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Quizzes > Quizzes for Business > Business

Take the Microeconomics Knowledge Quiz

Assess Core Economic Principles and Concepts

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art promoting a Microeconomics Knowledge Quiz.

This Microeconomics Knowledge Quiz helps you practice core ideas - supply and demand, consumer choice, and market structures - across 15 multiple-choice questions. Use instant feedback to spot gaps before an exam, and compare scores with the microeconomics assessment or try a broader assessment quiz .

According to the law of demand, what happens to the quantity demanded when the price of a good rises, ceteris paribus?
Quantity demanded decreases
Quantity supplied increases
Quantity demanded increases
Quantity supplied decreases
The law of demand states that, all else equal, higher prices lead consumers to purchase less of a good. Thus quantity demanded falls when price rises.
What does the law of supply predict when the market price of a product goes up, holding other factors constant?
Quantity supplied decreases
Quantity supplied increases
Quantity demanded decreases
Quantity demanded increases
The law of supply holds that producers are willing to offer more of a good for sale at higher prices, leading to an increase in quantity supplied.
What is market equilibrium?
The point where quantity demanded equals quantity supplied
The highest possible price in a market
When supply constantly exceeds demand
When demand constantly exceeds supply
Market equilibrium is reached when the quantity that buyers want equals the quantity that sellers want to sell, meaning no pressure exists for price to change.
If a good is classified as a normal good, what happens to its demand when consumer income rises?
Quantity supplied increases
Demand decreases
Demand increases
Quantity supplied decreases
A normal good is one for which demand rises as consumers' incomes increase, reflecting greater purchasing power for that good.
A price ceiling set above the equilibrium price is described as:
Creating a surplus
Binding
Non-binding
Creating a shortage
A price ceiling above equilibrium has no effect because the market price is below the ceiling, making the ceiling non-binding and not constraining transactions.
If the price elasticity of demand is -2, what is the percentage change in quantity demanded when price increases by 10%?
20% increase
5% increase
5% decrease
20% decrease
Price elasticity of demand equals percentage change in quantity divided by percentage change in price. Here, -2Ã-10% gives a 20% decrease in quantity demanded.
A positive cross-price elasticity of demand between goods A and B indicates they are:
Inferior
Independent
Complements
Substitutes
A positive cross-price elasticity means that an increase in the price of one good raises the demand for the other, which is characteristic of substitute goods.
Which of the following will shift the demand curve for an inferior good to the left?
An increase in the price of a substitute
An increase in consumer income
A fall in consumer preferences
A decrease in the price of a complement
For an inferior good, higher consumer income leads to reduced demand as consumers switch to higher-quality alternatives, shifting the demand curve leftward.
What does the principle of diminishing marginal utility imply?
Consumers always seek variety
Total utility decreases with each additional unit
Each additional unit consumed adds less satisfaction than the previous one
Marginal utility becomes negative after any consumption
Diminishing marginal utility means that as a consumer drinks more of a product, the extra satisfaction from each additional unit falls compared to the prior unit.
In consumer choice theory, utility maximization occurs when:
MUxÃ-Px equals MUyÃ-Py
Total utility is zero
MUx/Px equals MUy/Py
Budget is fully spent on one good
Consumers allocate their budget so that the marginal utility per dollar spent is equal across all goods, satisfying MUx/Px = MUy/Py for two goods.
The imposition of a specific tax on producers causes the supply curve to:
Move along the demand curve
Become steeper
Shift right by the tax amount
Shift left by the tax amount
A per-unit tax increases producers' costs, reducing supply at every price and shifting the supply curve leftward by the tax amount.
A price floor set below the equilibrium price is:
Binding
Causing a shortage
Leading to rationing
Non-binding
A price floor below the equilibrium price does not affect the market because the equilibrium price already exceeds the floor, making the floor non-binding.
If demand is price inelastic, a price increase will:
Lower total revenue
Make demand elastic
Raise total revenue
Leave total revenue unchanged
When demand is inelastic, the percentage drop in quantity demanded is smaller than the percentage increase in price, so total revenue rises.
Consumer surplus is defined as:
Government tax revenue
The difference between willingness to pay and market price
Producer profit minus cost
Total expenditure on a good
Consumer surplus measures the gap between what consumers are willing to pay for a good and what they actually pay, summing over all units purchased.
Which cost does not vary with output in the short run?
Average cost
Marginal cost
Variable cost
Fixed cost
Fixed costs are incurred regardless of output level in the short run, while variable costs change as production changes.
If demand is more elastic than supply, who bears the larger share of a per-unit tax?
Both share equally
Consumers bear a larger share
Producers bear a larger share
Government bears it
When demand is more elastic, consumers can avoid the tax more easily, so producers cannot pass it on and end up bearing more of the tax burden.
Suppose the price of an input rises while consumer income falls. What happens to equilibrium price and quantity?
Price falls, quantity ambiguous
Price ambiguous, quantity falls
Price rises, quantity rises
Price falls, quantity rises
Higher input costs shift supply left (raising price) and lower income shifts demand left (reducing price). The net price effect depends on magnitudes, but quantity definitely falls due to both shifts.
Profit maximization for a firm occurs where:
Price equals average cost
Marginal revenue equals marginal cost
Total revenue is maximized
Fixed cost equals variable cost
Firms maximize profit by producing the quantity at which marginal revenue equals marginal cost, as any deviation would reduce profit.
In the long run, entry and exit of firms in a competitive market lead to:
Positive economic profit
Constant returns to scale
Zero economic profit
Negative economic profit
Free entry and exit drive economic profits to zero in the long run as new firms enter profitable markets and exit unprofitable ones.
A consumer has utility function U(x,y)=xy, income of 100, px=2 and py=4. To maximize utility, the consumer should buy:
x=12.5 and y=25
x=15 and y=20
x=20 and y=15
x=25 and y=12.5
Utility maximization requires MUx/Px = MUy/Py, giving y/2 = x/4 so x=2y. Budget 2x+4y=100 yields 8y=100 and y=12.5, x=25.
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Learning Outcomes

  1. Analyze supply and demand interactions in markets
  2. Evaluate the impact of price elasticity on consumer behavior
  3. Identify factors that influence market equilibrium shifts
  4. Apply concepts of consumer choice and utility maximization
  5. Demonstrate understanding of production costs and profit

Cheat Sheet

  1. Understand the Law of Demand - In the magical world of markets, as prices climb, buyers usually hold back, and when prices dip, demand soars. This inverse relationship is the foundation of microeconomics and explains everyday shopping behavior.
  2. Grasp Price Elasticity of Demand - Price elasticity measures how your wallet reacts when tag prices change - if demand swings wildly, it's elastic; if it barely flinches, it's inelastic. It's calculated by the percentage change in quantity over the percentage change in price, giving you a powerful tool to predict consumer behavior.
  3. Recognize Factors Influencing Elasticity - Not all goods flex the same way when prices change: substitutes, necessities versus luxuries, and even time horizons can drastically alter demand sensitivity. Ponder whether your favorite snack has dozens of near-identical rivals or what happens when you simply cannot live without a medicine. These factors help firms set prices and governments understand tax impacts.
  4. Learn About Price Elasticity of Supply - Just like buyers, producers respond to price changes: if higher prices instantly trigger a flood of extra goods, supply is elastic. When factories or farms can't ramp up production quickly, supply becomes inelastic, making markets sensitive to shocks. It's the percentage change in quantity supplied divided by the percentage change in price.
  5. Explore Cross-Price Elasticity of Demand - Ever noticed how peanut butter sales tick up if jelly gets pricier? That's cross-price elasticity showing if goods are pals (substitutes) or perfect dance partners (complements). This metric unveils hidden relationships in market duo dynamics.
  6. Understand Income Elasticity of Demand - When your allowance grows, do you upgrade lunch or splurge on toys? Income elasticity measures how demand shifts as wallets fatten or slim down. It helps classify goods as normal (friends with rising income) or inferior (rejected when cash flows).
  7. Analyze Market Equilibrium Shifts - Picture supply and demand curves dancing: any nudge - like a new tech or a sudden crop failure - shifts the equilibrium price and quantity. Understanding these moves helps you predict booms, busts, and everything in between. This is critical for policymakers and businesses aiming to keep markets stable.
  8. Apply Consumer Choice Theory - With limited budgets and infinite desires, consumers become utility-maximizing maestros, picking the combination of goods that delivers the highest satisfaction. Budget constraints and preference patterns drive this decision-making ballet. It's the story behind every shopping spree and restaurant order.
  9. Examine Production Costs - Fixed costs like rent stay the same whether you bake one cookie or a thousand, while variable costs wiggle with output levels. Mapping these helps businesses find the sweet spot where profit peaks.
  10. Study Tax Incidence and Elasticity - Who really pays the tax man? The burden lands heavier on the side - supply or demand - that's less elastic, making this concept vital for crafting fair fiscal policies. Governments and economists love this tool for predicting the true impact of taxes.
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