Demand and Supply Analysis quiz Economic Quiz بواسطة admin في نوفمبر 23, 2023 Demand and Supply Analysis quiz شارك Demand and Supply Analysis 1 / 22 When goods are purchased for resale by a company using a periodic inventory system : A) purchase returns are debited to Purchase Returns and Allowances B) purchases on account are debited to Inventory C) purchases on account are debited to Purchases D) freight costs are debited to Purchases 2 / 22 A demand function for air conditioners is given by : QD air conditioner = 10,000 – 2 P air conditioner + 0.0004 income + 30 P electric fan – 4 P electricity At current average prices, an air conditioner costs 5,000 yen, a fan costs 200 yen, and electricity costs 1,000 yen. Average income is 4,000,000 yen. The income elasticity of demand for air conditioners is closest to: A) 0.444 B) 0.0004 C) 40,000 Substituting current values for the independent variables other than income, the demand function becomes : QD air conditioner = 10,000 – 2 (5,000) + 0.0004 income + 30 (200) – 4 (1,000) QD air conditioner = 0.0004 income +2,000 The slope of income is 0.0004, and for an income of 4,000,000 yen, QD = 3,600. Income elasticity = I0 / Q0 × ∆Q / ∆I = 4,000,000 / 3,600 × 0.0004 = 0.444 3 / 22 When two goods are complements, the cross elasticity of demand is : A) negative, and for substitutes the cross price elasticity of demand is negative B) positive, and for substitutes the cross price elasticity of demand is negative C) negative, and for substitutes the cross price elasticity of demand is positive The cross elasticity of demand for goods that are complements is negative because an increase in the price of one would tend to decrease the quantity demanded of the other. The cross elasticity of demand for substitute goods is positive because an increase in the price of one would tend to increase the quantity demanded of the other 4 / 22 When the price of a good decreases, and an individual’s consumption of that good also decreases, it is most likely that : A) the income effect and substitution effect are both negative B) the income effect is negative and the substitution effect is positive C) the substitution effect is negative and the income effect is positive The substitution effect of a price decrease is always positive, but the income effect can be either positive or negative. Consumption of a good will decrease when the price of that good decreases only if the income effect is both negative and greater than the substitution effect. 5 / 22 If a firm’s long run average total cost increases by 6% when output is increased by 6%, the firm is experiencing : A) constant returns to scale B) diseconomies of scale C) economies of scale Increasing long run average total cost as a result of increasing output demonstrates diseconomies of scale. 6 / 22 A company has estimated that the price elasticity of demand for its output is –1.1. If the company increases the price of its product by 5%, it is most likely that : A) total revenue will decrease but profits may increase B) both total revenue and profits will decrease C) total revenue will increase but profits may decrease Price elasticity of –1.1 tells us that a 5% increase in price will reduce sales by more than 5%, so total revenue will decrease. Whether profits increase or decrease will depend on whether the cost reduction from producing less output is greater or less than the decrease in total revenue 7 / 22 A firm’s average revenue is greater than its average variable cost and less than its average total cost. If this situation is expected to persist, the firm should : A) shut down in the short run but operate in the long run B) shut down in the short run and in the long run C) operate in the short run but shut down in the long run If a firm is generating sufficient revenue to cover its variable costs and part of its fixed costs, it should continue to operate in the short run. If average revenue is likely to remain below average total costs in the long run, the firm should shut down . 8 / 22 If the demand curve for a given product is a straight line with a slope of –5, this indicates that : A) demand is more elastic at higher prices B) elasticity is constant along the demand curve C) demand is unit elastic Elasticities will be greater (in absolute value) at higher prices 9 / 22 Increasing the amount of one productive input while keeping the amounts of other inputs constant results in diminishing marginal returns : A) in all cases B) when the increase in total output becomes smaller C) when it causes total output to decrease Productive inputs exhibit diminishing marginal returns at the level where an additional unit of input results in a smaller increase in output than the previous unit of input . 10 / 22 The demand for a product tends to be price inelastic if : A) few good complements for the product are available B) people spend a large share of their income on the product C) few good substitutes for the product are available If a large price change results in a small change in quantity demanded, demand is inelastic. Cigarettes are an example of a good with inelastic demand 11 / 22 If quantity demanded increases 15% when the price drops 1%, demand for this good : A) elastic, but not perfectly elastic B) inelastic, but not perfectly inelastic C) perfectly elastic Whenever quantity demanded for a good changes by a greater percentage than price, the price elasticity of demand will be greater than 1.0 and demand for the product is considered to be elastic 12 / 22 A firm in a perfectly competitive industry that seeks to maximize profit is most likely to continue production in the short run as long which of the following conditions exists? Price is equal to or greater than: A) average variable costs B) marginal cost C) average fixed cost If a firm is covering its average variable costs, it will continue to operate in the short run since it is covering some portion of its fixed costs 13 / 22 Suppose a price-taker firm produces baseball bats that sell at a price of $100 each. This firm's average total cost at the current level of production is $150 per bat, and the average fixed cost is $40 per bat. Which of the following statements is most accurate regarding this firm? They should: A) shut down in the short run because their average total cost is greater than their price B) continue producing baseball bats because they are covering their fixed costs C) shut down in the short run because their average variable cost is greater than their price Variable costs = $150 (ATC) – $40 (AFC) = $110 (AVC). At a selling price of $100 the firm is not covering its variable costs and will have losses greater than its fixed costs if it stays in business 14 / 22 According to the law of diminishing returns, doubling the number of salespeople for a firm will most likely result in : A) increasing the total sales of the firm and reducing the average sales per salesperson B) decreasing the total sales of the firm as a result of competition amongst salespeople C) doubling the total sales of the firm The law of diminishing returns states that as more of a resource is added to a production process, holding other resource use constant, increases in output will eventually decrease. Therefore, as more salespeople are added they will generate more sales at a decreasing rate. Total sales will increase and the average sales per salesperson will decrease 15 / 22 Total revenue is greatest in the part of a demand curve that is : A) unit elastic B) inelastic C) elastic Total revenue is maximized at the quantity at which own price elasticity equals –1 . 16 / 22 When the price of a good decreases, how do the income effect and the substitution effect change the quantity demanded of the good? A) Both the income effect and the substitution effect increase the quantity demanded B) The substitution effect increases the quantity demanded, but the income effect may increase or decrease the quantity demanded C) The income effect increases the quantity consumed, but the substitution effect may increase or decrease the quantity demanded The substitution effect is a shift in consumption toward a larger quantity of a good that decreases in price. A decrease in the price of a good also has an income effect because the old bundle costs less. The income effect may result in consumption of a larger or smaller quantity of the good that has decreased in price, depending on whether it is a normal good or an inferior good 17 / 22 A decrease in the price of Good Y can result in a decrease of the quantity of Good Y demanded by consumers if the substitution effect : A) is positive and the income effect is negative and larger than the substitution effect B) is negative and larger than the positive income effect C) and the income effect are negative If the price of Good Y decreases, the substitution effect will have a positive impact on the quantity demanded of Good Y. Thus, the only way that quantity demanded of Good Y can decrease is if there is a negative income effect that is greater in magnitude than the substitution effect; i.e., if Good Y is a Giffen good 18 / 22 A distinction between Giffen goods and Veblen goods is that : A) demand curves for Giffen goods slope upward, while demand curves for Veblen goods slope downward B) Giffen goods are inferior goods, while Veblen goods are not inferior goods C) the substitution effect is positive for a Veblen good but negative for a Giffen good Giffen goods are inferior goods for which the quantity demanded decreases when the price decreases, because the negative income effect is larger than the positive substitution effect. Veblen goods are goods for which the quantity demand increases when the price increases, such as a high-status good for which the consumer gains utility from being seen to consume the good. Giffen goods and Veblen goods, if they exist, have demand curves that slope upward over at least some range of prices. The substitution effect is positive for all goods 19 / 22 A good is most likely to demonstrate higher price elasticity of demand : A) in the long run than the short run B) if it represents a small portion of the consumer’s budget, than if it represents a large portion C) when there are few substitutes for the good, than when there are many good substitutes A good is likely to show a high price elasticity of demand when there are good substitutes, it represents a large proportion of consumer spending, and in the long run as consumers make changes that take time to implement in response to price changes for the good 20 / 22 A good is classified as an inferior good if its : A) income elasticity is negative B) own price elasticity is negative C) cross price elasticity is negative An inferior good is one that has a negative income elasticity of demand . 21 / 22 A firm that is experiencing diseconomies of scale should : A) decrease output in the short run B) decrease its plant size C) shut down in the long run If a firm is experiencing diseconomies of scale, it should decrease its plant size to the efficient scale, which is the size that minimizes long-run average total cost. Plant size can be adjusted in the long run but not in the short run 22 / 22 If quantity demanded increases 20% when the price drops 2%, this good exhibits : A) inelastic, but not perfectly inelastic, demand B) perfectly inelastic demand C) elastic, but not perfectly elastic, demand If quantity demanded increases 20% when the price drops 2%, this good exhibits elastic demand. Whenever demand changes by a greater percentage than price, demand is considered to be elastic Your score is LinkedIn Facebook Twitter VKontakte Send feedback Demand and Supply Analysis quiz
