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

A rational decision maker will choose to undertake an activity if:

Accepted Answer

The marginal benefit exceeds the marginal cost.

Question 3

Suppose the cost of operating a 75-room hotel for a night is $$6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one more room for one night is 40$$, the hotel manager should rent one of the empty rooms only if a customer is willing to pay:

Accepted Answer

more than $40, as the marginal benefit will exceed the marginal cost.

Question 4

According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. This result is an example of which principle of economics?

Accepted Answer

People respond to incentives.

Question 5

If potatoes are an inferior good for Sam, what will happen to his demand for potatoes if his income increases?

Accepted Answer

His demand for potatoes will decrease.

Question 6

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Firms can influence the market price.

Question 7

The law of demand states that, other things equal:

Accepted Answer

As the price of a good increases, the quantity demanded decreases.

Question 8

Which of the following would cause a movement along the demand curve for ice cream?

Accepted Answer

A decrease in the price of ice cream.

Question 9

If the market for macadamia nuts is in equilibrium and the price increases above the equilibrium price, what will happen?

Accepted Answer

Quantity supplied will exceed quantity demanded.

Question 10

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

Accepted Answer

Positive statements are descriptive; normative statements are prescriptive.

Question 11

Suppose the demand for a product is given by $$Q_d = 100 - 2P$$ and the supply is given by $$Q_s = 20 + 3P. $$What is the equilibrium price?

Accepted Answer

$$P = 16$$

Question 12

If the government imposes a price ceiling below the equilibrium price, what is the likely outcome in the market?

Accepted Answer

A shortage will occur.

Question 13

Which of the following is an example of a real-world trade-off?

Accepted Answer

A student choosing to study for an exam instead of going to a party.

Question 14

If the marginal rate of substitution (MRS) between apples and oranges is 2, what does this mean?

Accepted Answer

The consumer is willing to give up 2 apples for 1 orange.

Question 15

Which of the following best illustrates the concept of thinking at the margin?

Accepted Answer

Deciding whether to study one more hour for an exam.

Question 16

If a tax is imposed on sellers in a market, what is the immediate effect?

Accepted Answer

The supply curve shifts to the left.

Question 17

Which of the following is most likely to increase competition among domestic companies?

Accepted Answer

Reducing trade barriers.

Question 18

Suppose the government subsidizes the production of electric cars. What is the likely effect on the market for electric cars?

Accepted Answer

The supply curve will shift to the right.

Question 19

If the price elasticity of demand for a product is greater than 1, the demand for the product is:

Accepted Answer

Elastic.

Question 20

Which of the following is a normative statement?

Accepted Answer

"The government should reduce income taxes to stimulate growth."

Microeconomics Principles: Multiple Choice Study Guide

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