Q: Given the demand schedule for gasoline, what is the consumer surplus if the market price is $$3 per gallon and the maximum willingness to pay for the first gallon is 7$$?

$$\frac{1}{2} \times (7-3) \times 300 = 600$$

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 $$50 to 75$$, how does the budget line change?

Accepted Answer

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

Question 4

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

Accepted Answer

The opportunity cost of jeans in terms of sweaters

Question 5

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 6

Suppose the price elasticity of demand for a good is $$|E_D| = 0.4. If $$the price increases, what happens to total revenue?

Accepted Answer

Total revenue increases

Question 7

Given the demand schedule for gasoline, what is the consumer surplus if the market price is $$3 per gallon and the maximum willingness to pay for the first gallon is 7$$?

Accepted Answer

$$\frac{1}{2} 	imes (7-3) 	imes 300 = 600$$

Question 8

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

Accepted Answer

The goods are complements

Question 9

Suppose a consumer’s income doubles and both the price of jeans and sweaters remain unchanged. What happens to the budget line?

Accepted Answer

It shifts outward, parallel to the original line

Question 10

If the income elasticity of demand for rice is $$-0.44$$, what type of good is rice?

Accepted Answer

Inferior good

Question 11

A consumer is maximizing utility when the following condition holds:

Accepted Answer

$$\frac{MB_s}{P_s} = \frac{MB_j}{P_j}$$

Question 12

If the price of sweaters increases, what happens to the opportunity cost of jeans in terms of sweaters?

Accepted Answer

It decreases

Question 13

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

Accepted Answer

Question 14

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

Accepted Answer

The cost of production

Question 15

If a good has a price elasticity of demand $$E_D = 1.5$$, what happens to total revenue if the price increases?

Accepted Answer

Total revenue decreases

Question 16

If a consumer’s preferences are complete and transitive, what can be said about their choices?

Accepted Answer

Their preferences can be represented by a utility function

Question 17

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 18

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

Accepted Answer

The goods are substitutes

Question 19

Suppose the price of a concert ticket increases from $$20 to 30$$, and Henry’s income remains at $180. What happens to the maximum number of concert tickets Henry can buy?

Accepted Answer

It decreases from 9 to 6

Question 20

If the income elasticity of demand for foreign vacations is $$2.10$$, what type of good is a foreign vacation?

Accepted Answer

A normal luxury good

Consumer Behavior, Budget Constraints, and Elasticity in Microeconomics

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