Question 1

What are the main determinants of supply?

Accepted Answer

Factors that affect supply include the costs of production. As the costs of producing a good change, this will influence how much of a good a producer is willing to provide. Other factors include the profitability of a product and any other products a firm sells. A firm will want to produce and sell those products that will make it the most money, and so this will influence its supply decisions. This also links in with the profitability of goods in joint supply. Random shocks will also affect supply decisions, i.e. oil prices. One final factor that affects supply (and demand) is expectations. Firms' expectations about what they think will happen to the price of the good they are selling in the future will affect the amount they are willing to supply today. If they think it may go down in the future, then they will sell more of it now to achieve the highest revenue possible. If they think they will be able to sell it for more in the future, then they will hold back now and wait until the price does rise.

Question 2

Consider the market for red jeans. If celebrities start to wear more and more red jeans, what will happen to the equilibrium price and quantity of them?

Accepted Answer

A)  There will be a fall in both price and quantity. 
B)  There will be an increase in price and a fall in quantity. 
C)  There will be a fall in price and a rise in quantity. 
D)  There will be an increase in both price and quantity. 
A)  There will be a fall in both price and quantity. 
B)  There will be an increase in price and a fall in quantity. 
C)  There will be a fall in price and a rise in quantity. 
D)  There will be an increase in both price and quantity. D

Question 3

If there is a surplus in a free market, price will fall until the market has cleared.

Accepted Answer

A) True 
 B)False  TRUE

Question 4

Reasons for supply curves being positively sloped include

Accepted Answer

A)  firms always want to raise prices to boost profits. 
B)  typically, as output rises unit costs rise, so price must also rise. 
C)  the higher the demand for a good the more firms can charge. 
D)  all of the above 
A)  firms always want to raise prices to boost profits. 
B)  typically, as output rises unit costs rise, so price must also rise. 
C)  the higher the demand for a good the more firms can charge. 
D)  all of the above

Question 5

Which of the following is held constant along a demand curve?

Accepted Answer

A)  The price of substitute goods 
B)  Household income 
C)  Tastes and preferences 
D)  All of the above 
A)  The price of substitute goods 
B)  Household income 
C)  Tastes and preferences 
D)  All of the above

Question 6

The quantity demanded of PepsiTM has decreased. This is most likely to be because

Accepted Answer

A)  Coca ColaTM prices have gone up. 
B)  PepsiTM prices have gone up. 
C)  PepsiTM consumers have more income. 
D)  Coca ColaTM advertising is not as effective as it was. 
A)  Coca ColaTM prices have gone up. 
B)  PepsiTM prices have gone up. 
C)  PepsiTM consumers have more income. 
D)  Coca ColaTM advertising is not as effective as it was.

Question 7

The demand schedule for an individual shows how their purchases of a good will change as their income changes.

Accepted Answer

A) True 
 B)False

Question 8

If house prices rise faster than other prices, which of the following is the most likely explanation?

Accepted Answer

A)  Rent controls have been imposed. 
B)  House owners are speculating. 
C)  Prices of other goods are falling. 
D)  Interest rates are rising. 
A)  Rent controls have been imposed. 
B)  House owners are speculating. 
C)  Prices of other goods are falling. 
D)  Interest rates are rising.

Question 9

The law of demand says that if price rises, quantity demanded will fall.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following are determinants of house prices?

Accepted Answer

A)  The cost and availability of mortgages 
B)  Speculation 
C)  Income 
D)  The number of households 
E)  All of the above 
A)  The cost and availability of mortgages 
B)  Speculation 
C)  Income 
D)  The number of households 
E)  All of the above

Question 11

Which of the following is the most likely cause of a fall in the supply of petrol?

Accepted Answer

A)  A decrease in the cost of refining petrol 
B)  An increase in the price of diesel 
C)  An increase in the price of cars 
D)  An increase in bus drivers' wages 
A)  A decrease in the cost of refining petrol 
B)  An increase in the price of diesel 
C)  An increase in the price of cars 
D)  An increase in bus drivers' wages

Question 12

The substitution effect refers to the effect of a change in price on quantity demanded arising from the consumer becoming better or worse off as a result of the price change.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not a determinant of supply?

Accepted Answer

A)  The profitability of goods in joint supply 
B)  Tastes 
C)  Expectations of future price changes 
D)  The aims of producers 
A)  The profitability of goods in joint supply 
B)  Tastes 
C)  Expectations of future price changes 
D)  The aims of producers

Question 14

The term 'goods in joint supply' refers to a situation where more of the production of one good leads to more of the production of another good (e.g. petrol and other grade fuels).

Accepted Answer

A) True 
 B)False

Question 15

An increase in supply, not caused by a change in market price, is represented by

Accepted Answer

A)  a move up the given supply curve. 
B)  a rightward shift of the supply curve. 
C)  a move down the given supply curve. 
D)  A and C 
A)  a move up the given supply curve. 
B)  a rightward shift of the supply curve. 
C)  a move down the given supply curve. 
D)  A and C

Question 16

Explain how the price mechanism would cause a market with a surplus of goods/services to move towards equilibrium.

Accepted Answer

The surplus of goods would cause the mar

Question 17

Consider the market for good Z. What will be the effect of an increase in income?

Accepted Answer

A)  A rightward shift in the demand curve 
B)  A leftward shift in the supply curve 
C)  A rightward shift in the supply curve 
D)  A leftward shift in the demand curve 
E)  Need more information to say 
A)  A rightward shift in the demand curve 
B)  A leftward shift in the supply curve 
C)  A rightward shift in the supply curve 
D)  A leftward shift in the demand curve 
E)  Need more information to say

Question 18

Economists use the term 'perfect competition' for a situation where

Accepted Answer

A)  consumers are price- takers and producers are price- makers. 
B)  all producers and consumers are price- takers. 
C)  all consumers are price- takers (but not necessarily producers). 
D)  all producers are price- takers (but not necessarily consumers). 
A)  consumers are price- takers and producers are price- makers. 
B)  all producers and consumers are price- takers. 
C)  all consumers are price- takers (but not necessarily producers). 
D)  all producers are price- takers (but not necessarily consumers).

Question 19

Which one of the following would shift the supply curve for good X to the right?

Accepted Answer

A)  The demand for goods in joint supply (e.g. by- products) goes down. 
B)  The costs of producing good X fall. 
C)  Good X now sells for a higher price. 
D)  The demand for good X rises. 
E)  The demand for alternative goods (i.e. which could be produced as an alternative to good X) goes up. 
A)  The demand for goods in joint supply (e.g. by- products) goes down. 
B)  The costs of producing good X fall. 
C)  Good X now sells for a higher price. 
D)  The demand for good X rises. 
E)  The demand for alternative goods (i.e. which could be produced as an alternative to good X) goes up.

Question 20

If dividend yields on Sainsbury's shares are expected to rise, there will be an increase in Sainsbury's share prices, ceteris paribus.

Accepted Answer

A) True 
 B)False

Exam 4: The Working of Competitive Markets

What are the main determinants of supply?

Consider the market for red jeans. If celebrities start to wear more and more red jeans, what will happen to the equilibrium price and quantity of them?

If there is a surplus in a free market, price will fall until the market has cleared.

Reasons for supply curves being positively sloped include

Which of the following is held constant along a demand curve?

The quantity demanded of PepsiTM has decreased. This is most likely to be because

The demand schedule for an individual shows how their purchases of a good will change as their income changes.

If house prices rise faster than other prices, which of the following is the most likely explanation?

The law of demand says that if price rises, quantity demanded will fall.

Which of the following are determinants of house prices?

Which of the following is the most likely cause of a fall in the supply of petrol?

The substitution effect refers to the effect of a change in price on quantity demanded arising from the consumer becoming better or worse off as a result of the price change.

Which of the following is not a determinant of supply?

The term 'goods in joint supply' refers to a situation where more of the production of one good leads to more of the production of another good (e.g. petrol and other grade fuels).

An increase in supply, not caused by a change in market price, is represented by

Explain how the price mechanism would cause a market with a surplus of goods/services to move towards equilibrium.

Consider the market for good Z. What will be the effect of an increase in income?

Economists use the term 'perfect competition' for a situation where

Which one of the following would shift the supply curve for good X to the right?

If dividend yields on Sainsbury's shares are expected to rise, there will be an increase in Sainsbury's share prices, ceteris paribus.

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

Business in a Market Environment

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

Filters

The quantity demanded of Pepsi^TMhas decreased. This is most likely to be because