Question 1

If a family spends a large part of its total budget on food, then its demand for food tends to be

Accepted Answer

A) inelastic 
B)  elastic. 
C)  cannot tell from the information given 
D)  perfectly elastic. 
E)  unitarily elastic. 
A) inelastic 
B)  elastic. 
C)  cannot tell from the information given 
D)  perfectly elastic. 
E)  unitarily elastic. B

Question 2

If speculation is destablising, a change in price resulting from a rise in demand will result in

Accepted Answer

A)  a further rise in demand and a rise in supply. 
B)  a fall in demand and a fall in supply. 
C)  a further rise in demand and a fall in supply. 
D)  a fall in demand and a rise in supply. 
A)  a further rise in demand and a rise in supply. 
B)  a fall in demand and a fall in supply. 
C)  a further rise in demand and a fall in supply. 
D)  a fall in demand and a rise in supply. C

Question 3

There are two goods X and Y. In which of the following cases will good X have the most price- elastic supply?

Accepted Answer

A)  If it is less costly to shift from producing X to another product than it is to shift from Y to another product. 
B)  A higher proportion of national income is spent on X than on Y. 
C)  The cost of producing extra units increases more rapidly in the case of X than in the case of Y. 
D)  Consumers find it easier to find alternatives for X than for Y. 
A)  If it is less costly to shift from producing X to another product than it is to shift from Y to another product. 
B)  A higher proportion of national income is spent on X than on Y. 
C)  The cost of producing extra units increases more rapidly in the case of X than in the case of Y. 
D)  Consumers find it easier to find alternatives for X than for Y. A

Question 4

Explain the three main determinants of a good's price elasticity of demand.

Accepted Answer

Elasticity of demand is determined by:
1

Question 5

Which of the following defines the price elasticity of supply?

Accepted Answer

A)  The responsiveness of quantity demanded to a change in supply 
B)  The responsiveness of supply to a change in demand 
C)  The responsiveness of quantity supplied to a change in income 
D)  The responsiveness of quantity supplied to a change in price 
A)  The responsiveness of quantity demanded to a change in supply 
B)  The responsiveness of supply to a change in demand 
C)  The responsiveness of quantity supplied to a change in income 
D)  The responsiveness of quantity supplied to a change in price

Question 6

The owner of a local hotdog stand has estimated that, if he lowers the price of hotdogs from £1.50 to£1.00, he will increase sales from 400 to 500 hotdogs per day. The demand for hotdogs is

Accepted Answer

A)  unitarily elastic. 
B)  elastic. 
C)  perfectly inelastic. 
D)  inelastic. 
E)  perfectly elastic. 
A)  unitarily elastic. 
B)  elastic. 
C)  perfectly inelastic. 
D)  inelastic. 
E)  perfectly elastic.

Question 7

If a firm knows that demand is inelastic, it should cut its price to increase revenue.

Accepted Answer

A) True 
 B)False

Question 8

Most basic foodstuffs have an income elasticity of demand which is low or negative.

Accepted Answer

A) True 
 B)False

Question 9

A supermarket decides to reduce the price of its own brand of baked beans as a special offer for one week only. During this week it discovers that its total revenue on these baked beans increases. This indicates that

Accepted Answer

A)  its own brand of baked beans is inelastic with respect to price. 
B)  the demand for its own brand of baked beans is inelastic with respect to income. 
C)  the demand for its own brand of baked beans is elastic with respect to income. 
D)  the demand for its own brand of baked beans is elastic with respect to price. 
E)  its own brand of baked beans is an inferior good. 
A)  its own brand of baked beans is inelastic with respect to price. 
B)  the demand for its own brand of baked beans is inelastic with respect to income. 
C)  the demand for its own brand of baked beans is elastic with respect to income. 
D)  the demand for its own brand of baked beans is elastic with respect to price. 
E)  its own brand of baked beans is an inferior good.

Question 10

Cross- price elasticity of demand for complements is positive.

Accepted Answer

A) True 
 B)False

Question 11

When priced at £5.00, the same amount of money was spent on DVDs as when the price was £6.00. Therefore, demand for DVDs is

Accepted Answer

A)  unitarily elastic. 
B)  inelastic. 
C)  elastic. 
D)  perfectly elastic. 
E)  perfectly inelastic. 
A)  unitarily elastic. 
B)  inelastic. 
C)  elastic. 
D)  perfectly elastic. 
E)  perfectly inelastic.

Question 12

If the cross- price elasticity between X and Y is negative, then

Accepted Answer

A)  X and Y are substitutes. 
B)  consumer income has increased. 
C)  X and Y are unrelated. 
D)  X and Y are complements. 
A)  X and Y are substitutes. 
B)  consumer income has increased. 
C)  X and Y are unrelated. 
D)  X and Y are complements.

Question 13

If price elasticity of demand is inelastic then, ignoring the sign, it will have a value <1.

Accepted Answer

A) True 
 B)False

Question 14

If price elasticity of demand is elastic then, ignoring the sign, it will have a value >1.

Accepted Answer

A) True 
 B)False

Question 15

Price and total revenue are inversely related (i.e. when price rises revenue falls) when demand is inelastic.

Accepted Answer

A) True 
 B)False

Question 16

The government wants to reduce the consumption of electricity by 5%. The price elasticity of demand for electricity is - 0.4. The government should

Accepted Answer

A)  raise the price of electricity by 12.5%. 
B)  raise the price of electricity by 2%. 
C)  raise the price of electricity by 0.08%. 
D)  lower the price of electricity by 0.4%. 
A)  raise the price of electricity by 12.5%. 
B)  raise the price of electricity by 2%. 
C)  raise the price of electricity by 0.08%. 
D)  lower the price of electricity by 0.4%.

Question 17

A downward- sloping straight- line demand curve will

Accepted Answer

A)  be elastic over its whole length. 
B)  have unit elasticity over its whole length. 
C)  be inelastic over its whole length. 
D)  become less elastic as price rises. 
E)  become more elastic as price rises. 
A)  be elastic over its whole length. 
B)  have unit elasticity over its whole length. 
C)  be inelastic over its whole length. 
D)  become less elastic as price rises. 
E)  become more elastic as price rises.

Question 18

The price elasticity of supply of butter is 0.2. The guaranteed price is originally set at £20 and the quantity produced is 1,000 tons. Which of the following quantities will represent the planned level of production for butter if the guaranteed price is reduced by 10%?

Accepted Answer

A)  2 tons 
B)  980 tons 
C)  200 tons 
D)  800 tons 
E)  20 tons 
A)  2 tons 
B)  980 tons 
C)  200 tons 
D)  800 tons 
E)  20 tons

Question 19

A supply curve has a price elasticity that is constant along it, if and only if

Accepted Answer

A)  it is a straight- line supply curve through the origin. 
B)  it is a horizontal supply curve. 
C)  it is a vertical supply curve. 
D)  it is a downward- sloping supply curve. 
A)  it is a straight- line supply curve through the origin. 
B)  it is a horizontal supply curve. 
C)  it is a vertical supply curve. 
D)  it is a downward- sloping supply curve.

Question 20

The university you attend needs to increase total revenue. The vice chancellor suggests that raising tuition fees by 5% will increase total revenue. However, after the tuition fee increase, total revenue actually fell. What can you infer about the price elasticity of demand for an education at your university? Why is this likely to be true? What did your university vice chancellor assume to be true about the price elasticity of demand for an education at your university?

Accepted Answer

If after tuition fees increased total re

Exam 5: Business in a Market Environment

If a family spends a large part of its total budget on food, then its demand for food tends to be

If speculation is destablising, a change in price resulting from a rise in demand will result in

There are two goods X and Y. In which of the following cases will good X have the most price- elastic supply?

Explain the three main determinants of a good's price elasticity of demand.

Which of the following defines the price elasticity of supply?

The owner of a local hotdog stand has estimated that, if he lowers the price of hotdogs from £1.50 to£1.00, he will increase sales from 400 to 500 hotdogs per day. The demand for hotdogs is

If a firm knows that demand is inelastic, it should cut its price to increase revenue.

Most basic foodstuffs have an income elasticity of demand which is low or negative.

A supermarket decides to reduce the price of its own brand of baked beans as a special offer for one week only. During this week it discovers that its total revenue on these baked beans increases. This indicates that

Cross- price elasticity of demand for complements is positive.

When priced at £5.00, the same amount of money was spent on DVDs as when the price was £6.00. Therefore, demand for DVDs is

If the cross- price elasticity between X and Y is negative, then

If price elasticity of demand is inelastic then, ignoring the sign, it will have a value <1.

If price elasticity of demand is elastic then, ignoring the sign, it will have a value >1.

Price and total revenue are inversely related (i.e. when price rises revenue falls) when demand is inelastic.

The government wants to reduce the consumption of electricity by 5%. The price elasticity of demand for electricity is - 0.4. The government should

A downward- sloping straight- line demand curve will

The price elasticity of supply of butter is 0.2. The guaranteed price is originally set at £20 and the quantity produced is 1,000 tons. Which of the following quantities will represent the planned level of production for butter if the guaranteed price is reduced by 10%?

A supply curve has a price elasticity that is constant along it, if and only if

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

The Working of Competitive Markets

Demand and the Consumer

Demand and the Firm

Products, Marketing and Advertising

Costs of Production

Revenue and Profit

Profit Maximisation Under Perfect Competition and Monopoly

Profit Maximisation Under Imperfect Competition

An Introduction to Business Strategy

Alternative Theories of the Firm

Growth Strategy

The Small-Firm Sector

Pricing Strategy

Labour Markets, Wages and Industrial Relations

Investment and the Employment of Capital

Reasons for Government Intervention in the Market

Government and the Firm

Government and the Market

Globalisation and Multinational Business

International Trade

Trading Blocs

The Macroeconomic Environment of Business

The Balance of Payments and Exchange Rates

Banking, Money and Interest Rates

Business Activity, Employment and Inflation

Demand-Side Policy

Supply-Side Policy

International Economic Policy

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