Microeconomics Quiz

Grade 12 · Social Studies · Quiz

Test your understanding of supply and demand, market structures, elasticity, and firm behavior.

Questions

1. If the cross-price elasticity of demand between two goods is negative, the goods are:

   1. Substitutes
   2. Complements
   3. Inferior goods
   4. Normal goods
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   Answer: Complements

   Negative cross-price elasticity means when the price of one good rises, demand for the other falls — indicating the goods are complements (used together, like cars and gasoline).

2. A monopolist maximizes profit by producing where:

   1. Price equals marginal cost
   2. Marginal revenue equals marginal cost
   3. Average total cost is minimized
   4. Total revenue is maximized
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   Answer: Marginal revenue equals marginal cost

   A monopolist, like any firm, maximizes profit at MR = MC. However, since the monopolist faces a downward-sloping demand curve, its MR curve lies below the demand curve, resulting in output below the competitive level.

3. Which of the following would cause the demand curve for gasoline to shift to the left?

   1. An increase in the price of gasoline
   2. A decrease in consumer incomes (gasoline is a normal good)
   3. An increase in the number of drivers
   4. A decrease in the price of cars
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   Answer: A decrease in consumer incomes (gasoline is a normal good)

   A decrease in consumer income reduces the ability to purchase normal goods like gasoline, shifting demand to the left. A price increase moves along the demand curve, not the curve itself.

4. When a tax is imposed on a good with inelastic demand, the tax burden falls primarily on:

   1. Producers
   2. Consumers
   3. The government
   4. Both equally
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   Answer: Consumers

   With inelastic demand, consumers do not significantly reduce purchases when price rises. Since they continue buying, most of the tax increase is passed to consumers in the form of higher prices.

5. A public good is characterized by being:

   1. Rival and excludable
   2. Non-rival and excludable
   3. Non-rival and non-excludable
   4. Rival and non-excludable
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   Answer: Non-rival and non-excludable

   Public goods are non-rival (one person's use doesn't reduce availability for others) and non-excludable (no one can be prevented from using them), like national defense or public fireworks.

6. In the long run under perfect competition, economic profit tends toward:

   1. The maximum possible
   2. Zero
   3. A level equal to accounting profit
   4. A level set by the government
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   Answer: Zero

   In perfect competition, free entry and exit of firms eliminates economic (abnormal) profit in the long run. Firms earn only normal profit (zero economic profit), meaning they cover all opportunity costs.

7. A price floor set below the equilibrium price has no effect on the market.

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   Answer: True

   A price floor only creates a surplus and distorts the market when it is set above the equilibrium price. If set below equilibrium, the market price prevails naturally and the floor is non-binding.

8. The additional satisfaction gained from consuming one more unit of a good is called __________ utility.

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   Answer: marginal

   Marginal utility is the additional satisfaction from one more unit consumed. The law of diminishing marginal utility states this typically decreases as consumption increases.

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