Question 1

PED measures...

Accepted Answer

The responsiveness of Quantity Demanded to a change in Price

Answer

The responsiveness of Demand to a change in Price

Answer

The responsiveness of Quantity Demanded to a change in Income

Answer

The responsiveness of Supply to a change in Price

Question 2

Which of the following is not a determinant of PED?

Accepted Answer

Number of Firms

Answer

Degree of Necessity

Answer

Proportion of Income Spent on Good

Answer

Number and closeness of Substitutes

Question 3

Calculate the PED if the price decreases from $10 to $8 and Qd increases from 100 to 140 units.

Accepted Answer

2

Answer

0.5

Answer

1.5

Answer

4

Question 4

PED represents the gradient of the curve

Accepted Answer

False

Answer

True

Question 5

A firm has calculated the PED for a good it produces to be 1.4. In order to maximise revenues, what should the firm do?

Accepted Answer

Decrease the Price

Answer

Raise the Price

Answer

Keep the Price the same

Question 6

The PED for Primary Commodities tends to be...

Accepted Answer

Relatively Inelastic (PED < 1)

Answer

PED <0

Answer

Unitary Elastic (PED = 1)

Answer

Relatively Elastic (PED > 1)

Question 7

YED measures...

Accepted Answer

The responsiveness of demand to a change in Income

Answer

The responsiveness of supply to a change in consumers income

Answer

how increases in income leads to an increase in demand for all goods.

Question 8

In the Engel curve above, when income rises from $250 to $400, the YED value will be

Accepted Answer

YED = 0

Answer

YED>1

Answer

YED<0

Answer

0>YED<1

Question 9

A good in which the demand decreases as incomes rise is known as...

Accepted Answer

Inferior good

Answer

Veblen Good

Answer

Normal Good

Answer

Merit Good

Question 10

Calculate and state the YED of a good if the Qd increases by 20% as incomes rise by 50%

Accepted Answer

0.4 - Necessity Good

Answer

-2.5 Inferior good

Answer

2.3 - Necessity Good

Answer

2.5 Normal/Luxury

Question 11

PES measures...

Accepted Answer

The responsiveness of quantity supplied to a change in Price

Answer

The change in supply to a change in Price

Answer

The change in the number of firms to a change in Price

Question 12

Which of the following is not a determinant of PES

Accepted Answer

Degree of Necessity

Answer

Time

Answer

Ability to store / Unused capacity

Answer

Availability of Factors of Production

Question 13

In order to show PES as inelastic, we must start the supply curve on the...

Accepted Answer

Quantity axis

Answer

Price axis

Answer

Origin

Question 14

Which of the following best describes the determinant of spare capacity?

Accepted Answer

The ability of firms to increase output without having to increase its capital.

Answer

The ability of firms to increase output by investing in FOPs

Answer

The ability of firms to hire more labour to increase production

Question 15

Calculate the PES if the Price changes from $5 to $9 and the Qs increases from 100 to 300 units.

Accepted Answer

2.5 Price Elastic Supply

Answer

1.4 Price Elastic Supply

Answer

0.5 Price Inelastic Supply

Answer

0.2 Price Inelastic Supply

Question 16

Which statement best describes the reason some countries based around agriculture tend to develop slower than those based more on manufacturing/services.

Accepted Answer

As firms of agricultural are less responsive to a change in price, if demand increases for the good, firms are not able to increase their output due to the time needed to produce the goods.(PES<1) This means Total revenue for firms increases less, compared to firms in the manufacturing/service sector.

Similarly, as the PED for agricultural products is less than 1, if the supply increases, total revenues for the firms decrease, making agricultural producers worse off. In contrast, for manufacturing/service based industries, PED>1, therefore if supply increases, Total revenues actually increase as consumers are more responsive, benefitting these firms.

Finally, as agricultural products are necessity goods, they tend to see a lower increase in demand with an increase in income (0>YED<1). Therefore as incomes rise across an economy, the demand for these goods does not increase, leading to slower revenue growth for these firms. In contrast, as incomes rise in an economy based more on manufacturing/services, the demand increases more (due to YED>1) therefore leading to higher revenue growth for these firms. As manufacturing/services firms are more responsive (PES>1) they are able to respond to the change in demand and so this further increases these firms Total Revenue.

All of this means, lower increase in output in agricultural based economies leads to lower GDP growth and therefore lower levels of economic growth, as compared to economies based on manufacturing/services who see a larger increase in output and therefore higher GDP growth and higher levels of economic growth.

Answer

As firms of agricultural are more responsive to a change in price, if demand increases for the good, firms are not able to increase their output due to the time needed to produce the goods (PES>1). This means Total revenue for firms increases less, compared to firms in the manufacturing/service sector.

Similarly, as the PED for agricultural products is less than 1, if the supply increases, total revenues for the firms increase, making agricultural producers better off. In contrast, for manufacturing/service based industries, PED<1, therefore if supply increases, Total revenues actually increase as consumers are more responsive, benefitting these firms.

Finally, as agricultural products are necessity goods, they tend to see a lower increase in demand with an increase in income (0

All of this means, larger increase in output in agricultural based economies leads to lower GDP growth and therefore lower levels of economic growth, as compared to economies based on manufacturing/services who see a smaller increase in output and therefore higher GDP growth and higher levels of economic growth.

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