Question 1

Suppose a city government imposes a price ceiling on apartment rents that is below the market equilibrium price. Which of the following is the most likely outcome?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 2

If the price elasticity of demand for a product is $$E_d = 2.5$$, which of the following statements is correct?

Accepted Answer

Demand is elastic, and total revenue will fall if price increases.

Question 3

A country can produce either 100 units of wheat or 50 units of steel with its resources. What is the opportunity cost of producing one unit of steel?

Accepted Answer

$$2$$ units of wheat

Question 4

Which of the following best describes allocative efficiency?

Accepted Answer

Goods are produced in the quantities most valued by society.

Question 5

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

Accepted Answer

They are complementary goods.

Question 6

A new technology reduces the cost of producing smartphones. What is the likely effect on the market for smartphones, holding all else constant?

Accepted Answer

The supply curve shifts to the right, leading to a lower equilibrium price and higher equilibrium quantity.

Question 7

Suppose the government imposes a tax on sellers in a market with highly elastic demand and inelastic supply. Who will bear most of the tax burden?

Accepted Answer

Sellers, because they are less responsive to price changes.

Question 8

Which of the following is an example of a normative economic statement?

Accepted Answer

"The government should increase spending on education."

Question 9

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

Accepted Answer

Equilibrium price increases; equilibrium quantity increases.

Question 10

A firm is considering whether to produce one more unit of output. The marginal benefit is $$\10$ and the marginal cost is $$\$$12. $$According to marginal analysis, what should the firm do?

Accepted Answer

Not produce the additional unit, since marginal cost exceeds marginal benefit.

Question 11

Which of the following would cause a movement along the demand curve for coffee, rather than a shift of the curve?

Accepted Answer

A decrease in the price of coffee.

Question 12

If a good is a normal good, what happens to its demand when consumer income rises?

Accepted Answer

Demand increases.

Question 13

Suppose the price of gasoline rises by $$10\%$$ and the quantity demanded falls by $$2\%. $$What is the price elasticity of demand for gasoline?

Accepted Answer

$$E_d = \frac{-2\%}{10\%} = -0.2$$

Question 14

Which of the following best explains why the production possibilities frontier (PPF) is typically bowed outward?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 15

If a price floor is set above the equilibrium price in the labor market, what is the likely result?

Accepted Answer

A surplus of labor (unemployment).

Question 16

Which of the following is the formula for total revenue?

Accepted Answer

$$TR = P 	imes Q$$

Question 17

A decrease in the price of a complement good will have what effect on the demand for the original good?

Accepted Answer

Increase demand for the original good.

Question 18

Which of the following is an example of opportunity cost?

Accepted Answer

The highest-valued alternative you give up to attend the concert.

Question 19

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

Inferior good

Question 20

Which of the following statements about comparative advantage is correct?

Accepted Answer

A country should specialize in producing goods for which it has the lowest opportunity cost.

Microeconomics Midterm Study Guide (Chapters 1–6, Hubbard)

Study Guide - Practice Questions

Study Guide - Flashcards