Question 1

Refer to the first diagram (PPF with points A and B). If the economy moves from point A to point B, what happens to the opportunity cost of producing computers?

Accepted Answer

The opportunity cost of producing computers increases.

Question 2

Suppose the government imposes a binding price floor above the equilibrium price in the cheese market. What is the most likely outcome?

Accepted Answer

A surplus of cheese will occur.

Question 3

If the price of corn increases from $$3 to 4 $$per bushel and the quantity demanded decreases from 8 million to 7 million bushels, what is the price elasticity of demand using the midpoint method?

Accepted Answer

$$0.47$$

Question 4

Which of the following is a reason for government intervention in the education market?

Accepted Answer

Education generates positive externalities.

Question 5

Refer to the second diagram (Mac and Izzie’s PPFs). If Mac and Izzie specialize and trade to reach point c, what is the likely trade between them?

Accepted Answer

6 computers in exchange for 6 TVs.

Question 6

If the elasticity of demand for cocaine is $$-0.2$$ and the price rises by $$50\%$$, what happens to total expenditure on cocaine?

Accepted Answer

Total expenditure increases.

Question 7

Which of the following best describes the effect of a rent ceiling set above the equilibrium price?

Accepted Answer

The effect is essentially nonexistent.

Question 8

Why should the government intervene in the COVID-19 vaccine market? Select the most comprehensive answer.

Accepted Answer

Vaccines have positive externalities and information asymmetry exists regarding their safety and effectiveness.

Question 9

Refer to the third diagram (linear demand curve). At the midpoint of the demand curve, what is the price elasticity of demand?

Accepted Answer

$$1.0$$

Question 10

Suppose autoworkers negotiate a wage increase. What is the effect on the supply of cars?

Accepted Answer

Supply decreases.

Question 11

If the government imposes a tax on sellers of sports equipment, and the demand is more inelastic than supply, who bears a larger portion of the tax?

Accepted Answer

Buyers bear a larger portion.

Question 12

Which of the following is a microeconomic question?

Accepted Answer

How will a lower price of digital cameras affect the quantity of cameras sold?

Question 13

If the demand for a good is a downward sloping straight line, at which price is demand most elastic?

Accepted Answer

$$3$$ per unit

Question 14

Monica can work as a piano teacher for $$300$$ per hour. Her opportunity cost of working one hour is $$100$$, two hours is $$250$$, three hours is $$500$$, and four hours is $$850. $$How many hours should Monica work to maximize her net benefit?

Accepted Answer

3 hours

Question 15

Which of the following best explains why central-planning economies do not work as efficiently as market economies?

Accepted Answer

Competitive markets allocate resources more efficiently.

Question 16

Refer to the fourth diagram (tax on sellers). What is the consumer’s share of the tax?

Accepted Answer

$$P_2$$ - $$P_1$$

Question 17

If the government does not intervene in the cigarette market, what will happen to the quantity of cigarettes produced relative to the social optimum?

Accepted Answer

The market will overproduce cigarettes.

Question 18

If the government imposes a tax on cigarettes, and demand is inelastic, what will happen to the market quantity and efficiency?

Accepted Answer

Market quantity will decrease and efficiency will improve.

Question 19

Which of the following is true about absolute and comparative advantage?

Accepted Answer

A person with absolute advantage may not have comparative advantage in everything.

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