Question 1

What is the main difference between a movement along the demand curve and a shift of the demand curve?

Accepted Answer

A movement along the demand curve is caused by a change in the price of the good itself, while a shift of the demand curve is caused by changes in non-price determinants such as income or preferences.

Question 2

If the price of a substitute good increases, what is likely to happen to the demand for the original good?

Accepted Answer

The demand for the original good will increase.

Question 3

Suppose the price of an input used in production rises. How does this affect a firm's supply curve?

Accepted Answer

The supply curve shifts to the left, indicating a decrease in supply.

Question 4

Why does the supply curve reflect the firm's underlying cost structure?

Accepted Answer

Because the supply curve shows the minimum price at which a firm is willing to sell each quantity, which depends on its marginal cost.

Question 5

Suppose a firm adopts a new technology that lowers production costs. What happens to its supply curve?

Accepted Answer

The supply curve shifts to the right, indicating an increase in supply.

Question 6

If the number of firms in an industry increases, what is the likely effect on the market supply curve?

Accepted Answer

The market supply curve shifts to the right.

Question 7

How does a rise in the price of a good affect consumer surplus?

Accepted Answer

Consumer surplus decreases because buyers pay more for the same quantity or buy less at the higher price.

Question 8

Assuming prices are constant, how would a rise in demand affect consumer surplus?

Accepted Answer

Consumer surplus increases because more consumers are willing to buy at the given price.

Question 9

How does a rise in supply affect producer surplus, assuming prices are constant?

Accepted Answer

Producer surplus increases because more goods are sold at the same price.

Question 10

Which of the following best describes a Pareto efficient allocation?

Accepted Answer

An allocation where no individual can be made better off without making someone else worse off.

Question 11

Suppose the market for wheat is initially in equilibrium. If the government imposes a price floor above the equilibrium price, what is the likely outcome?

Accepted Answer

A surplus of wheat will result because quantity supplied exceeds quantity demanded.

Question 12

If the demand for a product is given by $$ Q_d = 100 - 2P $$ and the supply is $$ Q_s = 20 + 3P $$, what is the equilibrium price?

Accepted Answer

$$ P = 16 $$

Question 13

A firm faces the following cost structure: fixed costs of $$100 and variable costs of 5$ per unit. If the market price is 8$ per unit, what is the firm's profit when it sells 50$ units?

Accepted Answer

$$ Profit = 50 	imes 8 - (100 + 50 	imes 5) = 400 - 350 = 50 $$

Question 14

If a firm faces a perfectly elastic demand curve, what does this imply about its pricing power?

Accepted Answer

The firm has no pricing power and must accept the market price.

Question 15

Suppose the government imposes a tax of $$ t $$ per unit on sellers. How does this affect the supply curve?

Accepted Answer

The supply curve shifts vertically upward by $$ t $$ units.

Question 16

If the price elasticity of demand for a product is $$ -2 $$, what does this mean?

Accepted Answer

A 1% increase in price leads to a 2% decrease in quantity demanded.

Question 17

Which of the following would cause a shift in the demand curve for coffee?

Accepted Answer

A change in consumer income.

Question 18

If a market is not Pareto efficient, what does this imply?

Accepted Answer

It is possible to make someone better off without making anyone else worse off.

Question 19

Suppose the demand for a good is perfectly inelastic. What happens to total revenue if the price increases?

Accepted Answer

Total revenue increases because quantity demanded remains unchanged.

Microeconomics Study Guide: Supply, Demand, Surplus, and Efficiency

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