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

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

Question 1

Which of the following statements best describes the concept of opportunity cost?

Accepted Answer

It is the value of the best alternative forgone when a choice is made.

Question 2

Suppose the supply curve for a good is given by $$p = 2q. At a $$market price of $$p = 27$$, what is the dollar value of producer surplus?

Accepted Answer

$$108$$

Question 3

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Each firm can set its own price above the market price.

Question 4

If the price elasticity of demand for a product is $$-0.2$$ and the firm raises its price, what will happen to the firm's total revenue?

Accepted Answer

Total revenue will increase.

Question 5

A competitive firm is producing 100 units of output. The market price is $$5$$ and the average total cost is $$4. $$What is the firm's profit?

Accepted Answer

$$100$$

Question 6

Which of the following best explains why the demand curve is downward sloping?

Accepted Answer

Because of decreasing marginal utility.

Question 7

Suppose the price of a good increases by $$10\%$$, and the elasticity of demand is $$-2. $$What will be the percent change in quantity demanded?

Accepted Answer

$$-20\%$$

Question 8

Which of the following is an example of a positive statement?

Accepted Answer

There is a positive correlation between the amount of time a student studies and the score they receive on their midterm exam.

Question 9

Which of the following best describes the law of demand?

Accepted Answer

Both as price rises, quantity demanded falls and the demand curve slopes downward.

Question 10

Suppose a frost destroys a large share of the orange harvest, while at the same time the price of apples falls. What is the likely effect on the equilibrium quantity in the orange market?

Accepted Answer

The equilibrium quantity will fall.

Question 11

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

Accepted Answer

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

Question 12

In the long run, can firms operating in a competitive market earn positive economic profit?

Accepted Answer

No, because of the assumption of 'free entry'.

Question 13

Which of the following is NOT a characteristic of a market?

Accepted Answer

Markets are always physical locations where trading occurs.

Question 14

If two goods are substitutes, what is the sign of their cross-price elasticity of demand?

Accepted Answer

Positive

Question 15

A policymaker observes that towns with universities tend to be wealthier and more populated than those without. What can be concluded about the causal effect of universities on wealth and population?

Accepted Answer

There is a correlation, but causality cannot be established from this observation alone.

Question 16

Which of the following best describes consumer surplus?

Accepted Answer

Both the area below the demand curve and above the price, and the difference between willingness to pay and price paid.

Question 17

Suppose a firm faces the following costs: fixed cost is $$100$$, variable cost is $$200$$, and output is $$50$$ units. What is the average total cost?

Accepted Answer

$$6$$

Question 18

Which of the following is NOT one of the four principles of economics described by your instructor?

Accepted Answer

The free market is always the most efficient mechanism to distribute goods and services.

Question 19

In equilibrium, what is true about the behavior of economic agents?

Accepted Answer

Everyone simultaneously optimizes, so that nobody benefits by changing their own behavior.

Question 20

A competitive firm should produce at the output level where:

Accepted Answer

Both marginal cost equals marginal revenue and marginal cost equals price.

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