Microeconomics Concepts

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Questions and Answers

Which of the following scenarios best illustrates a normative economic statement?

An increase in the minimum wage will lead to a decrease in employment among low-skilled workers.
The government should increase taxes on the wealthy to provide better social services for the poor. (correct)
If the price of gasoline rises, consumers will likely drive less and use public transportation more.
A decrease in interest rates tends to stimulate borrowing and investment in the economy.

What is the most likely outcome in a market where a binding price ceiling is imposed below the equilibrium price?

A surplus of the good.
The market will remain in equilibrium.
A shortage of the good. (correct)
An increase in the quantity supplied.

If the cross-price elasticity of demand between Good A and Good B is -2.0, what does this indicate?

Goods A and B are complements, and an increase in the price of Good A will lead to a decrease in the quantity demanded of Good B. (correct)
Goods A and B are substitutes, and an increase in the price of Good A will lead to a decrease in the quantity demanded of Good B.
Goods A and B are inferior goods.
Goods A and B are substitutes, and an increase in the price of Good A will lead to an increase in the quantity demanded of Good B.

What is the key factor that differentiates monopolistic competition from perfect competition?

The degree of product differentiation. (C) Signup and view all the answers

In game theory, what does a Nash equilibrium represent?

A situation where no player can improve their payoff by unilaterally changing their strategy, holding the other players' strategies constant. (C) Signup and view all the answers

Which of the following is the best example of a positive externality?

A neighbor's beautifully landscaped garden increasing the property values of surrounding homes. (C) Signup and view all the answers

What is the likely consequence of information asymmetry in the market for used cars?

A decrease in the quantity of used cars sold. (B) Signup and view all the answers

In the context of labor markets, what does the demand for labor primarily depend on?

The demand for the goods and services that labor produces. (C) Signup and view all the answers

Which of the following best describes the role of capital markets in an economy?

Facilitating the flow of savings and investment. (A) Signup and view all the answers

What is the main goal of firms, according to microeconomic theory?

Maximizing profits. (C) Signup and view all the answers

Flashcards

Microeconomics

Studies individual economic agents and specific market functions, focusing on resource allocation.

Positive Economics

Describes what has happened and predicts what will happen in the economy; based on testable statements.

Normative Economics

Deals with value judgments and describes what 'should' happen; involves subjective values.

Economic Models

Simplified representations of reality used to analyze situations and make predictions, focusing on key relationships.