CENTRE FOR POLICY STUDIESUNIVERSITY COLLEGE CORK

EC2204TUTORIAL 8

W\S 03\12\2012

Academic Year: 2012/2013 Instructors: Brenda Lynch and PJ Hunt

Contact: brendalynch@ucc.ie p.hunt@ucc.ie

Q1. If demand is elastic, a price cut: 1.Lowers total revenue, but increases quantity sold. 2. Lowers total revenue and lowers the quantity sold. 3. Raises total revenue, but lowers the quantity sold. 4. Raises total revenue, and raises the quantity sold.

Q2. An automobile would be an example of: 1. A consumer non-durable good. 2. A durable good. 3. An inferior good. 4. A producer good.

Q3. If income elasticity was positive, this indicates that the products are: 1. Compliments. 2. Substitutes. 3. Normal goods. 4. Inferior goods.

Q4. If income elasticity for compact disks is 3, and if income rises by 5%, what do you forecast for sales of compact disks.

1. A rise of 5%. 2.A rise of 10% 3.A rise of 15% 4.A rise of 20% 5.None of these.

Q5. A price increase: 1. Raises total revenue if demand is inelastic. 2. Lowers total revenue if demand is elastic. 3. Neither raises or lowers total revenues if demand is unit elastic. 4.All of the above.

Q6. In the short run 1. Output is fixed 2. At least one input is fixed 3. All of the inputs are permitted to vary 4. here is no fixed cost

Q7. If marginal costs are greater than average total costs, then 1. Average total cost curve is falling 2. Average total cost curve is flat 3. Average total cost curve is rising 4. Average total cost curve is at a minimum

Q8. Suppose that FC is €100 and the AVC is €8 at an output of 7 units. What is the TC at an output of 7? 1. €56 2. €57 3. €156 4. €22.28

Q9. You are given the following cost function: TC = 1500 + 300Q + 25Q2 . From this cost we know: 1. Fixed cost is 300 2. ATC is 1500/Q 3. TC declines as Q rises 4. MC is 300 + 50Q

Q10. In the short run, if the price is less than ATC but higher than AVC: 1. The firm earns an economic profit 2. The firm earns a loss if it continues to operate, but a smaller loss than if it shut down 3. The firm should shut down in the short run 4. The firm should expand production

Q11. A price increase tends to reduce purchases of a good. According to the model of consumer choice, the primary reason for this reduction is: 1. the substitution effect 2. inferior goods 3. luxury goods 4. the income effect

Q12. If the absolute value of PED for a good equals 0.9, then the demand for that good is: 1. Relatively price inelastic; 2. Infinitely price elastic; 3.Relatively price elastic; 4.The above information is insufficient to make a judgement.

Q13. If Government imposes a per-unit sales tax on cars the retail price of cars will increase more if the demand for cars is;

1. Price elastic. 2. Price inelastic. 3. Unit elastic. 4. Impossible to tell without further

information.

Q14.Which is NOT a characteristic of an industry that displays perfect competition? 1. free entry 2. heterogeneous product 3. many sellers 4. free exit.