Deck 2: Consumers in the Marketplace

Question 1

When the price of margarine increases, the demand for butter increases. Given this information, butter and margarine would be considered _____.

A) complements
B) luxury goods
C) inferior goods
D) substitutes

Answer 1

substitutes

Question 2

When the price of tennis racquets falls, the demand for tennis balls increase. Given this information, tennis balls and tennis racquets would be considered _____.

A) substitutes
B) complements
C) Veblen goods
D) Giffen goods

Answer 2

complements

Question 3

A movement along the demand curve can be caused by a change in:

A) the price of related goods.
B) consumer incomes.
C) tastes of the consumers.
D) the price.

Answer 3

the price.

Question 4

Which of the following is likely to cause the demand curve for a good to shift inwards?

A) A decrease in the price of a complementary product.
B) A research report that states that the good is unsafe for consumption.
C) An increase in the price of a substitute product.
D) The expectation that the future price of the product will increase.

Question 5

Which of the following is likely to explain why the demand curve for baked beans, an inferior good, would shift to the right?

A) An increase in the price of white bread which is consumed with baked beans.
B) A fall in the average income level of consumers in the economy.
C) A restriction on imports of baked beans that increases the price.
D) An increase in the exports of baked beans to other countries.

Question 6

An increase in income is likely to cause _____.

A) an increase in demand for a normal good
B) a decrease in demand for a luxury good
C) an increase in demand for an inferior good
D) a decrease in demand for a complementary good

Question 7

The demand for an inferior good _____.

A) is very low as these goods are generally of a lower quality
B) decreases as the consumer's income increases
C) is very high since these goods have few substitutes
D) increases as the price of the good increases

Question 8

Which of the following is a determinant of the level of demand for a good?

A) The costs of producing the good.
B) The income of the consumer.
C) The availability of raw materials for production.
D) The number of sellers in the market.

Question 9

Which of the following will cause the demand curve for a normal good to shift to the right?

A) A fall in the income levels of consumers.
B) An increase in the price of a complementary good.
C) An increase in the price of a substitute good.
D) An increase in the cost of the inputs used to produce the good.

Question 10

What is likely to happen when the price of a good falls?

A) The demand curve for the good will shift to the left.
B) The quantity demanded of the good will increase.
C) The demand curve for the good will shift to the right.
D) The quantity supplied of the good will increase.

Question 11

A downward-sloping demand curve for beef implies that:

A) as the price of beef rises, consumers may substitute other meats for beef.
B) as the price of beef rises, consumers buy more beef because they can afford less of other
C) as the price of beef falls, consumers substitute other meats for beef.
D) as the price of other meats increases, consumers will buy less beef.

Question 12

The average income level, as measured by the per capita GDP, has increased by 28% in Country X. Which of the following is most likely to happen in the market for denims, a normal good, in Country X?

A) Consumers will expect the price of denims to remain the same in the future.
B) The cost of producing denims will fall.
C) The demand for substitutes for denims will increase.
D) The demand curve for denims will shift to the right.

Question 13

The demand curve for a normal good will shift to the left if _____.

A) the cost of producing the good increases
B) consumers expect the price of the good to increase in the future
C) the price of a complementary good increases
D) the number of inputs used to produce the good are increased

Question 14

If South Carolina experiences a late frost that damages the state's peach crop, then:

A) the demand curve for peaches will shift to the left.
B) the supply curve for peaches will shift to the right.
C) the demand curve for peaches will shift to the right.
D) the price of nectarines, a substitute for peaches, will rise.

Question 15

If income falls and the demand for hamburgers increases, this suggests that a hamburger is a(n) _____ good.

A) normal
B) substitute
C) inferior
D) complementary

Question 16

Assume that white bread is an inferior good. During a recession, a ?rm that produces white bread is likely to _____.

A) exit the bread market and produce cakes and scones
B) increase the quantity of bread supplied to the market
C) also start selling organic bread, a luxury good, at high prices
D) reduce the output of bread and increase prices

Question 17

The demand curve for a good shows:

A) that the quantity supplied in the market increases with an increase in price.
B) that the quantity demanded of the good is negatively related to price.
C) that the total utility from consuming the good falls as marginal utility increases.
D) the relationship between consumers' income and quantity demanded of the good.

Question 18

Which of the following is true for an inferior good?

A) Unlike for normal goods, as the price of an inferior good increases, the quantity demanded of the good falls.
B) A larger proportion of those who buy inferior goods are likely to be those who earn
C) The demand curve for inferior goods is upward sloping.
D) Inferior goods are not likely to have many substitutes or complements.

Question 19

When the demand for a good increases:

A) less of the good is bought at each price.
B) buyers move downward along the demand curve.
C) more of the good is bought at each price.
D) buyers move upward along the demand curve.

Question 20

If goods J and K are substitutes, an increase in the price of J causes:

A) the demand curve for K to shift towards the origin.
B) K's demand curve to shift to the right.
C) the demand for J to increase.
D) the demand curves for both J and K to shift to the left.

Question 21

If the demand curve for corn is horizontal, the price elasticity of demand for corn _____.

A) is equal to 0
B) is equal to 1
C) is equal to in?nity
D) lies between 0 and 1

Question 22

Suppose the price elasticity of demand for lager is 2 and the price of lager increases by 15 percent. The quantity demanded will change by _____.

A) 15%
B) 20%
C) 30%
D) 10%

Question 23

The price elasticity of demand for a particular good is computed by calculating the ratio of the _____.

A) percentage change in quantity demanded to the percentage change in price
B) change in demand to the change in price
C) percentage change in price to the percentage change in quantity demanded
D) change in price to the change in demand

Question 24

The following graph shows a downward-sloping demand curve for a good. Refer to the graph to answer the question.
The price elasticity of demand at point A is equal to _____.

A) 1
B) 0
C) ?
D) 3

Question 25

Which of the following correctly states the law of demand?

A) Ceteris paribus, as the quantity of inputs used to produce a good rises, more of the good will be demanded.
B) Ceteris paribus, as the cost of producing a good rises, more of the good will be
C) Ceteris paribus, as the number of sellers in the market fall, more of the good will be demanded.
D) Ceteris paribus, as the price of a good falls, more of the good will be demanded.

Question 26

If the percentage change in the price of a good and the percentage change in the quantity demanded of the good are both equal to 20%, then the price elasticity of demand for the good is _____.

A) equal to -1
B) inelastic
C) unit elastic
D) greater than 1

Question 27

If the percentage change in the price of a good is 12% while the percentage change in the quantity demanded is 24%, then the price elasticity of demand for the good is _____.

A) perfectly elastic
B) inelastic
C) unit elastic
D) elastic

Question 28

Which of the following will affect a good's price elasticity of demand?

A) The income level of the consumer.
B) The price of complements.
C) The cost of the inputs used to produce the good.
D) The number of substitutes that the good has.

Question 29

An advertising campaign for a good that succeeds in changing consumers' tastes and preferences will _____.

A) shift the demand curve for the good to the right
B) cause a movement along the demand curve for the good
C) increase demand for a competitor's product
D) make the demand for the good perfectly elastic

Question 30

The demand for a product is likely to decrease if:

A) the number of buyers in the market increase.
B) the price of the product rises.
C) consumers expect the price to fall in the future.
D) the price of a substitute good increases.

Question 31

Which of the following is true for higher prices along a linear downward-sloping demand curve for a good?

A) The price elasticity of demand is lesser than 1 at higher prices.
B) Higher quantities of the good are demanded at higher prices.
C) Higher prices are associated with unit elastic demand.
D) Higher prices are associated with higher price elasticities of demand.

Question 32

The income elasticity of demand measures the:

A) responsiveness of the quantity demanded of a good to changes in the consumer's income.
B) sensitivity of the quantity demanded of one good to the change in the price of another
C) fraction of income or household spending allocated to a particular good.
D) proportion of total income that is spent on consumption and on saving.

Question 33

The price elasticity of demand for a good measures _____.

A) the correlation between the quality of a good and its price
B) how responsive quantity demanded is to a change in price
C) the correlation between income levels and quantity demanded
D) how responsive demand is to a change in the price of substitute goods

Question 34

The demand curve for diamond jewellery, a luxury good, will shift outwards if _____.

A) consumers' incomes' fall
B) the price of platinum jewellery, considered a substitute for diamond jewellery, falls
C) the price of diamond jewellery increases
D) a new diamond mine is discovered, leading to an increase in the supply of diamonds

Question 35

The following graph shows a downward-sloping demand curve for a good. Refer to the graph to answer the question.
The price elasticity of demand at point C is equal to _____.

A) 1
B) 0
C) ?
D) 3

Question 36

For a normal good, the income elasticity of demand _____.

A) is equal to -1
B) lies between 0 and -0.5
C) is equal to -?
D) is above 0

Question 37

The following graph shows a downward-sloping demand curve for a good. Refer to the graph to answer the question.
The price elasticity of demand at point B is equal to _____.

A) 1
B) 0
C) ?
D) 3

Question 38

For a(n) _____ good, a fall in price is likely to shift the demand curve to the left.

A) luxury
B) normal
C) inferior
D) essential

Question 39

If a good has many close substitutes, it is likely that the _____.

A) price elasticity of the good is highly inelastic
B) demand curve for the good is upward sloping
C) quantity demanded of the good is very sensitive to changes in price
D) demand for the good will increase in proportion to an increase in income

Question 40

Which of the following statements is correct?

A) Demand is more elastic in the short run than in the long run.
B) The price elasticity of demand for new products in new markets is likely to be inelastic.
C) The longer the time consumers have to adjust to changes in the price of a good, the more inelastic the demand will be.
D) The availability of substitutes for a good does not affect its price elasticity of demand.

Question 41

If the price of a good falls by 15% leading to a 20% fall in the quantity demanded of its substitute, the cross-price elasticity for the two goods is _____.

A) 0.75
B) 1.33
C) 5
D) -5

Question 42

If the cross price elasticity of two goods (X and Y) is equal to 1, this means that _____.

A) X and Y are complements
B) total revenue will fall with an increase in the price of X
C) X and Y are substitutes
D) total revenue will increase with a fall in the price of Y

Question 43

If a good is price inelastic, an increase in price will _____.

A) increase the ?rm's total revenue
B) cause a proportionate increase in costs
C) lead to a fall in the ?rm's pro?ts
D) cause the demand curve to become vertical

Question 44

If two goods are substitutes, the cross-price elasticity of demand between the goods lies between _____.

A) 0 and 0.5
B) -0.5 and +0.5
C) 0 and ?
D) ? and -?

Question 45

Under ?rst-degree price discrimination, _____.

A) consumers pay a lump sum irrespective of how many units they buy
B) every consumer pays a ?xed price for each unit of the good
C) each consumer is charged exactly what they are willing to pay for the good
D) consumers are charged according to the number of units they buy

Question 46

Which of the following is likely to be true during the life cycle of a product?

A) Competition from other ?rms is weakest during the growth phase.
B) The price of the product is usually constant throughout the product life cycle.
C) The demand for the product is usually highly price elastic in the maturity phase.
D) During the decline phase, there is a very high degree of price sensitivity among

Question 47

If the percentage change in the income of the consumer is 20% and the percentage change in the demand for a good is 8%, the good can be described as being _____.

A) perfectly income elastic
B) income inelastic
C) perfectly income inelastic
D) income elastic

Question 48

The difference between what consumers would be willing to pay for a product as re?ected by the market demand curve and what they actually pay, as re?ected by the market price is:

A) consumer surplus.
B) equal to the total utility of the good.
C) the price elasticity of demand.
D) the difference between the buying price and the selling price.

Question 49

The _____ measures the responsiveness of the quantity demanded of a good to a change in the price of a related good.

A) price elasticity of demand
B) elasticity of supply
C) cross-price elasticity of demand
D) income elasticity of demand

Question 50

If the income elasticity of demand for a good is positive but less than 1, then:

A) demand for the good will increase at a faster rate than price.
B) the good is an inferior good.
C) demand for the good will increase at a slower rate than income.
D) the good is a luxury good.

Question 51

For two goods that are complements, the cross-price elasticity of demand for one good with the other will lie between _____.

A) 0 and 0.5
B) -0.5 and +0.5
C) 0 and -?
D) 1 and ?

Question 52

The price elasticity of demand for product X is becoming more inelastic as many ?rms that produce X and consumers of X are exiting the market. The price of product X has remained more or less stable. In other words, product X is in the _____ phase of its life cycle.

A) decline
B) growth
C) maturity
D) introductory

Question 53

Germany and the UK have the largest markets for carbonated drinks in Europe. Market research shows that consumers of carbonated drinks are concentrated in the lower-income groups. Germany and UK also have ageing populations and rising a?uence. Given this information, which of the following statements is likely to be true?

A) The carbonated drinks markets in Germany and the UK are not likely to offer much scope for future growth.
B) Prices in the carbonated drinks markets in Germany and the UK are likely to be ?uctuation
C) Younger populations are associated with increased consumption of healthy alternatives to soft drinks, such as bottled water and juices.
D) The demand curves for carbonated drinks in Germany and the UK are likely to be

Question 54

Under third-degree price discrimination, _____.

A) consumers are divided into groups and each group pays a different price
B) every consumer pays a ?xed price for each unit of the good
C) consumers are asked to state the exact price that they are willing to pay for the good
D) consumers are charged according to the number of units they buy

Question 55

For a good that is price elastic, a fall in price will ____.

A) shift the demand curve for the good to the left
B) lead to a decrease in the quantity demanded of the good
C) lead to a rise in the total revenue earned by the ?rm
D) cause the supply curve for the good to become steeper

Question 56

Which of the following conditions will allow a ?rm to undertake price discrimination successfully?

A) The good or service that is being sold must be a new or innovative product.
B) The ?rm must face a perfectly elastic demand curve.
C) The ?rm must be able to identify consumers willing to pay different prices.
D) Customers must be able to resell the good or service.

Question 57

If the price of a good increases by 20% and the quantity demanded of its complement falls by 18%, the cross-price elasticity for the two goods is _____.

A) 1
B) 0.9
C) 1.1
D) 2

Question 58

The following table shows the quantity demanded of a good at two different prices. Refer to the table to answer the question. Price Quantity £10 25 £20 20 When the price of the good increases to £20, the total revenue earned _____.

A) increases by £150
B) decreases by £100
C) remains constant
D) decreases by £50

Question 59

Suppose that goods X and Y are unrelated goods; they are neither substitutes nor complements. The cross-price elasticity of demand for good Y when the price of good X changes will _____.

A) be greater than 1
B) be equal to 0
C) lie between 1 and 2
D) be equal to -1

Question 60

Product X is composed of many different parts, each of which consumers value differently. All the different parts of the product, however, are not sold together. They are sold as a number of separate parts, each with an individual price. This practice is referred to as _____.

A) de-bundling
B) discounting
C) price leadership
D) cost-plus pricing

Question 61

Demand is more elastic at lower prices than at higher prices.

Question 62

A firm produces one unit of a good at a cost of £2. It sells 300 units of the good in the market at a price of £3 each. The firm's total revenue is equal to £600.

Question 63

Inferior goods have a negative income elasticity of demand.

Question 64

The overriding aim of advertising is to increase demand for a product, while reducing demand for competitors' products.

Question 65

At each stage of the product life cycle, the price elasticity of demand for the product is constant.

Question 66

The demand for a good is elastic if the percentage change in price is greater than the percentage change in quantity demanded.

Question 67

The cross-price elasticity of demand between substitutes is negative and less than -1.

Question 68

If consumers are more willing to spend money on property as their incomes increased within a prosperous economy, property is likely to be a normal good.

Question 69

It is reasonable to believe that the cross-price elasticity of demand between paint and paint brushes is always positive.

Question 70

An increase in the demand for tea that results from an increase in the price of coffee suggests that coffee and tea are complementary goods.

Question 71

The number of substitutes that a product has is irrelevant in deciding how responsive the quantity demanded of a good is to a change in its own price.

Question 72

If a product is price elastic, then an increase in price will cause a decrease in total revenue earned.

Question 73

Assuming that bacon is a normal good, an increase in average household income will cause the demand curve for bacon to shift to the left.

Question 74

An increase in the price of a luxury item will cause its demand curve to shift to the left.

Question 75

If consumers expect a future rise in prices, they are likely to cut down on their current consumption.

Question 76

The tastes and preferences of consumers affect the supply of a good and not its demand.

Question 77

A good is inferior if an increase in consumer income, other things being constant, causes less of the good to be consumed at every price.

Question 78

Other things being constant, a demand curve for hamburgers that slopes downward and to the right means that fewer hamburgers will be demanded as price increases.

Question 79

The price elasticity of demand remains constant along the length of a linear demand curve.

Question 80

The level of competition provides an indication of how elastic demand is; the higher the level of competition, the less elastic demand will be.