Q: Suppose Ramsingh has a budget of $$225 and each bottle costs 45. If $$his best alternative is chocolate bars at $1 each with 1 util per bar, what is the maximum total utility he could achieve by spending all his money on chocolate bars?

$$\text{Total Utility} = 225\ \text{bars} \times 1\ \text{util/bar} = 225\ \text{utils}$$

Q: Suppose the price of a good rises from $$10 to 12 $$and the quantity demanded falls from 1,000 to 992 units. What is the price elasticity of demand?

$$\text{Elasticity} = \frac{\%\ \text{change in quantity}}{\%\ \text{change in price}} = \frac{-0.8\%}{20\%} = -0.04$$

Q: If the income elasticity of a good is $$-2.5$$ and incomes decrease by $$4\%$$, what is the percentage change in quantity demanded?

$$\text{Change} = -2.5 \times (-4\%) = +10\%$$

Q: Tacos and pizza are substitutes. If a 2% increase in the price of tacos leads to a 4% increase in the demand for pizza, what is the cross-price elasticity of demand?

$$\text{Cross-price elasticity} = \frac{4\%}{2\%} = 2$$

Question 1

Ramsingh Sharma's total utility from consuming bottles of his favorite beverage increases with each bottle, but at a decreasing rate. What economic principle does this illustrate?

Accepted Answer

The law of diminishing marginal utility

Question 2

If Ramsingh consumes 3 bottles, what is the marginal utility of the third bottle, given his total utility increases from 180 utils (2 bottles) to 240 utils (3 bottles)?

Accepted Answer

Question 3

Suppose Ramsingh has a budget of $$225 and each bottle costs 45. If $$his best alternative is chocolate bars at $1 each with 1 util per bar, what is the maximum total utility he could achieve by spending all his money on chocolate bars?

Accepted Answer

$$	ext{Total Utility} = 225\ 	ext{bars} 	imes 1\ 	ext{util/bar} = 225\ 	ext{utils}$$

Question 4

Which of the following best describes microeconomics?

Accepted Answer

The study of choices made by individuals and businesses

Question 5

If you lose your job and buy more instant noodles, what type of good are instant noodles for you?

Accepted Answer

Inferior goods

Question 6

In the circular flow model, what is the factor payment received by capital?

Accepted Answer

Profit

Question 7

Mina spends three hours working overtime at $20 per hour instead of going to the park. What is her opportunity cost?

Accepted Answer

The enjoyment Mina would have received by going to the park

Question 8

If the supply of avocados is perfectly inelastic, what happens when demand increases?

Accepted Answer

Demand increases which causes the price to increase significantly, but the equilibrium quantity remains unchanged

Question 9

Suppose the price of a good rises from $$10 to 12 $$and the quantity demanded falls from 1,000 to 992 units. What is the price elasticity of demand?

Accepted Answer

$$	ext{Elasticity} = \frac{\%\ 	ext{change in quantity}}{\%\ 	ext{change in price}} = \frac{-0.8\%}{20\%} = -0.04$$

Question 10

If the income elasticity of a good is $$-2.5$$ and incomes decrease by $$4\%$$, what is the percentage change in quantity demanded?

Accepted Answer

$$	ext{Change} = -2.5 	imes (-4\%) = +10\%$$

Question 11

If a consumer uses all her income to purchase two goods, A and B, and $$\frac{	ext{Marginal Utility of A}}{	ext{Price of A}} \u003c \frac{	ext{Marginal Utility of B}}{	ext{Price of B}}$$, what should she do to maximize satisfaction?

Accepted Answer

She should consume more of good B and less of A

Question 12

Bagels and cream cheese are complementary goods. If the price of flour (used to make bagels) increases, what happens to the equilibrium price and quantity of cream cheese?

Accepted Answer

Equilibrium price rises and equilibrium quantity decreases

Question 13

If a firm raises its price and total revenue decreases, what can be concluded about the price elasticity of demand?

Accepted Answer

Demand is elastic

Question 14

Tacos and pizza are substitutes. If a 2% increase in the price of tacos leads to a 4% increase in the demand for pizza, what is the cross-price elasticity of demand?

Accepted Answer

$$	ext{Cross-price elasticity} = \frac{4\%}{2\%} = 2$$

Question 15

Suppose the budget line shifts from $$BL_2 to$$ $$BL_3 in $$Figure 3. What could explain this shift?

Accepted Answer

A rise in income

Question 16

If the demand curve for a good shifts leftward, what happens in the market?

Accepted Answer

A surplus is created, which is eliminated by a fall in price

Question 17

Which of the following events illustrates the law of demand?

Accepted Answer

A rise in the price of a good decreases the quantity demanded of that good

Question 18

If the price elasticity of demand for a photographer's services is $$-1$$ and he increases his prices by $$8\%$$, what happens to quantity demanded?

Accepted Answer

Quantity demanded decreases by $$8\%$$; demand is unit elastic

Microeconomics Exam Study Guidance (Utility, Demand, Elasticity, and More)

Study Guide - Practice Questions

Study Guide - Flashcards