Q: Which of the following policies is most likely to correct a negative externality?

A tax equal to the external cost imposed.

Question 1

Which of the following best describes an opportunity cost?

Accepted Answer

The value of the next best alternative foregone when making a decision.

Question 2

Suppose a consumer faces the following budget constraint: $10x + 5y \leq 100$. What does the slope of the budget constraint represent?

Accepted Answer

The opportunity cost of $x$ in terms of $y$.

Question 3

If the price of a normal good increases, what is the expected effect on the quantity demanded, holding all else constant?

Accepted Answer

Quantity demanded will decrease.

Question 4

A perfectly competitive firm faces the following cost structure: $MC = 2Q$, $P = 20$. What is the profit-maximizing output level?

Accepted Answer

$Q = 10$

Question 5

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

Accepted Answer

Products are differentiated.

Question 6

Suppose the cross-price elasticity of demand between two goods is $+0.8$. What does this indicate?

Accepted Answer

The goods are substitutes.

Question 7

A monopolist faces the demand curve $P = 100 - Q$. What is the marginal revenue curve?

Accepted Answer

$MR = 100 - 2Q$

Question 8

Which of the following best describes the concept of consumer surplus?

Accepted Answer

The difference between what a consumer is willing to pay and what they actually pay.

Question 9

If a market is experiencing a shortage, which of the following is true?

Accepted Answer

Quantity demanded exceeds quantity supplied.

Question 10

Suppose a government imposes a price ceiling below the equilibrium price. What is the likely outcome?

Accepted Answer

A shortage will occur.

Question 11

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

Accepted Answer

Vaccination against infectious diseases.

Question 12

If the price elasticity of demand for a product is $-2$, what does this imply?

Accepted Answer

Demand is elastic.

Question 13

Which of the following is a public good?

Accepted Answer

National defense.

Question 14

A firm’s marginal cost curve is upward sloping due to:

Accepted Answer

Diminishing marginal returns.

Question 15

Which of the following best explains the tragedy of the commons?

Accepted Answer

Common resources are overused because individuals do not bear the full cost of their actions.

Question 16

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

Accepted Answer

2 units of corn.

Question 17

Which of the following is true about a monopolistically competitive market?

Accepted Answer

Firms face downward sloping residual demand curves.

Question 18

If a firm’s marginal revenue is less than its marginal cost ($MR < MC$), what should the firm do to maximize profit?

Accepted Answer

Decrease output.

Question 19

Which of the following policies is most likely to correct a negative externality?

Accepted Answer

A tax equal to the external cost imposed.

Question 20

Suppose the demand for labor is given by $MRP_L = 50 - 2L$, where $L$ is the number of workers. If the wage rate is $30$, how many workers will the firm hire?

Accepted Answer

$L = 15$

Microeconomics Study Guide: Core Concepts and Market Structures

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