(Handout) Practice Multiple Choice for Demand and Supply

The income elasticity of demand for Good X is 0.5. If there is an increase in income from $50, 000 to $60,000, then expenditure on good X will rise from A. $500 to $550 B. $500 to $600 C. $500 to $1,000. D. $500 to $5, 500.

A. $500 to $550

In the diagram below, 0 is a demand curve. (screen shot question 8) For which of the following price changes is the coefficient of demand elasticity the greatest? A. $8 to $6 B. $6 to $4 C. $4 to $2 D. They are all the same value.

A. $8 to $6

The diagrams show a demand curve (price/quantity) and an Engel curve (income/quantity) for the same good. (screen shot question 25) The diagram suggests that this good is A. an inferior good. B. a luxury good. C. a merit good. D. a status symbol.

A. an inferior good.

Supply of a product will tend to be more inelastic when A. average costs of production rise quickly as price changes. B. there are few substitutes for the product. C. the product is a necessity. D. there is a long time to change the supply.

A. average costs of production rise quickly as price changes.

The cross elasticity of demand for good X with respect to good Y is +0.2. The cross elasticity of/demand for good Y with respect to good X is +1.5. This indicates that A. goods X and Y are substitutes. B. good X is a closer complement to Y than Y is to X. C. good X is more of a necessity than good Y. D. a mistake has been made in the calculation, as both cross elasticities should be equal.

A. goods X and Y are substitutes.

If the demand for tourists to visit the Riesenrad is price inelastic, then a policy of increasing the entrance price would A. increase the amount of revenue generated by the ride. B. increase demand for the ride. C. increase the consumer surplus currently enjoyed by the tourists. D. increase the demand for people working at the ticket office.

A. increase the amount of revenue generated by the ride.

"The price of a good can fall at the same time as demand increases" this statement is B. true, because some goods are inferior goods. C. false, because a change in price will alter demand. D. false, because it contradicts the law of demand.

A. true, because a shift in demand will alter price.

The diagram below shows a supply curve. (screen shot question 23) The elasticity of supply at point X is: A infinity B elastic C. 1 D. inelastic

D. inelastic

A consumer receives an increase in disposable income from $20,000 per annum to $24,000 per annum. As a result, the expenditure of the consumer on foodstuffs increases from $6,000 per annum to $6,900 per annum. The consumer has an income elasticity of demand for food of A. 0.30 B. 0.75 C. 1.00 D.1.33

B. 0.75

The market demand equation for Good X is given by 00 = 950 - 30p and the supply equation is Os = 30 + 1 Op, where Oo is quantity demanded and Os is quantity supplied, and p is the price of X in cents. What is the equilibrium price for the good in cents? A. 20 B. 23 C. 26 D. 30

B. 23

In the above diagram, the price of magazines changes fro P1 to P2 . Which of the following is the most likely cause? (screen shot question 18) A. A fall in demand. B. An increase in production costs. C. A fall in incomes. D. An increase in magazine advertising.

B. An increase in production costs.

Which one of the following would be most likely to cause the demand curve for motor cycles to shift to the right? A. A fall in the price of motor cycles. B. An increase in public transport prices. C. A rise in the cost of motor insurance. D. A rise in petrol prices.

B. An increase in public transport prices.

The diagram below shows the market for beef. (screen shot question 10) The shift from S1 to S2 could have been caused by I. a fall in the cost of raw materials. II. an increase in government subsidies. III. an increase in real income levels of consumers. A. I only B. I and II only C. II and III only D. I, II and Ill

B. I and II only

The market equilibrium for a good changes so that both price and quantity are decreased. This can cause I. a fall in income II. an increase in the price of a complement. III. an increase in production costs. A. I only B. I and II only C. II and III only D. I, II, and III

B. I and II only

As a result of the price of apples falling from 50 cents per kilo to 40 cents per kilo, the quantity of oranges demanded falls from 80 kilos a day to 72 kilos a day. The cross elasticity of demand between apples and oranges is A. - 2 B. - 0.5 C. +0. 5 D. +2

C. +0. 5

Any straight line supply curve passing through the origin has a price elasticity of supply of A. 0 B. 0.5 C. 1 D. infinity

C. 1

The demand for product A will rise as a result of a fall in the price of product B when A. A and B are substitutes. B. the demand for Y is price inelastic. C. A and B 'are complements'. D. B is an inferior good.

C. A and B 'are complements'.

A hurricane affects the production of sugar in many of the main sugar producing areas in the USA and Central America. How would this be shown on a demand and supply diagram? Price of sugar Demand for sugar A. Falls Moves along the curve to the right B. Falls The curve shifts to the right C. Rises Moves along the curve to the left D. Rises The curve shifts to the left

C. Rises Moves along the curve to the left

What would cause the supply curve for carrots to shift to the right? A. The price of carrots rises. B. The consumption of carrot bread rises. C. The price of farmland falls. D. The price of farm machinery rises.

C. The price of farmland falls.

A person's income rises from $50,000 per year to $60,000 per year. As a result, her spending on holidays rises from $3000 to $4500 per year. Her income elasticity of demand for holidays is: A. income inelastic B.unit elastic C. income elastic D. positively cross elastic

C. income elastic

The demand for a product with respect to a change in its price will tend to be inelastic if A. its price is high in relation to income. B. it is a luxury good. C. it has few substitutes. D. it is not a necessity.

C. it has few substitutes.

The elasticity of supply for a good will be more inelastic if A. there is a lot of spare capacity in the industry. B. there is a lot of time available for change. C. it is difficult for new firms to enter the industry. D. average costs of production stay constant as the industry grows.

C. it is difficult for new firms to enter the industry.

A positive value of cross elasticity of demand between two goods implies that they are A. complements to each other. B. both inferior goods. C. substitutes for each other. D. unrelated to each other.

C. substitutes for each other

Other things being equal, people will consume fewer inferior goods when A. incomes fall. B. income tax rates rise. C. the general price level falls. D. the unemployment rate increases.

C. the general price level falls.

14. Refer to the following table. Price Quantity Supplied ($) (Thousands) 15 9 20 10 25 12 30 15 The above table shows the supply schedule for a good. The value of its supply elasticity, when price rises from $25 to $30 is A. 0.5 B. 0.8 C. 1.0 D. 1.25

D. 1.25

Which of the following events would be most likely to shift the demand curve for a normal good to the left? A. A rise in the price of the good. B. A rise in the cost of factors of production. C. A fall in the price of a complementary good. D. A fall in consumer incomes.

D. A fall in consumer incomes.

Which of the following is likely to result in a movement along the demand curve for iPhones? A. A rise in the price of other mobile phones. B. A television advertising campaign for iPhones C. A fall in people's incomes. D. An increase in taxes on the production of all mobile phones.

D. An increase in taxes on the production of all mobile phones.

Which of the following factors would cause the price of oranges to rise without a shift in the demand curve? A. An increase in the popularity of oranges. A fall in the price of agricultural land. C. An increase in the real incomes of consumers. D. An increase in the cost of harvesting oranges.

D. An increase in the cost of harvesting oranges.

In the diagram below: (screen shot question 17.) If the quantity demanded is 5 units, then: I. marginal revenue is equal to 0. II. price elasticity of demand is equal to 1. III. total revenue is maximised. A. I only B. I and II only C. II and Ill only D. I, II, and III

D. I, II, and III

In the diagram below, S1, S2 and S3 are supply curves. (screen shot question 11) The elasticity of supply of A. S1 is greater then S2. B. S2 is greater than S1. C. S3 is less than S1. D. all three curves is equal.

D. all three curves is equal.