Question 1

Suppose a country can produce either 100 units of Good X or 200 units of Good Y using all its resources. If the country is currently producing 50 units of Good X and 100 units of Good Y, which of the following statements is true about this production point?

Accepted Answer

It is attainable and efficient.

Question 2

If the production possibilities curve (PPC) for a country shifts outward, which of the following is the most likely explanation?

Accepted Answer

An improvement in technology.

Question 3

Country A can produce 10 cars or 20 computers in a day. Country B can produce 8 cars or 16 computers in a day. Which country has the comparative advantage in producing cars?

Accepted Answer

Neither country, because their opportunity costs are the same.

Question 4

Suppose the world price of steel is lower than the domestic price in a country. What will happen if the country opens up to international trade?

Accepted Answer

The country will import steel.

Question 5

Which of the following best describes a negative externality?

Accepted Answer

A cost imposed on a third party not involved in the transaction.

Question 6

If the marginal social cost (MSC) of producing a good is given by $$MSC = MPC + MEC$$, and the marginal external cost (MEC) is positive, what does this imply about the market equilibrium?

Accepted Answer

The market equilibrium results in overproduction relative to the efficient outcome.

Question 7

Which of the following is NOT a condition required for the Coase Theorem to hold and for private bargaining to lead to an efficient outcome?

Accepted Answer

There are a large number of affected parties.

Question 8

A public good is characterized by which two properties?

Accepted Answer

Non-rivalry and non-excludability.

Question 9

Which of the following best explains the 'Tragedy of the Commons'?

Accepted Answer

Common pool resources are overused because individuals ignore the external cost imposed on others.

Question 10

A firm will hire labor up to the point where:

Accepted Answer

The value marginal product of labor equals the wage.

Question 11

Suppose a worker faces a higher wage rate. According to the substitution effect, what is the likely impact on the worker's labor supply?

Accepted Answer

The worker will supply more labor.

Question 12

Which of the following is an example of a compensating wage differential?

Accepted Answer

A higher wage paid to workers in dangerous jobs.

Question 13

Which of the following is NOT a characteristic of a monopoly?

Accepted Answer

There are many sellers.

Question 14

A monopolist faces the following demand curve: $$P = 100 - 2Q. $$What is the marginal revenue (MR) curve?

Accepted Answer

$$MR = 100 - 4Q$$

Question 15

Which of the following is a legal barrier to entry that can create a monopoly?

Accepted Answer

Government-issued patents.

Question 16

In the context of price discrimination, what is the intent of a monopolist engaging in first-degree (perfect) price discrimination?

Accepted Answer

To capture all consumer surplus as profit.

Question 17

Which of the following best describes a Nash equilibrium in the context of a duopoly game?

Accepted Answer

Each firm chooses its best response given the other firm's strategy, and neither has an incentive to deviate.

Question 18

In monopolistic competition, what happens to the residual demand curve for an individual firm as new firms enter the market?

Accepted Answer

It shifts to the left and becomes more elastic.

Question 19

Which of the following is a key difference between perfect competition and monopolistic competition?

Accepted Answer

Firms in monopolistic competition produce differentiated products.

Question 20

Suppose a government imposes a tariff on imported goods. Who are the likely 'winners' and 'losers' from this policy?

Accepted Answer

Domestic producers are winners; domestic consumers are losers.

Microeconomics Study Notes: Trade, Externalities, Factor Markets, Monopoly, and Market Structures

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