Question 1

Which of the following is a necessary condition for a market to be perfectly competitive?

Accepted Answer

All buyers and sellers are price takers.

Question 2

Suppose the demand for coffee increases due to a rise in consumer income. Which of the following best describes what happens in the market?

Accepted Answer

The demand curve shifts to the right.

Question 3

If the price elasticity of demand for a product is $$\varepsilon = -2$$, what does this imply about consumer responsiveness?

Accepted Answer

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

Question 4

Which of the following would cause a movement along the demand curve for pizza, rather than a shift of the curve?

Accepted Answer

A decrease in the price of pizza.

Question 5

If the government imposes a binding price ceiling on apartments, what is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 6

Suppose the cross-price elasticity of demand between tea and coffee is positive. What does this indicate?

Accepted Answer

Tea and coffee are substitutes.

Question 7

Which of the following best describes the effect of a tax imposed on sellers in a competitive market?

Accepted Answer

The supply curve shifts to the left (upward).

Question 8

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

Inferior good

Question 9

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

The flatter the demand curve, the more elastic the demand.

Question 10

A binding rent control is imposed in a city. Which of the following is a likely long-term effect?

Accepted Answer

A shortage of apartments and reduced maintenance.

Question 11

Suppose the government wants to help the poor by imposing a price ceiling on bread. Which of the following is a possible unintended consequence?

Accepted Answer

A shortage of bread.

Question 12

If a tax is imposed on buyers, how is the burden of the tax shared between buyers and sellers?

Accepted Answer

The burden is shared depending on the relative elasticities of demand and supply.

Question 13

Which of the following best describes a perfectly inelastic demand curve?

Accepted Answer

A vertical line

Question 14

Suppose the government imposes a tax on gasoline. What is the likely effect on the equilibrium price and quantity?

Accepted Answer

Equilibrium price increases, quantity decreases.

Question 15

If the demand for a good is perfectly elastic, what happens to quantity demanded if the price increases by any amount?

Accepted Answer

Quantity demanded decreases to zero.

Question 16

Which of the following is an example of a price floor?

Accepted Answer

Minimum wage

Question 17

If the government removes a binding price ceiling on a product, what will happen in the market?

Accepted Answer

The market price will rise to equilibrium.

Question 18

Suppose the government imposes a tax on sellers of a good. Which equation best represents the new supply curve?

Accepted Answer

$$P = P^* + T$$

Question 19

Which of the following is true about the effect of a tax on market equilibrium?

Accepted Answer

It decreases the equilibrium quantity.

Question 20

If the cross-price elasticity of demand between two goods is negative, what does this imply?

Accepted Answer

The goods are complements.

Microeconomics Study Notes: Supply, Demand, and Elasticity

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