Question 1

Suppose the price of a cup of coffee increases from $2 to $2.20, and as a result, the quantity demanded falls from 100 cups to 90 cups per day. What is the price elasticity of demand using the midpoint formula?

Accepted Answer

$E_d = \frac{(90-100)}{(90+100)/2} \div \frac{(2.20-2)}{(2.20+2)/2} = -0.95$

Question 2

If the cross-price elasticity of demand between tea and coffee is $+0.5$, what does this imply about the relationship between the two goods?

Accepted Answer

They are substitutes.

Question 3

Which of the following would most likely have the most elastic demand?

Accepted Answer

A specific brand of breakfast cereal.

Question 4

If the income elasticity of demand for steak is $+1.2$, what does this indicate?

Accepted Answer

Steak is a normal good and a luxury.

Question 5

A decrease in the price of gasoline leads to an increase in the quantity demanded of SUVs. What is the sign of the cross-price elasticity of demand between gasoline and SUVs?

Accepted Answer

Positive

Question 6

If the demand curve for a product is given by $Q_d = 100 - 2P$, what is the slope of the demand curve?

Accepted Answer

$-2$

Question 7

Which of the following best describes the law of supply?

Accepted Answer

As the price of a good increases, the quantity supplied increases, ceteris paribus.

Question 8

Suppose the supply curve for a product is $Q_s = -20 + 5P$. If the market price is $10$, what is the quantity supplied?

Accepted Answer

$Q_s = -20 + 5 	imes 10 = 30$

Question 9

If both demand and supply increase, what happens to the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases, but the effect on price is indeterminate.

Question 10

A country can produce either 100 units of wheat or 200 units of corn with its resources. What is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

$2$ units of corn

Question 11

Which of the following points is productively efficient on a production possibilities frontier (PPF)?

Accepted Answer

Any point on the PPF curve

Question 12

If marginal benefit ($MB$) is greater than marginal cost ($MC$) for the last unit produced, what should a rational producer do?

Accepted Answer

Increase production

Question 13

In the circular flow model, households:

Accepted Answer

Sell factors of production to firms and buy goods and services from firms.

Question 14

If the slope of a straight line is calculated as $\frac{\Delta Y}{\Delta X}$ and $Y$ increases from $10$ to $20$ as $X$ increases from $2$ to $6$, what is the slope?

Accepted Answer

$\frac{20-10}{6-2} = 2.5$

Question 15

Which of the following would cause a movement along the demand curve for pizza, rather than a shift of the demand curve?

Accepted Answer

A decrease in the price of pizza.

Question 16

If the total revenue from selling a product increases when the price decreases, what can be said about the price elasticity of demand for the product?

Accepted Answer

Demand is elastic.

Question 17

Which of the following is an example of allocative efficiency?

Accepted Answer

Resources are used to produce the combination of goods and services most wanted by society.

Question 18

If the demand for a good is perfectly inelastic, what is the value of its price elasticity of demand?

Accepted Answer

$0$

Question 19

A new technology reduces the cost of producing smartphones. What is the likely effect on the supply curve and equilibrium price?

Accepted Answer

The supply curve shifts right, and equilibrium price falls.

Question 20

Which of the following best describes the equation for a linear supply curve?

Accepted Answer

$Q_s = a + bP$

Microeconomics First Exam Study Guide: Key Concepts and Applications

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