Question 1

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

Accepted Answer

The value of the single best alternative you gave up when making a choice.

Question 2

Suppose you own a car that you could rent out for $100 per week, but you choose to use it yourself. What is the opportunity cost of using your car for the week?

Accepted Answer

$100, because that is the forgone rental income.

Question 3

A researcher finds that ice cream sales and drowning incidents are positively correlated. Which of the following best explains this correlation?

Accepted Answer

A third variable, such as hot weather, increases both ice cream sales and swimming activity.

Question 4

Which of the following statements is an example of a normative economic statement?

Accepted Answer

The government should increase the minimum wage to help low-income workers.

Question 5

A student is deciding between three summer jobs: Job A pays $$2,000, Job B pays 2$$,500, and Job C pays $2,200. If the student chooses Job C, what is the opportunity cost?

Accepted Answer

$2,500

Question 6

Suppose the price of coffee increases. As a result, the demand for tea increases. What is the relationship between coffee and tea?

Accepted Answer

They are substitutes.

Question 7

Which of the following events would cause a movement along the demand curve for pizza, rather than a shift of the curve?

Accepted Answer

A decrease in the price of pizza.

Question 8

If the mean income in a city is much higher than the median income, what does this suggest about the income distribution?

Accepted Answer

There are a few very high incomes pulling the mean up.

Question 9

A city has two neighborhoods, both 10 miles from downtown. One has higher rent than the other. According to the principle of optimization, what could explain this difference?

Accepted Answer

The neighborhood with higher rent offers additional benefits, such as better schools or parks, that increase its total value.

Question 10

Suppose a new technology reduces the cost of producing smartphones. What is the likely effect on the market equilibrium for smartphones?

Accepted Answer

Equilibrium price falls and equilibrium quantity rises.

Question 11

Which of the following is an example of the free rider problem?

Accepted Answer

A person who listens to public radio without donating to support it.

Question 12

A study finds that people who exercise more tend to have higher incomes. Which of the following is an example of reverse causality in this context?

Accepted Answer

Higher income allows people to afford gym memberships, leading to more exercise.

Question 13

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

Accepted Answer

The first slice of pizza is very satisfying, but each additional slice is less enjoyable.

Question 14

Suppose the value of your time increases from $$10 per hour to 20 $$per hour. How does this affect your optimal choice between two apartments: one close to work with higher rent, and one farther away with lower rent?

Accepted Answer

The closer, more expensive apartment becomes more attractive because the cost of commuting time has increased.

Question 15

Which of the following is NOT a property of a good economic question?

Accepted Answer

It is easy to answer.

Question 16

If both the demand and supply curves for a good shift to the right, what can you say for certain about the new equilibrium?

Accepted Answer

Equilibrium quantity will rise.

Question 17

A market is in equilibrium at price $$P^*. At a $$price above $$P^*$$, what will occur?

Accepted Answer

There will be excess supply (surplus).

Question 18

Which of the following is an example of a controlled experiment in economics?

Accepted Answer

A researcher randomly assigns some students to receive tutoring and others not, then compares their test scores.

Question 19

Suppose the price of gasoline rises. What is the likely effect on the demand for public transportation, assuming all else is held constant?

Accepted Answer

Demand for public transportation will increase.

Principles of Microeconomics: Chapters 1–4 Study Guide

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