Q: Which formula correctly represents the midpoint method for calculating price elasticity of demand?

$$\text{Price elasticity of demand} = \frac{(Q_2$ - Q_1$)}{\frac{Q_1$ + Q_2$}{2}} \div \frac{(P_2$ - P_1$)}{\frac{P_1$ + P_2$}{2}}$$

Q: Which equation represents the present value of a future sum of money?

$$\text{Present value} = \frac{\text{Future value}_n}{(1+i)^n}$$

Question 1

Refer to the first PPF graph (Ford’s production possibilities frontier). If Ford is currently producing at point F, what does this indicate about its use of resources?

Accepted Answer

Ford is not using all available resources efficiently; some resources are underutilized.

Question 2

Which of the following best describes the opportunity cost of moving from point B to point C on the second PPF graph (Tanks vs. Automobiles)?

Accepted Answer

The number of tanks that must be given up to produce additional automobiles.

Question 3

Suppose the price of a normal good increases. According to the law of demand, what will happen to the quantity demanded, holding all else constant?

Accepted Answer

The quantity demanded will decrease.

Question 4

Which formula correctly represents the midpoint method for calculating price elasticity of demand?

Accepted Answer

$$	ext{Price elasticity of demand} = \frac{(Q_2$ - Q_1$)}{\frac{Q_1$ + Q_2$}{2}} \div \frac{(P_2$ - P_1$)}{\frac{P_1$ + P_2$}{2}}$$

Question 5

If a country can produce a good at a lower opportunity cost than another country, it is said to have:

Accepted Answer

Comparative advantage

Question 6

Which of the following is NOT a determinant of the price elasticity of demand?

Accepted Answer

The cost of production

Question 7

A price ceiling set below the equilibrium price will most likely result in:

Accepted Answer

A shortage of the good

Question 8

Which equation represents the present value of a future sum of money?

Accepted Answer

$$	ext{Present value} = \frac{	ext{Future value}_n}{(1+i)^n}$$

Question 9

If the government imposes a tax on a good, what is the likely effect on consumer and producer surplus?

Accepted Answer

Both consumer and producer surplus will decrease.

Question 10

Which of the following statements about efficiency and equity is correct?

Accepted Answer

Efficiency does not guarantee equity.

Question 11

A market is considered allocatively efficient when:

Accepted Answer

Production is in accordance with consumer preferences, where marginal benefit equals marginal cost.

Question 12

Which of the following would cause a shift in the demand curve for a normal good to the right?

Accepted Answer

An increase in the price of a substitute good

Question 13

Suppose the price elasticity of demand for a product is $$-2.5. If $$the price increases by $$10\%$$, what happens to the quantity demanded?

Accepted Answer

It decreases by $$25\%.$$

Question 14

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

Accepted Answer

"Raising taxes will reduce consumer spending."

Question 15

If a firm is producing at a point inside its production possibilities frontier (PPF), what does this indicate?

Accepted Answer

The firm is not using all resources efficiently.

Question 16

Which of the following best describes the circular flow model?

Accepted Answer

It shows how households and firms interact in product and factor markets.

Question 17

A vertical demand curve indicates that:

Accepted Answer

Demand is perfectly inelastic.

Question 18

Which of the following is NOT a reason why some people oppose free trade?

Accepted Answer

It increases consumer choice.

Question 19

If the government sets a price floor above the equilibrium price, what will likely occur?

Accepted Answer

A surplus

Question 20

Which of the following best explains why the opportunity cost increases as you move along a bowed-out PPF?

Accepted Answer

Resources are not equally suited to producing both goods.

Microeconomics Midterm Study Guide: Key Concepts, Models, and Formulas

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