Question 1

Which of the following best describes the concept of price elasticity of demand?

Accepted Answer

The percentage change in quantity demanded in response to a 1% change in price.

Question 2

Suppose the cross-price elasticity of demand between tea and coffee is $$+0.5. $$What does this imply about the relationship between tea and coffee?

Accepted Answer

They are substitutes.

Question 3

If the government sets a price floor above the equilibrium price in the market for wheat, what is the most likely outcome?

Accepted Answer

An excess supply (surplus) of wheat.

Question 4

Given the following demand and supply equations for corn: $$Q_d = 1600 - 125P$$ and $$Q_s = 440 + 165P$$, what is the equilibrium price?

Accepted Answer

$$P = 5$$

Question 5

Which of the following is NOT an assumption about consumer preferences in microeconomic theory?

Accepted Answer

Indifference curves can intersect.

Question 6

The slope of an indifference curve represents:

Accepted Answer

The marginal rate of substitution between two goods.

Question 7

If a consumer's budget line shifts outward in a parallel fashion, what has most likely occurred?

Accepted Answer

The consumer's income has increased.

Question 8

A Giffen good is characterized by:

Accepted Answer

A negative income effect that outweighs the substitution effect.

Question 9

Refer to the table: If the price of tuna is twice the price of peanut butter, at which bundle is Alfred maximizing his satisfaction? (Use $$MRS = MU_{pb}/MU_{tuna})$$

Accepted Answer

Bundle C

Question 10

Which of the following statements about isoquants is TRUE?

Accepted Answer

Isoquants represent combinations of inputs that yield the same output.

Question 11

In the short run, which of the following cost curves always declines as output increases?

Accepted Answer

Average fixed cost

Question 12

If the marginal product of labor is decreasing, what happens to the marginal cost of production?

Accepted Answer

Marginal cost increases.

Question 13

Refer to the cost curves in the provided graph (Figure SG8.1). At the profit-maximizing output, what is the relationship between marginal cost (MC) and price (P) for a perfectly competitive firm?

Accepted Answer

$$MC = P$$

Question 14

Which of the following best describes the long-run average cost (LRAC) curve in relation to short-run average cost (SRAC) curves?

Accepted Answer

The LRAC is the envelope of the SRAC curves.

Question 15

A firm in a perfectly competitive market will shut down in the short run if:

Accepted Answer

Price is less than average variable cost.

Question 16

Which of the following is a source of monopoly power?

Accepted Answer

Barriers to entry.

Question 17

If a monopolist faces a linear demand curve, its marginal revenue curve:

Accepted Answer

Lies below the demand curve and has twice the slope.

Question 18

Which of the following is an example of third-degree price discrimination?

Accepted Answer

Charging different prices to students and non-students.

Question 19

In the context of oligopoly, the Cournot model assumes that:

Accepted Answer

Firms choose quantities simultaneously.

Question 20

Which of the following statements about the kinked demand curve model in oligopoly is correct?

Accepted Answer

It predicts price rigidity in oligopolistic markets.

Microeconomics ECS2601 Study Guide: Key Concepts and Applications

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