Microeconomics 1 - Quiz 2

Prepared by: M. Ryan Sanjaya

Name: ........................
NIU: ........................

A Multiple Choice (60 points)

1. The market demand is a ... summation of individual 7. What is the own-price elasticity of the demand q =
demand curve at a given level of ... 10 − 2p when p = 1?
(a) horizontal; price (a) ϵ = −1/4.
(b) vertical; price (b) ϵ = −1.
(c) horizontal; quantity (c) ϵ = −1/2.
(d) vertical; quantity (d) ϵ = −2.
2. If invidual 1’s demand function is given by D1 (p) = 8. When the demand is given by q = 10 − 2p, the good is
max{10 − 2p, 0}, her demand will be ... when ... ... when p = 1.
(a) zero; p = 2. (a) infinitely elastic
(b) negative; p = 5. (b) elastic
(c) non-negative; p = 2. (c) unitary elastic
(d) non-negative; p = 6. (d) inelastic
3. To obtain a market demand curve we must assume that 9. When demand is given by q = 2000 − 100p + 5p2 , at
each individual must have the same preference for the what value(s) of p that the condition q ′ < 0 hold?
good.
(a) 0 < p < 10
(a) True
(b) p = 10
(b) False
(c) p > 10
4. When there are price changes, consumer who maintain (d) p < 10
his consumption of the goods (qi > 0 for i = 1, ..., k) is
said to make an adjustment on the ... 10. When demand is given by q = 2000 − 100p + 5p2 , what
is the value of ∆p∆q when p increases from 2 to 4?
(a) loss margin.
(b) intensive margin. (a) 140
(c) profit margin. (b) −160
(d) extensive margin. (c) 200
(d) −280
5. Which of these is the correct expression for own-price
elasticity? 11. When demand is given by ln(q) = 10 − 0.5 ln(p), its
own-price elasticity is ...
(a) (∂p/p)/(∂q/q)
(b) (∂q/p)/(∂p/q) (a) 0.5
(c) (∂p/q)/(∂q/p) (b) −2
(d) (∂q/q)/(∂p/p) (c) −0.5
(d) 2
6. Again, own-price elasticity can also be expressed as ...
∆q
(a) p ∆p + q(p) 12. Income elasticity for a luxury good is ...
∆q
(b) p ∆p + q(p) when ∆p∆q ≈ 0. (a) ≈ 1.
∆q (b) <1.
(c) q ∆p + p(q)
(c) 0
(d) p ∆p
∆q + q(p) (d) >1.
∆q
(e) p ∆p + q(p) when ∆p∆q ̸= 0.
1
B Essay (40 points)
1. Explain why the market demand for "linear" demand curves will have kink(s) as shown in the rightmost figure in Figure
1?

Figure 1: Individual and market demand

See the explanation given in the example in section 15.2 on adding up "linear" demand curves pp. 272-273.
2. Show how we arrived at this expression
|ϵ(p)| < 1
when we define ∆R = q∆p + p∆q.
Divide ∆R = q∆p + p∆q by ∆p
∆R ∆q
=q+p .
∆p ∆p
∆q
To obtain q + p ∆p > 0 we need to rearrange the inequality to

∆q
p > −q
∆p
p ∆q
> −1
q ∆p
ϵ > −1
−ϵ < 1
|ϵ| < 1.