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

Question 1

Suppose the market price for a concert ticket is $50, but you were willing to pay $80. What is your consumer surplus?

Accepted Answer

$30

Question 2

If the income elasticity of demand for organic food is $E_I = 0.7$, what does this indicate about organic food?

Accepted Answer

Organic food is a normal good.

Question 3

If the cross-price elasticity of demand between tea and coffee is $E_{xy} = 0.5$, what does this imply?

Accepted Answer

Tea and coffee are substitutes.

Question 4

Which formula correctly expresses the price elasticity of demand?

Accepted Answer

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

Question 5

A consumer faces the budget constraint $100 = 4x + 10y$, where $x$ and $y$ are quantities of two goods. What does this equation represent?

Accepted Answer

The combinations of $x$ and $y$ the consumer can afford given their income and prices.

Question 6

Which of the following best describes a perfectly elastic demand curve?

Accepted Answer

A horizontal line

Question 7

If the price of a good increases and the quantity demanded decreases, what type of movement occurs on the demand curve?

Accepted Answer

A movement along the demand curve

Question 8

Which of the following is NOT a determinant that causes a shift in the demand curve?

Accepted Answer

A change in the price of the good itself

Question 9

If the price elasticity of demand for gasoline is $-0.2$, what does this imply about consumer responsiveness?

Accepted Answer

Consumers are not very responsive to price changes.

Question 10

Marginal cost is defined as:

Accepted Answer

The additional cost incurred from producing one more unit of output.

Question 11

If the price elasticity of supply for strawberries is $E_s = 1.5$, what does this indicate?

Accepted Answer

The quantity supplied is relatively responsive to price changes.

Question 12

In the long run, why does the market supply curve stabilize at the minimum average total cost (ATC) in a perfectly competitive market?

Accepted Answer

Because firms enter and exit the market until economic profits are zero.

Question 13

If the marginal cost ($MC$) of producing an additional unit is greater than the average total cost ($ATC$), what happens to $ATC$?

Accepted Answer

$ATC$ increases

Question 14

Producer surplus is best defined as:

Accepted Answer

The difference between the market price and the minimum price suppliers are willing to sell their goods.

Question 15

What is the formula for calculating total revenue ($TR$) in a perfectly competitive market?

Accepted Answer

$TR = P 	imes Q$

Question 16

Productive efficiency in a perfectly competitive market means:

Accepted Answer

Producing at the lowest possible cost, which is the minimum of average total cost.

Question 17

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Price-making behavior

Question 18

A shortage in economic terms is:

Accepted Answer

A situation where quantity demanded exceeds quantity supplied at a given price.

Question 19

Economic surplus is defined as:

Accepted Answer

The sum of consumer surplus and producer surplus.

Question 20

A government sets a price ceiling below the equilibrium price for rental apartments. What is the likely market outcome?

Accepted Answer

A shortage of rental apartments

Core Concepts in Microeconomics: Surplus, Elasticity, Efficiency, and Market Structures

Study Guide - Practice Questions