Question 1
What happens when a cyclone destroys the banana plantation?
·
The damaging effect of the cyclone means
that farmers are only able to supply fewer bananas at each possible price and
supply decreases.
·
There is no effect of a cyclone on market
prices.
·
The damaging effect of the cyclone means
that farmers are able to produce apples instead of bananas with no effect on
the supply of bananas.
·
The prices for bananas will increase
permanently.
Answer
The correct answer to this question is
that the damaging effect of the cyclone means that farmers are only able to
supply fewer bananas at each possible price and supply decreases.
A cyclone's destruction of a banana
plantation would lead to a reduction in the availability of bananas, causing
the supply to decrease. This can lead to a temporary increase in prices for
bananas as there is less supply to meet demand, but it doesn't necessarily mean
that prices will increase permanently. Therefore, the first option is the best
answer.
Question 2
Which of the following is true about the
market equilibrium?
·
As the price increases, the quantity
demanded and the quantity supplied increases.
·
As the price increases, the quantity
demanded and the quantity supplied decreases.
·
As the price increases, the quantity
demanded increases and the quantity supplied
·
As the price increases, the quantity
demanded decreases and the quantity supplied
Answer
The correct statement about market
equilibrium is:
As the price increases, the quantity
demanded decreases and the quantity supplied increases.
In a typical supply and demand model, an
increase in price will lead to an increase in the quantity supplied, as
producers are generally willing to produce and sell more at a higher price.
Conversely, as the price increases, consumers are generally less willing to buy
the product, so the quantity demanded decreases.
Question 4
A shortage of a product means a/an:
excess supply of the product.
situation where the quantity demanded is
less than the quantity supplied
situation where the quantity demanded
exceeds the quantity supplied.
situation where the quantity supplied
exceeds the quantity demanded.
Answer
A shortage of a product means a situation
where:
situation where the quantity demanded
exceeds the quantity supplied.
When demand for a product is greater than
the supply, there is a shortage of that product in the market. This is often a
result of the product's price being below the equilibrium price, where the
quantity demanded would equal the quantity supplied.
Question 5
Assume that brand X is an inferior good
and name brand Y is a normal good. An increase in consumer income, other things
being equal, will cause a/an:
upward movement along the demand curve
for name brand Y.
downward movement along the demand curve
for brand X.
rightward shift in the demand curve for
brand X.
leftward shift in the demand curve for
brand X.
Answer
In the context of economics, an inferior
good is one where the demand decreases as consumer income rises, and a normal
good is one where the demand increases as consumer income rises.
So, given that brand X is an inferior
good and brand Y is a normal good, an increase in consumer income, other things
being equal, will cause a:
leftward shift in the demand curve for
brand X.
The demand for an inferior good decreases
as incomes rise, so the entire demand curve for brand X will shift to the left.
Conversely, the demand for a normal good like brand Y would typically increase
with higher incomes, but the given options do not include the correct response
for brand Y, so the best answer is the one related to brand X.
Question 6
Consider the market for grapes. An
increase in the wage paid to grape pickers will cause the:
demand curve for grapes to shift to the
right, resulting in a higher equilibrium price for grapes and a reduction in
the quantity consumed.
demand curve for grapes to shift to the
left, resulting in a lower equilibrium price for grapes and an increase in the
quantity consumed.
supply curve for grapes to shift to the
left, resulting in a lower equilibrium price for grapes and a decrease in the
quantity consumed.
supply curve for grapes to shift to the
left, resulting in a higher equilibrium price for grapes and a decrease in the
quantity consumed.
Answer
An increase in the wage paid to grape
pickers will increase the cost of producing grapes. This increase in production
costs will generally lead to a decrease in the supply of grapes, as it becomes
more expensive for producers to produce the same quantity.
The correct option is:
supply curve for grapes to shift to the left,
resulting in a higher equilibrium price for grapes and a decrease in the
quantity consumed.
As the supply decreases (shifts to the
left), the equilibrium price will increase due to the reduced quantity
available, and the quantity consumed will decrease because of the higher price.
Question 7
If the government prevents the market
price from rising above $10, it can set a/an:
optimum price.
minimum price.
price ceiling.
price floor.
Answer
When the government sets a limit on how
high a price can be charged for a good or service, this is referred to as a
price ceiling.
So the correct answer is:
price ceiling.
Question 8
When an economy's resources are not fully
employed, then it must be true that the:
production point is located outside and
to the right of the production possibilities frontier.
production point is located along the
production possibilities frontier.
production point is located inside and to
the left of the production possibilities frontier.
production possibilities frontier shifts
to the right.
Answer
The production possibilities frontier
(PPF) represents the maximum feasible amount of two goods that can be produced
with available resources and technology. If an economy's resources are not
fully employed, then it is producing below its potential, meaning that it is
operating at a point inside its PPF.
The correct answer is:
production point is located inside and to
the left of the production possibilities frontier.
Question 9
The opportunity cost to a city for using
local tax revenues to construct a new park is the:
best alternative option foregone by
building the park.
dollar cost of constructing the new park.
dollar cost of the old park.
increased taxes necessary to pay for
maintenance of the new park.
Answer
The opportunity cost of a decision is the
value of the next best alternative that must be forgone when that decision is
made. In this case, the opportunity cost to a city for using local tax revenues
to construct a new park would be the best alternative use of those funds that
is foregone by choosing to build the park.
So the correct answer is:
best alternative option foregone by
building the park.
Question 10
Marginal cost is:
change in total cost divided by change in
quantity.
change in total fixed cost divided by
change in quantity.
change in average variable cost divided
by change in quantity.
change in average fixed cost divided by
change in quantity.
Answer
Marginal cost refers to the additional
cost incurred by producing one more unit of a good or service. It is calculated
as the change in total cost divided by the change in quantity.
So the correct answer is:
change in total cost divided by change in
quantity.
Question 11
In the long run, total fixed cost:
falls.
does not exist.
is constant.
increases.
Answer
In the long run, all costs are variable,
and there are no fixed costs. This means that businesses can adjust all their
inputs, including those that are typically fixed in the short run like capital
or land. In the long run, firms can enter or exit an industry, build new
factories or close existing ones, so there is no cost that remains constant
when considering these long-term adjustments.
So the correct answer is:
does not exist.
Question
Output Quantity Total Fixed Costs ($) Total
Variable Cost ($)
0 100 0
1 100 50
2 100 84
3 100 108
4 100 127
5 100 150
the average total cost of producing five
units is:
$0.
$27.
$50.
$100.
Answer
Average total cost (ATC) is the sum of
the total fixed costs and total variable costs, divided by the quantity of
output. In this case, to find the average total cost of producing five units,
you would add the total fixed costs ($100) and total variable costs ($150) for
that level of output, and then divide by the quantity produced (5).
So the correct answer is:
$50.
Question 13
Marginal cost is defined as the increase
in total cost resulting from an increase in:
one unit of output.
output of 100 units.
a firm's plant size.
one unit of labour.
Answer
Marginal cost is the additional cost
incurred by producing one more unit of a good or service. It is defined as the
increase in total cost resulting from an increase in one unit of output.
So the correct answer is:
one unit of output.
Question 14
Which of the following pairs is the most
likely to exhibit an inverse relationship?
The amount of time you spend studying and
your final marks.
Waiter's tips and his/her service.
The annual income and demand for overseas
travel.
People's annual income and their
expenditure on second-hand clothes.
Answer
An inverse relationship means that as one
variable increases, the other variable decreases.
The most likely pair to exhibit this kind
of relationship from the given options is:
People's annual income and their
expenditure on second-hand clothes.
This is because as people's income
increases, they are generally more likely to buy new clothes instead of
second-hand clothes, thus decreasing their expenditure on second-hand clothes.
It's a general observation that often applies to what is known as an
"inferior good," where demand decreases as income increases.
Question 15
Scarcity:
is a problem only in the poorer countries
of the world.
will disappear if the country is rich.
is a problem that exists in every economy
with limited resources.
is not a problem for the developed
countries.
Answer
Scarcity is a fundamental concept in
economics that refers to the basic economic problem that arises because people
have unlimited wants but resources are limited. It's not confined to any particular
economic status or type of country.
The correct answer is:
is a problem that exists in every economy
with limited resources.
Question 16
A positive relationship exists when:
there is no association between two variables.
one variable increases and there is no
change in the other variable.
one variable increases and the other
variable increases too.
one variable increases and the other
variable decreases.
Answer
A positive relationship between two
variables means that as one variable increases, the other variable also
increases. The two variables move in the same direction.
So the correct answer is:
one variable increases and the other
variable increases too.
Question 17
If demand price elasticity measures 2,
this implies that consumers would:
buy twice as much of the product if the
price drops 10 per cent.
require a 2 per cent drop in price to
increase their purchases by 1 per cent.
buy 2 per cent more of the product in
response to a 1 per cent drop in price.
require at least a $2 increase in price
before showing any response to the price in-crease.
Answer
Price elasticity of demand measures the
responsiveness of the quantity demanded of a good to a change in its price. It
is calculated as the percentage change in quantity demanded divided by the
percentage change in price.
If demand price elasticity measures 2, it
means that a 1% change in price leads to a 2% change in the quantity demanded.
So the correct answer is:
buy 2 per cent more of the product in
response to a 1 per cent drop in price.
Question 18
If a farmer lowers the price of his
product from $15 to $5 and finds that sales increase from 500 to 1000 units per
week, then the demand for the farmer's product in this range is (assuming
midpoint formula for price elasticity of demand):
price inelastic.
price elastic.
unit elastic.
cross elastic.
Answer
Since the absolute value of the price
elasticity of demand is equal to 1, the demand is:
unit elastic.
Question 19
An economist estimates that 0.67 is the
price elasticity of demand for disposable diapers. This suggests that
disposable diaper producers could:
advertise more to raise the price
elasticity of demand.
encourage more parents to use cloth
diapers.
lower the price of disposable diapers to
raise more revenue.
raise the price of disposable diapers to
raise more revenue.
Answer
The price elasticity of demand tells us
how responsive the quantity demanded of a good is to a change in price. If the
elasticity is less than 1 (in absolute value), then the demand is considered
inelastic. This means that a percentage change in price will result in a
smaller percentage change in quantity demanded.
Given that the price elasticity of demand
for disposable diapers is 0.67, the demand is inelastic. Therefore, if the
price of disposable diapers were to increase, the percentage decrease in
quantity demanded would be smaller than the percentage increase in price. This
would lead to an increase in total revenue.
So the correct answer is:
raise the price of disposable diapers to
raise more revenue.
Question 20
Tara buys four music CDs when the price
is $10 and two CDs when the price is $14. Her price elasticity of demand is
(using the mid-point formula):
0.
1.
2.
3.
Answer
The absolute value of the price
elasticity of demand is 1, so the correct answer is:
1