1301 2008/2009
EC Principles of Economics Tutorial No. 2 For Week Beginning 2nd February
Semester 2
Multiple-Choice Questions Use the following diagram to answer questions 1-5. P 16 D1 12 10 8 D2 4
2
4
6
8
12
20
1. The slope of the demand curve D1 is ___ and of the demand curve D2 is ___ . a. 1/2, 2 b. 2, 1/2 c. 5/4, 4/5 d. 4/5, 5/4 e. None of the above. 2. When the P = 8, the price elasticity of demand for the demand curve D1 is ___ and D2 is ___ . a. 4, 1 b. 1, 4 c. 4, 4 d. 1, 1 e. None of the above. 3. The cross price elasticity of demand for x is found to be -0.7. This means x a. is a normal good. b. has inelastic demand. c. is a complementary good. d. has a substitute good e. is an inferior good.
4. In a free market, if the price of a good is above the equilibrium price, then a. government needs to set a higher price.. b. suppliers, dissatisfied with growing inventories, will raise the price. c. demanders, wanting to ensure they acquire the good, will bid the price lower. d. government needs to set a lower price. e. supplies, dissatisfied with growing inventories, will lower the price.
5. Refer to Figure 4.1 that shows Mary and Tom's individual demand curves for meals per week at Fratelli's Italian restaurant. Assuming there are two customers like Mary and 1 customer like Tom in the market, what is the market quantity demanded at a price of $15? a. 1 b. 2 c. 3 d. 5 e. 12
6. When the price of x increases from $75 to $125, it leads to an in decrease quantity demanded from 450 units to 350 units. The price elasticity of demand for x is ___ (using midpoint formula) so that the supply curve is ___ . a. 2, undetermined b. 2, inelastic c. 4/3, elastic d. 3/4, inelastic e. 1/2, undetermined
7. A cake shop observes that when it raises the price of cakes, total revenue decreases. This suggests a. cake lovers act rationally. b. the demand for cakes must be elastic. c. there are few good substitutes for cakes. d. the demand for cakes must be inelastic. e. None of the above. 8. Suppose that, the price elasticity of supply for the Mona Lisa is zero. Therefore, supply curve for the Mona Lisa is a. elastic. b. inelastic. c. unitary elastic. d. perfectly elastic e. perfectly inelastic. True/False Questions
Price 1 2 3 4 5
Quantity Demanded 1000 900 500 300 100
Quantity Supplied 100 350 500 1000 1200
Consider the free market represented by the schedule in Table above, at the price of $2 per unit, 1. ________________ At a price floor of $2, 350 will be sold 2. ________________ At a price floor of $4, 300 will be sold. 3. ________________ The market equilibrium price is $3
Short Answer Questions 1) Given the volatile price changes of oil in the past few months, discuss the situation using a. demand and supply analyses eg. Identify the appropriate demand and supply factors and graphically describe. b. elasticity analyses eg. What do the demand and supply curves look like in the short and long run?