WHALES Eco MCQs: Demand, Supply, Elasticities

A good has a unitary price elasticity of demand and at a price of $20 a firm sells 40 000 units. How many will the firm sell if it charges a price of $5?

A 10 000

B 100 000

C 160 000

D 200 000

• A

• B

• C

• D

The cross elasticity of demand between two products, X and Y, is negative. What would be the immediate effect of a rise in the price of product Y?

A Quantity demanded of product X will fall.

B Supply of product X will rise.

C The cross elasticity of demand will rise.

D The price of product X would rise.

• A

• B

• C

• D

The demand for a good falls at the same time as its costs of production decrease. What will be the combined effect of these changes on the price and on the quantity supplied of the good?

• A

• B

• C

• D

What is not a function of the price mechanism?

A to ensure that firms make profits

B to permit consumers to express their preferences

C to ration scarce resources

D to signal where resources are required

• A

• B

• C

• D

The diagram shows the average world price of coffee in US cents per pound weight (lb) between 1997 and 2005.

Which event is consistent with the price behaviour shown in the specified time period? A a continuous rise in the price of tea between 1997 and 2001 B the entry to the market of new producers of coffee between 1997 and 2001 C a series of good coffee harvests between 2001 and 2005 D increasing health worries about drinking coffee between 2001 and 2005

• A

• B

• C

• D

What is not a function of the price mechanism?

A to ensure that firms make profits

B to permit consumers to express their preferences

C to ration scarce resources

D to signal where resources are required

• A

• B

• C

• D

What will happen to an industry’s supply curve if new firms enter the industry?

A It will shift to the left at any given price.

B It will shift to the right at any given price.

C There will be a downward movement along the supply curve.

D There will be an upward movement along the supply curve.

• A

• B

• C

• D

The price elasticity of demand for good X is 1. At a price of $12, quantity demanded is 4000 units. What will be the price when the quantity demanded is 20 000 units?

A $2.00

B $2.40

C $12.00

D $20.00

• A

• B

• C

• D

Consumer spending decreased in the recession of 2009-10. A firm tried to keep revenue high by giving discounts to encourage demand. It measured the price elasticity of demand (PED) for its own product and the cross elasticity of demand (XED) with its competitors’ products. When might such promotions achieve the result the company hoped?

A when PED is greater than one and XED is positive

B when PED is less than one and XED is negative

C when PED is less than one and XED is positive

D when PED is unity and XED is negative

• A

• B

• C

• D

In a market economy, demand for a product rises and price increases but output remains unchanged. What could explain this?

A a lack of financial incentives for entrepreneurs

B a perfectly inelastic supply of factors of production

C consumer influence exceeding producer influence

D social benefits equalling private benefits

• A

• B

• C

• D