amy.lee1989
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Quiz on The price system, created by amy.lee1989 on 16/10/2014.

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The price system

Question 1 of 10

1

What is the defining characteristic of a normal good?

Select one of the following:

  • 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

Explanation

Question 2 of 10

1

Given that potatoes are an inferior good, what will cause an increase in the price of potatoes?

Select one of the following:

  • 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

Explanation

Question 3 of 10

1

What will make it more difficult for an industry to react quickly to an increase in market demand?

Select one of the following:

  • 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

Explanation

Question 4 of 10

1

In which of the following situation is the demand for a product said to be price elastic?

Select one of the following:

  • 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

Explanation

Question 5 of 10

1

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?

Select one of the following:

  • under 0.4

  • greater than 0.4 and less than 0.8

  • greater than 0.8 and less than 1.2

  • over 1.2

Explanation

Question 6 of 10

1

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?

Select one of the following:

  • 0

  • $400

  • $500

  • $600

Explanation

Question 7 of 10

1

If pizza and soda are complements, we can conclude that

Select one of the following:

  • 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

Explanation

Question 8 of 10

1

The price of a product in creases from $12 to $20 and the quantity demanded falls from 55 to 45. What is the PED?

Select one of the following:

  • 0.4

  • 2.5

  • -0.4

  • -2.5

Explanation

Question 9 of 10

1

Which of the following is not a factors affecting the elasticity of supply?

Select one of the following:

  • ability to stock pile

  • ability to increase output

  • Number of close substitutes

  • spare capacity

Explanation

Question 10 of 10

1

If total revenue remains constant after price is increased, demand is _______

Select one of the following:

  • perfectly inelastic

  • perfectly elastic

  • inelastic

  • unitary elastic

Explanation

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