Question 1

Suppose the supply curve for wheat is given by $$Q_S = 1800 + 240P$$ and the demand curve is $$Q_D = 3550 - 266P. $$What is the equilibrium price and quantity in this market?

Accepted Answer

Equilibrium price is $$P = 3.46$$ and equilibrium quantity is $$Q = 2630$$

Question 2

If the price of gasoline rises sharply, what is the expected difference between the short-run and long-run price elasticity of demand for gasoline?

Accepted Answer

Demand is more elastic in the long run because consumers can adjust by buying more fuel-efficient cars.

Question 3

A government sets a price ceiling below the equilibrium price for natural gas. What is the most likely outcome?

Accepted Answer

A shortage, because quantity demanded exceeds quantity supplied.

Question 4

Which of the following best describes the marginal rate of substitution (MRS) between two goods?

Accepted Answer

The maximum amount of one good a consumer is willing to give up to obtain one more unit of another good.

Question 5

If a consumer’s indifference curves for two goods are straight lines, what does this imply about the goods?

Accepted Answer

They are perfect substitutes.

Question 6

Suppose the price of coffee increases due to a drought in Brazil. In the short run, both supply and demand are relatively inelastic. What happens to the equilibrium price and quantity?

Accepted Answer

Price increases sharply, quantity falls slightly.

Question 7

A consumer’s budget line for food (F) and clothing (C) is given by $$F + 2C = 80. If $$the price of food falls from $$1 to$$ $$0.50$$, what happens to the budget line?

Accepted Answer

It rotates outward from the food axis, increasing the maximum amount of food that can be purchased.

Question 8

Which of the following is true about a Giffen good?

Accepted Answer

Its demand curve slopes upward because the negative income effect outweighs the substitution effect.

Question 9

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

Accepted Answer

The goods are substitutes.

Question 10

A consumer maximizes utility by choosing a market basket where:

Accepted Answer

$$MRS = \frac{P_F}{P_C}$$

Question 11

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

Accepted Answer

Inferior good

Question 12

Which of the following best describes consumer surplus?

Accepted Answer

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

Question 13

If the government imposes a minimum wage above the equilibrium wage, what is the likely result in the labor market?

Accepted Answer

A surplus of labor (unemployment).

Question 14

Which of the following is an example of a positive network externality?

Accepted Answer

The bandwagon effect, where more people buying a product increases others’ willingness to buy.

Question 15

Suppose the demand for housing is driven by speculative demand. What does this mean?

Accepted Answer

People buy houses expecting prices to rise, not just for the direct benefits of ownership.

Question 16

If a consumer’s preferences violate transitivity, what is the implication for their choices?

Accepted Answer

Their choices may be inconsistent and not rational.

Question 17

Which of the following is true about the aggregation of individual demand curves to obtain the market demand curve?

Accepted Answer

The market demand curve is the horizontal sum of all individual demand curves.

Question 18

If the price elasticity of demand for a good is $$-0.5$$, what does this imply about the good?

Accepted Answer

Demand is inelastic; a 1% increase in price leads to a 0.5% decrease in quantity demanded.

Question 19

Which of the following best describes the substitution effect of a price decrease for a normal good?

Accepted Answer

The consumer buys more of the good that has become relatively cheaper, holding utility constant.

Question 20

If a consumer’s utility function is $$u(F, C) = FC$$, what does this imply about the marginal utility of food?

Accepted Answer

$$MU_F = C$$

ECON 3030 Exam 1 Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards