King: Economics Chapter 04 Instructions Answer the following questions and then press 'Submit' to get your score. Question 1 A student club wants to raise just enough income to cover its costs. Its income comes partly from membership fees and partly from selling tickets for its nightly discos. Attendance at the discos currently leads to overcrowding of the club's room. The demand for membership is price inelastic and the demand for discos is price elastic. To reduce the crowding without changing its total income, what should the club do? a) Raise both the disco ticket price and the membership fee. b) Lower both the disco ticket price and the membership fee. c) Raise the disco ticket price but lower the membership fee. d) Lower the disco ticket price but raise the membership fee. Question 2 Suppose the price of a product increases from £12 to £20 and the quantity demanded falls from 55 a week to 45. What is the PED? a) 0.4 b) -0.4 c) 2.5 d) -2.5 Question 3 Suppose a demand curve runs from the price axis to the quantity axis in a straight line. Whereabouts will PED=-1.0? a) Where the curve meets the price axis. b) Everywhere along the curve. c) At the mid-point of the curve. d) Nowhere along the curve. Question 4 A consumer product has a PED of -0.12. Which of the following factors would not help to explain this? a) There are few substitutes available. b) Any substitutes there are have higher prices. c) The product accounts for a small percentage of consumer expenditure. d) The product is a normal good. Question 5 Which of the following statements is true? a) When an economy grows, firms would prefer to be making inferior goods rather than making normal goods. b) If a firm notices that the price of a substitute for its product has fallen, it would prefer the CED between the products to be far from zero rather than close to zero. c) If a firm notices that the price of a complement for its product has risen, it would prefer the CED between the products to be far from zero rather than close to zero. d) If a firm's costs increase and it has to increase the price of its output, it would prefer demand to be price inelastic rather than price elastic. Question 6 Suppose incomes double over a period of years. Which sorts of product will experience the biggest increases in price? a) Those with a PES close to 0.0 and an IED well above 0.0. b) Those with a PES close to 0.0 and an IED well below 0.0 c) Those with a PES well above 1.0 and an IED well above 0.0 d) Those with a PES well above 1.0 and an IED well below 0.0 Question 7 Suppose the price of a product increases from £50 to £70 and the quantity supplied rises from 40 a day to 80. What is the PES? a) 0.5 b) -0.5 c) 2.0 d) -2.0 Question 8 Which of the following statements is false? a) PES is infinity all along any horizontal supply curve. b) PES is 1.0 all along any supply curve which passes through the origin. c) PED is zero all along any vertical demand curve. d) PED is -1.0 along any demand curve where spending would be the same at each price. Question 9 A consumer product has a PES of 0.1. Which of the following factors would not help to explain this? a) The producers are close to full capacity. b) One or more of the key intermediate products needed to make the product are themselves items with an inelastic supply. c) Consumers need very little time to respond fully to price changes. d) One type of labour used by the producers may be in inelastic supply Question 10 Which of the following statements is false? a) Price elasticity of demand is negative for most products. b) Price elasticity of supply is positive for most products. c) Income elasticity of demand is positive for normal goods. d) Cross elasticity of demand is positive between complements.