ECONOMICS EXAM 1

When a decrease in the price of good A causes a increase in demand for good B, the goods are

• substitutes

• complements

• inferior

• normal

Reasons for supply curves being positively sloped include:

• the higher the demand for a good the more firms can charge

• typically, as output rises, unit costs rise, so price must also rise

• firms always want to raise prices to boost profits

• all of the above

Inferior goods are best defined as

• goods whose supply falls as people's income rises

• goods that only those who are relatively poor purchase

• goods whose demand falls as people's income rises

• goods that have higher-quality alternatives

The following table shows the demand and supply schedules for good X.

• Fall by £1

• Fall by £2

• Rise by £1

• Rise by £2

The following table shows costs and revenue schedules for a firm. How much total profit will the firm make at the profit-maximising level of output? Assume that supply increases by 40 units at all prices. What will be the effect on equilibrium price?

• £40

• £16

• £0

• £48

Which one of the following correctly describes how price adjustments eliminate a surplus?

• As the price rises, the quantity demanded will increase while the quantity supplied will decrease

• As the price rises, the quantity demanded will decrease while the quantity supplied will increase

• As the price falls, the quantity demanded will increase while the quantity supplied will decrease

• As the price falls, the quantity demanded will decrease while the quantity supplied will increase

The owner of a local hot dog stand has estimated that if she lowers the price of hot dogs she will increase sales from 400 to 500 hot dogs per day. The demand for hot dogs is

• unitarily elastic

• inelastic

• elastic

• perfectly elastic

There are two goods A and B. In which of the following cases will good A have the more price elastic supply? 34

• A higher proportion of national income is spent on A than on B

• The cost of producing extra units increases more rapidly in the case of A than in the case of B

• Consumers find it easier to find alternatives to A than to B

• Is it is less costly to shift from producing A to another product than it is to shift from producing B to another product

Which of the following is a fixed cost for a chocolate factory over the course of a month?

• The cost of electricity (paid quarterly) for running the mixing machines

• The cost of cocoa

• Depreciation of machines due simply to their age

• Overtime pay

Which of the following correctly describes how price adjustment eliminate a shortage?

• As the prices rises, the quantity demanded will increase while the quantity supplied will decrease

• As the prices falls, the quantity demanded will decrease while the quantity supplied will increase

• As the prices rises, the quantity demanded will decrease while the quantity supplied will increase

• As the prices falls, the quantity demanded will increase while the quantity supplied will decrease