What is the defining characteristic of a normal good?
Answer
An increase in income leads to an increase in quantity demanded
The price elasticity of demand is greater than unity
The income effect of a fall in price is negative
The substitution effect of a fall in price is positive
Question 2
Question
Given that potatoes are an inferior good, what will cause an increase in the price of potatoes?
Answer
a decrease in advertising expediture
a failure of the potato harvest
an increase in subsidies to potato growers
an increase in the income of consumers
Question 3
Question
What will make it more difficult for an industry to react quickly to an increase in market demand?
Answer
There is a high level of unemployment
The industry employs highly skilled workers
There is a high degree of substitutability between capital and labour
There are no close substitutes for the industry's product
Question 4
Question
In which of the following situation is the demand for a product said to be price elastic?
Answer
The quantity demanded responds to a change in price
An increase in price brings about a decrease in the quantity demanded
An in crease in price induces consumers to spend more on the product
A decrease in price brings about an increase in revenue
Question 5
Question
A silversmith sells 100 sets of earrings per week at a price of $5. As a direct result of a price increase to $6, the total revenue from sales rises by 8%.
Within which range does price elasticity of demand lie?
Answer
under 0.4
greater than 0.4 and less than 0.8
greater than 0.8 and less than 1.2
over 1.2
Question 6
Question
The demand for a commodity is perfectly elastic. A firm producing this commodity currently sells 100 units at $5 each.
What will be the revenue obtained by the firm, if it increases its price to $6?
Answer
0
$400
$500
$600
Question 7
Question
If pizza and soda are complements, we can conclude that
Answer
the cross-elasticity of demand is positive
the cross-elasticity of demand is negative
the income elasticity of demand is negative
the income elasticity of demand is positive
Question 8
Question
The price of a product in creases from $12 to $20 and the quantity demanded falls from 55 to 45. What is the PED?
Answer
0.4
2.5
-0.4
-2.5
Question 9
Question
Which of the following is not a factors affecting the elasticity of supply?
Answer
ability to stock pile
ability to increase output
Number of close substitutes
spare capacity
Question 10
Question
If total revenue remains constant after price is increased, demand is _______