Key Concepts in Microeconomics: 25 Essential Questions

Posted on Jan 10, 2025 in Economics

Market Economy

1. A market economic system is said to be efficient since:

  • (a) It operates without a central authority
  • (b) Prices are determined by regulations
  • (c) Technological progress reduces costs
  • (d) None of the above

Utility and Revenue

2. When we have Marginal Utility of Good X / Price of Good X > Marginal Utility of Good Y / Price of Good Y, utility will increase if:

  • (a) Consumption of Good X increases
  • (b) Consumption of Good Y decreases
  • (c) Consumption of Good X decreases
  • (d) Both (a) and (b) are correct

3. When we have Price Elasticity of Demand > 1, the revenue will increase if:

  • (a) Price is reduced
  • (b) Price is increased
  • (c) Price remains the same
  • (d) None of the above

Income Elasticity

4. Income elasticity of an inferior good is:

  • (a) Negative
  • (b) Smaller than 1
  • (c) Greater than 1
  • (d) Positive

Shifts in Demand

5. The population of Lake City doubles:

  • (a) Demand curve for housing shifts left
  • (b) Equilibrium price of housing decreases
  • (c) Equilibrium quantity of housing decreases
  • (d) None of the above (Demand curve shifts right, equilibrium price and quantity increase)

Shifts in Supply

6. A flood destroys a large portion of North Town:

  • (a) Supply curve for housing shifts left
  • (b) Equilibrium price of housing increases
  • (c) Equilibrium quantity of housing decreases
  • (d) All of the above

Complements

7. Supply of tablets shifts right, demand for smartphones:

  • (a) Shifts right
  • (b) Shifts left (Tablets and smartphones are likely substitutes)
  • (c) Remains unchanged
  • (d) Not enough information

Price Ceiling

8. With a price ceiling:

  • (a) The share of consumer from the Economic Surplus increases (May increase or decrease depending on the specific situation)
  • (b) The share of producer from the Economic Surplus decreases
  • (c) The Economic Surplus decreases
  • (d) All of the above (Not necessarily (a))

Price Floor

9. With a price floor:

  • (a) The quantity exchanged is reduced
  • (b) The market price is higher
  • (c) The Economic Surplus is lower
  • (d) All of the above

Price Regulation

10. Price regulation can create:

  • (a) Black Market
  • (b) Bribery
  • (c) Dead Weight Loss
  • (d) All of the above

Opportunity Cost

11. With a day of work, Robinson can either catch 8 fish or gather 8 coconuts:

  • (a) The Opportunity Cost of a Fish is 1 Coconut
  • (b) The Opportunity Cost of a Coconut is 1 Fish
  • (c) The PPF is downward sloping
  • (d) All of the above

Excess Demand

12. When we have Excess Demand:

  • (a) The price goes up
  • (b) The quantity supplied goes up
  • (c) The quantity demanded goes down
  • (d) All of the above

Shifts in Demand

13. If the demand curve shifts to the left:

  • (a) Equilibrium price increases
  • (b) Equilibrium quantity increases
  • (c) It creates Excess Supply
  • (d) None of the above (Equilibrium price and quantity decrease)

Price Elasticity and Substitutes

14. If the supply of desktops shifts to the right, price elasticity of laptops will:

  • (a) Become zero
  • (b) Become positive (Laptops and desktops are likely substitutes)
  • (c) Become negative
  • (d) None of the above

Price Elasticity and Input Costs

15. With a decrease in the costs of inputs, in the market for the output, price elasticity:

  • (a) Increases
  • (b) Decreases (Supply increases, leading to a lower price and potentially lower elasticity)
  • (c) Remains the same
  • (d) None of the above

Budget Line

16. The Budget Line indicates:

  • (a) The combinations of outputs
  • (b) The combinations of goods one can afford
  • (c) The combinations of prices
  • (d) The relative scarcity of inputs

Cross Price Elasticity

17. Cross price elasticity of cellphones and desktops is likely:

  • (a) Positive (Cellphones and desktops are likely substitutes)
  • (b) Negative
  • (c) Zero
  • (d) Smaller than One

Utility

18. Utility of consumption:

  • (a) Increases as consumption increases (Generally true, but with diminishing marginal utility)
  • (b) Decreases as consumption increases
  • (c) Decreases as consumption decreases
  • (d) Both (a) and (c) are correct

Substitutes

19. Global warming reduces the harvest of tea:

  • (a) The supply of coffee shifts to the right
  • (b) The supply of coffee shifts to the left
  • (c) The demand for coffee shifts to the right (Tea and coffee are likely substitutes)
  • (d) None of the above

Complements

20. With an increase in the price of gas, the price of intercity bus services:

  • (a) Increases (Gas is an input for bus services)
  • (b) Decreases
  • (c) Remains unchanged
  • (d) Not enough information

Price Elasticity

21. If the supply of smartphones shifts to the left, price elasticity of smartphones will:

  • (a) Fall (Supply decreases, leading to a higher price and potentially lower elasticity)
  • (b) Increase
  • (c) Remain unchanged
  • (d) Not enough information

Market Economy

22. In a market economy:

  • (a) Taxes can be used to implement a policy
  • (b) Prices are determined by market forces
  • (c) Scarce resources are allocated in the market
  • (d) All of the above

Production Possibility Frontier

23. The Production Possibility Frontier (PPF) shows the possible combinations of:

  • (a) Consumption goods
  • (b) Outputs
  • (c) Utilities
  • (d) Prices

Output Quota

24. With an Output Quota:

  • (a) The quantity exchanged is higher
  • (b) The market price is lower
  • (c) The Economic Surplus is higher
  • (d) None of the above (Quantity exchanged is lower, market price is higher, and economic surplus is lower)

Marginal Utility

25. The marginal utility curve is:

  • (a) Increasing and concave
  • (b) Increasing and convex
  • (c) Decreasing and convex
  • (d) Decreasing and concave