Question 1

Suppose the price of coffee increases from $$2 to 2.20 $$per cup, and as a result, the quantity demanded falls from 1000 to 900 cups per day. Using the percent change formula, what is the price elasticity of demand?

Accepted Answer

$$\frac{(900-1000)}{(1000+900)/2} \div \frac{(2.20-2.00)}{(2.20+2.00)/2}$$

Question 2

Which of the following is most likely to have elastic demand?

Accepted Answer

Restaurant meals

Question 3

Why do economists use point elasticity rather than arc elasticity when analyzing small changes in price and quantity?

Accepted Answer

Point elasticity provides a more accurate measure for infinitesimal changes.

Question 4

If the price elasticity of demand for a product is $$-2$$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will decrease.

Question 5

A 10% increase in the price of good X leads to a 5% increase in the quantity supplied. What is the price elasticity of supply?

Accepted Answer

$$\frac{5\%}{10\%} = 0.5$$

Question 6

If the income elasticity of demand for organic food is $$1.2$$, what does this imply?

Accepted Answer

Organic food is a normal good and a luxury.

Question 7

If the cross-price elasticity between tea and coffee is $$+0.8$$, what does this indicate?

Accepted Answer

Tea and coffee are substitutes.

Question 8

If total utility (TU) increases at a decreasing rate as more units of a good are consumed, what happens to marginal utility (MU)?

Accepted Answer

Marginal utility decreases.

Question 9

A consumer faces the following marginal utilities: $$MU_A = 10$$, $$MU_B = 20. $$The prices are $$P_A = 2$$, $$P_B = 5. $$According to the optimal consumption rule, should the consumer buy more of A or B?

Accepted Answer

Buy more of A, because $$\frac{MU_A}{P_A} = 5 is $$greater than $$\frac{MU_B}{P_B} = 4.$$

Question 10

A lottery ticket costs $$5$$ and pays $$100$$ with probability $$0.01. $$What is the expected value of buying the ticket?

Accepted Answer

$$(0.01 	imes 100) - 5 = -4$$

Question 11

Which of the following best describes the sunk cost fallacy?

Accepted Answer

Continuing an investment because of previously incurred, unrecoverable costs.

Question 12

Which of the following is an example of an explicit cost for a firm?

Accepted Answer

Wages paid to employees.

Question 13

A firm earns $$100,000 in $$revenue, pays $$60,000 in $$explicit costs, and has $$20,000 in $$implicit costs. What is its economic profit?

Accepted Answer

$$100,000 - 60,000 - 20,000 = 20,000$$

Question 14

Which statement best describes the minimum efficient scale (MES)?

Accepted Answer

The lowest level of output at which long-run average cost is minimized.

Question 15

If a firm experiences economies of scale, what happens to its long-run average cost as output increases?

Accepted Answer

Long-run average cost decreases.

Question 16

Which of the following best illustrates the principal-agent problem in health care?

Accepted Answer

A doctor recommends unnecessary tests to increase their income.

Question 17

Adverse selection in health insurance markets occurs when:

Accepted Answer

People with higher health risks are more likely to buy insurance.

Question 18

Which scenario best describes moral hazard in health care?

Accepted Answer

A patient visits the doctor more often because their insurance covers all costs.

Question 19

Which of the following is a likely effect of AI replacing jobs in the health care sector?

Accepted Answer

Increased efficiency and lower costs, but potential job displacement for some workers.

Microeconomics Study Guide: Elasticity, Utility, Costs, Production, and Health Economics

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