Question 1

Which of the following best describes a competitive market?

Accepted Answer

A market with many buyers and sellers, where prices are determined by supply and demand.

Question 2

Suppose the price of coffee increases. According to the law of demand, what is most likely to happen to the quantity demanded of coffee?

Accepted Answer

The quantity demanded will decrease.

Question 3

If the cross-price elasticity of demand between tea and coffee is positive, what does this imply?

Accepted Answer

Tea and coffee are substitute goods.

Question 4

A market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 5

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

Accepted Answer

A decrease in the price of pizza.

Question 6

Suppose the price elasticity of demand for a product is $$PED = -2. If $$the price increases by 10%, what happens to the quantity demanded?

Accepted Answer

It decreases by 20%.

Question 7

If a government sets a price ceiling below the equilibrium price, what is the most likely outcome?

Accepted Answer

A shortage will occur.

Question 8

Which of the following best explains the law of diminishing returns?

Accepted Answer

As more of a variable input is added to a fixed input, the marginal product of the variable input eventually decreases.

Question 9

A firm should shut down in the short run if:

Accepted Answer

Price is less than average variable cost ($$P \u003c AVC).$$

Question 10

Which of the following is true about producer surplus?

Accepted Answer

It is the area above the supply curve and below the price line.

Question 11

In the long run, perfectly competitive firms earn zero economic profit because:

Accepted Answer

Free entry and exit drive the price to equal average total cost.

Question 12

If the income elasticity of demand for a good is negative, the good is:

Accepted Answer

An inferior good.

Question 13

Suppose the government imposes a binding price floor on wheat. What is the most likely result?

Accepted Answer

A surplus of wheat.

Question 14

Which of the following is NOT a barrier to entry for monopolies?

Accepted Answer

Many buyers and sellers.

Question 15

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 16

Which of the following best describes deadweight loss (DWL)?

Accepted Answer

The total surplus lost due to market inefficiency caused by price controls or monopoly.

Question 17

If the supply curve shifts to the right, holding demand constant, what happens to equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Question 18

Which of the following is an example of first-degree price discrimination?

Accepted Answer

A car dealer negotiating a unique price with each customer based on their willingness to pay.

Question 19

If the demand for a product is perfectly inelastic, what is the value of the price elasticity of demand?

Accepted Answer

$$PED = 0$$

Question 20

Suppose the market for gasoline is in equilibrium. If a new tax increases the cost of supplying gasoline, what is the most likely immediate effect?

Accepted Answer

The supply curve shifts to the left, increasing equilibrium price and decreasing equilibrium quantity.

Microeconomics Study Guide: Demand, Supply, Equilibrium, and Market Structures

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