Question 1

Suppose the price elasticity of demand for gasoline is $$0.3. If $$the price of gasoline increases by $$10\%$$, what is the expected percentage change in quantity demanded?

Accepted Answer

$$3\%$$ decrease in quantity demanded.

Question 2

A profit-maximizing firm in a perfectly competitive market will choose its output level where:

Accepted Answer

Marginal cost equals marginal revenue ($$MC = MR).$$

Question 3

If the government sets a minimum price for milk above its market equilibrium level, and the model of supply-and-demand applies, we would predict:

Accepted Answer

A surplus of milk to occur.

Question 4

Which of the following is most likely a fixed cost for a landscaping business?

Accepted Answer

Fertilizer used on lawns.

Question 5

Suppose an analysis shows that a $$10\%$$ rise in bus fares results in a $$6\%$$ fall in ridership. Based on this information about price elasticity of demand, what is the predicted effect on total revenue from fares?

Accepted Answer

Total revenue will increase.

Question 6

The law of diminishing marginal returns occurs because:

Accepted Answer

Technological process affects declining productivity.

Question 7

If all inputs increase by $$25\%$$ and output rises by $$40\%$$, the firm is experiencing:

Accepted Answer

Increasing returns to scale.

Question 8

A monopolist faces marginal revenue $$MR = 40 - 4Q$$ and marginal cost $$MC = 8. $$What is the profit-maximizing output?

Accepted Answer

$$10$$

Question 9

When the marginal cost ($$MC) $$curve is below the average total cost ($$ATC) $$curve:

Accepted Answer

$$ATC is $$falling.

Question 10

Which of the following best describes the 'law of demand'? Other things being equal, the quantity of coffee demanded will be greater if the:

Accepted Answer

Income of coffee drinkers rises.

Question 11

The imposition of an excise tax will place the smallest burden on sellers when supply is:

Accepted Answer

Perfectly inelastic

Question 12

A firm's reduced output of capital goods can be achieved if:

Accepted Answer

Sufficient improvements in technology occurred in either the capital goods industry or the consumer goods industries.

Question 13

If the price elasticity of demand for an individual potato farmer's product is approximately $$0$$

Accepted Answer

$$0.0$$

Question 14

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

Accepted Answer

An increase in income will cause an increase in the demand for cars.

Question 15

A value of infinity for the price elasticity of demand implies that:

Accepted Answer

All the demand curve is horizontal.

Question 16

Which statement best describes why cartels are typically unstable?

Accepted Answer

Each member has an incentive to secretly expand output.

Question 17

If the cross-price elasticity of demand between smartphones and phone cases is positive, then these goods are:

Accepted Answer

Substitute goods.

Question 18

Which of the following markets most closely approximates perfect competition?

Accepted Answer

Wheat farming in Saskatchewan.

Question 19

A firm that doubles all its inputs and exactly doubles its output is said to have:

Accepted Answer

Constant returns to scale.

Question 20

The substitution effect of a price change leads consumers to ______ their demand for goods whose prices have fallen.

Accepted Answer

Increase

Microeconomics: Core Concepts and Applications – Study Guide

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