past exam questions

• What does the term "ceteris paribus" mean?

  All else being equal
• What factors can 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 when the price of the good itself changes?

  It causes a change in the quantity demanded, manifesting as a movement along the demand curve
• If tea becomes cheaper and the demand for sugar increases, what type of good is sugar in relation to tea?

  A complementary good
• What is the relationship between the price of broccoli and the demand for brussels sprouts?

  An increase in the price of broccoli raises the demand for brussels sprouts
• What does the upward slope of the supply curve indicate?

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

  It causes 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 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
• What is the income elasticity of wine if it is 1.4?

  Wine is considered a luxury good
• What does positive cross-elasticity between goods X and Y indicate?

  They are substitute goods
• What can we expect if A and B are highly substitutable goods?

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

  An increase in price leads to a more than proportional increase in the quantity supplied
• What happens if the price of hamburgers rises and the quantity of pizzas demanded increases?

  The cross-elasticity of demand between hamburgers and pizzas is positive
• If the income elasticity of a good is 3, what happens with a ten percent increase in income?

  It leads to an increase in the quantity demanded of that good by 30 percent
• What does a very high-income elasticity indicate 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 are the effects of a binding maximum price on the market?

  • There is a shortage of goods
  • Sellers have decision-making power
  • Distribution of goods may be based on seller preferences
  • A black market may develop
• What happens when the government sets a fixed price higher than the market price?

  A surplus results, leading to storage costs
• What is the result of freezing prices during inflation?

  An increasing shortage of the product
• What happens when a maximum price becomes mandatory?

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

  There is an incentive to invest in other agricultural products
• In binding price controls, what determines the quantity traded?

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

  The quantity traded 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?

  A beef supply surplus
• What is likely to happen with a minimum price above the market price?

  A black market may develop
• What could be a consequence of a maximum price and the development of a black market?

  The consumer prices for the good are higher than demanded
• What will not happen as a result of price support above the free-market equilibrium?

  A leftward shift of the supply curve
• What is the result of freezing prices during a period of inflation?

  The quantity supplied becomes limited
• What are examples of distribution mechanisms as alternatives 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 is a leftward shift of the supply curve not logical when a price support is above equilibrium?

  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 are alternative distribution mechanisms to price?

  • Waiting lines
  • Rationing
  • Preference of the sellers
  • All of the above are alternative distribution mechanisms