Q: Which of the following equations correctly represents the price elasticity of demand?

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

Question 1

Which of the following best describes the concept of comparative advantage?

Accepted Answer

A country can produce a good at a lower opportunity cost than another country.

Question 2

Suppose Country A can produce either 10 units of wheat or 20 units of corn with its resources, while Country B can produce either 8 units of wheat or 16 units of corn. What is the opportunity cost of producing 1 unit of wheat in Country A?

Accepted Answer

$$2$$ units of corn

Question 3

If the market price is set below the equilibrium price, which of the following is most likely to occur?

Accepted Answer

A shortage will develop because quantity demanded exceeds quantity supplied.

Question 4

Which of the following equations correctly represents the price elasticity of demand?

Accepted Answer

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

Question 5

A perfectly competitive firm faces a market price of $$\10$ per unit. Its total cost function is TC = 50 + 2Q$. What is the profit-maximizing output level in the short run?

Accepted Answer

$$Q$$ where $$MC = MR = 10$$; since $$MC = 2$$, the firm should produce as much as possible.

Question 6

Which of the following best explains why monopolies can persist in the long run?

Accepted Answer

There are significant barriers to entry that prevent other firms from entering the market.

Question 7

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

Accepted Answer

They are substitutes.

Question 8

Suppose a government imposes a quota on imported steel. What is the most likely effect on domestic producer surplus and consumer surplus?

Accepted Answer

Producer surplus increases, consumer surplus decreases.

Question 9

Which of the following is an example of moral hazard in the context of health insurance?

Accepted Answer

A person with health insurance is less careful about their health because they know their expenses are covered.

Question 10

A firm’s production function exhibits diminishing marginal returns when:

Accepted Answer

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

Question 11

Which of the following is the correct formula for calculating the present value of a future payment $$F$$ received in $$n$$ years at an interest rate $$r$$?

Accepted Answer

$$PV = \frac{F}{(1 + r)^n}$$

Question 12

In a monopolistically competitive market, firms in the long run:

Accepted Answer

Earn zero economic profit as new firms enter and drive profits down.

Question 13

Which of the following best characterizes an oligopoly?

Accepted Answer

A few large firms dominate the market and are interdependent in their decision-making.

Question 14

Suppose the demand for a product is given by $$Q_d = 100 - 2P$$ and the supply is $$Q_s = 4P. $$What is the equilibrium price?

Accepted Answer

$$P = 14.29$$

Question 15

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

Products are differentiated.

Question 16

If a firm in a perfectly competitive market is producing where $$P \u003c AVC$$, what should the firm do in the short run?

Accepted Answer

Shut down immediately.

Question 17

Which of the following best describes the Nash Equilibrium in game theory?

Accepted Answer

Each player chooses the strategy that maximizes their own payoff, given the strategies of others.

Question 18

A government introduces a price ceiling on rental apartments below the market equilibrium. What is the most likely long-term effect?

Accepted Answer

A shortage of apartments and possible black markets.

Question 19

Which of the following is an example of adverse selection in the health insurance market?

Accepted Answer

Sick individuals are more likely to purchase health insurance than healthy individuals.

Principles of Microeconomics (ECON 2420) – Course Syllabus and Study Guide

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