Question 1

Suppose the price of coffee increases. According to the law of demand, what is the most likely immediate effect on the quantity of coffee demanded, and what type of change does this represent on the demand curve?

Accepted Answer

The quantity demanded decreases; this is a movement along the demand curve.

Question 2

Which of the following scenarios would cause a rightward shift in the supply curve for electric cars?

Accepted Answer

A technological advancement that reduces production costs for electric cars.

Question 3

If the market price is set above the equilibrium price, what will occur in the market, and how will the market respond?

Accepted Answer

A surplus will occur; sellers will lower prices to reach equilibrium.

Question 4

Suppose a new study reveals that eating avocados significantly improves health. What is the likely effect on the equilibrium price and quantity of avocados?

Accepted Answer

Both equilibrium price and quantity will increase.

Question 5

A market for laptops is in equilibrium. Suddenly, the cost of computer chips rises, and at the same time, consumer incomes increase. What is the likely effect on the equilibrium price and quantity of laptops?

Accepted Answer

Equilibrium price will increase, but the effect on equilibrium quantity is ambiguous.

Question 6

If the demand curve for a product is given by $$ Q_D = 100 - 2P $$ and the supply curve is $$ Q_S = 20 + 3P $$, what is the equilibrium price?

Accepted Answer

$$ P = 16 $$

Question 7

How is consumer surplus calculated in a market?

Accepted Answer

It is the area below the demand curve and above the market price, up to the quantity traded.

Question 8

A price ceiling is set below the equilibrium price in the market for rental apartments. What is the most likely outcome?

Accepted Answer

A shortage of rental apartments will occur.

Question 9

Suppose the government imposes a price floor above the equilibrium price in the wheat market. What is the deadweight loss, and how is it calculated?

Accepted Answer

It is the loss of total surplus due to the reduction in quantity traded, calculated as the area between the supply and demand curves from the new quantity to the equilibrium quantity.

Question 10

Which of the following best describes a negative externality?

Accepted Answer

A cost imposed on third parties not involved in the transaction.

Question 11

A factory emits pollution that affects nearby residents. According to the Coase theorem, under what condition can the parties reach an efficient outcome without government intervention?

Accepted Answer

Property rights are well-defined and transaction costs are low.

Question 12

Suppose the marginal benefit of pollution reduction is given by $$ MB = 100 - 2Q $$ and the marginal cost is $$ MC = 20 + Q . $$What is the optimal quantity of pollution reduction?

Accepted Answer

$$ Q = 26.67 $$

Question 13

Which of the following is an example of a command-and-control policy to address pollution?

Accepted Answer

The government sets a legal limit on the amount of pollution each factory can emit.

Question 14

The price elasticity of demand is calculated using the midpoint formula. What is the correct formula?

Accepted Answer

$$ 	ext{Elasticity} = \frac{(Q_2$ - Q_1$)}{(Q_2$ + Q_1$)/2} \div \frac{(P_2$ - P_1$)}{(P_2$ + P_1$)/2} $$

Question 15

If the price elasticity of demand for a product is greater than 1, what does this imply about total revenue when the price increases?

Accepted Answer

Total revenue will decrease.

Question 16

A tax is imposed on sellers in a market with negative externalities. What is the primary effect of this tax?

Accepted Answer

It internalizes the externality by raising the cost of production, leading to a reduction in output toward the socially efficient level.

Question 17

Suppose the government sets a price ceiling on gasoline that is below the equilibrium price. Which of the following is a likely real-world consequence?

Accepted Answer

Long lines at gas stations and possible black markets.

Question 18

If the supply of oranges decreases due to a hurricane, but at the same time, the demand for oranges increases due to a new health trend, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will increase, but the effect on equilibrium quantity is ambiguous.

Question 19

Which of the following best describes producer surplus?

Accepted Answer

The area above the supply curve and below the market price, up to the quantity traded.

Question 20

A city government wants to reduce air pollution. Which policy is most likely to achieve the efficient level of pollution reduction at the lowest cost?

Accepted Answer

Imposing a tax equal to the marginal external cost of pollution.

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

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