Question 1

Suppose the price of a concert ticket increases from $$50 to 60$$, and as a result, the quantity demanded falls from 200 to 160 tickets. Using the midpoint formula, what is the price elasticity of demand (PED)?

Accepted Answer

$$PED = \frac{(160 - 200)}{(160 + 200)/2} \div \frac{(60 - 50)}{(60 + 50)/2} = \frac{-40}{180} \div \frac{10}{55} = -0.222 \div 0.182 = -1.22$$

Question 2

A new technology reduces the cost of producing electric cars. What is the most likely effect on the equilibrium price and quantity in the electric car market?

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases.

Question 3

If the price of gasoline rises, what is the expected effect on the demand for new cars, assuming gasoline and cars are complements?

Accepted Answer

Demand for new cars decreases.

Question 4

A student calculates the percentage change in quantity demanded as 25% and the percentage change in price as 20%. What is the price elasticity of demand, and how is the demand classified?

Accepted Answer

$$PED = \frac{25\%}{20\%} = 1.25$$, so demand is elastic.

Question 5

Which of the following best describes opportunity cost?

Accepted Answer

The value of the next-best alternative that is forgone.

Question 6

If the market price of a product is $$10 and a consumer is willing to pay 15$$, what is the consumer surplus for this consumer?

Accepted Answer

$$CS = 15 - 10 = 5$$

Question 7

A decrease in the number of producers in a market will most likely cause:

Accepted Answer

A leftward shift of the supply curve.

Question 8

If the price of a normal good increases, what happens to the quantity demanded and the demand curve?

Accepted Answer

Quantity demanded decreases; the demand curve does not shift.

Question 9

Suppose the price elasticity of supply (PES) for a product is calculated as $$PES = 3.75. $$What does this imply about the supply of the product?

Accepted Answer

Supply is elastic; quantity supplied responds strongly to price changes.

Question 10

If the price elasticity of demand for a product is $$|PED| = 0.5$$, what will happen to total revenue if the firm increases the price?

Accepted Answer

Total revenue will increase.

Question 11

A market is in equilibrium at a price of $$20 and quantity of 100 units. If the government sets a price floor at 25$, what will result?

Accepted Answer

A surplus, because quantity supplied will exceed quantity demanded.

Question 12

If steak has an income elasticity of $$1.5$$ and income decreases by $$10\%$$, what happens to the quantity demanded for steak?

Accepted Answer

Quantity demanded decreases by $$15\%.$$

Question 13

Which of the following is NOT a shifter of the demand curve for pizza?

Accepted Answer

A change in the price of pizza.

Question 14

A firm faces a downward-sloping demand curve. If the demand for its product is unit elastic, what happens to total revenue if the firm increases its price?

Accepted Answer

Total revenue remains unchanged.

Question 15

If the supply curve for wheat shifts to the left due to a drought, what happens to equilibrium price and quantity?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases.

Question 16

Which of the following best describes a market economy?

Accepted Answer

Decisions are made by individuals and businesses with little central control.

Question 17

A consumer is willing to pay $$8 for a sandwich, but the market price is 5. $$What is the area representing this consumer's surplus on a demand and supply graph?

Accepted Answer

The area above the market price and below the demand curve.

Question 18

If the price of Coke decreases, what happens to the demand for Pepsi, assuming they are substitutes?

Accepted Answer

Demand for Pepsi decreases.

Question 19

A firm calculates its total revenue as $$TR = P 	imes Q. If $$the price of its product is $$40$$ and it sells $$2,500$$ units, what is its total revenue?

Accepted Answer

$$TR = 40 	imes 2,500 = 100,000$$

Microeconomics Study Guide: Foundations, Demand & Supply, Surplus, and Elasticity

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