type of exam questions

• What does the term "ceteris paribus" mean?

  All else being equal
• What factors cause a shift of the demand curve towards product A, ceteris paribus?

  • A change in the price of A
  • A change in the price of B, a complement
  • A change in the price of C, a substitute
  • An increase of the average income
• What happens to the demand curve when the price of the good itself changes?

  It causes a movement along the demand curve
• If tea becomes cheaper and the demand for sugar increases, what type of goods are sugar and tea?

  Sugar is a complementary good to tea
• What occurs in the brussels sprouts market if the price of broccoli increases?

  The demand for brussels sprouts will shift to the right
• What does the upward slope of the supply curve indicate?

  Producers want to sell more as the price increases
• What happens to the supply of gasoline if the price of oil doubles?

  There will be a shift to the left in the supply of gasoline
• What does the price elasticity of demand measure?


  The extent to which the quantity demanded responds to price changes
• If the quantity demanded of a product increases from 90 to 110 units due to a price decrease from 1.20 euros to 0.80 euros, what is the approximate price elasticity of demand?

  2
• What does a complete horizontal demand curve indicate about its price elasticity?

  It has a price elasticity of infinity
• What happens to total revenue when demand is elastic and price increases?

  Total revenue will decrease
• What does it indicate if expenses on food as a percentage of income decrease as income increases?

  Food is a normal good with an income elasticity of demand between 0 and 1
• If the income elasticity of wine is 1.4, what type of good is wine considered?

  A luxury good
• What does positive cross-elasticity between goods X and Y indicate?

  They are substitute goods
• If A and B are highly substitutable goods, what can we expect about their cross elasticities of demand?

  They will have strong positive cross elasticities of demand
• If the elasticity of supply is 2, what can we conclude about the supply?

  The supply is elastic
• What happens to the quantity of pizzas demanded if the price of hamburgers rises?

  The quantity of pizzas demanded increases
• What does an income elasticity of 3 indicate about a good?

  A ten percent increase in income leads to a 30 percent increase in quantity demanded
• What does a very high-income elasticity suggest about a good?

  It is likely a luxury good
• What is the price elasticity calculated according to the arc elasticity formula when the price increases from 1 euro to 2 euros and the quantity demanded decreases from 30 to 20?

  1. 67
• What characterizes an inferior good?

  The quantity demanded decreases when income increases
• What does the presence of a black market indicate when a maximum price is imposed?

  There is a shortage of the good
• What happens when the government sets a fixed price above the market price?

  It results in a surplus, leading to storage costs
• What is the effect of a maximum price on the distribution of goods?

  It is likely that the distribution will be based on seller preferences
• What happens if a shift in demand causes the price of peanuts to rise above the support price?

  The government must buy fewer peanuts
• In binding price controls, what determines the quantity traded?

  The smallest quantity demanded or the balance between supply and demand
• What happens to the traded quantity of a good if a binding maximum price becomes mandatory and demand increases?

  The traded quantity remains unchanged
• When will quantity demanded and quantity supplied be equal at free market equilibrium?

  When a binding maximum price exists, and the government ensures that there won’t develop a black market
• What is expected if the government introduces a binding minimum price for beef?

  There will be a beef supply surplus
• What is likely to happen if a minimum price is set above the market price?

  A black market may develop
• What happens when a maximum price is imposed and a black market develops?

  The consumer prices for the good are higher than demanded
• What does a price support above the free-market equilibrium lead to?

  It leads to the accumulation of unsold surpluses
• What is the result of freezing prices during a period of inflation?

  The quantity supplied becomes limited
• What are alternative distribution mechanisms to price?

  • Waiting lines
  • Rationing
  • Preference of the sellers
  • All of the above are alternative distribution mechanisms
• How does the black market affect consumer prices?

  The black market drives up the price the consumer pays
• What happens when a price support is set above the free-market equilibrium?

  It leads to stable prices and the accumulation of unsold surpluses
• Why does a price support above equilibrium not lead to a leftward shift of the supply curve?

  Because there is no negative price signal
• Why do producers offer fewer goods when prices are frozen during inflation?

  Producers receive a lower price for the goods offered
• What is an example of a distribution mechanism as an alternative to price?

  Waiting lines
• What are the characteristics of waiting lines and rationing as distribution mechanisms?

  • In waiting lines, the first to come can buy the good.
  • Rationing entitles people to goods based on certain criteria.
  • Sellers may determine who can buy the goods.