Question 1

Suppose the demand for coffee increases due to a rise in consumer income. Which of the following best describes what happens to the equilibrium price and quantity in the coffee market, assuming supply remains unchanged?

Accepted Answer

Equilibrium price increases and equilibrium quantity increases.

Question 2

Given the demand equation $$Q_d = 100 - 2P$$, what does the coefficient on $$P$$ tell us about the demand curve?

Accepted Answer

The demand curve is downward sloping, and for every $1 increase in price, quantity demanded decreases by 2 units.

Question 3

If the price elasticity of demand for a product is $$-1.5$$, which of the following statements is correct?

Accepted Answer

A 1% increase in price will lead to a 1.5% decrease in quantity demanded.

Question 4

Suppose the cross-price elasticity of demand between tea and coffee is $$0.8. $$What does this imply about the relationship between tea and coffee?

Accepted Answer

They are substitutes.

Question 5

A government imposes a price ceiling below the equilibrium price in the market for apartments. Which of the following is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 6

If the supply of wheat increases due to improved technology, what happens to the equilibrium price and quantity, assuming demand remains constant?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Question 7

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what consumers are willing to pay and what they actually pay.

Question 8

A tax is imposed on sellers in the market for gasoline. What is the likely effect on consumer surplus, producer surplus, and deadweight loss?

Accepted Answer

Consumer surplus decreases, producer surplus decreases, and deadweight loss increases.

Question 9

In the short run, which of the following is true about fixed and variable inputs?

Accepted Answer

At least one input is fixed, while others can be varied.

Question 10

Suppose a firm’s production function is $$Q = L$$^{0.5}$$K^{0.5}. $$What is the marginal product of labor ($$MP_L$)?

Accepted Answer

$$MP_L = 0.5L$$^{-0.5}$$K^{0.5}$

Question 11

If a firm experiences diminishing marginal product of labor, what happens as more labor is added, holding capital constant?

Accepted Answer

Each additional worker adds less to output than the previous one.

Question 12

Which of the following best describes an isoquant?

Accepted Answer

A curve showing all combinations of inputs that yield the same level of output.

Question 13

For the production function $$Q = 	ext{min}(L, K)$$, which of the following is true about the isoquants?

Accepted Answer

Isoquants are L-shaped, indicating perfect complements.

Question 14

Given the production function $$Q = 2L + 3K$$, what is the marginal rate of technical substitution (MRTS) of labor for capital?

Accepted Answer

$$MRTS_{LK} = \frac{2}{3}$$

Question 15

If a firm’s isoquants are straight lines, what does this imply about the inputs?

Accepted Answer

The inputs are perfect substitutes.

Question 16

Suppose the income elasticity of demand for a good is $$-0.4. $$What type of good is this?

Accepted Answer

An inferior good.

Question 17

If a firm’s production function exhibits increasing returns to scale, what happens to output if all inputs are doubled?

Accepted Answer

Output more than doubles.

Question 18

Which of the following best describes deadweight loss?

Accepted Answer

The reduction in total surplus that results from a market distortion such as a tax.

Question 19

Suppose the own-price elasticity of supply for a product is $$0.5. $$What does this imply about the supply curve?

Accepted Answer

Supply is inelastic; quantity supplied responds less than proportionally to price changes.

Question 20

A binding price floor is imposed in the market for corn. What is the likely result?

Accepted Answer

A surplus of corn.

Microeconomics Exam Study Guide: Demand, Supply, Elasticity, Surplus, and Production

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