Question 1

Suppose the price of a bottle of premium bottled water rises from $$1.50 to 2.50. $$Given the willingness to pay of four consumers: Jill ($$4), Jose (3$$), Josh ($$2), and Jordan (1$$), what is the total consumer surplus at the new price?

Accepted Answer

$2.00

Question 2

Refer to the orange market graph (Image 1). If a frost in Florida shifts the supply curve from $$Supply_1 to$$ $$Supply_2$$, what happens to consumer surplus?

Accepted Answer

Consumer surplus decreases by areas B and C.

Question 3

Refer to the orange market graph (Image 1). After the frost, what happens to producer surplus?

Accepted Answer

Producer surplus decreases by area G.

Question 4

Tim mows lawns for $$25 each. His willingness to mow is 14$ for the first, 17$ for the second, and 25$ for the third. Three neighbors are willing to pay 30$, 27$, and 25$. What is Tim's total producer surplus?

Accepted Answer

$19

Question 5

Refer to the tire market graph (Image 2). If research reduces the cost of producing tires, what is the new consumer surplus?

Accepted Answer

Areas A, B, C

Question 6

Refer to the tire market graph (Image 2). What is the net change in producer surplus after the cost reduction?

Accepted Answer

It depends on the actual size of the loss and gain.

Question 7

Arnold's demand curve for burritos is shown (Image 3). If the market price is $1.00, what is Arnold's consumer surplus?

Accepted Answer

$3.00

Question 8

Suppose the price of a good falls from $$3.00 to$$ $$2.00$$ and quantity demanded rises from $$9,000,000 to$$ $$11,000,000. $$What is the price elasticity of demand using the midpoint formula?

Accepted Answer

$$-0.5$$

Question 9

Refer to the hot dog stand graph (Image 4). On the demand curve containing points A and B, what is the price elasticity of demand for a price cut from $$3 to$$ $$2$$?

Accepted Answer

$$-1.97$$

Question 10

If the price elasticity of demand for cereal is $$-0.83$$, what does this imply about the demand for cereal?

Accepted Answer

Demand is inelastic.

Question 11

If a 20% increase in the price of Red Bull results in a 25% decrease in quantity demanded, what is the price elasticity of demand and how is demand classified?

Accepted Answer

Elastic; $$\frac{-25\%}{20\%} = -1.25$$

Question 12

Which of the following is the most important determinant of the price elasticity of demand for a product?

Accepted Answer

The availability of close substitutes

Question 13

Suppose the price of pepper increases by 25% and the quantity of salt demanded decreases by 6%. What is the cross-price elasticity of demand between pepper and salt?

Accepted Answer

$$-0.24$$

Question 14

If the income elasticity of demand for steak is $$1.5$$, what type of good is steak?

Accepted Answer

Normal and a luxury

Question 15

Suppose the price elasticity of supply for a natural resource is $$0.12. $$How would you classify the supply?

Accepted Answer

Inelastic

Question 16

If the price elasticity of demand for a good is $$-3$$, what does this mean?

Accepted Answer

A 1 percent increase in price causes quantity demanded to decrease by 3 percent.

Question 17

Refer to the DVD market graph (Image 5). If the price of a DVD falls from $$22 to$$ $$18$$ and quantity sold rises from $$16 to$$ $$20$$, what is the price elasticity of demand using the midpoint formula?

Accepted Answer

$$-2.0$$

Question 18

If the income elasticity of demand for SUVs is greater than 1, what type of good are SUVs?

Accepted Answer

A luxury

Question 19

Suppose the price elasticity of demand for canned soup is $$-1.62. If $$the price rises, what happens to sales revenue?

Accepted Answer

It falls.

Question 20

Refer to the rug market graph (Image 7). If the price of rugs increases from $$7,000 to$$ $$7,500$$ and quantity falls from $$20 to$$ $$10$$, what happens to total revenue?

Accepted Answer

It decreases by $65,000.

Microeconomics Study Guide: Consumer Surplus, Producer Surplus, and Elasticity

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