Question 1

Suppose the current market price for coffee beans is $$4.75 per lb. If a new tax increases production costs by 1.00 $$per lb, what will happen to the market price if demand is perfectly inelastic?

Accepted Answer

The market price will increase by exactly $1.00.

Question 2

If the demand for a product is perfectly elastic, what happens to the quantity demanded when the price increases slightly?

Accepted Answer

Quantity demanded drops to zero.

Question 3

The current market price for beef steak is $5.00 per lb. If a new government campaign increases demand, what will happen to the equilibrium price and quantity?

Accepted Answer

Price increases, quantity increases.

Question 4

If the price of hay increases, what is the likely effect on the market for beef steak?

Accepted Answer

Supply of beef decreases.

Question 5

If the cost of trucking beef falls, what is the expected effect on the supply curve for beef?

Accepted Answer

Supply curve shifts right.

Question 6

Alexis and Bernardine are stuck in a park for a day. Alexis can paint a portrait in 2 hours and make a piece of jewelry in 4 hours. Bernardine can paint a portrait in 4 hours and make a piece of jewelry in 2 hours. Who has the comparative advantage in painting portraits?

Accepted Answer

Alexis

Question 7

Who should paint portraits and trade jewelry to maximize their joint output?

Accepted Answer

Alexis should paint portraits, Bernardine should make jewelry.

Question 8

If Alexis and Bernardine specialize according to their comparative advantage, what is the benefit?

Accepted Answer

They can produce more total goods together than separately.

Question 9

Given the following demand and supply schedule, what is the market clearing price?

Demand: Qd = 20 - 2P
Supply: Qs = 2P

Find $$P^*.$$

Accepted Answer

$$P^* = 5$$

Question 10

At the market clearing price, is the price elasticity of demand perfectly elastic, perfectly inelastic, or unit elastic?

Accepted Answer

Unit elastic

Question 11

If you want to raise total revenue from the market clearing price, you should:

Accepted Answer

Leave price unchanged

Question 12

Suppose the quantity demanded doubles at every price. What is the new market clearing price if the original demand was $$Q_d = 20 - 2P$$ and supply was $$Q_s = 2P$$?

Accepted Answer

$$P^* = 10$$

Question 13

Which of the following is NOT a characteristic of economic problems?

Accepted Answer

Unlimited resources

Question 14

If there has been favorable weather in the Midwest this summer, what will happen in the market for corn?

Accepted Answer

Shift in the supply curve

Question 15

You collect some price and quantity data for your product. You calculate an equation: $$P = 100 - 2Q. $$What is the intercept of this equation?

Accepted Answer

$$100$$

Question 16

According to the equation $$P = 100 - 2Q$$, which variable is the independent variable?

Accepted Answer

Q

Question 17

According to the equation $$P = 100 - 2Q$$, which variable is the dependent variable?

Accepted Answer

P

Question 18

The relationship between price and quantity in the equation $$P = 100 - 2Q is$$:

Accepted Answer

Negative and linear

Question 19

What is the price when quantity equals 40 in the equation $$P = 100 - 2Q$$?

Accepted Answer

$$P = 20$$

Question 20

Which of the following is a normative statement?

Accepted Answer

We ought to guarantee everyone a living wage.

Microeconomics Midterm 1 Review: Demand, Supply, Elasticity, and Market Analysis

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