Question 1

Suppose the demand for gasoline is given by the equation $$Q_d = 350 - 50P. $$What is the inverse demand function?

Accepted Answer

$$P = 7 - \frac{Q_d}{50}$$

Question 2

Given the budget constraint $$50j + 25s = 300$$, what is the opportunity cost of one pair of jeans in terms of sweaters?

Accepted Answer

2 sweaters

Question 3

If the price of jeans increases from $$50 to 75$$, what happens to the budget line in the jeans-sweaters space?

Accepted Answer

It pivots inward, reducing the maximum number of jeans that can be purchased.

Question 4

A consumer has $$300 to spend on jeans (50 $$each) and sweaters ($25 each). If they buy 4 jeans, how many sweaters can they afford?

Accepted Answer

4 sweaters

Question 5

What does the slope of the budget line $$s = 12 - 2j$$ represent?

Accepted Answer

The opportunity cost of jeans in terms of sweaters

Question 6

If a consumer’s marginal benefit per dollar spent on sweaters is greater than that for jeans, what should the consumer do to maximize utility?

Accepted Answer

Buy more sweaters and fewer jeans

Question 7

Suppose the price elasticity of demand for a good is $$|E_D| = 0.25. If $$the price increases by 10%, what happens to the quantity demanded?

Accepted Answer

It decreases by 2.5%

Question 8

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

Accepted Answer

They are complements

Question 9

A consumer’s income increases by 20%, and their consumption of rice decreases by 10%. What is the income elasticity of demand for rice?

Accepted Answer

$$-0.5$$

Question 10

If the price elasticity of demand for cigarettes is $$0.4$$ and the price increases by 10%, what is the expected percentage change in quantity demanded?

Accepted Answer

-4%

Question 11

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what a buyer is willing to pay and what they actually pay

Question 12

If the demand for a good is unit elastic, what happens to total revenue when the price increases?

Accepted Answer

Total revenue does not change

Question 13

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

Accepted Answer

The cost of production

Question 14

Suppose a consumer’s preferences are complete and transitive. What does this imply?

Accepted Answer

Their preferences can be represented by a utility function

Question 15

If the marginal utility per dollar spent on good X is less than that for good Y, what should a rational consumer do?

Accepted Answer

Buy more of good Y and less of good X

Question 16

If the price of a normal good decreases, what are the expected income and substitution effects?

Accepted Answer

Both effects increase the quantity demanded

Question 17

Suppose the demand for a good is $$Q_D = 12 - 2P. If $$the price is $4, what is the consumer surplus?

Accepted Answer

$$8$$

Question 18

Which of the following statements about utility functions is correct?

Accepted Answer

Economists use utility functions as a mathematical representation of preferences, not as a literal measure of happiness.

Question 19

If a good has an income elasticity of demand greater than 1, how is it classified?

Accepted Answer

A luxury good

Question 20

Why are last-minute airplane tickets typically more expensive than last-minute Broadway show tickets?

Accepted Answer

Because the demand for last-minute airplane tickets is more inelastic than for Broadway show tickets

Consumer Behavior, Budget Constraints, and Elasticity in Microeconomics

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