Question 1

Suppose the government imposes a price ceiling of $3 per bottle of kombucha. According to the table below, what will be the resulting shortage or surplus?

Price (dollars): 1, 2, 3, 4, 5
Quantity Demanded: 10, 8, 6, 4, 2
Quantity Supplied: 2, 4, 6, 8, 10

Accepted Answer

There will be no shortage or surplus.

Question 2

If the price of chicken bread rises from $$0.50 per pound to 0.65 $$per pound and the quantity demanded falls by 40%, what is the absolute value of the price elasticity of demand for chicken bread?

Use the midpoint formula:
$$
	ext{Elasticity} = \frac{\frac{Q_2$ - Q_1$}{(Q_2$ + Q_1$)/2}}{\frac{P_2$ - P_1$}{(P_2$ + P_1$)/2}}
$$

Accepted Answer

$$1.14$$

Question 3

A binding price floor in the market for haircuts in Oldsea is set above the equilibrium price. What will be the effect on the quantity of haircuts demanded?

Accepted Answer

It will decrease.

Question 4

Which of the following is NOT a factor that would cause a decrease in the demand for a normal good?

Accepted Answer

An increase in consumer income.

Question 5

Suppose Japan must give up the production of 100 computers to produce 25 additional cellular telephones. What is the opportunity cost of producing four cellular telephones in terms of computers?

Accepted Answer

16 computers

Question 6

If a market produces an efficient amount of a good, then we know that the good must be:

Accepted Answer

Excludable and rival.

Question 7

If the government subsidizes gasoline by paying gas suppliers directly, causing the price of gasoline to fall, what is the effect on the supply curve and equilibrium quantity?

Accepted Answer

The supply curve shifts right and equilibrium quantity increases.

Question 8

Suppose the world price of engines is $$800, and the domestic equilibrium price is 1$$,000. If the country opens to trade, what will happen to the domestic price and producer surplus?

Accepted Answer

Domestic price decreases, producer surplus decreases.

Question 9

Which event would shift the supply curve for Ben and Jerry’s ice cream to the left?

Accepted Answer

An increase in the price of cream, an ingredient in ice cream.

Question 10

If the government imposes a tax on sellers in the market for skateboards, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases.

Question 11

If the price of Hungarian goulash increases and Hungarian goulash and ratatouille are substitutes, what will happen to the demand for ratatouille?

Accepted Answer

Demand for ratatouille will increase.

Question 12

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative forgone.

Question 13

If a new technology allows a baker to produce twice as many loaves of bread with the same resources, what happens to the production possibilities frontier (PPF)?

Accepted Answer

The PPF shifts outward.

Question 14

Suppose the government sets a binding minimum wage above the equilibrium wage. What is the likely result in the labor market?

Accepted Answer

A surplus of labor (unemployment).

Question 15

Which of the following is a public good?

Accepted Answer

National defense.

Question 16

If the marginal benefit of consuming a good is less than the marginal cost, what should a rational consumer do?

Accepted Answer

Consume less of the good.

Question 17

Which of the following is most likely to cause market failure?

Accepted Answer

Externalities such as pollution.

Question 18

If the government imposes a quota that limits the number of imported cars, what is the likely effect on the domestic price of cars?

Accepted Answer

The domestic price will increase.

Question 19

If the demand for a good is price inelastic, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will increase.

Microeconomics Midterm Exam Study Guidance

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