Question 1

Suppose the price of a pair of shoes increases from $$50 to 150. At$$ $$150, the quantity demanded is 8 million pairs, and at 50$$, the quantity supplied is 12 million pairs. What market condition exists at $150, and why?

Accepted Answer

A surplus, because quantity supplied exceeds quantity demanded.

Question 2

If the supply curve for shoes shifts from $$S_1 to$$ $$S_2 as $$shown in the first image, what does this represent and what is a likely cause?

Accepted Answer

A decrease in supply, likely due to an increase in input prices.

Question 3

Using the midpoint formula, calculate the price elasticity of demand if the price of a product falls from $$20 to 15 $$and quantity demanded rises from 140,000 to 160,000 units.

Accepted Answer

$$-0.47$$

Question 4

Which of the following best describes the effect on equilibrium price and quantity if both the demand and supply curves shift to the right?

Accepted Answer

Equilibrium quantity increases, but the change in equilibrium price is ambiguous.

Question 5

If the cross-price elasticity of demand between two goods is negative, what does this imply about the relationship between the goods?

Accepted Answer

They are complements.

Question 6

A price ceiling is set below the equilibrium price in a competitive market. What is the likely outcome?

Accepted Answer

A shortage will occur.

Question 7

If the income elasticity of demand for a good is $$-0.5$$, how is this good classified?

Accepted Answer

Inferior good

Question 8

Suppose the government sets a binding price floor above the equilibrium price. What will happen in the market?

Accepted Answer

A surplus will occur.

Question 9

Which of the following is NOT a determinant of the price elasticity of demand?

Accepted Answer

The cost of inputs for production

Question 10

If a good is a necessity and takes up a small share of a consumer’s budget, what can you infer about its price elasticity of demand?

Accepted Answer

It is likely to be inelastic.

Question 11

If the price elasticity of supply is calculated as $$E_s = 2.5$$, what does this indicate about the supply curve?

Accepted Answer

Supply is elastic.

Question 12

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

Accepted Answer

A decrease in the price of ice cream.

Question 13

If the marginal benefit of an additional unit is $$9,000 and the marginal cost is 5$$,000, what should a firm do?

Accepted Answer

Produce more units.

Question 14

Which of the following is true about market equilibrium?

Accepted Answer

Quantity demanded equals quantity supplied.

Question 15

If a market is not at equilibrium and is producing at a quantity where marginal cost exceeds marginal benefit, what is the result?

Accepted Answer

There is deadweight loss due to overproduction.

Question 16

Which of the following best describes allocative efficiency?

Accepted Answer

Marginal benefit equals marginal cost for the last unit produced.

Question 17

If the demand for a product is price inelastic, what happens to total revenue if the price increases?

Accepted Answer

Total revenue increases.

Question 18

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

Accepted Answer

The government should increase the minimum wage.

Question 19

If the price elasticity of demand for a good is $$|E_d| = 1$$, what does this mean?

Accepted Answer

Demand is unit elastic.

Question 20

Which of the following would NOT shift the supply curve for shoes?

Accepted Answer

A change in the price of shoes.

Microeconomics Study Guide: Foundations, Supply & Demand, and Elasticity

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