Question 1

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

Accepted Answer

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

Question 2

Suppose a country can produce either 10 units of wheat or 20 units of corn with the same resources. What is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

$$2$$ units of corn$

Question 3

Which of the following statements about the Production Possibilities Frontier (PPF) is correct?

Accepted Answer

Points on the PPF represent efficient use of resources.

Question 4

If the demand for a normal good increases as income increases, which of the following is true?

Accepted Answer

The good is a normal good.

Question 5

Suppose the price of coffee increases. What is likely to happen to the demand for tea, assuming tea and coffee are substitutes?

Accepted Answer

The demand for tea will increase.

Question 6

Which of the following best describes the law of demand?

Accepted Answer

As the price of a good decreases, the quantity demanded increases.

Question 7

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

Accepted Answer

The goods are substitutes.

Question 8

A market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 9

Suppose the government imposes a price ceiling below the equilibrium price. What is the likely result?

Accepted Answer

A shortage will occur.

Question 10

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

Accepted Answer

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

Question 11

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

Accepted Answer

National defense.

Question 12

Suppose a firm’s total cost function is $$TC = 100 + 5Q. $$What is the marginal cost (MC) of producing one more unit?

Accepted Answer

$$MC = 5$$

Question 13

Which of the following is most likely to shift the supply curve for cars to the right?

Accepted Answer

A technological improvement in car manufacturing.

Question 14

If a firm in perfect competition faces a market price below its average variable cost, what should it do in the short run?

Accepted Answer

Shut down production.

Question 15

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Differentiated products.

Question 16

Suppose the government imposes a tax on sellers. What is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the left.

Question 17

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

Accepted Answer

An inferior good.

Question 18

Which of the following best explains why the PPF is typically bowed outward?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 19

Suppose a firm’s total revenue is $$TR = 20Q$$ and its total cost is $$TC = 5Q + 100. $$What is the profit-maximizing output if the firm is in perfect competition and the market price is $$20$$?

Accepted Answer

Any output, since price equals marginal cost.

Question 20

Which of the following is an example of a positive economic statement?

Accepted Answer

"Raising the minimum wage will increase unemployment among teenagers."

Microeconomics: The Economic Problem and Production Possibilities

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