Question 1

Suppose the government imposes a unit tax on a good. Which of the following best describes the effect of the tax on consumer and producer surplus?

Accepted Answer

Both consumer and producer surplus decrease, and the difference is collected as tax revenue and deadweight loss.

Question 2

If the price elasticity of demand for a product is $|E_d| = 0.5$, what does this imply about the demand for the product?

Accepted Answer

Demand is inelastic.

Question 3

Which of the following formulas correctly calculates the price elasticity of demand using the midpoint method?

Accepted Answer

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

Question 4

A decrease in the price of good B causes consumers to buy less of good A and more of good B. What is the cross-price elasticity of demand between goods A and B?

Accepted Answer

It is negative, indicating the goods are complements.

Question 5

If a product has many close substitutes available, what can be said about its price elasticity of demand?

Accepted Answer

It will have a more elastic demand.

Question 6

Suppose the price of a good increases by 10%, and the quantity demanded decreases by 20%. What is the price elasticity of demand?

Accepted Answer

$E_d = -2$

Question 7

Which of the following is true about the income elasticity of demand for a necessity good?

Accepted Answer

Income elasticity is less than 1 but greater than 0.

Question 8

A firm finds that doubling its inputs more than doubles its output. What type of returns to scale is the firm experiencing?

Accepted Answer

Increasing returns to scale.

Question 9

Which of the following best describes a sunk cost?

Accepted Answer

A cost that has already been paid and cannot be recovered.

Question 10

If the marginal utility per dollar spent on pizza is less than the marginal utility per dollar spent on soda, what should a consumer do to maximize utility?

Accepted Answer

Buy less pizza and more soda.

Question 11

Which of the following is NOT a determinant of price elasticity of supply?

Accepted Answer

Availability of substitutes for the product.

Question 12

A consumer is indifferent between buying 2 units of good X and 3 units of good Y, or 4 units of good X and 1 unit of good Y. What does this imply about the consumer's preferences?

Accepted Answer

The consumer's indifference curve is downward sloping and convex to the origin.

Question 13

Which of the following best describes the substitution effect?

Accepted Answer

The change in quantity demanded of a good due to a change in its price, holding purchasing power constant.

Question 14

In a perfectly competitive market, which of the following is true?

Accepted Answer

Firms produce homogeneous goods and are price takers.

Question 15

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

Accepted Answer

There is no relationship between the goods.

Question 16

A consumer's budget constraint shifts outward. Which of the following could explain this change?

Accepted Answer

An increase in the consumer's income.

Question 17

If a firm is operating in the short run and cannot easily hire more workers or source new materials, what can be said about the price elasticity of supply?

Accepted Answer

Supply is less elastic in the short run.

Question 18

Which of the following is true about the marginal product of labor as more workers are hired, holding other inputs constant?

Accepted Answer

Marginal product of labor eventually decreases due to diminishing returns.

Question 19

If the price elasticity of supply is calculated as $E_s = 1.5$, what does this indicate?

Accepted Answer

Supply is elastic.

Microeconomics Study Notes: Elasticity, Surplus, Taxation, and Consumer Choice

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