#1
1. What is the primary focus of microeconomics?
Analyzing individual economic units
ExplanationFocuses on understanding the behavior of individual economic actors.
#2
9. What is the main objective of a profit-maximizing firm in microeconomics?
Maximizing the difference between total revenue and total cost
ExplanationAims to maximize profits by producing at a quantity where marginal revenue equals marginal cost.
#3
15. What is the concept of consumer surplus in microeconomics?
The difference between the price consumers are willing to pay and the price they actually pay
ExplanationMeasure of consumer welfare, representing the difference between what consumers are willing to pay and what they actually pay.
#4
19. According to the law of supply, how does the quantity supplied respond to a change in price?
Moves in the same direction as the price change
ExplanationStates that as price increases, quantity supplied also increases.
#5
2. Which of the following is a fundamental assumption of the law of demand?
The price of the good is the only factor affecting demand
ExplanationStates that as price decreases, quantity demanded increases.
#6
3. What does the term 'opportunity cost' refer to in economics?
The cost of forgoing the next best alternative
ExplanationThe value of the next best alternative forgone when a choice is made.
#7
6. What is the law of diminishing marginal utility in microeconomics?
As more units of a good are consumed, the additional satisfaction decreases
ExplanationDescribes the decrease in satisfaction or utility as consumption increases.
#8
8. How does elasticity of demand impact pricing decisions for a firm?
Lower elasticity necessitates lower prices
ExplanationHigh elasticity means small changes in price lead to large changes in quantity demanded.
#9
11. What is the difference between explicit and implicit costs in microeconomics?
Explicit costs are monetary, while implicit costs are opportunity costs
ExplanationExplicit costs involve direct monetary payment, while implicit costs represent opportunity costs.
#10
14. In microeconomic theory, what is the role of a regressive tax system?
Levies higher taxes on lower incomes
ExplanationTax burden falls more heavily on low-income earners as a percentage of income.
#11
4. In microeconomics, what is the significance of the production possibilities frontier (PPF)?
It shows the various combinations of two goods a country can produce efficiently
ExplanationRepresents the maximum output attainable given resources and technology.
#12
5. According to the Coase Theorem, what conditions are necessary for private bargaining to solve externalities efficiently?
Property rights are clearly defined and transaction costs are low
ExplanationStates that under certain conditions, private bargaining can internalize externalities.
#13
7. In the context of microeconomics, what is the role of a monopolistic market structure?
Leads to a single seller dominating the market
ExplanationCharacterized by a single seller with significant market power.
#14
10. According to game theory, what is a Nash equilibrium?
A strategy that leads to the best outcome for each player, given the strategy of the others
ExplanationStable state where no player can improve their payoff by unilaterally changing their strategy.
#15
12. How does a perfectly competitive market structure impact the pricing of goods and services?
Prices are determined by market forces with individual firms having no influence
ExplanationCharacterized by many small firms, identical products, and free entry and exit.
#16
13. What is the significance of the Laffer curve in microeconomics?
It demonstrates the relationship between tax rates and tax revenue
ExplanationShows that tax revenues initially increase with tax rates, then decrease beyond a certain point.