Question 1

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

Accepted Answer

Choosing goods based on preferences, prices, and budget constraints.

Question 2

If the price of jeans decreases from $$50 to 25 $$and your income remains $300, what happens to your budget constraint?

Accepted Answer

The budget constraint rotates outward, allowing more jeans to be purchased.

Question 3

Given the budget constraint $$I = 300$$, $$P_s = 25$$, $$P_j = 50$$, what is the opportunity cost of buying one more pair of jeans?

Accepted Answer

The number of sweaters you must give up, calculated as $$\frac{P_j}{P_s} = \frac{50}{25} = 2$$

Question 4

At the optimal consumption point, what condition must be satisfied between two goods X and Y?

Accepted Answer

The marginal benefit per dollar spent is equal for both goods: $$\frac{MB_X}{P_X} = \frac{MB_Y}{P_Y}$$

Question 5

Which of the following statements about indifference curves is correct?

Accepted Answer

Indifference curves are convex to the origin due to diminishing marginal rate of substitution.

Question 6

Suppose the demand for ground beef is $$Q_d = 26 - 2P$$ and the supply is $$Q_s = -4 + 4P. $$What is the equilibrium price?

Accepted Answer

$$P = 5$$

Question 7

If the price elasticity of demand for eggs is $$-0.25$$, what does this imply about consumer responsiveness to price changes?

Accepted Answer

Demand is inelastic; consumers are not very responsive to price changes.

Question 8

Using the arc elasticity formula $$\frac{Q_2$ - Q_1$}{\frac{Q_2$ + Q_1$}{2}} \div \frac{P_2$ - P_1$}{\frac{P_2$ + P_1$}{2}}$$, calculate the price elasticity of demand when $$Q_1 = 3$, Q_2$ = 1$$, $$P_1 = 50$, P_2$ = 100.$$

Accepted Answer

$$-3/2$$

Question 9

If a $100/month incentive increases the quit rate for smoking from 4% to 16%, what economic concept does this illustrate?

Accepted Answer

Behavioral incentives affecting demand

Question 10

Suppose Alex’s demand curve for coffee is $$Q = 10 - P. If $$the price of coffee is $$3$$, what is Alex’s consumer surplus?

Accepted Answer

$$24.5$$

Question 11

Which of the following is true about the income effect and substitution effect when the price of jeans decreases?

Accepted Answer

The income effect moves the consumer to a higher indifference curve.

Question 12

If the cross-price elasticity between meat and potatoes is $$-0.2$$, what does this indicate?

Accepted Answer

They are complements.

Question 13

If the income elasticity of demand for public transit is $$-0.75$$, what type of good is public transit?

Accepted Answer

Inferior good

Question 14

A restaurant owner observes that increasing prices leads to a small decrease in quantity sold. What does this suggest about the price elasticity of demand for their product?

Accepted Answer

Demand is inelastic.

Question 15

If the price elasticity of demand for a product is greater than 1, what happens to total revenue when price increases?

Accepted Answer

Total revenue decreases.

Question 16

Suppose Jackson has $$33 to spend, tuna costs 3$$, and salmon costs $6. If the marginal benefit per dollar spent is highest for tuna at 3 units and salmon at 3 units, what is the optimal combination?

Accepted Answer

3 tuna and 3 salmon

Question 17

Which formula correctly represents the point elasticity of demand?

Accepted Answer

$$\frac{Q_2$ - Q_1$}{Q_1$} \div \frac{P_2$ - P_1$}{P_1$}$$

Question 18

If the price of salmon falls from $$6 to 3$$, what happens to Jackson’s budget constraint?

Accepted Answer

It rotates outward, allowing more salmon to be purchased.

Question 19

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

Accepted Answer

Consumer surplus

Microeconomics Study Guide: Consumers and Incentives

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