Chapter 19 microeconomics (f1 acca)

Chapter 19 – Microeconomics: Test Bank

1 Is the following statement True or False? On a demand curve graph where

P is the vertical axis and Q is the horizontal axis, the demand curve for an inelastic product is less steep than the curve for an elastic product

a False

b True

2 Which three of the following can shift a supply curve to the right?

a Subsidies for production

b Increasing the price charged per unit

c Improvements in production technology

d An increase in the quantity made

e A fall in the cost of raw material

3 Which two of the following are correct for normal consumer products?

a Demand for a product will rise if the price of a substitute product falls

b Demand for a product will fall if the price of a complementary product falls

c Demand for a product will rise if the price of a substitute product rises

d Demand for a product will fall if the price of a complementary product rises

4 Which four of the following would shift a demand curve to the right?

a Decreasing the selling price

b More advertising

c A fall in the price of substitutes

d A rise in the price of substitutes

e An increase in the price of complements

f A rise in income

g A reduction in the price of complements

h Increasing the selling price

5 At a price of $20, 10,000 units are sold At a price of $25, 9,000 units are sold What is the point elasticity of demand at $20?

6 What is the law of demand?

a As price increases, quantity demanded increases

b As price increases, quantity demanded decreases

c As income increases, demand decreases

d As supply increases, price increases

7 Which of the following best defines price elasticity of demand?

a The change in quantity divided by the change in price

b The percentage change in quantity demanded divided by the percent-age change in price

c The total revenue divided by price

d The marginal cost divided by marginal revenue

8 For a normal good, an increase in consumer income will:

a Shift the demand curve to the left

b Shift the demand curve to the right

c Shift the supply curve to the right

d Have no effect on demand

9 Cross-price elasticity of demand for substitute goods is:

a Positive.

b Negative

c Zero

d Infinite

10 If the price elasticity of demand is -2, a 10% increase in price will lead to:

a A 5% decrease in quantity demanded

b A 20% decrease in quantity demanded

c A 10% decrease in quantity demanded

d No change in quantity demanded

11 Which factor does NOT affect the elasticity of supply?

a Time period

b Availability of inputs

c Consumer income

d Technology

12 Market equilibrium occurs where:

a Demand exceeds supply

b Supply exceeds demand

c Demand equals supply

d Price is zero

13 A price ceiling set below equilibrium price leads to:

a Surplus

b Shortage

c No change

d Increased supply

14 Consumer surplus is the area:

a Above the supply curve and below the price

b Below the demand curve and above the price

c Between demand and supply curves

d Below the supply curve

15 If demand is perfectly inelastic, the demand curve is:

a Horizontal

b Vertical

c Downward sloping

d Upward sloping

16 An increase in the number of sellers in a market will:

a Shift demand right

b Shift supply right

c Shift demand left

d Shift supply left

17 For inferior goods, income elasticity is:

a Positive

b Negative

c Zero

d Infinite

18 Total revenue is maximized when elasticity is:

a Greater than 1

b Less than 1

c Equal to 1

d Zero.

19 Which of the following shifts supply to the left?

a Technological improvement

b Increase in input costs

c Subsidies

d More producers

20 Cross-price elasticity for complementary goods is:

a Positive

b Negative

c Zero

d One

21 If supply is elastic, producers can:

a Respond little to price changes

b Respond greatly to price changes

c Not respond at all

d Decrease quantity only

22 A tax on producers shifts the:

a Demand curve left

b Supply curve left

c Demand curve right

d Supply curve right

23 Deadweight loss occurs due to:

a Market efficiency

b Taxes or price controls

c Perfect competition.

d Equilibrium

24 In perfect competition, firms are:

a Price makers

b Price takers

c Monopolists

d Oligopolists

25 Marginal cost is the:

a Total cost divided by quantity

b Change in total cost per additional unit

c Fixed cost per unit

d Variable cost total

26 Producer surplus is:

a Below demand above price

b Above supply below price

c Between curves

d Zero in equilibrium

27 If elasticity is unitary, total revenue:

a Increases with price

b Decreases with price

c Remains constant with price changes

d Becomes zero

28 An example of a price floor is:

a Rent control

b Minimum wage.

c Sales tax

d Subsidy

29 Opportunity cost is:

a The explicit cost only

b The value of the next best alternative

c Total revenue minus total cost

d Accounting profit

30 In the short run, firms can:

a Change all inputs

b Change only variable inputs

c Exit the market

d Adjust fixed costs

1 False Explanation: An inelastic demand curve is steeper because quantity

demanded is less responsive to price changes Elastic demand curves are flatter, reflecting greater responsiveness The statement incorrectly suggests inelastic curves are less steep

2 Subsidies for production, Improvements in production technology,

A fall in the cost of raw material Explanation: These factors reduce

production costs or increase efficiency, shifting the supply curve right Price changes cause movement along the curve, and quantity changes are outcomes, not causes

3 Demand for a product will rise if the price of a substitute product rises, Demand for a product will fall if the price of a complementary

product rises Explanation: Higher substitute prices increase demand for

the product (substitutes compete) Higher complement prices reduce demand (complements are used together)

4 More advertising, A rise in the price of substitutes, A rise in income,

A reduction in the price of complements Explanation: These increase

demand by enhancing preferences, making substitutes less attractive, boosting purchasing power, or encouraging joint consumption Price changes affect movement along the curve

5 0.4 Explanation: Point elasticity = (dQ/dP) * (P/Q) Slope = (9,000

-10,000)/(25 - 20) = -200 At $20, elasticity = -200 * (20/10,000) = -0.4, indicating inelastic demand

6 As price increases, quantity demanded decreases Explanation: The

law of demand describes an inverse relationship between price and quantity demanded due to substitution and income effects

7 The percentage change in quantity demanded divided by the

per-centage change in price Explanation: Price elasticity, E d = (%∆Q d )/(%∆P ), measuresresponsivenessusingpercentages.

8 Shift the demand curve to the right Explanation: For normal goods, higher income

increases demand, shifting the curve right

9 Positive Explanation: For substitutes, a price increase in one good increases demand

for the other, yielding positive cross-price elasticity

10 A 20% decrease in quantity demanded Explanation: E = -2 implies % ∆Q =

−2 ∗ 10% = −20%.

11 Consumer income Explanation: Supply elasticity depends on time, inputs, and

tech-nology, not consumer income

12 Demand equals supply Explanation: Equilibrium occurs where quantities demanded

and supplied are equal, clearing the market

13 Shortage Explanation: A price ceiling below equilibrium increases demand and reduces

supply, causing a shortage

14 Below the demand curve and above the price Explanation: Consumer surplus

represents the benefit consumers gain above what they pay

15 Vertical Explanation: Perfectly inelastic demand shows no change in quantity with

price changes

16 Shift supply right Explanation: More sellers increase total supply at each price level.

17 Negative Explanation: Inferior goods have reduced demand as income rises.

18 Equal to 1 Explanation: Unitary elasticity balances price and quantity changes to

maximize revenue

19 Increase in input costs Explanation: Higher costs reduce supply, shifting the curve

left

20 Negative Explanation: Complements have negative cross-price elasticity; a price rise in

one reduces demand for the other

21 Respond greatly to price changes Explanation: Elastic supply allows significant

quantity adjustments with price changes

22 Supply curve left Explanation: A tax increases production costs, reducing supply.

23 Taxes or price controls Explanation: These cause inefficiencies, leading to deadweight

loss

24 Price takers Explanation: In perfect competition, firms accept the market price.

25 Change in total cost per additional unit Explanation: Marginal cost is the

addi-tional cost of producing one more unit

26 Above supply below price Explanation: Producer surplus is the benefit producers

gain above their minimum selling price

27 Remains constant with price changes Explanation: Unitary elasticity ensures

rev-enue remains stable with price changes

28 Minimum wage Explanation: A price floor like minimum wage causes a surplus (e.g.,

unemployment)

29 The value of the next best alternative Explanation: Opportunity cost includes the

value of forgone alternatives

30 Change only variable inputs Explanation: In the short run, firms can adjust variable

inputs but not fixed ones