchange for other goods.

Question 6

If the price elasticity of demand for good X is $$-1.8$$, a 5% increase in the price of good X will result in:

Accepted Answer

A 9% decrease in the quantity demanded of good X.

Question 7

Which of the following would NOT cause an increase in the demand for a normal good?

Accepted Answer

A decrease in the price of the good.

Question 8

Consumer surplus is best defined as:

Accepted Answer

The willingness of consumers to pay a price higher than the market price for an extra unit of a good.

Question 9

If a government imposes a price ceiling below the equilibrium price, what will likely result?

Accepted Answer

A shortage of the good.

Question 10

If the cross-price elasticity of demand between two goods is negative, the goods are:

Accepted Answer

Complements.

Question 11

Which of the following is an example of an opportunity cost of attending college?

Accepted Answer

The income you could have earned working instead of attending college.

Question 12

If the government wants to internalize a negative externality, it can do so by:

Accepted Answer

Imposing a tax equal to the external cost.

Question 13

Which of the following best describes diminishing marginal utility?

Accepted Answer

Each additional unit of a good consumed provides less additional satisfaction than the previous unit.

Question 14

If the government imposes a tax on sellers, which area on a supply and demand graph represents the deadweight loss?

Accepted Answer

$$C$$

Question 15

Which of the following is NOT a characteristic of a market economy?

Accepted Answer

Central planning by the government.

Question 16

If the price of a substitute good increases, what happens to the demand for the original good?

Accepted Answer

It increases.

Question 17

Which of the following is a likely result of a binding price floor set above the equilibrium price?

Accepted Answer

A surplus of the good.

Question 18

If the government imposes a tax on a good, who bears the greater burden of the tax?

Accepted Answer

The side of the market that is less elastic.

Question 19

Which of the following is an example of a public good?

Accepted Answer

National defense.

Question 20

If the marginal cost of producing a good is less than the marginal benefit, what should a rational producer do?

Accepted Answer

Increase production.

Microeconomics Practice Midterm Study Guidance

Study Guide - Practice Questions