A Quick Microeconomics Knowledge Test
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- 1.A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called:
- A.
A merit good
- B.
An externality
- C.
The free-rider problem
- D.
A public good
- 2.If production of an item results in negative external costs, then:
- A.
Market forces will always correct the problem
- B.
The market price is below the socially preferred price that reflects the external costs
- C.
The market price is above the socially preferred price that reflects the external costs
- D.
The market quantity is too low from society's point of view
- 3.Government can correct for negative externalities by:
- A.
Decreasing the costs to those responsible for the externality
- B.
Decreasing taxes
- C.
Increasing taxes or regulation
- D.
Allowing the market system to correct the problem
- 4.Suppose that when the price of a soft drink rises 10%, the quantity demanded of the soft drink falls 5%. Based on this information, what is the approximate absolute price elasticity of demand for a soft drinks?
- A.
0.05
- B.
0.5
- C.
0.2
- D.
2.0
- 5.The price elasticity of demand measures:
- A.
How much the market price changes in response to a change in demand
- B.
The producers' sensitivity to a price change
- C.
The consumers' sensitivity to a price change
- D.
How much the demand changes in response to a change in income
- 6.In economics, utility is defined as:
- A.
The usefulness of a good or service
- B.
The objective measure of the desirability of a good or service
- C.
The want-satisfying power of a good or service
- D.
The utilitarian value of a good or service
- 7.Marginal utility is defined as:
- A.
The increase in utility divided by the total number of units consumed
- B.
The change in total utility divided by the change in number of units consumed
- C.
The total utility divided by the total number of units consumed
- D.
The number of units consumed divided by the total utility
- 8.Consumers are most satisfied when:
- A.
All of their income has been saved
- B.
The total level of utility is as high as possible
- C.
They save more than they spend
- D.
Goods are bought "on sale."
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