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Title: Exam style questions and answers
Description: These questions are aimed for first year students studying business and majoring in another social science, such as finance or marketing. They are exam styled questions, with answers attached to them
Description: These questions are aimed for first year students studying business and majoring in another social science, such as finance or marketing. They are exam styled questions, with answers attached to them
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REVISION QUESTIONS ON WEEKS 1-4
1
...
B
...
D
...
perfectly inelastic demand
...
A good is most likely to demonstrate higher price elasticity of demand:
A in the longer term than the short term
...
C
...
D
...
3
...
5 and the price of the product increases 2%, the quantity
demanded will:
A decrease approximately 1
...
B
...
C
...
75%
...
increased approximately 0
...
Which of the following statements regarding diminishing marginal returns is most accurate?
A As the quantity produced rises, costs begin to rise at a decreasing rate
...
D As the quantity produced rises, costs begin to rise at an increasing rate
...
The law of diminishing returns states that at some point as:
A
...
more of a resource is devoted to production, holding the quantity of other inputs constant, at
some point output will begin to decrease
...
less of a resource are devoted to production, holding the quantity of other inputs constant, the
output will decrease, but at an increasing rate
...
None of the above
6
...
B
...
C quantity demanded in response to a change in market price
...
If a good has elastic demand, a small price decrease will cause:
a
...
b
...
c
...
d
...
When household incomes go down and the quantity of a product demanded goes up, the
product is:
A
...
B
...
an inferior good
...
A substitute
C
...
A good is considered an inferior good if it exhibits a negative:
A
...
B
...
C
...
D
...
John Klement is a soybean farmer who harvests 125,000 bushels of soybeans annually
...
Soybeans are
currently priced at £5
...
Based on his estimates, Klement sees soybean prices
being relatively stable for the next two years, then increasing to £7
...
What action should Klement take? Klement should:
A
...
C
...
continue operating his business as usual
...
shut down for two years and then restart his business
...
If the demand curve for a given product is a straight line, this indicates that:
A) demand is unit elastic
...
C) demand is more elastic at higher prices
...
If a good has elastic demand, a small percentage price increase will cause:
A)
B)
C)
D)
a larger percentage increase in the quantity demanded
...
a smaller percentage increase in the quantity demanded
...
The percent change in demand for a good divided by the percent change in the price of
another good is known as the:
A
...
B
...
C
...
D
...
If the price elasticity of demand for a good is -4
...
B
...
D
...
4% decrease in the quantity demanded
...
40% increase in the quantity demanded
15
...
B) percentage change in income divided by the percentage change in the quantity demanded
...
D) Change in income divided by the change in quantity
16
...
Positive, positive
B
...
Negative, negative
Income
elasticity
D
...
The primary factors that influence the price elasticity of demand for a product are:
A
...
B
...
the proportions of consumers' budgets spent on the product, the size of the shift in the demand
curve for a product, and changes in consumers' price expectations
...
The level of necessity of the good and the amount of income
18
...
increase 10%
...
decrease 2%
...
increase 5%
...
Decrease 10%
19 If the price of World Cup football tickets increases from £40 a ticket to £50 a ticket and
the quantity demanded of tickets stays the same, demand for the tickets is:
A elastic, but not perfectly elastic
B
...
C
...
None of the above
20
...
guaranteeing a minimum level of income for every citizen
...
allocating scarce resources in such a manner that society's unlimited needs or wants are
satisfied as well as possible
...
comparing the success of command versus market economies
...
guaranteeing that production occurs in the most efficient manner
...
level of national unemployment
...
growth rate of GNP
...
effects of aggregate inflation
...
behaviour of individual economic agents
22
...
the consumption behaviour of an individual household
...
why a dozen fresh eggs costs less than a dozen fresh shrimp
...
the effect of price supports on the supply of milk
...
the effect of a tax cut on the nation's disposable income
...
Macroeconomics is described best by which of the following statements?
A
...
B
...
C
...
D
...
24
...
the price charged for the pizza
...
what must be given up in order to produce the extra pizza
...
the amount of time and ingredients that it takes to produce the pizza
...
the difference in the price of the pizza last year and the price this year
...
Economics studies:
A
...
The optimal allocation of finite resources to satisfy infinite wants
C
...
None of the above
26
...
A factor of production
B
...
A factor of production less productive than capital
...
Both A) and C)
27
...
The cost of buying a product
...
The cost of employing labour
...
The cost of renouncing to the best alternative option
...
None of the above
...
The demand curve:
A
...
B
...
C
...
D
...
29
...
The demand for an inferior good:
A
...
B
...
C
...
D
...
31
...
A reduction in income if the good is normal
...
An increase in the price of a complementary good
...
An increase in the price of a substitute good
...
Consumer tastes change, so they no longer want the good
...
Suppose that there is an increase in the demand for beer
...
An increase in the price of beer
...
The price of wine, a substitute, increases
...
Consumers' tastes change so that they prefer wine more than beer
...
A lack of rain results in a shortage of water
...
If X and Y are substitutes, then a _________ in the price of Y will determine a
_________ in demand for good X
A
...
Increase, decrease
C
...
Increase, no change
34
...
Increase, increase
B
...
Increase, no change
D
...
How will the market demand curve for a 'normal' good shift if the price of a substitute
good falls
A
...
Right
C
...
How will the market demand curve for a 'normal' good shift if tastes shift away from the
good
A
...
Right
C
...
Left
B
...
No shift
38
...
Left
B
...
No shift
39
...
Left
B
...
No shift
40
...
Left
B
...
No shift
41
...
Left
B
...
No shift
42
...
Left
B
...
No shift
43
...
A Panic
B Celebration
C Discounting
D Expansion
44
...
A Right, fall
B Left, fall
C Right, rise
D Left, rise
45
...
The price elasticity of good X is high if:
A
...
Good X has been introduced recently in the market
C
...
B and C
47
...
A
...
Decrease, decrease
C
...
Increase, no change
48
...
0
C
...
5
D
...
25
49
...
...
-0
...
- 1
D
...
5
50
...
10
B
...
20
D
...
If the price elasticity of demand for a particular good is greater than zero but less than
one, then the:
Percentage change in quantity demanded is greater than the percentage change in price
...
Price is above the midpoint on the demand curve if the demand curve is linear
...
Percentage change in quantity demanded equals the percentage change in price
...
Percentage change in price is greater than the percentage change in quantity
demanded
52
...
B
...
C
...
D
...
53
...
B
...
C
...
D
...
54
...
A
...
950
C
...
75
55
...
is a law about the technology of production
...
shows that output can always be expanded by adding more of the variable input
...
states that after a point, each additional unit of a variable input produces less than
the previous unit
...
A and B
...
You work for QW airline and have been tasked to verify if the firm’s total revenue will
increase if prices of tickets are lowered from £66 to £59
...
A) What is the price elasticity of demand ? {Use the mid-point formula}
PED=
𝟓𝟎𝟎
×𝟏𝟎𝟎
𝟐𝟐𝟓𝟎
−𝟕
×𝟏𝟎𝟎
𝟔𝟐
...
𝟐𝟐%
= −𝟏𝟏
...
TR after reduction =£147500
It is a good strategy as TR has increased following the price reduction
...
57
...
Demand this year is forecast to contract for the
first time since 2009, during the financial crisis
...
58
...
Use the mid-point formula to work out price elasticity of demand
...
𝟔𝟕%
𝟐𝟖
...
𝟑𝟑
59
...
PES =
𝟏𝟓𝟎𝟎𝟎
×𝟏𝟎𝟎
𝟐𝟕𝟓𝟎𝟎
𝟐
×𝟏𝟎𝟎
𝟕
=
𝟓𝟒
...
𝟓𝟕%
= 𝟏
...
Yesterday, the price of envelopes was £3 a box, and Julie was willing to buy 10 boxes
...
75 a box, and Julie is now willing to buy 8 boxes
...
PED =
−𝟐
×𝟏𝟎𝟎
𝟗
𝟎
...
𝟑𝟕𝟓
𝟐𝟐
...
𝟐% = −𝟏
Julie’s demand for envelopes is unit elastic
61
...
However, some still managed to outperform the market and even made
large profits in the midst of widespread economic difficulties
...
"(Yoon et al, 2013)
1) Define income elasticity of demand
IED – A measure of the relationship between a change in the quantity demanded for a
particular good and a change in income
2) Based on the information above, what can you deduce with respect to the income elasticity
for McDonald's compared to other upper-level restaurants?
The information provided suggests that McDonald has a lower income elasticity of
demand compared to the other restaurants as during the economic downturn, incomes
fell but demand for McDonald must have increased for the firm to make large profits
...
3) What are the factors affecting income elasticity of demand?
The level of necessity of the product
The level of income of consumers
62
...
An increase in migration will lead to an increase in demand for houses –shifting the
demand curve to the right
...
Both effects will cause house prices to increase and lead to new
equilibrium points
...
What’s important are the
shifts!
P1
D1
Q1 2
Q
D2
Quantity
63
...
The demand curve did not shift
from last year, but because of the abundant harvest, the price fell from £80 per sack to £68
per sack
...
a) What is the price elasticity of demand for potatoes? [Note: use the mid-point formula
and show all your workings]
...
5 ÷ 0
...
2%) = -3
...
08, -3
...
1]
b) How would you classify the price elasticity of demand for potatoes?
Demand for potatoes is price elastic because 3
...
The % change in quantity
demanded (50%) is greater than the change in price (16
...
64
...
In the LR, there is time for the firm to build a
new factory, or install new machinery or use different techniques of production
...
65
...
Production in the short run is subject to diminishing returns
...
Example: imagine the case of a farm
...
To increase output, more workers can be employed but beyond a point, the
workers will crowd on the fixed amount of land
...
66
...
A firm experiences economies of scale if costs per unit of output fall as the scale of
production increases
...
67
...
Fill in the TC, TR, MC and AC columns
Output
Price
Total
fixed
costs
10
TC
TR
AC
22
Total
variable
costs
0
0
MC
10
0
-
1
20
12
10
22
20
22
12
2
17
14
10
24
34
12
2
3
15
17
10
27
45
9
3
4
13
23
10
33
52
8
...
4
9
6
9
45
10
55
54
9
Title: Exam style questions and answers
Description: These questions are aimed for first year students studying business and majoring in another social science, such as finance or marketing. They are exam styled questions, with answers attached to them
Description: These questions are aimed for first year students studying business and majoring in another social science, such as finance or marketing. They are exam styled questions, with answers attached to them