Q: Which of the following is the correct formula for calculating consumer surplus?

$$ \text{Consumer Surplus} = \text{Willingness to Pay} - \text{Price Paid} $$

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 the market demand for a product is given by $$ Q_d = 100 - 2P $$ and the market supply is $$ Q_s = 20 + 3P . $$What is the equilibrium price?

Accepted Answer

$$ P = 16 $$

Question 3

If the price elasticity of demand for a product is $$ -2 $$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will decrease.

Question 4

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

Accepted Answer

A shortage of apartments.

Question 5

Which of the following is the correct formula for calculating consumer surplus?

Accepted Answer

$$ 	ext{Consumer Surplus} = 	ext{Willingness to Pay} - 	ext{Price Paid} $$

Question 6

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

Accepted Answer

The firm will produce as much as possible, since marginal cost is constant and less than price.

Question 7

Which of the following best illustrates the concept of diminishing marginal returns?

Accepted Answer

As more workers are added to a fixed amount of capital, each additional worker contributes less to total output.

Question 8

Suppose a monopolist faces the following demand curve: $$ P = 100 - 2Q . $$Its marginal cost is constant at $$ MC = 20 . $$What is the profit-maximizing quantity?

Accepted Answer

$$ Q = 10 $$

Question 9

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

Accepted Answer

Products are differentiated.

Question 10

A firm in monopolistic competition in the long run will:

Accepted Answer

Earn zero economic profit due to entry of new firms.

Question 11

Which of the following best describes adverse selection in the context of health insurance?

Accepted Answer

Sicker individuals are more likely to buy insurance, raising costs for insurers.

Question 12

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

Accepted Answer

The goods are substitutes.

Question 13

Suppose the government imposes a tariff on imported steel. What is the most likely effect on domestic economic surplus?

Accepted Answer

Consumer surplus decreases, producer surplus increases, and total surplus decreases.

Question 14

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

Accepted Answer

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

Question 15

Which of the following is a likely result of a cartel in an oligopolistic market?

Accepted Answer

Higher prices and lower output compared to perfect competition.

Question 16

A firm’s total cost function is $$ TC = 100 + 5Q + Q^2$ . $$What is the marginal cost function?

Accepted Answer

$$ MC = 5 + 2Q $$

Question 17

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

Accepted Answer

An insured person visits the doctor more frequently because they do not bear the full cost.

Question 18

In the long run, a perfectly competitive firm will:

Accepted Answer

Produce where $$ P = MC = ATC $$

Question 19

Which of the following is a cause of monopoly power?

Accepted Answer

Control of a key resource.

Question 20

If a country opens to international trade and the world price is below the domestic equilibrium price, what will happen in the domestic market?

Accepted Answer

The country will import the good.

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

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