$\text{Real Price in year Y (base year X dollars)} = \frac{\text{Nominal Price in year Y}}{\text{CPI in year Y}} \times \text{CPI in year X}$

Question 1

Suppose the demand for apples is given by $Q = 80 - 2P$. What is the inverse demand function?

Accepted Answer

$P = 40 - 0.5Q$

Question 2

If the supply curve for a good is $Q^S = -10 + 2P$ and the demand curve is $Q^D = 50 - P$, what is the equilibrium price?

Accepted Answer

$P = 20$

Question 3

Which of the following would cause a rightward shift in the demand curve for coffee?

Accepted Answer

An increase in consumer income, assuming coffee is a normal good

Question 4

A price ceiling set below the equilibrium price will most likely result in:

Accepted Answer

A shortage

Question 5

If the price elasticity of demand for pork is $E_d = -0.3$ at the equilibrium price, what does this imply about consumer responsiveness?

Accepted Answer

Consumers are relatively unresponsive to price changes

Question 6

Suppose the cross-price elasticity of demand between tea and coffee is positive. What does this indicate?

Accepted Answer

Tea and coffee are substitutes

Question 7

If the nominal price of a laptop in 1999 was $1,500 and the CPI in 1999 was 130.7, what is the real price of the laptop in 1983 dollars?

Accepted Answer

$1,148$

Question 8

Which of the following best describes the market equilibrium?

Accepted Answer

The price at which quantity supplied equals quantity demanded

Question 9

If the government imposes a price floor above the equilibrium price in the wheat market, what will be the likely result?

Accepted Answer

A surplus of wheat

Question 10

Given the demand function $Q = 286 - 20P$, what is the price elasticity of demand at $P = 5.30$ and $Q = 220$?

Accepted Answer

$E_d = -0.48$

Question 11

Which of the following is an example of a perfectly inelastic demand curve?

Accepted Answer

A vertical demand curve

Question 12

Suppose a new technology reduces the cost of producing computers. What is the likely effect on the equilibrium price and quantity of computers?

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases

Question 13

If the income elasticity of demand for a good is negative, the good is:

Accepted Answer

An inferior good

Question 14

Which formula correctly calculates the real price in year Y (in base year X dollars)?

Accepted Answer

$	ext{Real Price in year Y (base year X dollars)} = \frac{	ext{Nominal Price in year Y}}{	ext{CPI in year Y}} 	imes 	ext{CPI in year X}$

Question 15

If the supply of coffee decreases due to bad weather in Brazil, what will happen to the equilibrium price and quantity in New York?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases

Question 16

Which of the following best describes the effect of a binding price ceiling on a market?

Accepted Answer

Quantity demanded exceeds quantity supplied, resulting in a shortage

Question 17

If the price elasticity of supply is $E_s = 0.5$, what does this imply about the responsiveness of quantity supplied to price changes?

Accepted Answer

Quantity supplied is relatively unresponsive to price changes

Question 18

Suppose the government sets a price support for corn at $4.50$ per bushel, but the equilibrium price is $3.50$. What will be the result?

Accepted Answer

A surplus of corn

Question 19

Which of the following is true about the short-run versus long-run price elasticity of demand for gasoline?

Accepted Answer

Long-run elasticity is greater than short-run elasticity

The Basics of Supply and Demand: Intermediate Microeconomics Study Notes

Study Guide - Practice Questions