Q: The price elasticity of demand for a product is calculated as:

$$\frac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}$$

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 country can produce either 100 units of wheat or 200 units of corn with its available resources. What is the opportunity cost of producing one unit of wheat?

Accepted Answer

2 units of corn

Question 3

If the demand for a product increases while the supply remains constant, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price increases, equilibrium quantity increases.

Question 4

The price elasticity of demand for a product is calculated as:

Accepted Answer

$$\frac{\%\ 	ext{change in quantity demanded}}{\%\ 	ext{change in price}}$$

Question 5

A government imposes a price ceiling below the equilibrium price in the market for gasoline. What is the most likely outcome?

Accepted Answer

A shortage of gasoline

Question 6

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

Accepted Answer

Products are homogeneous

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 firm in the short run experiences diminishing marginal returns. This means:

Accepted Answer

Each additional unit of input increases output by a smaller amount than the previous unit.

Question 9

Suppose the government imposes a tax on the sale of cigarettes. Which of the following is most likely to occur?

Accepted Answer

The equilibrium price increases and the equilibrium quantity decreases.

Question 10

Which of the following best describes a public good?

Accepted Answer

A good that is non-excludable and non-rival in consumption.

Question 11

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 12

If a firm’s total revenue is less than its total variable cost in the short run, what should the firm do?

Accepted Answer

Shut down immediately.

Question 13

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

Accepted Answer

Vaccination against infectious diseases

Question 14

Suppose the income elasticity of demand for restaurant meals is $$1.5. If $$consumer incomes rise by $$10\%$$, what happens to the quantity demanded for restaurant meals?

Accepted Answer

It increases by $$15\%$$

Question 15

Which of the following best explains why oligopolies may engage in collusion?

Accepted Answer

To maximize joint profits by acting like a monopoly

Question 16

A country imposes a tariff on imported steel. What is the most likely short-term effect on the domestic steel market?

Accepted Answer

Domestic steel production increases

Question 17

If the Lorenz curve for a country is closer to the line of equality, what does this indicate?

Accepted Answer

Less income inequality

Question 18

Which of the following is true about the marginal product of labor (MPL) in the short run?

Accepted Answer

MPL eventually decreases due to the law of diminishing returns.

Question 19

Suppose a firm faces the following cost structure: Total Fixed Cost (TFC) = $$100$$, Total Variable Cost (TVC) = $$200$$, and it produces $$10$$ units. What is the Average Total Cost (ATC)?

Accepted Answer

$$ATC = \frac{TFC + TVC}{Q} = \frac{100 + 200}{10} = 30$$

Question 20

Which of the following is most likely to occur if a minimum wage is set above the equilibrium wage in a competitive labor market?

Accepted Answer

Unemployment (a surplus of labor)

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