Quiz 1

Question 1

Suppose that Albania can produce 1 unit of machinery using 3 hours of labour and 1 unit of cloth using 9 hours of labour. It follows that the opportunity cost of producing 1 unit of cloth in Albania is:

1. 1 unit of machinery
2. 9 units of machinery
3. 1/3 of a unit machinery
4. 27 units of machinery
5. 3 units of machinery

Answer 1

5. 3 units of machinery

Question 2

If two goods are substitutes, the cross price elasticity of demand must be:

1. positive
2. negative
3. zero
4. one (unity)
5. infinite

Answer 2

1. positive

Question 3

A rightward shift in the economy’s production possibility frontier occurs when the economy experiences:

1. economic growth
2. a fall in resource utilisation
3. rising opportunity costs in production
4. a misallocation of productive resources
5. falling opportunity costs in production

Answer 3

1. economic growth

Question 4

A firm is considering whether to increase price. It estimates that the price elasticity of demand for its product is approximately -0.87. If this estimate is accurate, the increase in price will generate:

1. lower sales, but no change in overall revenue
2. higher sales and higher total revenue
3. lower sales, but higher total revenue
4. lower sales and lower total revenue
5. higher sales but lower total revenue

Answer 4

3. lower sales, but higher total revenue

Question 5

A perfectly elastic demand curve is represented by:

1. a shallowly sloped demand curve
2. a vertical demand curve
3. a horizontal demand curve
4. none of the above

Answer 5

3. a horizontal demand curve

Question 6

What is the equation for price elasticity of demand?

Answer 6

(dQ/Q) / (dP/P)

Question 7

If market supply is perfectly inelastic with respect to price, we would expect an increase in market demand to generate:

1. a rise in the market price
2. a rise in age market price and a fall in output
3. a fall in the market price and an increase in the market output
4. a rise in output with no change in market price
5. a fall in market price

Answer 7

1. a rise in market price

Question 8

Suppose you observe that the demand for product X rises by 10% in response to a 20% fall in household incomes. From this information we can deduce that:

1. the income elasticity of demand for X is 2
2. X is a necessity
3. X is a luxury good
4. X is an inferior good

Answer 8

4. X is an inferior good

Question 9

Suppose you observe a call in the price of apples relative to the prices of other competing fruits. What would cause an unambiguous decrease in the relative price of apples?

1. a shift to the right in the supply curve and demand curve
2. a shift to the right in the sc and to the left in the dc
3. a shift to the left in the sc and to the right in the dc
4. a shift to the left in the sc and to the left in the dc
5. none of the above

Answer 9

2. a shift to the right in the sc and to the left in the dc

Question 10

Suppose that conditions in the market for wheat are such that consumers wish to buy 140 tons of wheat per period and 165 tons are actually supplied by farmers. From this information we can deduce that:

1. the market price is currently above its equilibrium level
2. farmers are incurring losses
3. the market price is currently below its equilibrium level
4. the market price is fixed
5. farmers are earning above normal profits

Answer 10

1. market price is currently above its equilibrium level.