Microeconomics Knowledge Practice Quiz

8 Questions

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Microeconomics Quizzes & Trivia

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Questions and Answers
  • 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 soft drink?
    • 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."