Q: Given the following data: Absolute value in given period = 120, Absolute value in base period = 100. What is the value of the index?

$$\frac{120}{100} \times 100 = 120$$

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 product 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 likely 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 market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied at the market price.

Question 6

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

Accepted Answer

Demand is elastic; quantity demanded changes significantly with price.

Question 7

Which of the following statements is a normative statement?

Accepted Answer

Unemployment is a more important social problem than inflation.

Question 8

Given the following data: Absolute value in given period = 120, Absolute value in base period = 100. What is the value of the index?

Accepted Answer

$$\frac{120}{100} 	imes 100 = 120$$

Question 9

If a government imposes a price floor above the equilibrium price, what is the likely market outcome?

Accepted Answer

A surplus will occur as quantity supplied exceeds quantity demanded.

Question 10

Which formula correctly calculates the price elasticity of demand using the midpoint method?

Accepted Answer

$$E_d = \frac{Q_2$ - Q_1$}{(Q_2$ + Q_1$)/2} \div \frac{P_2$ - P_1$}{(P_2$ + P_1$)/2}$$

Question 11

Suppose a drought reduces the supply of wheat. What is the expected effect on the equilibrium price and quantity in the wheat market?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases.

Question 12

Which of the following best describes a positive correlation in economic data?

Accepted Answer

As one variable increases, the other increases.

Question 13

If the government imposes a tax on producers, which of the following is most likely to occur?

Accepted Answer

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

Question 14

Which of the following is an example of a complement in consumption?

Accepted Answer

Bread and butter

Question 15

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

Accepted Answer

The goods are substitutes.

Question 16

A movement along the supply curve is caused by:

Accepted Answer

A change in the price of the product.

Question 17

Suppose the price of apples increases from $$2 to 3$$, and the quantity demanded decreases from 100 to 80. Using the midpoint method, what is the price elasticity of demand?

Accepted Answer

$$E_d = \frac{80 - 100}{(80 + 100)/2} \div \frac{3 - 2}{(3 + 2)/2} = \frac{-20}{90} \div \frac{1}{2.5} = -0.222 \div 0.4 = -0.555$$

Question 18

Which of the following is a condition for a market to be well described by the demand and supply model?

Accepted Answer

Buyers and sellers are price takers.

Question 19

If the income elasticity of demand for a good is positive and greater than 1, the good is classified as:

Accepted Answer

A luxury good

Question 20

Which of the following best illustrates the law of diminishing marginal returns?

Accepted Answer

As more workers are hired, each additional worker adds less to total output than the previous one.

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

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