323 exam-style questions on Microeconomics with answers and explanations. Six real samples below — the full set is free with an account.
Which of the following would shift the demand curve for coffee to the right?
Answer: higher incomes, coffee a normal good
Higher incomes raise demand for a normal good (shift right). A cheaper substitute or bad health news would shift coffee demand left; a price change is a movement along.
The three functions performed by the price mechanism in allocating resources are
Answer: signalling, incentive and rationing
Prices signal information, give incentives to reallocate resources, and ration scarce goods to those willing and able to pay.
If demand for a good is price inelastic, a firm that raises the price will find its total revenue
Answer: rises
When demand is inelastic (|PED| < 1), quantity falls proportionately less than price rises, so total revenue increases.
A good that has a negative income elasticity of demand is classified as
Answer: an inferior good
For inferior goods, demand falls as income rises (negative YED), e.g. bus travel replaced by car use.
Two goods that have a negative cross elasticity of demand are
Answer: complements
Complements (e.g. cars and petrol) are consumed together; a rise in the price of one reduces demand for the other, giving negative XED.
In the case of a positive consumption externality (e.g. vaccination), the free market will
Answer: under-consume, because MSB is above MPB
With external benefits MSB > MPB, so the market equilibrium quantity is below the social optimum: the good is under-consumed.
323 Microeconomics questions — free with an account. Spaced repetition, streaks and full exam simulations included.
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