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

Question 1

Suppose the price of a good increases from $P_1$ to $P_2$. According to the law of demand, what will happen to the quantity demanded?

Accepted Answer

The quantity demanded will decrease.

Question 2

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

Accepted Answer

A 1% increase in price leads to a 2% decrease in quantity demanded.

Question 3

Which of the following best describes the effect of a binding price ceiling below equilibrium price?

Accepted Answer

It creates a shortage.

Question 4

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

Accepted Answer

The goods are substitutes.

Question 5

Suppose the supply curve for a good is perfectly inelastic. What is the value of the price elasticity of supply?

Accepted Answer

$E_s = 0$

Question 6

A tax is imposed on sellers of a good. Which area on a standard supply and demand graph represents the deadweight loss caused by the tax?

Accepted Answer

The triangle between the new quantity and the original equilibrium, bounded by the supply and demand curves.

Question 7

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

Inferior good

Question 8

Which of the following will NOT shift the demand curve for coffee?

Accepted Answer

A change in the price of coffee

Question 9

Suppose the government imposes a price floor above the equilibrium price. What is the likely result?

Accepted Answer

A surplus

Question 10

If the supply of a good is elastic, what happens to the quantity supplied when the price increases by 10%?

Accepted Answer

The quantity supplied increases by more than 10%.

Question 11

Which formula correctly represents the price elasticity of demand?

Accepted Answer

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

Question 12

A decrease in the price of a substitute good will cause the demand curve for the original good to:

Accepted Answer

Shift to the left

Question 13

If a 5% increase in income leads to a 10% increase in the quantity demanded for a good, what is the income elasticity of demand?

Accepted Answer

$E_I = 2$

Question 14

Which of the following statements about consumer surplus is correct?

Accepted Answer

Consumer surplus is the area below the demand curve and above the price.

Question 15

If the demand for a good is perfectly elastic, what does the demand curve look like?

Accepted Answer

A horizontal line

Question 16

Suppose a market is initially in equilibrium. If both demand and supply increase, what happens to equilibrium quantity and price?

Accepted Answer

Quantity increases, price is indeterminate

Question 17

Which of the following best describes the effect of a tax on a good with inelastic demand?

Accepted Answer

Buyers bear most of the tax burden.

Question 18

If the price elasticity of supply is $E_s = 1$, what does this mean?

Accepted Answer

Supply is unit elastic.

Question 19

Which of the following is a likely result of a government-imposed quota below equilibrium quantity?

Accepted Answer

A shortage

Elasticity, Demand, and Supply in Microeconomics: Study Notes

Study Guide - Practice Questions