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 in microeconomics?

Accepted Answer

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

Question 2

Suppose a firm can produce either 100 units of product A or 200 units of product B with its current resources. What is the opportunity cost of producing one unit of product A?

Accepted Answer

$$2$$ units of product B

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

Both equilibrium price and equilibrium 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 bakery finds that when it raises the price of its bread from $$\2$ to $$\$$2.20$$, the quantity demanded falls from $$1000 to$$ $$900$$ loaves per week. What is the price elasticity of demand (using the midpoint method)?

Accepted Answer

$$E_d = \frac{(900-1000)/((900+1000)/2)}{(2.20-2.00)/((2.20+2.00)/2)} = \frac{-100/950}{0.20/2.10} \approx -1.11$$

Question 6

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

Accepted Answer

Products are differentiated.

Question 7

A firm in a perfectly competitive market faces a market price of $$\10$ per unit. Its total cost function is TC = 50 + 2Q$. What is the profit-maximizing output level?

Accepted Answer

$$Q is as $$large as possible, since marginal cost is constant and less than price.

Question 8

Which of the following best explains why monopolies can earn long-run economic profits, unlike firms in perfect competition?

Accepted Answer

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

Question 9

Suppose the market for coffee is initially in equilibrium. A drought destroys a large portion of the coffee crop. What is the most likely effect on the market?

Accepted Answer

Supply decreases, price increases, and quantity decreases.

Question 10

Which of the following equations correctly represents a firm's profit ($$\pi$$)?

Accepted Answer

$$\pi = TR - TC$$

Question 11

If a country can produce either 100 units of wheat or 50 units of corn with the same resources, what is the opportunity cost of producing one unit of corn?

Accepted Answer

$$2$$ units of wheat

Question 12

Which of the following is an example of a positive economic statement?

Accepted Answer

"Increasing the minimum wage will lead to higher unemployment among teenagers."

Question 13

A firm’s marginal cost (MC) is given by $$MC = 4Q. If $$the market price is $$\40$, what is the profit-maximizing output for a perfectly competitive firm?

Accepted Answer

$$Q = 10$$

Question 14

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 15

If the cross-price elasticity of demand between two goods is positive, what does this indicate about the relationship between the goods?

Accepted Answer

They are substitutes.

Question 16

Suppose the government imposes a price ceiling below the equilibrium price in the market for gasoline. What is the most likely outcome?

Accepted Answer

A shortage of gasoline.

Question 17

Which of the following best describes the difference between explicit and implicit costs?

Accepted Answer

Explicit costs are actual monetary payments, while implicit costs are the opportunity costs of using resources owned by the firm.

Question 18

A country has a comparative advantage in producing a good if:

Accepted Answer

It can produce the good at a lower opportunity cost than other countries.

Question 19

Which of the following is most likely to shift the demand curve for electric cars to the right?

Accepted Answer

An increase in consumer income, assuming electric cars are normal goods.

Question 20

If a firm’s total revenue is $$TR = 100Q$$ and its total cost is $$TC = 20Q + 200$$, what is the firm’s profit when $$Q = 10$$?

Accepted Answer

$$\pi = 100 	imes 10 - (20 	imes 10 + 200) = 1000 - 400 = 600$$

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