The price system

amy.lee1989
Quiz by amy.lee1989, updated more than 1 year ago
amy.lee1989
Created by amy.lee1989 over 5 years ago
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Quiz on The price system, created by amy.lee1989 on 10/16/2014.

Resource summary

Question 1

Question
What is the defining characteristic of a normal good?
Answer
  • 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

Question 2

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

Question 3

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

Question 4

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

Question 5

Question
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?
Answer
  • under 0.4
  • greater than 0.4 and less than 0.8
  • greater than 0.8 and less than 1.2
  • over 1.2

Question 6

Question
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?
Answer
  • 0
  • $400
  • $500
  • $600

Question 7

Question
If pizza and soda are complements, we can conclude that
Answer
  • 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

Question 8

Question
The price of a product in creases from $12 to $20 and the quantity demanded falls from 55 to 45. What is the PED?
Answer
  • 0.4
  • 2.5
  • -0.4
  • -2.5

Question 9

Question
Which of the following is not a factors affecting the elasticity of supply?
Answer
  • ability to stock pile
  • ability to increase output
  • Number of close substitutes
  • spare capacity

Question 10

Question
If total revenue remains constant after price is increased, demand is _______
Answer
  • perfectly inelastic
  • perfectly elastic
  • inelastic
  • unitary elastic
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