BT Ch-4 & 5

Consider the following statements:

1) 'Equilibrium' is the selling price above which the number of units demanded by the market starts to decline.

2) As the selling price of a product increases, the number of units supplied by the market will also tend to rise.

Which of these statements is/are correct?

• 1 only

• 2 only

• Both

• Neither

Products A and B are substitutes. A 5% change in the price of A has resulted in a 4% change in the demand for B.

What is the cross elasticity of demand (XED) between A and В?

• +0.8

• -0.8

• +1.25

• -1.25

A shift in the demand curve for a product is caused by changes in the conditions of demand, rather than a change in the price of the product.

Is this statement TRUE or FALSE?

• True

• False

• None

• Both

G Co increases the selling price of its only product, the GF1000 by 5%.

This causes a reduction in the number of units it sells by 8%. Is the GF1000's price elasticity of demand likely to be:

• Less than 1

• Equal to 1

• Greater than 1

• Negative

H Co manufactures and sells a motor vehicle, the GHF300.

Which of the following would cause an expansion in demand for this product in country M?

• A reduction in the selling price of the GHF300

• The GHF300 becoming more fashionable with the public

• A reduction in direct taxes within country M

• An increase in the population of country M

Which of the following is NOT a characteristic of a perfect market?

• Large numbers of customers and suppliers

• All suppliers provide a wide range of products and services

• There is perfect information for customers and suppliers

• There are no entry or exit barriers to the market

F operates in a market where it has only two major rivals - each of whom is roughly the same size as F. What type of market is F operating in?

• Oligopoly

• Monopolistic competition

• BOTH

• NONE

Which of the following is a feature of monopolistic competition?

• Few competitors in the market

• Undifferentiated products

• No major barriers to entry to or exit from the market

• Low advertising expenditure

Which of the following is NOT a factor that affects price elasticity of demand?

• The amount of customer income spent on item

• Duration of the price change

• The necessity of the item to consumers

• The initial number of units demanded

L makes a variety of different products, including windows.

Which TWO of the following would cause a decrease in the level of supply of L's windows?

• An increase in the level of VAT charged by the government on windows

• A new automated assembly system for L's products that reduces L's window manufacturing overheads

• Staff negotiations, leading to window production staff adopting a shift-work approach which makes better use of L's production facilities

• Staff negotiations, leading to a slight rise in the hourly rate paid to window production workers