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

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

Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative foregone when making a choice.

Question 2

Suppose a consumer is deciding between buying a book or going to a movie. The book costs $$15 and the movie costs 12. If $$the consumer chooses the movie, what is the opportunity cost?

Accepted Answer

The enjoyment from the book, valued at $15.

Question 3

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

Accepted Answer

Equilibrium price will increase and quantity will increase.

Question 4

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

Accepted Answer

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

Question 5

A firm in a perfectly competitive market faces which of the following demand curves?

Accepted Answer

A perfectly elastic (horizontal) demand curve.

Question 6

If a monopolist wants to maximize profit, it should produce the quantity where:

Accepted Answer

$$MR = MC$$

Question 7

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

Accepted Answer

They are substitutes.

Question 8

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Products are differentiated.

Question 9

A firm’s marginal cost (MC) is given by $$MC = 2Q. If $$the market price is $$P = 20 in $$perfect competition, what is the profit-maximizing output?

Accepted Answer

$$Q = 10$$

Question 10

Which of the following best explains why monopolies can earn long-run economic profits, while perfectly competitive firms cannot?

Accepted Answer

Monopolies have barriers to entry that prevent new firms from entering the market.

Question 11

If the government imposes a price ceiling below the equilibrium price, what is the most likely result?

Accepted Answer

A shortage of the good.

Question 12

Suppose the demand for a product is given by $$Q_d = 100 - 2P$$ and the supply is $$Q_s = 4P. $$What is the equilibrium price?

Accepted Answer

$$P = 20$$

Question 13

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

Accepted Answer

A homeowner planting a garden that beautifies the neighborhood.

Question 14

If a firm’s total cost (TC) is given by $$TC = 100 + 5Q$$, what is the average total cost (ATC) when $$Q = 10$$?

Accepted Answer

$$ATC = 15$$

Question 15

Which of the following best describes the law of diminishing marginal returns?

Accepted Answer

As more units of a variable input are added to fixed inputs, the additional output from each new unit will eventually decrease.

Question 16

A firm faces the following total revenue (TR) and total cost (TC) functions: $$TR = 50Q$$, $$TC = 10 + 30Q. $$What is the profit-maximizing output and profit?

Accepted Answer

$$Q$$ can be any positive value, Profit per unit = $$20Q - 10$$

Question 17

Which of the following is most likely to cause a shift in the supply curve for smartphones to the right?

Accepted Answer

A technological advancement in smartphone production.

Question 18

If the government wants to correct a negative externality, which policy is most appropriate?

Accepted Answer

Impose a tax equal to the external cost.

Question 19

Which of the following best describes a public good?

Accepted Answer

A good that is non-excludable and non-rival in consumption.

Question 20

Suppose a country imposes a tariff on imported steel. Which of the following is a likely consequence?

Accepted Answer

Domestic consumers will pay higher prices for steel.

Microeconomics Course Syllabus and Study Guide

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