Economics final exam preparation questions

Answer the following question with true or false:

1. The law of demand dictates that other things remaining the same, the higher the price of a good, the larger is the quantity demanded; and the lower the price of a good, the smaller is the quantity demanded.

2. Income effect on demand refers to when the price of a good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded of the good or service decreases.

3. Producers are willing to supply a good only if they can at least cover their marginal cost of production.

4. The supply curve shows the relationship between the quantity supplied of a good and its price when all other influences on producers’ planned sales remain the same.

5. When supply increases, the supply curve shifts leftward, while as supply decreases, the supply curve shifts rightward

6. Advances in technology create new products and lower the cost of producing existing products. So advances in technology increase supply and shift the supply curve rightward.

What are the Factors that influence the Elasticity of Demand? Identify on a chart the meaning of moving along the demand curve, also the meaning of shifting the demand curve place to the left or right. What is market equilibrium? Identify market equilibrium point on a chart?

The table gives the supply schedule for shoes. Calculate the elasticity of supply whena. The price rises from $125 to $135 a pair.

b. The price is $125 a pair.

If a 10 percent fall in the price of beef increases the quantity of beef demanded by 20 percent and decreases the quantity of chicken demanded by 15 percent, calculate the cross elasticity of demand between beef and chicken.

Price(dollars per

pair)

Quantity supplied(millions of pairs per

year)120 1,200125 1,400130 1,600135 1,800

The table gives the demand schedule for coffee.a. What happens to total revenue if the price of coffee rises from $10 to $20 per pound?b. What happens to total revenue if the price rises to $15 to $25 per pound?c. What is the price when total revenue at a maximum?d. What quantity of coffee will be sold at the price that answers part c?e. At an average price of $15 a pound, is the demand for coffee elastic or inelastic? Use the

total revenue test to answer this question.

There will be a number questions measuring your understanding of varying forms of elasticity. Hence, your knowledge of the following tables will prove very important.

Price(dollars per

pound)

Quantity demanded(millions of pounds

per year)10 3015 2520 2025 15

• In a predicting changes in market prices using market equilibrium scenario, please adhere to five steps the five steps are:

1. Draw a demand-supply diagram and label the axes with the price and quantity of the good or service in question.

2. Think about the events that you are told occur and decide whether they change demand, supply, both demand and supply, or neither demand nor supply.

3. Do the events that change demand or supply bring an increase or a decrease?

4. Draw the new demand curve and supply curve on the diagram. Be sure to shift the curves in the correct direction—leftward for decrease and rightward for increase.

5. Find the new equilibrium and compare it with the original one.

The demand and supply schedules for potato chips are in the table. a. What are the equilibrium price and equilibrium quantity of potato chips? b. If chips were 60 cents a bag, describe the situation in the market for potato chips and explain

what would happen to the price of a bag of chips.

PriceQuantity

demandedQuantitysupplied

(cents per bag) (millions of bags a week) 40 170 90 50 160 100 60 150 110 70 140 120 80 130 130 90 120 140100 110 150110 100 160