Question 1

Assume the PED for best quality French wine is zero. What would be the effect in New Zealand if the New Zealand government imposed a tariff on such wine?

Accepted Answer

Expenditure on the wine would rise

Answer

The price of the wine would rise by an amount less than the tariff

Answer

Sales of the wine would cease

Answer

Demand for the wine would fall

Question 2

The price elasticity of supply of cocoa beans over a given time period is found to be +0.4, the most likely explanation for this PES value is that

Accepted Answer

Stock levels of cocoa beans are below normal

Answer

Cocoa beans are a necessity to consumers

Answer

Cocoa bean farmers have plenty of spare capacity

Answer

Farmers are able to store cocoa beans at low cost

Question 3

The price elasticity of demand for late night taxi fares is found to be -0.7. This implies that

Accepted Answer

Taxi companies would see their revenues fall if they cut their fares

Answer

A small rise in fares would cause many more taxi drivers to supply vehicles late at night

Answer

Bus companies would see a large rise in passengers if taxi fares were raised

Answer

Taxi companies would see their revenues rise if they cut their fees

Question 4

A good has unitary PED and at a price of $25 it sells 100,000 units. If it lowers the price by 10%, what will happen to total revenue?

Accepted Answer

It will remain the same

Answer

It will rise

Answer

It will fall

Answer

Impossible to calculate without more data

Question 5

Which statement about income elasticity of demand is correct?

Accepted Answer

The income elasticity of demand for normal luxuries is >+1

Answer

The income elasticity of demand for inferior goods is 0

Answer

The income elasticity of demand for normal necessities is >+1

Answer

The income elasticity of demand for inferior goods is >0

Question 6

What would increase the price elasticity of supply of a firm's products?

Accepted Answer

A decrease in the time that it takes to produce the products

Answer

A decrease in the period of time that stocks can be kept

Answer

An increase in the level of employment in the area

Answer

An increase in the cost of capital goods employed by the firm

Question 7

Product R is an inferior good with no close substitutes. It is also a complement to Product S. Which describes product R?

Accepted Answer

YED is negative and XED with respect to good S is negative

Answer

YED is zero and XED with respect to good S is positive

Answer

YED is positive and XED with respect to good S is negative

Answer

YED is negative and XED with respect to good S is positive

Question 8

The price of good X rises by 10%. As a result, the demand for a substitute good Y rises by 20%. What is the cross elasticity of demand for good Y with respect to good X?

Accepted Answer

+2

Answer

-2

Answer

+0.5

Answer

-0.5

Question 9

What will make it more likely that road tolls will reduce traffic congestion?

Accepted Answer

Demand for car use is price elastic

Answer

Cross elasticity of demand between private and public transport is zero

Answer

Supply of public transport is price inelastic

Answer

Demand for car use is income elastic

Question 10

If the demand curve for a product has unitary price elasticity across all relevant price levels then

Accepted Answer

As the price rises, expenditure on the product remains the same

Answer

A fall in price will bring about an increase in expenditure on the product

Answer

A fall in price will bring about an increase in sales but a fall in expenditure on the product

Answer

As the price rises, expenditure on the product rises and than falls

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