Question 1

Which of the following statements best describes a normative statement?

Accepted Answer

The government should increase the minimum wage to reduce poverty.

Question 2

Suppose a consumer faces the following budget constraint: $$10x + 5y = 100. $$What is the opportunity cost of one unit of $$x in $$terms of $$y$$?

Accepted Answer

$$2$$

Question 3

Which of the following best illustrates the Law of Demand?

Accepted Answer

As the price of coffee increases, the quantity of coffee demanded decreases.

Question 4

If a firm experiences diminishing marginal returns, what happens to marginal cost as output increases?

Accepted Answer

Marginal cost increases.

Question 5

A perfectly competitive firm maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 6

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

Accepted Answer

Substitutes

Question 7

Which of the following is NOT a characteristic of a public good?

Accepted Answer

Rival in consumption

Question 8

Suppose the market for wheat is perfectly competitive. If the market price falls below a firm's average variable cost, what should the firm do in the short run?

Accepted Answer

Shut down production

Question 9

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative forgone

Question 10

If a country can produce more of a good with the same resources than another country, it has:

Accepted Answer

Absolute advantage

Question 11

Which of the following equations represents the condition for allocative efficiency in a perfectly competitive market?

Accepted Answer

$$P = MC$$

Question 12

A negative externality results in:

Accepted Answer

Overproduction relative to the social optimum

Question 13

If the price elasticity of demand for a product is $$-0.5$$, what does this imply?

Accepted Answer

Demand is inelastic; consumers are not very responsive to price changes.

Question 14

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

Accepted Answer

Raising taxes will increase government revenue.

Question 15

Suppose a monopolist faces the following demand curve: $$P = 100 - 2Q. $$Its marginal cost is constant at $$MC = 20. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 16

Which of the following is a source of wage inequality in the labor market?

Accepted Answer

Differences in human capital

Question 17

If a firm’s total cost function is $$TC = 100 + 5Q + Q^2$, what is the marginal cost (MC) function?

Accepted Answer

$$MC = 5 + 2Q$$

Question 18

Which of the following best describes the Tragedy of the Commons?

Accepted Answer

Overuse of a common resource due to lack of property rights

Question 19

In the short run, a firm should continue to produce as long as:

Accepted Answer

Price covers average variable cost

Question 20

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

Many firms selling differentiated products

Microeconomics Study Guide: Principles, Markets, and Behavior

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