Q: Which of the following is the correct formula for price elasticity of demand?

$$\frac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}$$

Question 1

Which of the following best describes the three components of the buyer’s problem in microeconomics?

Accepted Answer

Tastes and preferences, prices, and available income

Question 2

Suppose you have $$300 to spend. Sweaters cost 25 $$each and jeans cost $50 each. What is the equation for your budget constraint?

Accepted Answer

$$50j + 25s$$ = $$300$$

Question 3

If the price of jeans decreases while your income and the price of sweaters remain unchanged, what happens to your budget constraint?

Accepted Answer

It pivots outward along the jeans axis

Question 4

What is the opportunity cost of buying one more pair of jeans if sweaters cost $$25 and jeans cost 50$$?

Accepted Answer

2 sweaters

Question 5

Which formula correctly expresses the consumer equilibrium condition for two goods, sweaters (s) and jeans (j)?

Accepted Answer

$$\frac{MB_s}{P_s} = \frac{MB_j}{P_j}$$

Question 6

If a consumer’s willingness to pay for a good is $$100 but the market price is 60$$, what is the consumer surplus?

Accepted Answer

$$100 - 60$$ = $$40$$

Question 7

Which of the following best explains why the demand curve typically has a negative slope?

Accepted Answer

As price decreases, quantity demanded increases due to the law of diminishing marginal benefit

Question 8

Suppose the price of solar-powered lights falls from $$8 to 4 $$and quantity demanded rises from 4 to 8. What is the absolute value of the arc elasticity of demand?

Accepted Answer

$$2.00$$

Question 9

If the cross-price elasticity of demand between two goods is negative, what is the relationship between the goods?

Accepted Answer

They are complements

Question 10

A good has an income elasticity of demand of $$-0.44. $$What type of good is it?

Accepted Answer

Inferior good

Question 11

If the price elasticity of demand for a product is $$0.4$$, what happens to total revenue if the price increases?

Accepted Answer

Total revenue increases

Question 12

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

Accepted Answer

The cost of production

Question 13

If a government increases the tax on cigarettes, which elasticity would best indicate how much less people will smoke?

Accepted Answer

Price elasticity of demand

Question 14

Suppose a band wants to increase its total revenue from ticket sales. If demand for tickets is elastic, what should the band do?

Accepted Answer

Decrease the ticket price

Question 15

If the income elasticity of demand for foreign vacations is $$2.10$$, what does this imply?

Accepted Answer

Foreign vacations are luxury goods

Question 16

A consumer’s marginal benefit per dollar spent on sweaters is higher than that for jeans. What should the consumer do to maximize utility?

Accepted Answer

Buy more sweaters and fewer jeans

Question 17

If a consumer’s budget increases, what happens to the budget constraint?

Accepted Answer

It shifts outward parallel to the original

Question 18

Which of the following is the correct formula for price elasticity of demand?

Accepted Answer

$$\frac{\%\ 	ext{change in quantity demanded}}{\%\ 	ext{change in price}}$$

Question 19

If the cross-price elasticity of demand between two goods is $$0.6$$, what does this indicate?

Accepted Answer

The goods are substitutes

Question 20

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what a buyer is willing to pay and what the buyer actually pays

Chapter 5: Consumers and Incentives – Microeconomics Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards