2.0 Price determination in competitive markets

OPEC is expected to cut output of crude oil by more than 1 million barrels per day. The cut is intended to maintain the high world price for oil. All other things being equal, which one of the following would happen to the world market for crude oil? there would be a

• Movement along the supply curve

• A shift to the right of the supply curve

• A movement along the demand curve

• A shift to the left of the demand curve

Price elasticity of supply measures the responsiveness of the quantity supplied to a change in

• demand

• price

• costs of production

• the size of firms

Which one of the following would lead to an increase in equilibrium price

• demand is perfectly inelastic and labour costs rise

• demand is perfectly elastic and labour costs rise

• supply is perfectly elastic an the price of a substitute good falls

• demand is perfectly inelastic and labour costs fall

The diagrams show the markets for Goods X and Y. The markets are initially in equilibrium at P1 and Q1. If the supply of good X increases and both markets move to a new equilibrium at P2 and Q2, it may be concluded that Goods D and Y are in:

• competitive demand

• derived demand

• composite demand

• joint demand

Which one of the following measures of elasticity indicates that two goods are substitutes

• A negative income elasticity of demand

• A positive price elasticity of demand

• A positive cross elasticity of demand

• A negative cross elasticity of demand

The income elasticity of demand for a good is -3. Which one of the following statements is correct?

• A 20% increase in income leads to a 60% fall in the quantity demanded

• A 10% increase in price leads to a 30% fall in quantity demanded

• The good is a normal good

• Demand for the good is income inelastic

The table shows the price and quantity demanded of two goods X and Y. When the price of X falls from £10 to £9 the cross elasticity of demand for Y with respect to the price of X is

• +4

• +2

• -2

• -4

In a typical demand schedule, quantity demanded

• varies directly with price

• varies proportionately with price

• is determined by the elasticity of demand

• varies inversely with price

The diagram shows the supply and demand curves for a normal good. The shift in demand from D1 to D2 could have been caused by

• a decrease in the price of a close substitute

• an increase in the price of a complementary good

• consumers' expectations that the price of the good is about to fall

• an increase in the income of buyers

To calculate the percentage change in the quantity supplied of a good following a change in its price, the price elasticity of supply should be

• divided by the percentage change in price

• divided by the percentage change in quantity

• multiplied by the percentage change in price

• multiplied by the percentage change in quantity