PRINCIPLES OF MICROECONOMICS COMPREHENSIVE 2026
EXAM QUESTIONS AND SOLUTIONS RATED A+
✔✔Normative statements - ✔✔prescriptive statements making a claim about how the
world ought to be
✔✔absolute advantage - ✔✔Used when comparing the productivity of one person, firm,
or nation to that of another. The producer that requires a smaller quantity of inputs to
produce a good is said to have an absolute advantage in producing that good
✔✔comparative advantage - ✔✔describing the opportunity costs faced by two
producers
✔✔Imports - ✔✔goods produced abroad and sold domestically
✔✔Exports - ✔✔goods produced domestically and sold abroad
✔✔Market - ✔✔a group of buyers and sellers of a particular good or service
✔✔Competitive market - ✔✔a market in which there are so many buyers and so many
sellers that each has a negligible impact on the market price
✔✔Quantity demanded - ✔✔the amount of a good that buyers are willing and able to
purchase
✔✔Law of Demand - ✔✔the claim that, other things being equal, the quantity demand
of a good falls when the price of the good rises
✔✔Demand schedule - ✔✔a table that shows the relationship between the price of a
good and the quantity demanded
✔✔Demand curve - ✔✔a graph of the relationship between the price of a good and the
quantity demanded
✔✔Normal good - ✔✔a good for which, other things equal, an increase in income leads
to an increase in demand
✔✔Inferior good - ✔✔a good for which, other things being equal, an increase in income
leads to a decrease in demand
✔✔Substitutes - ✔✔two goods for which an increase in the price of one leads to an
increase in the demand for the other
,✔✔Complements - ✔✔two goods for which an increase in the price of one leads to a
decrease in the demand for the other
✔✔Quantity supplied - ✔✔the amount of a good that sellers are willing and able to sell
✔✔Law of Supply - ✔✔the claim that, other things being equal, the quantity supplied of
a good rises when the price of the good rises
✔✔Supply schedule - ✔✔a table that shows the relationship between the price of a
good and the quantity supplied
✔✔Supply Curve - ✔✔a graph of the relationship between the price of a good and the
quantity supplied
✔✔Equilibrium - ✔✔a situation in which the market price has reached the level at which
quantity supplied equals quantity demanded
✔✔Equilibrium price - ✔✔the price that balances quantity supplied and quantity
demanded
✔✔Equilibrium quantity - ✔✔the quantity supplied and the quantity demanded at the
equilibrium price
✔✔Surplus - ✔✔a situation in which quantity supplied is greater than quantity
demanded
✔✔Shortage - ✔✔a situation in which quantity demanded is greater than quantity
supplied
✔✔law of supply and demand - ✔✔the claim that the price of any good adjusts to bring
the quantity supplied and the quantity demanded for that good into balance
✔✔price elasticity of demand - ✔✔a measure of how much the quantity demanded of a
good responds to a change in the price of that good, computed as the percentage
change in quantity demanded divided by the percentage change in price
✔✔total revenue - ✔✔the amount paid by buyers and received by sellers of a good,
computed as the price of the good times the quantity sold
✔✔income elasticity of demand - ✔✔a measure of how much the quantity demanded of
a good responds to a change in consumers' income, computed as the percentage
change in quantity divided by the percentage change in income
, ✔✔cross-price elasticity of demand - ✔✔a measure of how much the quantity
demanded of one good responds to a change in the price of another good, computed as
the percentage change in quantity demanded of the first good divided by the percentage
change in price of the second good
✔✔price elasticity of supply - ✔✔a measure of how much the quantity supplied of a
good responds to a change in the price of that good, computed as the percentage
change in quantity supplied divided by the percentage change in price
✔✔If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in
price results in a
a. 0.0125 percent increase in the quantity demanded.
b. 4 percent increase in the quantity demanded.
c. 5 percent increase in the quantity demanded.
d. 80 percent increase in the quantity demanded. - ✔✔
✔✔Which of the following is likely to have the most price elastic demand?
a. dental floss
b. milk
c. salt
d. diamond earrings - ✔✔diamond earings
✔✔The price elasticity of demand measures
a. buyers' responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market.
c. how much more of a good consumers will demand when incomes rise.
d. the movement along a supply curve when there is a change in demand. - ✔✔buyers'
responsiveness to a change in the price of a good.
✔✔If the price of gasoline rises, when is the price elasticity of demand likely to be the
highest?
a. immediately after the price increases
b. one month after the price increase
c. three months after the price increase
d. one year after the price increase - ✔✔three months after the price increase
✔✔The greater the price elasticity of demand, the
a. more likely the product is a necessity.
b. smaller the responsiveness of quantity demanded to a change in price.
c. greater the percentage change in price over the percentage change in quantity
demanded.
d. greater the responsiveness of quantity demanded to a change in price. - ✔✔greater
the responsiveness of quantity demanded to a change in price.
EXAM QUESTIONS AND SOLUTIONS RATED A+
✔✔Normative statements - ✔✔prescriptive statements making a claim about how the
world ought to be
✔✔absolute advantage - ✔✔Used when comparing the productivity of one person, firm,
or nation to that of another. The producer that requires a smaller quantity of inputs to
produce a good is said to have an absolute advantage in producing that good
✔✔comparative advantage - ✔✔describing the opportunity costs faced by two
producers
✔✔Imports - ✔✔goods produced abroad and sold domestically
✔✔Exports - ✔✔goods produced domestically and sold abroad
✔✔Market - ✔✔a group of buyers and sellers of a particular good or service
✔✔Competitive market - ✔✔a market in which there are so many buyers and so many
sellers that each has a negligible impact on the market price
✔✔Quantity demanded - ✔✔the amount of a good that buyers are willing and able to
purchase
✔✔Law of Demand - ✔✔the claim that, other things being equal, the quantity demand
of a good falls when the price of the good rises
✔✔Demand schedule - ✔✔a table that shows the relationship between the price of a
good and the quantity demanded
✔✔Demand curve - ✔✔a graph of the relationship between the price of a good and the
quantity demanded
✔✔Normal good - ✔✔a good for which, other things equal, an increase in income leads
to an increase in demand
✔✔Inferior good - ✔✔a good for which, other things being equal, an increase in income
leads to a decrease in demand
✔✔Substitutes - ✔✔two goods for which an increase in the price of one leads to an
increase in the demand for the other
,✔✔Complements - ✔✔two goods for which an increase in the price of one leads to a
decrease in the demand for the other
✔✔Quantity supplied - ✔✔the amount of a good that sellers are willing and able to sell
✔✔Law of Supply - ✔✔the claim that, other things being equal, the quantity supplied of
a good rises when the price of the good rises
✔✔Supply schedule - ✔✔a table that shows the relationship between the price of a
good and the quantity supplied
✔✔Supply Curve - ✔✔a graph of the relationship between the price of a good and the
quantity supplied
✔✔Equilibrium - ✔✔a situation in which the market price has reached the level at which
quantity supplied equals quantity demanded
✔✔Equilibrium price - ✔✔the price that balances quantity supplied and quantity
demanded
✔✔Equilibrium quantity - ✔✔the quantity supplied and the quantity demanded at the
equilibrium price
✔✔Surplus - ✔✔a situation in which quantity supplied is greater than quantity
demanded
✔✔Shortage - ✔✔a situation in which quantity demanded is greater than quantity
supplied
✔✔law of supply and demand - ✔✔the claim that the price of any good adjusts to bring
the quantity supplied and the quantity demanded for that good into balance
✔✔price elasticity of demand - ✔✔a measure of how much the quantity demanded of a
good responds to a change in the price of that good, computed as the percentage
change in quantity demanded divided by the percentage change in price
✔✔total revenue - ✔✔the amount paid by buyers and received by sellers of a good,
computed as the price of the good times the quantity sold
✔✔income elasticity of demand - ✔✔a measure of how much the quantity demanded of
a good responds to a change in consumers' income, computed as the percentage
change in quantity divided by the percentage change in income
, ✔✔cross-price elasticity of demand - ✔✔a measure of how much the quantity
demanded of one good responds to a change in the price of another good, computed as
the percentage change in quantity demanded of the first good divided by the percentage
change in price of the second good
✔✔price elasticity of supply - ✔✔a measure of how much the quantity supplied of a
good responds to a change in the price of that good, computed as the percentage
change in quantity supplied divided by the percentage change in price
✔✔If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in
price results in a
a. 0.0125 percent increase in the quantity demanded.
b. 4 percent increase in the quantity demanded.
c. 5 percent increase in the quantity demanded.
d. 80 percent increase in the quantity demanded. - ✔✔
✔✔Which of the following is likely to have the most price elastic demand?
a. dental floss
b. milk
c. salt
d. diamond earrings - ✔✔diamond earings
✔✔The price elasticity of demand measures
a. buyers' responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market.
c. how much more of a good consumers will demand when incomes rise.
d. the movement along a supply curve when there is a change in demand. - ✔✔buyers'
responsiveness to a change in the price of a good.
✔✔If the price of gasoline rises, when is the price elasticity of demand likely to be the
highest?
a. immediately after the price increases
b. one month after the price increase
c. three months after the price increase
d. one year after the price increase - ✔✔three months after the price increase
✔✔The greater the price elasticity of demand, the
a. more likely the product is a necessity.
b. smaller the responsiveness of quantity demanded to a change in price.
c. greater the percentage change in price over the percentage change in quantity
demanded.
d. greater the responsiveness of quantity demanded to a change in price. - ✔✔greater
the responsiveness of quantity demanded to a change in price.
