ECON 101 EXAM 2 (UMICH STYLE) | 250
PRACTICE QUESTIONS WITH ANSWERS &
RATIONALES | MACROECONOMICS +
MICRO REVIEW 2026
Econ 101 Exam 2 Practice
1. Price elasticity of demand measures:
A. Income changes
B. Responsiveness of quantity to price
C. Supply shifts
D. Government policy
Answer: B
Elasticity measures how much quantity demanded changes when price
changes.
2. Demand is elastic if elasticity is:
A. < 1
B. = 1
C. > 1
D. = 0
Answer: C
Elastic demand means quantity changes more than price.
3. A necessity tends to have:
A. Elastic demand
B. Inelastic demand
C. Perfect elasticity
D. Infinite elasticity
Answer: B
People must buy necessities regardless of price.
,4. Total revenue equals:
A. P + Q
B. P × Q
C. Q / P
D. P − Q
Answer: B
Revenue is price multiplied by quantity sold.
5. If demand is elastic, a price increase will:
A. Increase revenue
B. Decrease revenue
C. Not change revenue
D. Double revenue
Answer: B
Higher price reduces quantity significantly, lowering revenue.
6. Cross-price elasticity measures:
A. Income effect
B. Relationship between two goods
C. Supply curve slope
D. Government taxes
Answer: B
It shows how demand for one good responds to price changes of
another.
7. Substitute goods have:
A. Negative cross elasticity
B. Positive cross elasticity
C. Zero elasticity
D. Infinite elasticity
Answer: B
When one price rises, demand for the other increases.
,8. Complement goods have:
A. Positive elasticity
B. Negative elasticity
C. Zero elasticity
D. Unit elasticity
Answer: B
Price increase in one reduces demand for the other.
9. Marginal cost is:
A. Total cost ÷ quantity
B. Change in total cost / change in quantity
C. Fixed cost
D. Revenue
Answer: B
MC measures cost of producing one more unit.
10. Fixed costs:
A. Change with output
B. Stay constant
C. Decrease always
D. Increase always
Answer: B
Fixed costs do not vary with production level.
11. Variable costs:
A. Stay constant
B. Change with output
C. Are zero
D. Are fixed
Answer: B
They increase as production increases.
12. Average total cost equals:
A. TC / Q
B. MC / Q
, C. FC / Q
D. VC / Q
Answer: A
ATC is total cost divided by quantity.
13. The law of diminishing returns states:
A. Output always increases
B. Marginal product decreases
C. Costs fall forever
D. Prices rise
Answer: B
Adding more input eventually yields smaller increases in output.
14. Profit equals:
A. TR − TC
B. TC − TR
C. TR ÷ TC
D. TR + TC
Answer: A
Profit is revenue minus costs.
15. A firm maximizes profit when:
A. MR = MC
B. MR > MC
C. MR < MC
D. TC = TR
Answer: A
Optimal output occurs where marginal revenue equals marginal cost.
16. Perfect competition assumes:
A. One seller
B. Many buyers and sellers
C. No buyers
D. Government control
PRACTICE QUESTIONS WITH ANSWERS &
RATIONALES | MACROECONOMICS +
MICRO REVIEW 2026
Econ 101 Exam 2 Practice
1. Price elasticity of demand measures:
A. Income changes
B. Responsiveness of quantity to price
C. Supply shifts
D. Government policy
Answer: B
Elasticity measures how much quantity demanded changes when price
changes.
2. Demand is elastic if elasticity is:
A. < 1
B. = 1
C. > 1
D. = 0
Answer: C
Elastic demand means quantity changes more than price.
3. A necessity tends to have:
A. Elastic demand
B. Inelastic demand
C. Perfect elasticity
D. Infinite elasticity
Answer: B
People must buy necessities regardless of price.
,4. Total revenue equals:
A. P + Q
B. P × Q
C. Q / P
D. P − Q
Answer: B
Revenue is price multiplied by quantity sold.
5. If demand is elastic, a price increase will:
A. Increase revenue
B. Decrease revenue
C. Not change revenue
D. Double revenue
Answer: B
Higher price reduces quantity significantly, lowering revenue.
6. Cross-price elasticity measures:
A. Income effect
B. Relationship between two goods
C. Supply curve slope
D. Government taxes
Answer: B
It shows how demand for one good responds to price changes of
another.
7. Substitute goods have:
A. Negative cross elasticity
B. Positive cross elasticity
C. Zero elasticity
D. Infinite elasticity
Answer: B
When one price rises, demand for the other increases.
,8. Complement goods have:
A. Positive elasticity
B. Negative elasticity
C. Zero elasticity
D. Unit elasticity
Answer: B
Price increase in one reduces demand for the other.
9. Marginal cost is:
A. Total cost ÷ quantity
B. Change in total cost / change in quantity
C. Fixed cost
D. Revenue
Answer: B
MC measures cost of producing one more unit.
10. Fixed costs:
A. Change with output
B. Stay constant
C. Decrease always
D. Increase always
Answer: B
Fixed costs do not vary with production level.
11. Variable costs:
A. Stay constant
B. Change with output
C. Are zero
D. Are fixed
Answer: B
They increase as production increases.
12. Average total cost equals:
A. TC / Q
B. MC / Q
, C. FC / Q
D. VC / Q
Answer: A
ATC is total cost divided by quantity.
13. The law of diminishing returns states:
A. Output always increases
B. Marginal product decreases
C. Costs fall forever
D. Prices rise
Answer: B
Adding more input eventually yields smaller increases in output.
14. Profit equals:
A. TR − TC
B. TC − TR
C. TR ÷ TC
D. TR + TC
Answer: A
Profit is revenue minus costs.
15. A firm maximizes profit when:
A. MR = MC
B. MR > MC
C. MR < MC
D. TC = TR
Answer: A
Optimal output occurs where marginal revenue equals marginal cost.
16. Perfect competition assumes:
A. One seller
B. Many buyers and sellers
C. No buyers
D. Government control
