Microeconomics Quiz
Questions: 16 · 10 minutes
1. Why is marginal revenue below price for a single-price monopolist facing a downward-sloping demand curve?
The monopolist must pay a tax on every additional unit
Fixed costs rise whenever another unit is sold
Selling another unit requires a lower price that also applies to earlier units
Consumers receive less utility from every product sold in the market
2. A bakery can produce one more cake for a marginal cost of $18 and sell it for an additional $25 in revenue. Other conditions remain unchanged. What should it do to increase profit?
Do not produce it because total cost will rise
Produce the cake because marginal revenue exceeds marginal cost
Produce it only if average total cost is below $18
Do not produce it unless marginal revenue equals zero
3. A binding price ceiling is imposed below the equilibrium price in a competitive rental market. What outcome does the basic supply-and-demand model predict?
A surplus because more units are supplied than demanded
A new equilibrium with no unmet demand
An increase in both the price and quantity supplied
A shortage because quantity demanded exceeds quantity supplied
4. Maya spends Saturday working for $90 instead of attending a concert she values at $70. Ignoring other costs, what is the opportunity cost of working?
The $70 value she places on the concert
The $90 wage she earns
The combined value of $160
Zero, because working provides income
5. In one hour, Ava can make either 6 mugs or 3 bowls, while Ben can make either 4 mugs or 4 bowls. Who has the comparative advantage in producing bowls?
Ava, because she can produce more mugs
Neither, because both can produce bowls
Ava, because her opportunity cost of a bowl is lower
Ben, because his opportunity cost of a bowl is lower
6. In a strategic game, a player's best action is the same regardless of what the other player chooses. What is that action called?
A mixed strategy
A Nash price
A dominant strategy
A socially optimal strategy
7. The price of a product rises by 10%, and the quantity demanded falls by 20%. Using absolute values, what is the price elasticity of demand?
0.5
1.0
2.0
10.0
8. A company has already spent $50,000 developing a product. Future sales are now expected to be lower than future production and marketing costs. Which decision follows the sunk-cost principle?
Continue until the original $50,000 has been recovered
Stop the project if its expected future benefits are below its future costs
Continue because past spending makes completion less costly
Ignore future costs and consider only expected sales revenue
9. Demand for a medicine is relatively inelastic, while its supply is relatively elastic. If a per-unit tax is introduced, who is likely to bear more of the economic burden?
Consumers, because their side of the market is less elastic
Producers and consumers always split it equally
The government, because it collects the tax
Producers, because supply is more elastic
10. A factory's production creates air pollution that harms nearby residents, but the factory does not bear those health and cleanup costs. This is an example of what?
A positive consumption externality
A negative production externality
A public good
Diminishing marginal utility
11. Leo enjoys his first slice of pizza more than his fourth slice during the same meal. Which concept best explains this pattern?
Perfectly elastic supply
Increasing returns to scale
Diminishing marginal utility
Comparative advantage
12. Which condition is most characteristic of a perfectly competitive market?
One seller controls market output
Many firms sell an identical product and face low barriers to entry
A few firms sell differentiated products behind substantial barriers
Each firm can set any price without losing customers
13. An insurer cannot easily distinguish high-risk applicants from low-risk applicants before selling policies. High-risk people are more eager to buy generous coverage. Which information problem does this illustrate?
Moral hazard caused by behavior after coverage begins
The free-rider problem in public-good provision
A principal-agent problem caused only by hidden effort
Adverse selection caused by hidden information before exchange
14. In the short run, a competitive firm's market price is below average total cost but above average variable cost. What should a profit-maximizing firm generally do?
Continue producing where price equals marginal cost
Shut down immediately because it is making a loss
Raise its price above the market price
Produce only where average total cost is at its minimum
15. Which characteristic combination defines a pure public good?
Rival and excludable
Rival and non-excludable
Non-rival and excludable
Non-rival and non-excludable
16. If consumer incomes rise and restaurant meals are a normal good, what is the most likely immediate effect on the market for restaurant meals?
The demand curve shifts to the right
A movement upward along the existing demand curve
The supply curve shifts to the left
The demand curve shifts to the left