3. Graphically, the market supply curve is: a) the horizontal sum of individual

Question

3. Graphically, the market supply curve is:
a) the horizontal sum of individual supply curves.
b) the vertical sum of individual supply curves.
c) steeper than any individual supply curve that is part of it. d) greater than the sum of the supply demand curves.

7. A demand curve:
a) shows the relationship between price and quantity supplied.
b) graphs as an downsloping line.
c) shows the relationship between income and spending.
d) indicates the quantity supplied at each price in a series of prices.

9. If two goods are complements:
a) an increase in the price of one will increase the demand for the other.

b) an increase in the price of one will decrease the demand for the other.

c) they are not consumed dependently.
d) they are necessarily inferior goods.

10. Printers and ink cartridges:

a) substitute goods.

b) complementary goods.

c) independent goods.

d) inferior goods.

12) The price elasticity of supply coefficient measures:
a) the extent to which a supply curve shifts as incomes change. b) the slope of the supply curve.
c) Supplier’s responsiveness to price changes.
d) how far business executives can stretch their fixed costs.

13) Suppose that as the price of Y falls from $2.00 to $1.00 the quantity of Y demanded increases from 200 to 400. Then the arc price elasticity of demand is:
a) 2.09.
b) 1.37.

c) 1.00.

d) 0.64.

14) If a firm can sell 4,000 units of product A at $20 per unit and 6,000 at $10, then: a) the price elasticity of demand is 2.25.
b) the price elasticity of demand is 1.52.
c) the price elasticity of demand is 1.

d) the price elasticity of demand is 0.6.

15) If the demand for farm products is price ELASTIC, a price increase will cause farm revenues to:

a) increase.

b) decrease.
c) be unchanged.
d) either increase or decrease, depending on what happens to supply.

18) Suppose that the price of product X rises by 20 percent and the quantity demanded of X decreases by 30 percent. The coefficient of price elasticity of demand for good X is:
a) equal to 1 and therefore supply is inelastic.
b) equal to 1 and therefore supply is unit inelastic.

c) less than 1 and therefore demand is inelastic.

d) more than 1 and therefore demand is elastic.

19) If the demand for product X is ELASTIC, a 6 percent increase in the price of X will:

a) decrease the quantity of X demanded by more than 6 percent.
b) decrease the quantity of X demanded by less than 6 percent.
c) increase the quantity of X demanded by more than 6 percent.

d) increase the quantity of X demanded by less than 6 percent.

Explanation / Answer

3) (a) Market supply curve is the aggregation of individual supply curve and is based on the the law of supply and it depicts the positive relation between the price of a good and its quantity supplied. Graphically, the market supply curve is the horizontal sum of individual supply curves.

7) (b) A demand curve is based on the law of supply and it depicts the negative relation between the price of a good and its quantity demanded. So a demand curve graphs as an downsloping line.

9) (b) Complement goods are jointly demanded. If two goods are complements:  an increase in the price of one will decrease the demand for the other.

10) (b) Printers and ink cartridges are jointly consumed and demanded and so they are complementary goods.

12) (c)The price elasticity of supply coefficient measures: Supplier’s responsiveness to price changes or in other words how does quantity supplied changes due to change in price.

13)(c) Suppose that as the price of Y falls from $2.00 to $1.00 the quantity of Y demanded increases from 200 to 400.

Mid oint price=$1.5 and midpoint quantity=300

%change in price = ((1-2)/1.5)*100=-66.67%

%change in quantity demanded=((400-200)/300)*100=66.67%

Thus arc eleasticity=%change in quantity demanded/%change in price =-1 and since we take the absolute value of elasticity the answr is 1

14)(c)If a firm can sell 4,000 units of product A at $20 per unit and 6,000 at $10

% change in quantity demanded= ((6000-4000)/4000)*100=50%

%change in price = ((10-20)/20)*100=50%

Thus price elasticity=50/50=1

15) (b) If the demand for farm products is price ELASTIC, a price increase will cause farm revenues to:decrease.

16)(d)  Suppose that the price of product X rises by 20 percent and the quantity demanded of X decreases by 30 percent. The coefficient of price elasticity of demand for good X is 30/20=1.5 which is more than 1 and so demand is elastic.

17)(a)If the demand for product X is ELASTIC, a 6 percent increase in the price of X will:decrease the quantity of X demanded by more than 6 percent

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