BT - Ch. 4, 5 & 6

Consider the following statements:

1. 1. The equilibrium point of demand and supply curves represents the price at which all

goods produced are purchased, with no surplus or shortage in the market.

2. 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 B?

• +0.8

• –0.8

• +1.25

• –1.25

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

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

E Co manufactures a single product. Which of the following would indicate that the product

will have a low price elasticity of demand?

• Customers spend a high proportion of their incomes on the product

• Customers don’t see the product as being a necessity

• Customers tend to buy the product by habit

• Customers have a number of substitute products that they can choose from

The government of country X is planning to introduce minimum wage legislation that would

set minimum worker pay at significantly above the current average level of pay in the

country. The labour market in country X is currently regarded as having reached its

equilibrium point. Consider the following two statements regarding this legislation:

1. 1. The legislation will likely increase the unemployment level within country X.

2. Manufacturers within country X will likely wish to make more labour-intensive

products and reduce the amount of automation used within their businesses.

Which of these statements is/are correct?

• 1 only

• 2 only

• Both

• Neither