Multiple Choice Questions.
Q1 The demand curve for concert tickets for the heavy metal band “Mum’s Worry” would show:
a) the number of tickets willing to be sold at the box office at various prices
b) the number of tickets that are needed
c) the quality of the people who are willing and able to purchase tickets
d) the number of tickets that are willing to be purchased
Q2 Demand is the relationship between two economic variables:
a) the cost of a particular good and the quantity of the good produced.
b) the cost of a particular good and the quantity of the good consumers are willing to buy.
c) the price of the particular good and the price consumers are willing to pay.
d) the price of a particular good and the quantity of the good consumers are willing to buy.
Q3 When the price is below equilibrium, how will the market return to equilibrium?
a) Supply will decrease and demand will increase
b) Supply will increase and demand will decrease
c) The quantity supplied will increase and the quantity demanded will decrease
d) The quantity demanded will increase and the quantity supplied will decrease
Q4 If a 15 per cent change in price results in a 7.5 per cent change in quantity demanded, the price elasticity of demand is …………………………… and demand is …………………………….
a) 2; elastic
b) 0.5; elastic
c) 0.5; inelastic
d) 1; unit elastic
Q5 If fish and chips are considered to be close complements, the cross elasticity of demand between the 2 goods will be
a) equal to zero
b) negative and high
c) positive and high
d) equal to one
Q6 Which of the following is the cause of an increase in total revenue?
a) Price increases when demand is elastic
b) Price decreases when demand is elastic
c) Price increases when demand is unit elastic
d) Price decreases when demand is inelastic
Q7 If an individual’s income increases, then the demand for a normal good is:
c) remain constant
e) fall to zero
Q8 Suppose the price of a bus ticket rises from $2.75 to $3 and the number of tickets sold falls from 10,000 to 8,500, the price elasticity of demand is:
b) unitary elastic
c) perfectly elastic
Q9 A downward sloping demand curve will have a
a) higher price elasticity of demand coefficient along the upper half of the demand curve
b) price elasticity of demand coefficient that remains constant
c) perfectly elastic demand coefficient
d) positive slope
Q10 When the government imposes a price ceiling
a) market equilibrium is established at a lower price
b) a “black market” will develop
c) it will only have effect if the price ceiling is established above the equilibrium price
d) there will be a surplus of unsold goods
SHORT ANSWER QUESTIONS
Q1 Consider the market for the confectionery “Minties”. Analyse the following situations and clearly state the effect on both the price equilibrium and the quantity equilibrium. Analyse each situation separately. Use a diagram for each. i) “Fantales”, a substitute drops the price by 20% ii) incomes increase in Australia by 10% iii) confectionery industry introduce new cost saving technology (iv) “Minties” lower their price by 15% (word limit 300 words)
Q2 You are an economist and you have been asked to advise your company “Heaven Sent” about
pricing strategies whether they should increase (or lower) the price of the new fragrance “Summer Breeze” to increase their total revenue. You have already been advised that the Price Elasticity of Demand (PED) is 2.7. Explain how your knowledge of elasticity would help you give the correct advice to increase total revenue. Give reasons for your advice.
Q3 Price ($) Quantity demanded Quantity supplied
50 50 80
40 55 75
30 60 70
20 65 65
10 70 60
1a) In the above market what is the initial market equilibrium price and equilibrium quantity?
b) If the government sets a price floor at $50, what will be the outcome in this market?
c) Why would a government decide to introduce a price floor?