Question 1

Suppose the price of coffee increases from $$2 to 2.50 $$per cup, and as a result, the quantity demanded falls from 100 to 80 cups per day. What is the price elasticity of demand (using the midpoint method)?

Accepted Answer

$$\frac{(80-100)}{(80+100)/2} \div \frac{(2.50-2)}{(2.50+2)/2} = -0.95$$

Question 2

Which of the following best describes an opportunity cost?

Accepted Answer

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

Question 3

A country can produce either 10 tons of wheat or 20 tons of corn with its resources. What is the opportunity cost of producing 1 ton of wheat?

Accepted Answer

$$\frac{20}{10} = 2$$ tons of corn

Question 4

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

Accepted Answer

The goods are substitutes.

Question 5

Which of the following would cause a movement along the demand curve for ice cream?

Accepted Answer

A decrease in the price of ice cream.

Question 6

Suppose a new technology reduces the cost of producing smartphones. What is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the right.

Question 7

If a good has an income elasticity of demand less than zero, it is considered:

Accepted Answer

An inferior good.

Question 8

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

Accepted Answer

A shortage.

Question 9

Which of the following best explains why deadweight loss occurs when a tax is imposed on a good?

Accepted Answer

The tax discourages mutually beneficial trades between buyers and sellers.

Question 10

If the marginal cost of producing an additional unit of a good is less than the price, what should a profit-maximizing firm do?

Accepted Answer

Increase production.

Question 11

Suppose the demand for a product is perfectly inelastic. What will happen to the quantity demanded if the price increases?

Accepted Answer

The quantity demanded will remain unchanged.

Question 12

Which of the following is true about the production possibilities curve (PPC)?

Accepted Answer

Points inside the PPC are inefficient, and points outside are unattainable with current resources.

Question 13

If a country has a comparative advantage in producing cars, it means:

Accepted Answer

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

Question 14

Which of the following would increase both consumer surplus and producer surplus in a market?

Accepted Answer

A decrease in a binding price floor.

Question 15

If the government imposes a tax on sellers, what happens to the supply curve?

Accepted Answer

It shifts to the left (upward).

Question 16

Which of the following is an example of a sunk cost?

Accepted Answer

Money spent on non-refundable concert tickets.

Question 17

Suppose the price elasticity of supply for a good is 2. If the price increases by 10%, what is the expected percentage change in quantity supplied?

Accepted Answer

$$2 	imes 10\% = 20\%$$ increase

Question 18

Which of the following statements about economic efficiency is correct?

Accepted Answer

Economic efficiency occurs when total surplus (consumer plus producer surplus) is maximized.

Question 19

If a good is a luxury, what can be said about its income elasticity of demand?

Accepted Answer

It is greater than 1.

Question 20

A bakery finds that when it increases the price of its cakes from $$10 to 12$$, the quantity demanded falls from 200 to 180 cakes. Is the demand for cakes elastic, inelastic, or unit elastic (using the midpoint method)?

Accepted Answer

Inelastic, because $$|	ext{Elasticity}| = \frac{(180-200)}{(180+200)/2} \div \frac{(12-10)}{(12+10)/2} = -0.55$$

Microeconomics Core Concepts and Applications: Study Guide

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