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 decision.

Question 2

Suppose the demand and supply equations for a market are $$Q_D = 100 - 3P$$ and $$Q_S = 20 + 2P. $$What is the equilibrium price?

Accepted Answer

$$P = 16$$

Question 3

If the price of a substitute good increases, what is the expected effect on the demand curve for the original good?

Accepted Answer

The demand curve shifts to the right.

Question 4

Which of the following is NOT a determinant of supply elasticity?

Accepted Answer

Consumer income

Question 5

A price floor set above the equilibrium price will most likely result in:

Accepted Answer

A surplus of the good

Question 6

Given the price elasticity of demand formula $$E_d = \frac{\Delta Q / Q_{ave}}{\Delta P / P_{ave}}$$, if $$\Delta Q = -20$$, $$Q_{ave} = 100$$, $$\Delta P = 2$$, and $$P_{ave} = 10$$, what is the price elasticity of demand?

Accepted Answer

$$E_d = -1$$

Question 7

Which statement best describes a movement along the supply curve?

Accepted Answer

It is caused by a change in the price of the good itself.

Question 8

If a government imposes a tax on a good with inelastic demand, who bears most of the tax burden?

Accepted Answer

Consumers

Question 9

Which of the following is a positive statement?

Accepted Answer

Higher interest rates encourage people to save more.

Question 10

Suppose the supply curve for apples shifts to the right due to improved technology. What happens to equilibrium price and quantity?

Accepted Answer

Price decreases, quantity increases

Question 11

Which of the following best explains the law of demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

Question 12

If the cross-price elasticity of demand between two goods is positive, the goods are:

Accepted Answer

Substitutes

Question 13

A market is considered perfectly competitive if:

Accepted Answer

There are many buyers and sellers, and no single agent can influence the price.

Question 14

Which of the following would cause a shift of the demand curve for coffee to the right?

Accepted Answer

An increase in consumer income, assuming coffee is a normal good.

Question 15

If the government introduces a subsidy for producers, what is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the right.

Question 16

Suppose the price of anchovies rises due to a supply shock. What is the likely effect on the market for cattle feed, which uses anchovies as an input?

Accepted Answer

Supply of cattle feed decreases, price increases

Question 17

Which formula correctly calculates the percentage change in a price index across non-base years?

Accepted Answer

$$\%\ change = \frac{New\ Price\ Index - Old}{Old} 	imes 100$$

Question 18

If the marginal utility per dollar spent on good X is greater than that on good Y, what should a consumer do to maximize utility?

Accepted Answer

Buy more of good X and less of good Y.

Question 19

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

Accepted Answer

Government should design taxes so that people cannot avoid paying them.

Question 20

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

Accepted Answer

An inferior good

Microeconomics Study Notes: Foundations, Demand & Supply, Equilibrium, and Elasticity

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