$$\text{Price Elasticity of Demand} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$$

Question 1

Suppose the government imposes a binding price ceiling on rental apartments. Which of the following is most likely to occur in the short run?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 2

If the price elasticity of demand for a product is $$\varepsilon = -2$$, and the price increases by 10%, what happens to total revenue?

Accepted Answer

Total revenue decreases.

Question 3

Which of the following best describes the law of comparative advantage?

Accepted Answer

Countries should specialize in goods for which they have the lowest opportunity cost.

Question 4

A production possibility curve (PPC) with increasing marginal cost is bowed outward. What does this imply about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 5

Suppose a tax is imposed on sellers of gasoline. If demand is perfectly inelastic, who bears the economic burden of the tax?

Accepted Answer

Buyers bear the entire burden.

Question 6

Which equation represents the condition for optimal decision-making in microeconomics?

Accepted Answer

$$MB = MC$$

Question 7

If the government sets a minimum wage above the equilibrium wage, what is the likely effect in the labor market?

Accepted Answer

A surplus of labor (unemployment).

Question 8

Which of the following best explains why private property rights are important in market economies?

Accepted Answer

They provide incentives for individuals to invest and innovate.

Question 9

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

Accepted Answer

The goods are substitutes.

Question 10

A market is allocatively efficient when:

Accepted Answer

The value consumers place on a good equals the cost of production.

Question 11

Suppose the government imposes a tax on a good. If supply is more elastic than demand, who bears more of the tax burden?

Accepted Answer

Buyers bear more of the burden.

Question 12

Which formula correctly calculates the price elasticity of demand?

Accepted Answer

$$	ext{Price Elasticity of Demand} = \frac{\% 	ext{ change in quantity demanded}}{\% 	ext{ change in price}}$$

Question 13

Which of the following is an example of rationing by non-price mechanisms?

Accepted Answer

Allocating goods by lottery during shortages.

Question 14

If both demand and supply increase simultaneously in a market, what is the likely effect on equilibrium quantity?

Accepted Answer

Equilibrium quantity will increase.

Question 15

Which of the following best describes deadweight loss?

Accepted Answer

The loss of economic surplus due to market inefficiency.

Question 16

A decrease in production costs for a good will most likely cause:

Accepted Answer

A rightward shift in the supply curve.

Question 17

Which of the following statements about statutory and economic incidence of taxes is correct?

Accepted Answer

Economic incidence depends on the relative elasticities of demand and supply.

Question 18

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

Accepted Answer

An inferior good.

Question 19

Which of the following best illustrates the role of incentives in economics?

Accepted Answer

A government increases taxes on cigarettes, leading to a decrease in cigarette consumption.

Question 20

Suppose a market is perfectly competitive and achieves productive efficiency. What does this mean?

Accepted Answer

Goods are produced at the lowest possible cost.

Microeconomics Core Concepts: Study Guide for Midterm Preparation

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