Question 1

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

Accepted Answer

Positive economics describes facts and cause-effect relationships, while normative economics involves value judgments about what should be.

Question 2

Suppose a consumer is deciding between two options. Option A has a marginal benefit (MB) of $$10 and a marginal cost (MC) of 8. $$Option B has MB of $$7 and MC of 6. $$According to marginal analysis, which option should the consumer choose?

Accepted Answer

Option A, because its marginal benefit exceeds its marginal cost by the greatest amount.

Question 3

If the price of a good increases and the quantity demanded decreases, which law is being illustrated?

Accepted Answer

Law of Demand

Question 4

A market is in equilibrium when:

Accepted Answer

No buyer or seller has an incentive to change their behavior.

Question 5

Which of the following is an example of opportunity cost?

Accepted Answer

The value of the best alternative use of your time when you attend a concert.

Question 6

If a consumer’s income increases and they buy more of a good, that good is classified as:

Accepted Answer

Normal good

Question 7

Suppose the cross-price elasticity of demand between tea and coffee is positive. What does this imply?

Accepted Answer

Tea and coffee are substitutes.

Question 8

A firm’s total cost (TC) is given by $$TC = FC + VC. If $$fixed costs (FC) are $$100$$ and variable costs (VC) are $$200$$, what is the total cost?

Accepted Answer

$$TC = 300$$

Question 9

Which of the following best explains the Law of Diminishing Returns?

Accepted Answer

As more input is added, additional output eventually decreases.

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

A budget constraint line (BCL) shows:

Accepted Answer

Combinations of goods affordable at given income/prices.

Question 12

Which of the following is NOT a pillar of the buyer’s problem?

Accepted Answer

Production function

Question 13

If a market experiences a surplus, what does this mean?

Accepted Answer

Quantity supplied exceeds quantity demanded.

Question 14

Which formula correctly calculates marginal cost (MC)?

Accepted Answer

$$MC = \Delta TC / \Delta Q$$

Question 15

A consumer is maximizing utility when:

Accepted Answer

Marginal utility per dollar is equal across all goods.

Question 16

Which of the following is an example of a shift in the demand curve?

Accepted Answer

A change in consumer income.

Question 17

If the average fixed cost (AFC) is calculated as $$AFC = FC / Q$$, what happens to AFC as quantity ($$Q) $$increases?

Accepted Answer

AFC decreases.

Question 18

Which of the following statements about causation and correlation is correct?

Accepted Answer

Causation means one variable directly affects another.

Question 19

If a consumer’s budget increases, what happens to their budget constraint line (BCL)?

Accepted Answer

It shifts outward.

Question 20

A producer faces increasing marginal cost as output rises. Which concept does this illustrate?

Accepted Answer

Law of Diminishing Returns

Microeconomics Principles: Structured Study Notes (Chapters 1-6)

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