BSNS 113 Actual Exam Study Questions with Detailed Answers

BSNS 113 Actual Exam Study Questions with Detailed Answers 1. If when the price of tea increases the demand for sugar decreases, then ___________ a. tea is a normal good and sugar is an inferior good. b. tea and sugar are complements. c. tea and sugar are substitutes. d. tea is an inferior good and sugar is normal. e. tea and sugar are unrelated to each other. - ANSWER b. tea and sugar are complements. 2. Suppose that you observed an increase in the price of electricity and heard on the news that quantity of electricity consumed has decreased. Which of the following, on its own, is consistent with this observation? a. an increase in electricity demand caused by the arrival of winter. b. an increase in electricity supply caused by new generators entering the market. c. a decrease in electricity demand caused by consumers following electricity conservation measures d. a decrease in electricity supply caused by falling levels in the lakes from which hydro-electricity is generated - ANSWER d. a decrease in electricity supply caused by falling levels in the lakes from which hydro-electricity is generated 3. If the price of cheese falls by 1% and the quantity demanded increases by 4%, then the price elasticity of demand (є) for cheese is _____________ a. 0.25 b. 0.4 c. 1.0 d. 4.0 - ANSWER d. 4.0 4. If the business managers at Otago University were thinking of increasing student fees in the hope of raising more revenue from students, which of the following values would it prefer as the price elasticity of demand for enrolments? a. 0.3 b. 1.0 c. 3.0 d. infinity, i.e. infinitely or perfectly elastic demand - ANSWER a. 0.3 5. Suppose the price of skateboards increases by 10%. If the price elasticity of demand for skateboards were 0.5, then the quantity of skateboards demanded would fall by ______________ a. 20% b. 10% c. 5% d. 0.5% - ANSWER c. 5% 6. Suppose that The Playhouse Theatre is thinking of lowering the price of the tickets it sells to students who might come to see its plays. It sells 30 tickets per performance at the current price of $17.50. As an experiment, Playhouse managers lowered the price to $12.50 and sold 50 tickets. Using the mid-point (arc) method, what is the price elasticity of demand? a. 0 b. 0.75 c. 1.0 d. 1.5 - ANSWER d. 1.5 7. Consider a production process that benefits from economies of scale. Suppose that the price of labour (the wage rate) increases. In that case, the long-run average production cost curve will __________ a. shift UP by the change in the wage rate times the number of labour hours. b. shift DOWN by the change in the wage rate times the number of labour hours. c. shift UP, but possibly by less than the change in the wage rate times the number of labour hours because the firm will have time to substitute other inputs, e.g. automation, for higher-cost labour. d. will not change because the wage rate is not a shift variable - ANSWER c. shift UP, but possibly by less than the change in the wage rate times the number of labour hours because the firm will have time to substitute other inputs, e.g. automation, for higher-cost labour. 8. Suppose the cattle breeders in Argentina selectively breed cattle that process grass more efficiently; these new cattle put on more muscle (i.e. beef) while eating the same amount of grass (Argentina was producing less beef per unit of fruit produced). As a result, Argentina's PPF ___________ a. pivots outward so that it gets steeper (i.e. the slope increases). b. pivots outward so that it gets flatter (i.e. the slope decreases). c. shifts outward with no change in slope. d. shifts inward with no change in slope. - ANSWER b. pivots outward so that it gets flatter (i.e. the slope decreases). 9. Over the last several decades, NZ's merchandise terms of trade index has generally trended ___________ a. DOWNWARD, meaning that NZ's ability to purchase imports has generally INCREASED. b. DOWNWARD, meaning that NZ's ability to purchase imports has generally INCREASED. c. UPWARD, meaning that NZ's ability to purchase imports has generally DECREASED. d. UPWARD, meaning that NZ's ability to purchase imports has generally INCREASED. e. neither upward or downward, i.e. it has generally fluctuated around the same value over time. - ANSWER d. UPWARD, meaning that NZ's ability to purchase imports has generally INCREASED. 10. In our analysis of a market economy, a market ____________ a. is defined as a physical place where buyers meet sellers to make trades. b. is typically over-seen by an organiser, i.e., 'market-maker', who ultimately sets the price at which trades occur. c. consists of all of the people, i.e., potential buyers and sellers, whose interactions determine the market price. d. involves trades only in finished goods and services and does not include trade in labour, capital, or raw materials. - ANSWER c. consists of all of the people, i.e., potential buyers and sellers, whose interactions determine the market price.