Question 1

Suppose Dylan can produce 2 loaves of bread or 6 cookies per hour, while Claire can produce 4 loaves of bread or 8 cookies per hour. Who has the comparative advantage in producing bread?

Accepted Answer

Dylan, because his opportunity cost of bread is lower.

Question 2

Which of the following best describes the law of increasing opportunity cost as illustrated by a bowed-out Production Possibility Frontier (PPF)?

Accepted Answer

As more of one good is produced, the opportunity cost of producing additional units increases.

Question 3

If the price of a substitute good increases, what is likely to happen to the demand curve for the original good?

Accepted Answer

The demand curve will shift to the right.

Question 4

A binding price ceiling is set by the government. Where must this price ceiling be set to have an effect on the market?

Accepted Answer

Below the equilibrium price.

Question 5

Which of the following is true about a point inside the Production Possibility Frontier (PPF)?

Accepted Answer

It represents an inefficient use of resources.

Question 6

If the market price is above the equilibrium price, what will occur in the market?

Accepted Answer

A surplus will occur, and price will fall.

Question 7

Suppose the price of a good increases by 10%, and as a result, the quantity demanded decreases by 20%. What is the price elasticity of demand?

Accepted Answer

$E_d = \frac{\% \Delta Q_d}{\% \Delta P} = \frac{-20\%}{10\%} = -2$

Question 8

Which of the following would cause a movement along the supply curve, rather than a shift of the supply curve?

Accepted Answer

A change in the price of the good itself.

Question 9

If a good has many close substitutes, what can be said about its price elasticity of demand?

Accepted Answer

It is likely to be elastic.

Question 10

Suppose a new technology makes it cheaper to produce smartphones. What is the likely effect on the supply curve and equilibrium price?

Accepted Answer

The supply curve shifts right, and equilibrium price falls.

Question 11

If the cross-price elasticity of demand between two goods is positive, what does this indicate?

Accepted Answer

The goods are substitutes.

Question 12

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the price consumers are willing to pay and the price they actually pay.

Question 13

A government sets a price floor above the equilibrium price in the wheat market. What is the likely result?

Accepted Answer

A surplus of wheat.

Question 14

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

An inferior good.

Question 15

Which of the following is NOT a determinant of the price elasticity of demand?

Accepted Answer

The cost of inputs used in production.

Question 16

Suppose the government imposes a binding price ceiling on rental apartments. What is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 17

If a market is in equilibrium and both demand and supply increase simultaneously, what will definitely happen?

Accepted Answer

The equilibrium quantity will rise.

Question 18

Which of the following best describes deadweight loss (DWL)?

Accepted Answer

The total loss of producer and consumer surplus from underproduction or overproduction.

Question 19

If the price elasticity of supply is greater in the long run than in the short run, what does this imply?

Accepted Answer

Producers are more able to adjust quantity supplied in the long run.

Question 20

Which of the following would cause a shift to the right in the demand curve for electric cars?

Accepted Answer

An increase in the price of gasoline.

Microeconomics Study Guide: Scarcity, Choice, Market Equilibrium, and Elasticity

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