Question 1

Suppose the government imposes a price ceiling on gasoline that is below the current market equilibrium price. What is the most likely immediate effect of this policy?

Accepted Answer

A shortage of gasoline will occur because quantity demanded will exceed quantity supplied.

Question 2

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

Accepted Answer

They are substitutes.

Question 3

A firm in a perfectly competitive market faces a market price of $$10 per unit. If the firm's marginal cost is given by MC = 2q$, where q$ is the quantity produced, how many units should the firm produce to maximize profit?

Accepted Answer

$$q = 5$$

Question 4

Which of the following best describes the difference between a change in demand and a change in quantity demanded?

Accepted Answer

A change in demand is caused by non-price factors, while a change in quantity demanded is caused by a change in the price of the good.

Question 5

Suppose the price elasticity of demand for a product is $$-0.5. If $$the firm increases the price by 10%, what will happen to total revenue?

Accepted Answer

Total revenue will increase.

Question 6

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

Accepted Answer

A homeowner planting a garden that beautifies the neighborhood.

Question 7

If a monopolist faces the following demand curve: $$P = 100 - 2Q$$, and its marginal cost is constant at $$MC = 20$$, what is the profit-maximizing quantity?

Accepted Answer

$$Q = 30$$

Question 8

Which of the following statements about public goods is correct?

Accepted Answer

Public goods are non-excludable and non-rival in consumption.

Question 9

A consumer spends all of their income on two goods, $$X$$ and $$Y. If $$the price of $$X$$ falls, what happens to the consumer's budget constraint?

Accepted Answer

The budget constraint rotates outward, allowing the consumer to buy more of $$X$$ for the same income.

Question 10

Which of the following best explains why firms in monopolistic competition advertise heavily?

Accepted Answer

To differentiate their product from competitors and increase brand loyalty.

Question 11

If the marginal product of labor is decreasing as more workers are hired, which law is being illustrated?

Accepted Answer

Law of diminishing returns

Question 12

Suppose a firm faces the following total cost function: $$TC = 100 + 5Q + Q^2$. What is the marginal cost when Q = 10$?

Accepted Answer

$$MC = 20$$

Question 13

Which of the following is most likely to be classified as a natural monopoly?

Accepted Answer

A local electricity provider

Question 14

If the income elasticity of demand for a good is negative, the good is considered:

Accepted Answer

An inferior good

Question 15

In the short run, a perfectly competitive firm will shut down if:

Accepted Answer

Price is less than average variable cost

Question 16

Which of the following best describes the prisoners' dilemma in the context of oligopoly?

Accepted Answer

Firms have an incentive to cheat on collusive agreements, leading to a less optimal outcome for all.

Question 17

A firm is considering whether to produce 0 or 1 unit of output. The market price is $$P = 50$$, and the firm's total cost of producing 1 unit is $$TC = 60. $$What should the firm do in the short run?

Accepted Answer

Shut down, since price is less than average variable cost.

Question 18

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

Accepted Answer

Products are differentiated.

Question 19

If a firm can perfectly price discriminate, what is the result for consumer surplus?

Accepted Answer

Consumer surplus is zero.

Question 20

Suppose the government wants to correct a negative externality caused by pollution. Which policy is most likely to achieve an efficient outcome?

Accepted Answer

Imposing a tax equal to the external cost per unit of pollution

Principles of Microeconomics: Course Syllabus and Structured Study Guide

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