Question 1

Suppose the government imposes a per-unit tax on a good. If the demand for the good is perfectly inelastic and the supply is upward sloping, who will bear the burden of the tax?

Accepted Answer

Consumers will bear the entire burden of the tax.

Question 2

A Canadian city is considering a price ceiling on monthly apartment rents. If the ceiling is set below the equilibrium price, which of the following is most likely to occur?

Accepted Answer

A shortage of apartments will occur, leading to inefficient allocation.

Question 3

If the opportunity cost of producing 1 unit of Good X in Country A is 2 units of Good Y, and in Country B it is 3 units of Good Y, which country has the comparative advantage in producing Good X?

Accepted Answer

Country A, because it gives up fewer units of Good Y per unit of Good X.

Question 4

Suppose the price elasticity of demand for a product is $$-1.2. If $$the firm increases the price by 10%, what will happen to total revenue?

Accepted Answer

Total revenue will decrease.

Question 5

A positive externality exists in the market for flu vaccinations. Without government intervention, what is likely to be true about the equilibrium quantity?

Accepted Answer

The equilibrium quantity will be less than the socially optimal quantity.

Question 6

Suppose the cross-price elasticity of demand between two goods is $$-0.8. $$What does this imply about the relationship between the two goods?

Accepted Answer

They are complements.

Question 7

If the marginal cost of producing the 5th unit of a good is $$\20$ and the marginal benefit to consumers of the 5th unit is $$\$$25$$, what should happen in an efficient market?

Accepted Answer

Production should increase beyond the 5th unit.

Question 8

A country imposes a quota on imported steel. Which of the following is a likely consequence?

Accepted Answer

Domestic steel producers will benefit, but consumers will pay higher prices.

Question 9

Suppose the supply of avocados increases while demand remains unchanged. What will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will fall and equilibrium quantity will rise.

Question 10

If the government wants to maximize economic efficiency in the presence of a negative externality, what policy should it implement?

Accepted Answer

A tax equal to the marginal external cost.

Question 11

A Canadian firm can produce either 100 units of hockey sticks or 200 units of pucks with its resources. What is the opportunity cost of producing one hockey stick?

Accepted Answer

$$2$$ pucks

Question 12

If the price elasticity of supply for wheat is $$0.8$$, and the price increases by $$5\%$$, by what percentage will the quantity supplied change?

Accepted Answer

$$4\%$$ increase

Question 13

Suppose a new technology reduces the cost of producing electric cars. What is the likely effect on the market for electric cars, assuming demand remains constant?

Accepted Answer

The supply curve shifts right, decreasing equilibrium price.

Question 14

Which of the following best describes the law of increasing opportunity cost?

Accepted Answer

As more of a good is produced, the opportunity cost of producing an additional unit increases.

Question 15

If a market is in equilibrium and there are no externalities, which of the following is true?

Accepted Answer

Marginal benefit equals marginal cost.

Question 16

Suppose the government sets a minimum wage above the equilibrium wage. What is the most likely outcome in the labor market?

Accepted Answer

A surplus of workers (unemployment).

Question 17

A Canadian province introduces a subsidy for solar panel installation. What is the likely effect on the market for solar panels?

Accepted Answer

The demand curve shifts right, raising equilibrium quantity.

Question 18

If the price of a substitute good increases, what is the expected effect on the demand for the original good?

Accepted Answer

Demand for the original good increases.

Question 19

Suppose a firm faces the following costs: Total cost of producing 10 units is $$\500$, and total cost of producing 11 units is $$\$$540. $$What is the marginal cost of the 11th unit?

Accepted Answer

$$\40$

Question 20

If a country opens to free trade and begins importing a good for which it does not have a comparative advantage, what is the likely effect on domestic consumer and producer surplus?

Accepted Answer

Consumer surplus increases, producer surplus decreases.

Step-by-Step Guidance for AUECO 101 Midterm 1 Study Form (Microeconomics)

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