Q: Which formula correctly calculates the price elasticity of demand using the midpoint method?

$$\\frac{(Q_2$ - Q_1$)}{(Q_2$ + Q_1$)/2} \\div \\frac{(P_2$ - P_1$)}{(P_2$ + P_1$)/2}$$

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 the price elasticity of demand for a product is $$-2. If $$the price increases by 10%, what happens to the quantity demanded?

Accepted Answer

It decreases by 20%.

Question 3

In a perfectly competitive market, which of the following is true in the long run?

Accepted Answer

Price equals marginal cost and average total cost.

Question 4

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

Accepted Answer

A shortage of the good.

Question 5

Which formula correctly calculates the price elasticity of demand using the midpoint method?

Accepted Answer

$$\frac{(Q_2$ - Q_1$)}{(Q_2$ + Q_1$)/2} \div \frac{(P_2$ - P_1$)}{(P_2$ + P_1$)/2}$$

Question 6

A negative externality in production leads to which of the following outcomes in a free market?

Accepted Answer

The market produces more than the socially optimal quantity.

Question 7

Which of the following is a characteristic of a public good?

Accepted Answer

It is non-excludable and non-rival in consumption.

Question 8

Suppose a monopolist faces the following demand and cost functions: $$P = 100 - 2Q$$, $$MC = 20. $$What quantity will the monopolist produce to maximize profit?

Accepted Answer

$$Q = 30$$

Question 9

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

Accepted Answer

Provide a subsidy to consumers or producers.

Question 10

Which of the following best describes the concept of consumer surplus?

Accepted Answer

The difference between what a consumer is willing to pay and what they actually pay.

Question 11

If the supply of a good is perfectly inelastic, who bears the entire burden of a tax imposed on the good?

Accepted Answer

Producers.

Question 12

Which of the following is NOT a reason for market failure?

Accepted Answer

Perfect competition.

Question 13

A firm’s marginal product of labor is defined as:

Accepted Answer

The additional output produced by hiring one more unit of labor.

Question 14

Which of the following is true about the long-run equilibrium in a perfectly competitive market?

Accepted Answer

Firms produce where $$P = MC = ATC.$$

Question 15

If a country’s GDP per capita increases steadily over time, this is best described as:

Accepted Answer

Economic growth.

Question 16

Which of the following is an example of a common resource?

Accepted Answer

Fish in the ocean.

Question 17

Suppose the government introduces a tax on a good with highly elastic demand and inelastic supply. Who will bear most of the tax burden?

Accepted Answer

Producers.

Question 18

Which of the following is a necessary condition for Pareto efficiency?

Accepted Answer

No individual can be made better off without making someone else worse off.

Question 19

If a monopolist sets output where $$MC = MR$$ and charges the corresponding price from the demand curve, what is the result compared to perfect competition?

Accepted Answer

Higher price and lower quantity.

Question 20

Which of the following policies can help solve the tragedy of the commons?

Accepted Answer

Assigning property rights to common resources.

Microeconomics Study Notes: Core Principles, Markets, and Welfare

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