Q: Which formula correctly represents the price elasticity of demand?

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

Question 1

Suppose the demand for coffee is given by $Q_d = 100 - 2P$ and the supply is given by $Q_s = 20 + 3P$. What is the equilibrium price in this market?

Accepted Answer

$P = 16$

Question 2

Which of the following best describes the difference between a movement along the demand curve and a shift of the demand curve?

Accepted Answer

A movement along the demand curve is caused by a change in price, while a shift is caused by a change in a non-price determinant.

Question 3

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

Accepted Answer

They are substitutes.

Question 4

A monopolist faces the following demand curve: $P = 50 - Q$. If the monopolist's marginal cost is constant at $MC = 10$, what is the profit-maximizing quantity?

Accepted Answer

$Q = 20$

Question 5

Which of the following is NOT a barrier to entry in a monopoly market?

Accepted Answer

Perfect information

Question 6

If the price of a good is set below the equilibrium price by a government-imposed price ceiling, what is the likely result?

Accepted Answer

A shortage of the good

Question 7

Which formula correctly represents the price elasticity of demand?

Accepted Answer

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

Question 8

A firm in perfect competition will continue to produce in the short run as long as:

Accepted Answer

Price is greater than average variable cost

Question 9

Which of the following best describes producer surplus?

Accepted Answer

The difference between the price received and the minimum price at which the producer is willing to sell

Question 10

If a firm faces diminishing returns to production, what happens to marginal cost as output increases?

Accepted Answer

Marginal cost increases

Question 11

Suppose the government imposes a price floor above the equilibrium price in the wheat market. What is the most likely outcome?

Accepted Answer

A surplus of wheat

Question 12

Which of the following is an example of a positive cross-price elasticity of demand?

Accepted Answer

The price of butter increases, and the demand for margarine increases

Question 13

In the long run, competitive equilibrium is characterized by:

Accepted Answer

Firms earning zero economic profit

Question 14

Which of the following best describes the concept of consumer surplus?

Accepted Answer

The difference between the maximum price a consumer is willing to pay and the price actually paid

Question 15

If the income elasticity of demand for a good is $-0.3$, what type of good is it?

Accepted Answer

Inferior good

Question 16

A firm’s profit is maximized when:

Accepted Answer

$MR = MC$

Question 17

Which of the following is NOT a key characteristic of a monopoly?

Accepted Answer

Perfect substitutes available

Question 18

If a firm is experiencing losses in the short run, what is the shutdown rule?

Accepted Answer

Shutdown if price is less than average variable cost

Question 19

Which of the following is an example of the law of demand?

Accepted Answer

As the price of apples increases, the quantity demanded decreases

Question 20

If a firm’s total revenue is $TR = 100Q$ and its total cost is $TC = 20Q + 200$, what is the firm’s profit when $Q = 10$?

Accepted Answer

$800$

Microeconomics Midterm 2 Study Guide: Demand, Supply, Incentives, Competition, and Monopoly

Study Guide - Practice Questions

Study Guide - Flashcards