Question 1

Suppose the government imposes a price ceiling on rental apartments that is below the equilibrium price. Which of the following is the most likely outcome?

Accepted Answer

A shortage of rental apartments, as the quantity demanded exceeds the quantity supplied.

Question 2

If a per-unit tax is imposed on sellers, which of the following statements is correct regarding the burden of the tax?

Accepted Answer

The tax burden is shared between buyers and sellers, depending on the relative elasticities of supply and demand.

Question 3

Which of the following best describes deadweight loss resulting from a tax?

Accepted Answer

It is the reduction in total surplus that results because the tax discourages mutually beneficial trades.

Question 4

A negative externality exists in a market when:

Accepted Answer

The private cost of production is less than the social cost.

Question 5

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

Accepted Answer

Imposing a Pigovian tax equal to the external cost.

Question 6

The Coase Theorem suggests that private parties can solve the problem of externalities if:

Accepted Answer

Transaction costs are low and property rights are clearly defined.

Question 7

Which of the following is an example of a public good?

Accepted Answer

National defense.

Question 8

The 'tragedy of the commons' occurs because:

Accepted Answer

Common resources are rival in consumption but not excludable.

Question 9

Suppose the world price of steel is lower than the domestic price in a country. If the country opens to trade, what will happen to consumer and producer surplus?

Accepted Answer

Consumer surplus will increase and producer surplus will decrease.

Question 10

If a country imposes a tariff on imported goods, what is the effect on deadweight loss?

Accepted Answer

Deadweight loss increases because the tariff reduces the quantity of imports below the efficient level.

Question 11

Which of the following best illustrates the law of diminishing marginal utility?

Accepted Answer

The more slices of pizza you eat, the less additional satisfaction you get from each extra slice.

Question 12

A Giffen good is characterized by:

Accepted Answer

An upward-sloping demand curve because the income effect outweighs the substitution effect.

Question 13

Suppose a consumer allocates their budget between two goods, X and Y. According to the law of equal marginal utilities per dollar, the consumer maximizes utility when:

Accepted Answer

$ \frac{MU_X}{P_X} = \frac{MU_Y}{P_Y} $

Question 14

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

Accepted Answer

The value of a social media platform increases as more people join.

Question 15

If a firm ignores sunk costs when making decisions, it is:

Accepted Answer

Making rational economic decisions based on future costs and benefits.

Question 16

Which of the following equations correctly represents the relationship between average total cost (ATC), average variable cost (AVC), and average fixed cost (AFC)?

Accepted Answer

$ ATC = AVC + AFC $

Question 17

Suppose a firm’s marginal cost (MC) curve intersects its average total cost (ATC) curve at $ Q = 100 $. At this quantity:

Accepted Answer

ATC is at its minimum.

Question 18

Which of the following is an example of a behavioral economics concept?

Accepted Answer

People often fail to account for opportunity costs.

Question 19

If the government provides a subsidy for health care, what is the likely effect on consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus increases, but deadweight loss may also increase if the subsidy leads to overconsumption.

Question 20

Which of the following best describes the efficient outcome in the presence of a positive externality?

Accepted Answer

The socially optimal quantity is greater than the market equilibrium quantity.

Microeconomics Study Guide: Welfare, Externalities, Comparative Advantage, Utility, and Production

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