Q: Which of the following equations represents the price elasticity of demand?

$$E_d = \frac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}$$

Question 1

Which of the following best describes the concept of opportunity cost in microeconomics?

Accepted Answer

The value of the next best alternative foregone when a choice is made.

Question 2

Suppose a student spends 3 hours studying for an economics exam instead of working at a job that pays $15 per hour. What is the opportunity cost of studying for the exam?

Accepted Answer

$45, which is the wage the student could have earned.

Question 3

If the demand for a product increases while the supply remains constant, what will most likely happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will increase and equilibrium quantity will increase.

Question 4

Which of the following equations represents the price elasticity of demand?

Accepted Answer

$$E_d = \frac{\%\ 	ext{change in quantity demanded}}{\%\ 	ext{change in price}}$$

Question 5

A bakery increases the price of its bread from $$2 to 2.20$$, and as a result, the quantity demanded falls from 1000 to 900 loaves per week. What is the price elasticity of demand (using the midpoint formula)?

Accepted Answer

$$E_d = \frac{(900-1000)/((900+1000)/2)}{(2.20-2.00)/((2.20+2.00)/2)} = \frac{-100/950}{0.20/2.10} \approx -1.11$$

Question 6

Which of the following is an example of a public good?

Accepted Answer

A city park that is open to everyone.

Question 7

Suppose the government imposes a price ceiling below the equilibrium price for rental apartments. What is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 8

Which of the following best describes the law of diminishing marginal utility?

Accepted Answer

As a person consumes more of a good, the additional satisfaction from each additional unit decreases.

Question 9

A firm in perfect competition faces which of the following demand curves?

Accepted Answer

A perfectly elastic (horizontal) demand curve.

Question 10

If a monopolist can perfectly price discriminate, what is the effect on consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus is zero and deadweight loss is zero.

Question 11

Which of the following equations correctly represents the profit-maximizing condition for a firm in any market structure?

Accepted Answer

$$MR = MC$$

Question 12

Suppose a firm’s total cost function is $$TC = 100 + 5Q + 2Q^2$. What is the marginal cost (MC) function?

Accepted Answer

$$MC = 5 + 4Q$$

Question 13

Which of the following is most likely to cause a market failure?

Accepted Answer

Externalities such as pollution.

Question 14

A negative externality in production will result in which of the following outcomes in a free market?

Accepted Answer

The good will be overproduced relative to the socially optimal level.

Question 15

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

Accepted Answer

They are substitutes.

Question 16

Suppose a firm in a monopolistically competitive market is earning economic profits in the short run. What is likely to happen in the long run?

Accepted Answer

Firms will enter the market, driving economic profits to zero.

Question 17

Which of the following best describes the difference between accounting profit and economic profit?

Accepted Answer

Accounting profit includes only explicit costs, while economic profit includes both explicit and implicit costs.

Question 18

A firm’s total revenue is $$TR = 20Q$$, and its total cost is $$TC = 100 + 4Q. $$What is the profit-maximizing output if the firm is a price taker and the market price is $$20$$?

Accepted Answer

$$Q is $$indeterminate from the information given, but since $$P = MC at $$all $$Q$$, the firm should produce as much as possible.

Question 19

Which of the following is a characteristic of an oligopoly?

Accepted Answer

A few large firms, each with significant market power.

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