Question

QUESTION 1 (20)

In each of the following cases only one answer is correct. Write the letter that represents the correct answer, next to each number. E.g. 1.11 a

1.5 If the cross elasticity of demand between tablets and smart phones is 2,0, this implies that these goods are:

a) Luxuries.

b) Complements.

c) Necessities.

d) Substitutes.

1.6 Nonjabulo thinks that McDonald’s hamburgers are the best – much better than Steers’ – while Anne cannot tell the difference:

a) Anne’s demand for McDonald’s hamburgers is likely to be more price elastic than Nonjabulo’s.

b) Nonjabulo’s demand for McDonald’s hamburgers is likely to be more price elastic than Anne’s.

c) Anne’s demand for all hamburgers is less price elastic than Nonjabulo’s.

d) Nonjabulo’s demand for all hamburgers is more price elastic than Anne’s

1.7 The vertical distance between the total cost and the total variable cost curves:

a) Decreases as output increases.

b) Increases as output increases.

c) Is equal to average fixed cost.

d) Is equal to total fixed cost.

1.8 Which one of the following is NOT true of a monopolist?

a) A monopolist is protected from competition.

b) A monopolist can earn economic profits.

c) A monopolist is a price maker.

d) A monopolist can sell as much as he/she wants to at any price.

1.9 If a firm in a perfectly competitive industry raises its price above market price:

a) Sales will fall slightly.

b) Sales will stay the same.

c) Sales will drop to zero.

d) All other firms in the industry will follow.

Answer 1

Answer:-

1). If two goods are substitute then the cross elasticity will be positive. That means if the price of a good rises the demand for the other good will increase.

The answer is "D" tablet and smartphones are substitutes.

2). As Nonjabulo has a preference for a particular product his demand elasticity for that product will be less i.e. no matter what he will consume the same amount of burgers.

But Anne doesn't have any such preference so in case of an increase in the price of the product Anne will switch to other product making the demand more elastic.

The answer is "A". Anne's demand for MacDonald's hamburger is likely to be more elastic than Nonjabulo.

3) Option (D)

The total cost is the sum of total fixed cost and total variable cost

TC=FC+VC

FC=TC-VC

So the difference is total fixed cost

4). Option (D)

The monopolist demand curve is downward sloping so if the monopolist increases price then loses the sales.

5). Option (C)

The perfectly competitive market has many firms where the many means no one has the power to change the price and if it increases price then there is no sale because the demand curve is perfectly elastic and it can charge the price above the market price which is demand curve of the individual firm.