Q: Which of the following equations correctly represents the price elasticity of demand?

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

Question 1

Which of the following best describes the difference between a positive and a normative economic statement?

Accepted Answer

A positive statement describes what is, while a normative statement describes what ought to be.

Question 2

Suppose the price of coffee increases. According to the law of demand, what is most likely to happen, ceteris paribus?

Accepted Answer

The quantity demanded of coffee will decrease.

Question 3

If the cross-price elasticity of demand between two goods is negative, what does this indicate about the relationship between the goods?

Accepted Answer

They are complements.

Question 4

A market basket contains 3 units of good X and 2 units of good Y. If the price of X is $4 and the price of Y is $5, what is the total cost of the market basket?

Accepted Answer

$22

Question 5

Which of the following equations correctly represents the price elasticity of demand?

Accepted Answer

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

Question 6

If a consumer's marginal rate of substitution (MRS) between apples and oranges is 2, what does this mean?

Accepted Answer

The consumer is willing to give up 2 oranges for 1 apple.

Question 7

A country produces only two goods: wheat and steel. If the opportunity cost of producing one more ton of steel is 3 tons of wheat, what is the opportunity cost of producing one more ton of wheat?

Accepted Answer

1/3 ton of steel

Question 8

Which of the following best describes the condition for consumer equilibrium using the equal marginal principle?

Accepted Answer

$\frac{MU_x}{P_x} = \frac{MU_y}{P_y}$

Question 9

If the demand for a good is perfectly inelastic, what will the demand curve look like?

Accepted Answer

A vertical line

Question 10

Suppose the government imposes a price ceiling below the equilibrium price in the market for rental apartments. What is the most likely outcome?

Accepted Answer

A shortage of apartments

Question 11

If the supply curve for a product shifts to the right, which of the following is most likely to occur, ceteris paribus?

Accepted Answer

The equilibrium price will decrease and equilibrium quantity will increase.

Question 12

A consumer spends all their income on two goods, X and Y. The price of X is $2, the price of Y is $4, and the consumer's income is $20. Which of the following equations represents the consumer's budget line?

Accepted Answer

$2X + 4Y = 20$

Question 13

Which of the following is an example of an inferior good?

Accepted Answer

Public transportation

Question 14

If the marginal utility of the last dollar spent on good X is greater than the marginal utility of the last dollar spent on good Y, what should the consumer do to maximize total utility?

Accepted Answer

Buy more of good X and less of good Y.

Question 15

Which of the following best describes the law of diminishing marginal utility?

Accepted Answer

As a consumer consumes more of a good, marginal utility decreases.

Question 16

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

An inferior good

Question 17

Suppose a consumer faces the following utility function: $U = X 	imes Y$. If the consumer has $X = 4$ and $Y = 5$, what is the total utility?

Accepted Answer

$20$

Question 18

Which of the following is NOT a condition for market equilibrium in a competitive market?

Accepted Answer

The government sets the market price.

Question 19

If the marginal rate of substitution (MRS) is less than the price ratio, what should the consumer do to maximize utility?

Accepted Answer

Consume more of the good on the vertical axis.

Question 20

Which of the following best describes a public good?

Accepted Answer

A good that is non-excludable and non-rival in consumption.

Microeconomics Study Guide: Key Concepts and Questions (Chapters 1-3)

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