MICRO - Unit #1 & #2

Abigail has a positive income elasticity of demand of 0.8 for a particular type of organic fruit. Which of the following can be inferred from this?

• The fruit is an inferior good

• The fruit is an unrelated good

• The fruit is a normal good

• The fruit is perfectly elastic

Lily runs a small bakery, and she notices that the price of her cupcakes increases by 25%. As a result, she finds that the quantity of cupcakes she is able to supply increases by 10%. What is the price elasticity of supply, and what does it imply about her cupcakes?

• Elastic supply, the good is highly responsive to price changes

• Inelastic supply, the good is not very responsive to price changes

• Unitary elasticity, supply changes proportionally to price

• Perfectly inelastic supply, supply remains constant despite price changes

Which of the following statements is true about producer surplus?

• It is the area between the demand curve and the equilibrium price

• It is the difference between the minimum price a producer is willing to accept and the price they actually receive

• It increases as the demand for a product decreases

• It is maximized when supply equals zero
  

Grace is a farmer who grows wheat. Which of the following would cause a rightward shift of the supply curve for wheat?

• A drought in major wheat-producing regions

• A decrease in the cost of fertilizers

• An increase in the price of wheat

• An increase in the price of wheat substitutes

If Elijah's favorite brand of shoes has a price increase, and the demand for these shoes is perfectly inelastic, what will be the effect on the quantity he demands?

• • Quantity demanded will decrease slightly

• • Quantity demanded will not change

• • Quantity demanded will increase

• • Quantity demanded will increase slightly

What happens to Priya's consumer surplus when the price of her favorite book decreases?

• • Consumer surplus decreases

• • Consumer surplus remains unchanged

• Consumer surplus increases

• • Consumer surplus becomes zero

If an increase in the price of butter causes a decrease in the demand for bread, we can conclude that:

• • Butter and bread are substitutes

• • Butter and bread are unrelated goods

• • Butter and bread are complements

• • Demand for both goods is inelastic

Suppose a new technology reduces the cost of producing electric cars (supply increases), and simultaneously, a government subsidy increases consumer interest (demand increases). What will happen to the equilibrium price and quantity?

• • Price increases, quantity decreases

• • Price decreases, quantity decreases

• • Price increases or decreases, quantity increases

• • Price decreases, quantity increases

A local farmer sells apples at a market price of $2 per kg, but a consumer would have been willing to pay $3 per kg. How much is the consumer surplus for purchasing 5 kg of apples?

• • $1

• • $5

• • $3

• • $10

A coffee shop increases the price of a cappuccino from $4 to $5, and as a result, the quantity demanded falls from 100 to 80 cups per day. What is the price elasticity of demand?

• • -1.25

• -0.8

• • -0.5

• -1.0