Intermediate Microeconomics Review Questions with complete Solutions Graded A+

Intermediate Microeconomics Review Questions with complete Solutions Graded A+ When demand increases: - Answers the demand curve shifts to the right. What will not cause demand for apples to increase or decrease? - Answers a reduction in the price of apples If the price of crude oil increases and the number of people who own cars falls: - Answers the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will decrease. If the price of crude oil decreases: - Answers the equilibrium price of gasoline will decrease and equilibrium quantity of gasoline will increase. If the supply curve is QS = 4P − 4, then the highest price at which no producer is willing to sell the good (i.e. the supply choke price) is: - Answers 1. If the demand curve is QD = 10 − 2P, then the lowest price at which no consumer is willing to buy the good (i.e., the demand choke price) is: - Answers 5. When the prevailing price is above the price where supply intersects demand: - Answers price falls because there is a surplus, so producers cut prices to try to attract buyers. Which of the following would cause an increase in the quantity demanded of pizza? - Answers an increase in the supply of pizza If demand increases and supply increases: - Answers equilibrium price will be uncertain and equilibrium quantity will increase. If supply decreases: - Answers equilibrium price increases and equilibrium quantity decreases. If supply increases and demand decreases: - Answers equilibrium price will decrease and equilibrium quantity will be uncertain. If demand decreases: - Answers equilibrium price decreases and equilibrium quantity decreases. If the inverse demand curve is P = 12 − 2QD and the inverse supply curve is P = 4QS, then the equilibrium price and quantity are: - Answers Pe = 8; Qe = 2. A decrease in supply: - Answers creates excess demand, causing equilibrium price to increase. A decrease in demand: - Answers produces excess supply, causing equilibrium price to decrease. The impact of an increase in demand on equilibrium price will be bigger when: - Answers supply is steeper. When the prevailing price is below the price where supply intersects demand: - Answers price rises because a shortage, so buyers bid up the price. If the cross-price elasticity between two goods is positive, then the goods are: - Answers substitutes. If the income elasticity of a good is positive, then the good is: - Answers normal. If the absolute value of the price elasticity of demand is 2, then demand is: - Answers elastic. The price elasticity of demand of a good whose demand curve is linear with a slope of −4: - Answers decreases as quantity increases. The demand curve of a good is QD = 10 −2P. When P = 5, demand is: - Answers perfectly inelastic. When demand and supply are linear, consumer surplus is equal to: - Answers The area between the demand curve and the price, out to the quantity that is exchanged. When demand and supply are linear, producer surplus is equal to: - Answers The area between the supply curve and the price, out to the quantity that is exchanged. When demand and supply are linear, consumer surplus is calculated as the area of a triangle: - Answers with a base equal to the quantity sold and a height equal to the difference between the market price and the demand choke price. When demand and supply are linear, producer surplus can be calculated: - Answers with a base equal to the quantity sold and a height equal to the difference between the market price and the supply choke price. If more substitutes for pens become available: - Answers consumer surplus for pens decreases. All else equal, a negative supply shock: - Answers causes consumer surplus to decrease but has an uncertain effect on producer surplus. All else equal, a demand increase: - Answers has an uncertain effect on consumer surplus but causes producer surplus to increase. If the supply equation for a good is QS = 400P − 8,000 and the price is 100, then producer surplus is: - Answers $1.28 million. If the demand equation for a good is QD = 800 − 2P and price increases from $150 to $200, then consumer surplus decreases by: - Answers $22,500. A binding price ceiling: - Answers causes a shortage, has an uncertain effect on consumer surplus, and reduces producer surplus. A binding price floor: - Answers causes a surplus, reduces consumer surplus, and has an uncertain effect on producer surplus.