Question 1

Suppose Country A can produce either 10 units of wheat or 20 units of corn with all its resources, while Country B can produce either 8 units of wheat or 16 units of corn. Which country has the comparative advantage in producing wheat?

Accepted Answer

Country B, because it gives up fewer units of corn per unit of wheat produced.

Question 2

If the government imposes a per-unit tax on sellers, which of the following best describes the effect on the supply curve?

Accepted Answer

The supply curve shifts to the left by the amount of the tax.

Question 3

A negative externality exists in a market when:

Accepted Answer

The marginal social cost exceeds the marginal private cost.

Question 4

Which of the following is true about the deadweight loss caused by a tax?

Accepted Answer

Deadweight loss is larger when demand and supply are more elastic.

Question 5

A public good is defined as:

Accepted Answer

Non-rival and non-excludable.

Question 6

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

Accepted Answer

$$MR = 100 - 4Q$$

Question 7

Which of the following best explains why the tragedy of the commons occurs?

Accepted Answer

Common pool resources are rival but non-excludable, leading to overuse.

Question 8

If a country opens to international trade and the world price is above the domestic equilibrium price, which of the following will occur?

Accepted Answer

The country will export the good.

Question 9

A binding price ceiling is set below the equilibrium price. What is the likely result?

Accepted Answer

A shortage, because quantity demanded exceeds quantity supplied.

Question 10

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

Firms face downward sloping residual demand curves.

Question 11

Suppose the government provides a per-unit subsidy to buyers. What is the effect on the demand curve?

Accepted Answer

The demand curve shifts to the right by the amount of the subsidy.

Question 12

Which of the following best describes the Coase Theorem?

Accepted Answer

Private bargaining can lead to efficient outcomes if property rights are well-defined and transaction costs are low.

Question 13

A progressive tax system is one in which:

Accepted Answer

The average tax rate increases as income increases.

Question 14

In the labor market, the value marginal product (VMP) of labor is:

Accepted Answer

The additional revenue generated by hiring one more worker.

Question 15

Which of the following is NOT a source of wage differentials in the labor market?

Accepted Answer

Perfect competition in product markets.

Question 16

In a duopoly, if both firms choose their output simultaneously and independently, the resulting equilibrium is known as:

Accepted Answer

A Nash equilibrium.

Question 17

If a monopolist can perfectly price discriminate (first-degree price discrimination), which of the following is true?

Accepted Answer

Deadweight loss is eliminated.

Question 18

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

Accepted Answer

A new technology increasing the price of land in a city.

Question 19

Suppose the government imposes a tariff on imported steel. Who are the likely 'winners' and 'losers'?

Accepted Answer

Domestic steel producers are winners; domestic consumers are losers.

Question 20

Which of the following best describes the efficient provision of a public good?

Accepted Answer

The sum of individual marginal benefits equals the marginal cost of provision.

Microeconomics Study Notes: Trade, Externalities, Taxation, Factor Markets, Monopoly, and Oligopoly

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