Question

Michael spends exactly the same dollar amount on candy bars each week, regardless of their price. John's demand curve for candy bars is

a.

upward-sloping

b.

backward-bending

c.

perfectly inelastic

d.

perfectly elastic

If a firm facing a perfectly elastic demand curve raises its price,

a.

it will still sell exactly the same amount of output as it did at the lower price

b.

it will lose some, but not all, of its sales

c.

its sales will decrease to zero

d.

its sales will increase

The cross-price elasticity of demand between pancakes and waffles is positive. This indicates all of the following except one. Which is the exception?

a.

Pancakes and waffles are substitutes.

b.

An increase in the price of pancakes will shift the demand curve for waffles to the right.

c.

An increase in the price of waffles will shift the demand curve for pancakes to the right.

d.

Pancake demand and waffle demand are price elastic.

In recent years, the number of farms has fallen while the average farm size has increased. What concept may explain this phenomenon?

a.

diminishing marginal returns

b.

declining productivity

c.

diseconomies of scale

d.

economies of scale

Someone once said that Chevrolet is so large that if it shakes its tail, its takes two years for its head to notice it. This is an example of

a.

profit centers

b.

diseconomies of scale

c.

economies of scale

d.

diminishing marginal returns

Which economic concept explains why a large drugstore chain can produce at a lower average cost than a locally-owned drugstore?

a.	increasing marginal returns
b.	diminishing marginal returns
c.	economies of scale
d.	diseconomies of scale

Answer 1

Michael spends exactly the same dollar amount on candy bars each week, regardless of their price. John's demand curve for candy bars is

a.backward-bending

Explanation: The expenditure on candy bars is the same. However, as the price of candy bars increases, the quantity demanded would decrease. Hence, the demand curve is downward sloping.

If a firm facing a perfectly elastic demand curve raises its price,

c.its sales will decrease to zero
Explanation: A firm with perfectly elastic demand curve is a price taker. It can sell any quantity it desires at the given price.

The cross-price elasticity of demand between pancakes and waffles is positive. This indicates all of the following except one. Which is the exception?

d.Pancake demand and waffle demand are price elastic.
Explanation: Cross price elasticity shows the relationship between two goods.

In recent years, the number of farms has fallen while the average farm size has increased. What concept may explain this phenomenon?
d. economies of scale
Economies of scale means that the average cost falls with increase in total quantity produced.