Microeconomics Mastery

Explain the concept of supply and demand and how they interact in a market.

• Supply and demand have no impact on each other in a market

• Demand is determined by supply in a market

• Supply and demand are economic concepts that describe the relationship between the availability of a good or service (supply) and the desire for that good or service (demand). They interact in a market to determine the equilibrium price and quantity of a product.

• Supply is determined by demand in a market

Differentiate between perfect competition and monopoly market structures.

• Monopoly has many small firms, identical products, and perfect information.

• Perfect competition has a single seller and high barriers to entry.

• Perfect competition has a single seller, high barriers to entry, and the ability to influence prices.

• Perfect competition has many small firms, identical products, no barriers to entry, and perfect information. Monopoly has a single seller, high barriers to entry, and the ability to influence prices.

Calculate the price elasticity of demand when the price increases by 10% and the quantity demanded decreases by 20%.

• -1.5

• -3

• -2

• -0.5

Discuss the concept of utility and its role in consumer behavior.

• Utility is the emotional attachment consumers have to goods or services, influencing their decision-making process to minimize overall satisfaction.

• Utility is the satisfaction or benefit consumers derive from consuming goods or services, influencing their decision-making process to maximize overall satisfaction.

• Utility is the amount of money consumers earn from consuming goods or services, influencing their decision-making process to maximize overall satisfaction.

• Utility is the cost consumers pay for goods or services, influencing their decision-making process to minimize overall satisfaction.

Define producer surplus and explain how it is calculated.

• Producer surplus is calculated by multiplying the quantity supplied by the market price.

• Producer surplus is calculated by finding the area above the supply curve and below the market price. It is the triangular area between the supply curve and the price line, which is calculated as 0.5 * base * height.

• Producer surplus is the difference between total revenue and total cost.

• Producer surplus is calculated by finding the area below the supply curve and above the market price.

What are the main causes of market failure in a free market economy?

• Inflation, deflation, stagflation, and economic recession

• Externalities, public goods, lack of competition, information asymmetry, and income inequality

• Supply and demand equilibrium, economies of scale, market saturation, and consumer preferences

• Monopolies, perfect competition, government intervention, and price controls

How does a decrease in the price of a substitute good affect the demand for a product?

• The demand for the product will increase.

• The demand for the product will decrease.

• The demand for the product will remain unchanged.

• The demand for the product will become elastic.

Compare and contrast the characteristics of monopolistic competition and oligopoly market structures.

• Monopolistic competition and oligopoly market structures have no differences in characteristics.

• Monopolistic competition involves a single firm dominating the market with high barriers to entry.

• Monopolistic competition involves many firms selling differentiated products with low barriers to entry, while oligopoly consists of a few large firms dominating the market, often selling similar or identical products, and facing high barriers to entry.

• Oligopoly market structures have many firms selling identical products with low barriers to entry.

If the price of a product increases by 5% and the quantity supplied increases by 10%, what is the price elasticity of supply?

• 3

• 1.5

• 0.5

• 2

Explain the concept of a Giffen good and provide an example.

• An example of a Giffen good is the consumption of caviar in high-income households.

• A Giffen good is a type of luxury item that people buy more of as the price increases.

• Giffen goods are only found in developed countries and not in developing nations.

• An example of a Giffen good is the consumption of rice in certain low-income households. When the price of rice increases, these households may buy more rice because the increase in price reduces their purchasing power for other foods, leading them to consume more rice.