Micro Exam #1 (Feb 6th, 2025)
Core principles, demand, supply, equilibrium & elasticity (well, & accidentally one on price controls)
Microeconomics Principles Exam #1
Instructions: Choose the best answer for each question.
1. A student has a choice between studying for an exam or going to a concert. If they choose to study, what is the opportunity cost?
a) The time spent studying
b) The cost of the concert ticket
c) The enjoyment they would have had at the concert
d) The cost of books
e) None of the above
2. A company decides to produce one more unit of a good. The additional revenue from selling that unit is called:
a) Marginal cost
b) Marginal revenue
c) Average revenue
d) Total cost
e) Sunk cost
3. If a decision-maker ignores sunk costs when making a decision, they are following which economic principle?
a) Rational decision-making
b) Behavioral economics
c) Game theory
d) Market failure
e) Public goods theory
4. Scarcity is a fundamental economic problem because:
a) People have unlimited wants but limited resources
b) Money is not distributed equally
c) There is always unemployment
d) Governments control most resources
e) Resources are only scarce in poor countries
5. A bakery produces artisanal bread. Recently, the price of flour has increased significantly. How is this likely to affect the supply of bread?
a) Supply increases, shifting the supply curve right
b) Supply decreases, shifting the supply curve left
c) Quantity supplied increases
d) No effect on supply
6. A movie theater reduces ticket prices on weekday afternoons by 15%, and attendance increases by 30%. This is an example of:
a) Inelastic demand
b) Elastic demand
c) Unit-elastic demand
d) Perfectly inelastic demand
7. When making economic decisions, rational individuals will choose an option if:
a) Total benefit exceeds total cost
b) Marginal benefit exceeds marginal cost
c) Opportunity cost is zero
d) The government mandates it
e) They have already spent money on it
8. Which of the following is NOT considered when making a decision using good economic reasoning?
a) Sunk costs
b) Marginal benefit
c) Marginal cost
d) Opportunity cost
e) Future expected benefits
9. A company chooses to produce sports cars instead of trucks. What is the opportunity cost?
a) The revenue from the trucks
b) The cost of labor
c) The total production cost
d) The price of sports cars
e) None of the above
10. If the price of a normal good decreases, what happens to the quantity demanded?
a) Increases
b) Decreases
c) Stays the same
d) Becomes perfectly elastic
e) Becomes perfectly inelastic
11. Which of the following would shift the demand curve for coffee to the right?
a) A decrease in the price of coffee
b) An increase in consumer income if coffee is a normal good
c) A decrease in the price of tea (a substitute)
d) A decrease in the price of coffee-making machines
e) A decrease in wages for coffee farmers
12. If two goods are complements, an increase in the price of one good will:
a) Increase demand for both goods
b) Decrease demand for both goods
c) Increase demand for one and decrease demand for the other
d) Have no effect on demand
e) Decrease quantity demanded for one and demand for the other.
13. A shift in the demand curve occurs when:
a) The price of the good changes
b) The quantity supplied changes
c) A non-price determinant of demand changes
d) The government sets a price ceiling
e) Consumers become more sensitive to price changes
14. If a product is a necessity, its price elasticity of demand is likely to be:
a) Inelastic
b) Elastic
c) Perfectly elastic
d) Unitary elastic
e) Zero
15. An increase in the cost of raw materials used in production will:
a) Shift the supply curve to the left
b) Shift the supply curve to the right
c) Increase quantity supplied
d) Have no effect
e) Increase demand
16. A technological improvement in production leads to:
a) A rightward shift in the supply curve
b) A leftward shift in the supply curve
c) A decrease in demand
d) An increase in equilibrium price
e) No effect on supply
17. A farmer is deciding whether to plant corn or soybeans. If the price of soybeans rises, what is the likely impact on the supply of corn?
a) Quantity supplied of corn increases
b) Supply of corn increases
c) Supply of corn decreases
d) No change in supply
18. If both demand and supply decrease, what happens to equilibrium quantity?
a) It increases
b) It decreases
c) It remains unchanged
d) It depends on the magnitude of shifts
e) The effect is unpredictable
19. If a new health report states that drinking soda is harmful, what happens to the demand for soda?
a) Demand increases
b) Demand decreases
c) No effect
d) Supply increases
e) Price rises
20. If the demand for gasoline increases while the supply remains constant, what happens to the equilibrium price and quantity of gasoline?
Price increases, quantity decreases
b) Price decreases, quantity increases
c) Price increases, quantity increases
d) Price remains unchanged, quantity increases
e) No effect.
21. If demand for a good is perfectly inelastic, what happens to quantity demanded when price changes?
a) Stays the same
b) Increases
c) Decreases
d) Becomes zero
e) Uncertain
22. A luxury yacht manufacturer notices that a small decrease in price leads to a large increase in quantity sold. What does this suggest?
a) Elastic demand
b) Inelastic demand
c) Unitary elastic demand
d) Perfectly inelastic demand
e) No effect
23. If a decrease in the price of Good X causes the demand for Good Y to fall, what does this imply?
a) The goods are complements
b) The goods are substitutes
c) The goods are unrelated
d) Good X is an inferior good
e) Demand is unitary
24. A city implements a rent control policy that sets maximum rental prices below the equilibrium level. What is the likely outcome?
a) Shortage of rental units
b) Surplus of rental units
c) No change in market conditions
d) More landlords willing to rent apartments
25. A local coffee shop notices that when it raises prices, total revenue falls. What does this imply about the price elasticity of demand for its coffee?
a) Demand is perfectly inelastic
b) Demand is perfectly elastic
c) Demand is inelastic
d) Demand is elastic
e) Cannot be determined
26. An airline introduces discounted fares for flights booked months in advance. What is the likely price elasticity of demand for these advance-purchase tickets?
a) More elastic
b) More inelastic
c) Unitary elastic
d) Perfectly inelastic
e) Cannot be determined
27. If both the supply and demand for a product increase simultaneously, what can we predict about the equilibrium price and quantity?
a) Price increases, quantity decreases
b) Price decreases, quantity increases
c) Price uncertain, quantity increases
d) Price increases, quantity uncertain
e) Price and quantity remain unchanged
28. After a popular diet trend promotes avocados as a health food, avocado sales skyrocket. What is the effect on the market for avocados?
a) Movement along the demand curve
b) Demand increases
c) Demand decreases
d) Supply increases
e) Surplus occurs
29. A coffee shop raises its prices and notices fewer customers visiting. What best describes this situation?
a) Change in demand
b) Supply shift
c) Shortage
d) Surplus
e) Movement along the demand curve
30. A new pesticide increases wheat production significantly. How does this affect the wheat market?
a) Increase in supply
b) Increase in demand
c) Movement along the demand curve
d) Shortage
e) No effect
31. A new government regulation increases production costs for car manufacturers. What happens to the supply of cars?
a) Demand increases
b) Demand decreases
c) Supply increases
d) Supply decreases
e) Equilibrium price falls
32. If both supply and demand increase simultaneously, what happens to equilibrium quantity?
a) It increases
b) It decreases
c) Stays the same
d) Depends on the magnitude of shifts
e) Becomes infinite
33. A major recession reduces consumer incomes, lowering demand for normal goods. What happens to the equilibrium price and quantity of normal goods?
a) Price increases, quantity decreases
b) Price decreases, quantity increases
c) Price increases, quantity increases
d) Price decreases, quantity decreases
e) No effect
34. If the price of laptops increases by 10% and quantity demanded decreases by 15%, what is the price elasticity of demand?
a) 0.67
b) 1.5
c) 1.0
d) 0.5
e) 2.0
35. A 5% increase in consumer income leads to a 10% increase in demand for luxury cruises. What is the income elasticity of demand?
a) 0.5
b) 1.0
c) 2.0
d) -1.0
e) -0.5
36. The price of coffee increases by 8%, and the demand for tea rises by 4%. What is the cross-price elasticity of demand?
a) 0.5
b) -0.5
c) 1.0
d) -1.0
e) 2.0
37. A new environmental regulation makes oil extraction more expensive. At the same time, consumers begin to view electric vehicles more favorably. How does this affect the market for gasoline?
Price uncertain, quantity falls
Price uncertain, quantity rises
c) Price rises, quantity uncertain
d) Price falls, quantity rises
e) No effect on the market
38. A recession lowers consumer incomes. What happens to the equilibrium price and quantity in the market for an entertainment venue like a bowling alley?
a) Price increases, quantity increases, if bowling is an inferior good
b) Price decreases, quantity decreases, if bowling is an inferior good
c) Price increases, quantity decreases, if bowling is a normal good
d) Price decreases, quantity increases, if bowling is a normal good
39. A theme park lowers ticket prices, and visitor numbers rise significantly. What does this represent?
a) Increase in supply
b) Increase in demand
c) Increase in quantity supplied
d) Increase in quantity demanded
e) Surplus
40. If the price of televisions decreases by 20% and quantity demanded increases by 25%, what is the price elasticity of demand?
a) -0.5
b) -0.8
c) -1.0
d) -1.25
e) -2.0
Full solutions walk-through available here: