Q: Which formula correctly calculates the price elasticity of demand?

$$ \text{Price Elasticity of Demand} = \frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Price}} $$

Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

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

Question 2

Suppose a country can produce either 100 units of wheat or 200 units of corn with its available resources. What is the opportunity cost of producing one unit of wheat?

Accepted Answer

$$ \frac{2}{1} $$ units of corn

Question 3

Which of the following statements about the production possibilities frontier (PPF) is correct?

Accepted Answer

Points on the PPF represent efficient use of resources.

Question 4

If the demand for a good is given by $$ Q_d = 100 - 2P $$ and the supply is $$ Q_s = 20 + 3P $$, what is the equilibrium price?

Accepted Answer

$$ P = 16 $$

Question 5

A competitive market is characterized by which of the following?

Accepted Answer

Many buyers and sellers, none of whom can individually influence the price.

Question 6

If the price elasticity of demand for a product is $$ -2 $$, what does this imply?

Accepted Answer

Demand is elastic; quantity demanded changes significantly with price.

Question 7

Which of the following would likely increase the equilibrium price in a market?

Accepted Answer

An increase in demand and a decrease in supply.

Question 8

Suppose the government imposes a rent ceiling below the equilibrium rent in a housing market. What is the most likely outcome?

Accepted Answer

A shortage of housing units.

Question 9

If a minimum wage is set above the equilibrium wage in a labor market, what is the expected result?

Accepted Answer

Unemployment will increase.

Question 10

Which formula correctly calculates the price elasticity of demand?

Accepted Answer

$$ 	ext{Price Elasticity of Demand} = \frac{	ext{Percentage Change in Quantity Demanded}}{	ext{Percentage Change in Price}} $$

Question 11

A subsidy to producers will generally have which effect on the market?

Accepted Answer

Increase the quantity supplied and decrease the price.

Question 12

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

Accepted Answer

The goods are substitutes.

Question 13

Which of the following is an example of a resource allocation method?

Accepted Answer

Majority rule

Question 14

Suppose a tax is imposed on buyers in a market. What is the likely effect on the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity decreases and price paid by buyers increases.

Question 15

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what consumers are willing to pay and what they actually pay.

Question 16

If a country imposes an import quota, what is the likely effect on domestic producer surplus and consumer surplus?

Accepted Answer

Producer surplus increases and consumer surplus decreases.

Question 17

According to the principle of diminishing marginal utility, what happens as a consumer consumes more units of a good?

Accepted Answer

Marginal utility decreases.

Question 18

A consumer faces the following utility schedule for apples: 1st apple = 10 utils, 2nd apple = 8 utils, 3rd apple = 5 utils. What is the marginal utility of the 3rd apple?

Accepted Answer

$$ 5 $$ utils

Question 19

Which of the following is NOT a determinant of demand?

Accepted Answer

Cost of production

Microeconomics Study Guide: Core Concepts and Applications

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