Q: Which of the following equations correctly represents the price elasticity of demand?

$$\varepsilon = \frac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}$$

Question 1

Suppose the government imposes a binding price ceiling on bread. Which of the following is the most likely immediate effect in the bread market?

Accepted Answer

A shortage of bread, as quantity demanded exceeds quantity supplied.

Question 2

If the price elasticity of demand for gasoline is $$\varepsilon = -0.2$$, what does this imply about consumer response to a 10% increase in price?

Accepted Answer

Quantity demanded will decrease by 2%.

Question 3

A country can produce either 1500 computers or 1500 textiles, or any linear combination in between. What is the opportunity cost of producing one additional computer?

Accepted Answer

1 textile

Question 4

Which of the following best describes the effect of a government-imposed minimum wage (a price floor) set above the equilibrium wage?

Accepted Answer

It creates a surplus of labor, leading to unemployment.

Question 5

If the demand for a product increases while supply remains constant, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price and quantity will both increase.

Question 6

Suppose a tax is imposed on sellers of a good. Who bears the greater burden of the tax if demand is inelastic and supply is elastic?

Accepted Answer

Buyers bear the greater burden.

Question 7

Which of the following is an example of increasing opportunity cost as shown by a bowed-out production possibility curve (PPC)?

Accepted Answer

As more resources are devoted to producing cars, the opportunity cost of producing each additional car increases.

Question 8

Which of the following equations correctly represents the price elasticity of demand?

Accepted Answer

$$\varepsilon = \frac{\%\ 	ext{change in quantity demanded}}{\%\ 	ext{change in price}}$$

Question 9

A country has a comparative advantage in producing textiles if:

Accepted Answer

It can produce textiles at a lower opportunity cost than other countries.

Question 10

If the government imposes a tax on a good with perfectly elastic supply and downward-sloping demand, who bears the entire burden of the tax?

Accepted Answer

Buyers

Question 11

Which of the following best explains why the law of demand holds?

Accepted Answer

As price falls, the good becomes relatively cheaper compared to substitutes, and consumers buy more.

Question 12

Suppose the cross-price elasticity of demand between two goods is positive. What does this indicate?

Accepted Answer

The goods are substitutes.

Question 13

If a country moves from producing 500 computers and 1000 textiles to producing 1000 computers and 500 textiles, what is the opportunity cost of producing the additional 500 computers?

Accepted Answer

500 textiles

Question 14

Which of the following is NOT a likely result of a binding price floor in the market for agricultural products?

Accepted Answer

A shortage of agricultural products

Question 15

If the marginal benefit (MB) of consuming an additional unit of a good is less than the marginal cost (MC), what should a rational consumer do?

Accepted Answer

Consume less of the good.

Question 16

Which of the following best describes the economic incidence of a tax?

Accepted Answer

The actual distribution of the tax burden between buyers and sellers, regardless of who is legally responsible for paying the tax.

Question 17

Suppose the government wants to maximize tax revenue from a good. Which type of demand should the government target?

Accepted Answer

Inelastic demand

Question 18

If a country is operating inside its production possibility curve (PPC), what does this indicate?

Accepted Answer

Resources are not being used efficiently.

Question 19

Which of the following best illustrates the law of comparative advantage?

Accepted Answer

A country specializes in producing goods for which it has the lowest opportunity cost and trades for others.

Question 20

If the supply of a good increases while demand remains constant, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Microeconomics Core Concepts: Markets, Elasticity, Trade, and Policy

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