Q: If the nominal price of a good in 2020 is $50, the CPI in 2020 is 250, and the CPI in the base year is 200, what is the real price in base-year dollars?

$$50 \times \frac{200}{250} = 40$$

Question 1

Suppose the demand for a product is given by $$Q_D = 100 - 2P$$ and the supply is $$Q_S = 20 + 3P. $$What is the equilibrium price and quantity in this market?

Accepted Answer

$$P^* = 16,\ Q^* = 68$$

Question 2

A binding price ceiling is imposed below the equilibrium price in a competitive market. What is the most likely outcome?

Accepted Answer

A shortage, because quantity demanded exceeds quantity supplied

Question 3

If the nominal price of a good in 2020 is $50, the CPI in 2020 is 250, and the CPI in the base year is 200, what is the real price in base-year dollars?

Accepted Answer

$$50 	imes \frac{200}{250} = 40$$

Question 4

Which of the following statements is positive rather than normative?

Accepted Answer

"A binding minimum wage above equilibrium creates a surplus of labor."

Question 5

If the price of salsa rises, what happens to the demand for tortilla chips if they are complements?

Accepted Answer

Demand for tortilla chips decreases

Question 6

Suppose the price of a good rises by 10% and the quantity demanded falls by 20%. What is the price elasticity of demand, and is demand elastic, inelastic, or unit elastic?

Accepted Answer

Elasticity is $$2$$, and demand is elastic

Question 7

A consumer has income $$I = 100$$, $$P_x = 5$$, and $$P_y = 10. $$What is the equation for the budget line?

Accepted Answer

$$5x + 10y = 100$$

Question 8

At the consumer's interior optimum, what must be true about the marginal rate of substitution (MRS) and the price ratio?

Accepted Answer

$$MRS_{xy} = \frac{P_x}{P_y}$$

Question 9

If two indifference curves for the same consumer intersect, what does this imply?

Accepted Answer

The consumer's preferences are inconsistent

Question 10

If income rises and the quantity demanded of bus rides falls, what type of good are bus rides for this consumer?

Accepted Answer

Inferior good

Question 11

Which formula correctly expresses the market demand as the sum of individual demands?

Accepted Answer

$$Q_D$$^{market}$$(P) = \sum_{i=1}^n Q_{D,i}(P)$$

Question 12

A production function is $$q = 10L$$^{0.4}$$K^{0.6}$. What type of returns to scale does this function exhibit?

Accepted Answer

Constant returns to scale

Question 13

If the marginal product of labor is positive but decreasing as more labor is added (holding capital fixed), what is happening to total product?

Accepted Answer

Total product is rising, but at a decreasing rate

Question 14

Which of the following best describes the difference between diminishing marginal returns and decreasing returns to scale?

Accepted Answer

Diminishing marginal returns: one input increases, others fixed; decreasing returns to scale: all inputs increase together, output rises less than proportionally

Question 15

Suppose a firm’s isoquants are L-shaped. What does this imply about the relationship between its inputs?

Accepted Answer

Inputs are perfect complements

Question 16

If the price elasticity of demand for a product is $$|E_D| \u003e 1$$, what happens to total revenue if the firm raises its price?

Accepted Answer

Total revenue decreases

Question 17

A positive network externality exists when:

Accepted Answer

Demand for a good increases as more people use it

Question 18

Which formula gives the marginal rate of technical substitution (MRTS) between labor and capital?

Accepted Answer

$$MRTS_{L,K} = \frac{MP_L}{MP_K}$$

Question 19

If a consumer’s income increases and the Engel curve for a good slopes downward, what type of good is it?

Accepted Answer

Inferior good

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