Introduction to Microeconomics: Master the Basics of Economic Decision-Making

Question 1

Identify the fundamental principle of microeconomics that emphasizes the rational decision-making of individuals and firms:

Accepted Answer

Individuals and firms make rational choices

Answer

Efficiency of markets in resource allocation

Answer

Government interventions always lead to positive outcomes

Answer

Economic outcomes are determined by random factors

Question 2

What economic term describes the most valuable alternative that is forfeited when a decision is made?

Accepted Answer

Opportunity cost

Answer

Marginal cost

Answer

Sunk cost

Answer

Fixed cost

Question 3

Which graphical representation illustrates the trade-offs faced by firms when producing two goods with limited resources?

Accepted Answer

Production possibilities curve

Answer

Demand curve

Answer

Supply curve

Answer

Marginal cost curve

Question 4

What is the primary goal of constructing economic models?

Accepted Answer

To simplify and explain economic phenomena

Answer

To make precise predictions about future economic behavior

Answer

To endorse specific government policies

Answer

To directly control economic variables

Question 5

What type of government policy aims to address the negative externalities associated with a market activity?

Accepted Answer

Tax

Answer

Price ceiling

Answer

Price floor

Answer

Subsidy

Question 6

Which of the following is not recognized as a concept of economic efficiency?

Accepted Answer

Political efficiency

Answer

Pareto efficiency

Answer

Kaldor-Hicks efficiency

Answer

Rawlsian efficiency

Question 7

What is the fundamental distinction between microeconomics and macroeconomics?

Accepted Answer

Microeconomics focuses on individual entities, while macroeconomics examines the economy as a whole.

Answer

Microeconomics employs qualitative techniques, while macroeconomics relies on quantitative methods.

Answer

Microeconomics is more theoretical, while macroeconomics is more practical.

Answer

Microeconomics applies only to developing nations, while macroeconomics is solely relevant to developed nations.

Question 8

Choosing to produce more of one product will result in:

Accepted Answer

Producing less of another product

Answer

Producing more of another product

Answer

No change in production of other products

Question 9

A production possibilities frontier (PPF) illustrates:

Accepted Answer

The maximum possible combinations of two goods that can be produced with given resources

Answer

The combinations of two goods that can be produced with infinite resources

Question 10

An example of a microeconomic model is:

Accepted Answer

The supply and demand model

Answer

The Keynesian macroeconomic model

Question 11

In a market economy, consumers have the power to:

Accepted Answer

Decide what goods and services will be produced

Answer

Produce the goods and services

Question 12

Which of these is NOT a determinant of supply?

Accepted Answer

Consumer demand

Answer

Technology

Question 13

In a market, the equilibrium price is:

Accepted Answer

The price where quantity supplied equals quantity demanded

Answer

The price at which quantity supplied is greater than quantity demanded

Question 14

The opportunity cost of a choice is the:

Accepted Answer

Value of the next best alternative that is given up to make a choice.

Answer

Sum of the costs of all the inputs used to produce a good.

Answer

Profit made from producing a good.

Answer

Amount of money spent on a good.

Question 15

The production possibilities frontier (PPF) illustrates:

Accepted Answer

The different combinations of goods and services that can be produced with finite resources in an economy.

Answer

The relationship between the price of a good and the quantity demanded.

Answer

The income distribution within a society.

Answer

The level of economic growth in a country.

Question 16

According to the law of diminishing returns, as more and more of one input is added to the production process, while other inputs remain constant:

Accepted Answer

The marginal product of that input will eventually decrease.

Answer

The total output of a firm will always increase.

Answer

The marginal cost of production will always increase.

Answer

The average cost of production will always decrease.

Question 17

A price ceiling is:

Accepted Answer

A government-imposed maximum price for a good or service.

Answer

A government-imposed minimum price for a good or service.

Answer

The price at which the quantity supplied equals the quantity demanded.

Answer

The price at which marginal cost equals marginal benefit.

Question 18

The concept of elasticity measures:

Accepted Answer

The responsiveness of one economic variable to changes in another economic variable, such as price or income.

Answer

The slope of a demand curve.

Answer

The total revenue received by a firm.

Answer

The profit made by a firm.

Question 19

If you study for an exam, you decide to forgo the opportunity to attend a party. The opportunity cost of studying is:

Accepted Answer

The enjoyment you would have had at the party

Answer

The time you spend studying

Answer

The cost of the exam

Answer

The potential grade you could have gotten on the exam

Question 20

In a perfectly competitive market, the equilibrium price is the price at which:

Accepted Answer

Quantity supplied equals quantity demanded

Answer

Producers make the highest profit

Answer

Consumers pay the lowest price

Answer

The government intervenes to regulate the market

Question 21

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

Accepted Answer

The government should increase the minimum wage.

Answer

The inflation rate is expected to increase next year.

Answer

The demand for goods and services is inversely related to their price.

Answer

The UK economy is growing at a rate of 2% per year.

Question 22

A firm's marginal cost curve is U-shaped. This indicates that:

Accepted Answer

As output increases, marginal cost initially decreases and then increases

Answer

As output increases, marginal cost always decreases

Answer

As output increases, marginal cost always increases

Answer

Marginal cost is constant at all levels of output

Question 23

Which fundamental concept is central to microeconomics?

Accepted Answer

Opportunity Cost

Answer

Fiscal Policy

Answer

Inflation

Answer

Monetary Policy

Question 24

Scarcity refers to:

Accepted Answer

The limited availability of resources relative to wants

Answer

The abundance of resources in relation to demand

Answer

The inability to produce enough goods and services

Answer

The lack of technology to extract resources

Question 25

The concept of opportunity cost implies that:

Accepted Answer

Every choice involves giving up something else

Answer

Resources are always fully utilized

Answer

The cost of a good is equal to its market price

Answer

Firms can produce unlimited quantities of goods

Question 26

A production possibilities frontier (PPF) illustrates:

Accepted Answer

The combinations of goods and services that can be produced with given resources

Answer

The optimal level of production for a particular good

Answer

The relationship between price and quantity demanded

Answer

The efficiency of an economic system

Question 27

Scarcity means having limited resources. What does opportunity cost refer to?

Accepted Answer

The value of the next best choice you give up.

Answer

The many choices available.

Answer

The value of the resource you choose.

Question 28

How does a negative externality, like pollution, contribute to market failure?

Accepted Answer

Negative externalities lead to overproduction and excessive consumption, exceeding the socially optimal quantity.

Answer

Government intervention is a direct result of negative externalities.

Answer

Negative externalities have no effect on market outcomes.

Answer

Negative externalities always result in positive externalities.

Question 29

Evaluate the advantages and constraints of employing economic models to simulate real-world economic phenomena. Discuss the elements that influence the accuracy of these models.

Accepted Answer

Economic models can provide valuable insights into economic phenomena, but their limitations and the factors affecting their accuracy should be carefully considered.

Answer

Economic models are highly accurate and can perfectly reflect reality.

Answer

Economic models are solely designed to predict future economic outcomes.

Answer

The accuracy of economic models is unaffected by the assumptions and simplifications used in their construction.

Question 30

Which market structure is characterized by numerous buyers and sellers, homogeneous products, and no barriers to entry or exit, resulting in both productive and allocative efficiency?

Accepted Answer

Perfect competition

Answer

Monopoly

Answer

Oligopoly

Answer

Monopolistic competition

Question 31

In economics, which of the following is considered a scarce resource?

Accepted Answer

Water

Answer

Ideas

Answer

Love

Answer

Sunlight

Question 32

When individuals or firms must forgo one alternative in order to pursue another, it is known as:

Accepted Answer

Opportunity cost

Answer

Fixed cost

Answer

Variable cost

Answer

Sunk cost

Question 33

In a perfectly competitive market, each firm:

Accepted Answer

Is a price taker.

Answer

Has market power.

Answer

Produces differentiated products.

Answer

Faces high barriers to entry.

Question 34

Which of the following is a primary goal of microeconomic analysis?

Accepted Answer

To understand individual decision-making.

Answer

To predict macroeconomic growth.

Answer

To evaluate government policies.

Answer

To analyze international trade patterns.

Question 35

A key difference between microeconomics and macroeconomics is that:

Accepted Answer

Microeconomics focuses on individual decision-making, while macroeconomics focuses on the economy as a whole.

Answer

Microeconomics uses qualitative data, while macroeconomics uses quantitative data.

Question 36

Which of the following is a characteristic of a natural monopoly?

Accepted Answer

High barriers to entry.

Answer

Perfect competition.

Answer

Low fixed costs.

Answer

High elasticity of demand.

Question 37

Consumer surplus refers to:

Accepted Answer

The difference between the price consumers are willing to pay and the price they actually pay.

Answer

The total amount of money consumers spend on a good.

Answer

The amount of satisfaction consumers derive from a good.

Question 38

A potential benefit of government intervention in a free market economy is:

Accepted Answer

Correcting market failures.

Answer

Increasing inequality.

Answer

Reducing economic growth.

Answer

Eliminating competition.