Question 1

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

Accepted Answer

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

Question 2

Suppose a competitive market for apples is in equilibrium. If a price floor is set above the equilibrium price, what is the most likely outcome?

Accepted Answer

A surplus of apples.

Question 3

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

Accepted Answer

A 1% increase in price leads to a 2% decrease in quantity demanded.

Question 4

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

Products are identical.

Question 5

A negative externality in production, such as pollution, leads to which of the following outcomes in a free market?

Accepted Answer

The market produces more than the socially optimal quantity.

Question 6

If a monopolist faces the following cost and demand curves: $$MC = 10$$, $$ATC = 12$$, and the demand curve is $$P = 30 - Q$$, what quantity should the monopolist produce to maximize profit?

Accepted Answer

Question 7

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

Accepted Answer

National defense

Question 8

Suppose the government imposes a tax on sellers in a market with inelastic demand and elastic supply. Who bears the greater burden of the tax?

Accepted Answer

Buyers bear the greater burden.

Question 9

Which of the following best describes the marginal product of labor?

Accepted Answer

The additional output produced by hiring one more worker.

Question 10

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

Accepted Answer

The goods are substitutes.

Question 11

A price ceiling is set below the equilibrium price in the market for rental apartments. What is the most likely result?

Accepted Answer

A shortage of apartments.

Question 12

Which of the following is true about consumer surplus?

Accepted Answer

It is the area below the demand curve and above the price line.

Question 13

Suppose the government wants to correct a positive externality. Which policy is most appropriate?

Accepted Answer

Providing a subsidy to consumers or producers.

Question 14

Which of the following is NOT a reason for market failure?

Accepted Answer

Perfect competition

Question 15

If the marginal cost (MC) of producing a good is constant at $$5$$ and the market price is $$8$$, what should a perfectly competitive firm do in the short run?

Accepted Answer

Produce where $$MC = MR (i.e$$., continue producing).

Question 16

Which of the following best describes Pareto efficiency?

Accepted Answer

No individual can be made better off without making someone else worse off.

Question 17

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 18

Which of the following is an example of a common pool resource?

Accepted Answer

Fish in the ocean

Question 19

If the government wants to increase total surplus in a market with a negative externality, which policy should it implement?

Accepted Answer

Impose a tax equal to the marginal external cost.

Question 20

Which of the following statements about the invisible hand is correct?

Accepted Answer

It can fail in the presence of public goods, externalities, or common pool resources.

Microeconomics Study Notes: Core Principles, Markets, and Welfare

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