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Question 1

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The Law of Demand states that a(n)

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Change in price will lead to no change in the quantity demanded

Decrease in price will lead to a decrease in the quantity demanded

Increase in price will lead to an increase in the quantity demanded

Increase in price will lead to a decrease in the quantity demanded

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Question 2

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The following table contains the demand and supply schedules for Lego sets.

Lego Demand	Lego Price ($)	Lego Supply
5,000	6.00	6,500
5,250	5.50	6,000
5,500	4.50	5,500
5,750	4.00	5,000
6,000	3.50	4,500

According to the table, the market equilibrium price and quantity of Lego sets are

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$4.50 and 5,000 Lego sets

$5.50 and 5,500 Lego sets

$4.50 and 5,500 Lego sets

$6.00 and 6,500 Lego sets

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Question 3

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The following table contains the demand and supply schedules for Lego sets.

Lego Demand	Lego Price ($)	Lego Supply
5,000	6.00	6,500
5,250	5.50	6,000
5,500	4.50	5,500
5,750	4.00	5,000
6,000	3.50	4,500

If the price of a Lego set was $4.00, then this would result in

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A surplus of 750 sets

A shortage of 750 sets

A shortage of 250 sets

A surplus of 250 sets

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Question 4

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A market with no barriers to entry will make zero economic profit in the long run because

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The government will intervene to keep prices low to protect consumers

There is no barrier preventing outside firms entering the market, increasing market supply and decreasing price

Any form of competition always results in losses being made

There is no barrier preventing firms leaving the market and competing elsewhere

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Question 5

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If Woolworths increases the price it charges for a loaf of bread soon after Coles does, then this is

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An example of monopolistic competition and product differentiation

An example of an oligopoly market structure and mutual interdependence

An example of a monopoly because there is no difference between the two supermarkets

An example of perfect competition and a homogeneous product

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Question 6

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The expenditure approach calculates gross domestic product (GDP) according to

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GDP = C + I + G + (M – X)

GDP = C + I + G + X

GDP = C + I + G + (X + M)

GDP = C + I + G + (X – M)

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Question 7

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Which of the following would not be included in the government expenditure component (G) of GDP?

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Transfer payments made to social security recipients

Payments made to repair bridges and tunnels of a major highway

Salaries paid to government employees

The purchase of paper clips and staplers in a government department

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Question 8

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Which of the following would not shift the aggregate demand (AD) curve for an economy?

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A change in the aggregate price level

An increase in consumption

A decrease in government spending

An increase in exports

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Question 9

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Frictional unemployment in an economy refers to

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Long term unemployment caused by the business cycle

Short term unemployment caused by workers moving between jobs

Unemployment caused by workers not having the required skills, education or training

Unemployment caused by the ups and downs of the business cycle

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Question 10

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Cost push inflation refers to a

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Rise in prices because of a left shift in the aggregate demand curve

Fall in prices due to decreased unemployment in a recession

Rise in prices resulting from an excess of total spending (demand) over supply

Rise in prices resulting from an increase in the cost of production, irrespective of demand conditions

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Question 11

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Once again consider the demand and supply schedules for Lego sets. Suppose there is an increase in the demand for Lego sets because of a new Lego movie that has just been released at the cinema. The increase in demand for Lego is 750 sets at each and every price. Determine the new demand schedule by completing the table below. What is the new equilibrium price and quantity?  

Lego Price ($)	Lego Demand	New Lego Demand	Lego Supply
6.00	5,000	Answer	6,500
5.50	5,250	Answer	6,000
4.50	5,500	Answer	5,500
4.00	5,750	Answer	5,000
3.50	6,000	Answer	4,500
New equilibrium price = $Answer		Quantity = Answer

Question 12

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Given the increase in demand in Question 11, in what direction will the demand curve shift? Explain why. Which of the following charts (A, B, C or D) best shows what is happening in the Lego market?  

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Consider the following demand curve for energy bars. Calculate the price elasticity of demand (PED) if the price increases from $1.50 to $2.00 (you can use approximate quantities obtained from the chart). Is the PED for energy bars elastic or inelastic? Explain why.

Answer 1

Question 1. Ans. d) Increase in price will lead to a decrease in the quantity demanded.

Law of demand says that all the other factors being constant, there is an inverse relationship between price and quantity demanded... It means that as the price increases, there is a decrease in quantity demanded and vice versa.

Question 2. Ans. c) $4.50 and 5500 Lego sets

Market equilibrium point is where the quantity demanded equals the quantity supplied.. In this case at $4.50, the quantity demanded equals the quantity supplied that is 5500 Lego sets.

Question 3. Ans. b) A shortage of 750 sets.

At a price of $4.00, the quantity demanded is 5750 units and quantity supplied is 5000 units. So there is a shortage of 750 Lego sets.

Question 4. Ans. b) There is no barrier preventing outside firms entering the market, increasing market supply and decreasing price.

In a market where there is no barrier, any outside firm enters the market which increase the supply and decrease the price.. As a result the profit decreases in the long run.

Question 5. Ans d) An example of perfect competition and a homogeneous product.

In perfect competition, all the sellers sell homogeneous product and if one seller increases the price, others also match the same to increase the profits.

Question 6 Ans. d) GDP = C + I + G + (X-M)

GDP = Consumption + Investment + Government expenditure + (Exports - Imports)

Question 7 Ans b) Payments made to repair bridges and tunnels of a major highway

Building of infrastructure is included in government expenditure but not the repair of bridges and tunnels.

Question 8 Ans. a) A change in the aggregate price level.

Aggregate demand curve is affected by consumption, investment, government expenditure and net exports.

Question 9 Ans. b) Short term unemployment caused by workers moving between jobs.

Frictional unemployment is caused when the person moves from one job to another.

Question 10 Ans. d) Rise in prices resulting from an increase in the cost of production, irrespective of demand conditions

Cost push inflation is increase in price due to increase in cost of production.

Question 11. Ans. New equillibrium price = $5.50, Equillibrium quantity = 6000 units

Lego Price ($)	Lego Demand	New Lego Demand	Lego Supply
6.00	5,000	5750	6,500
5.50	5,250	6000	6,000
4.50	5,500	6250	5,500
4.00	5,750	6500	5,000
3.50	6,000	6750	4,500
New equilibrium price = $ 5.50		Quantity = 6000

Question 12 Ans. Demand curve will shift rightwards. As there is increase in demand, so the demand curve shifts rightwards.

Chart is not provided.