MBA 701 Economics Exam Questions With
Complete Solutions
Quantity demanded (Qd) - ANSWER amount of a good or service consumers are willing
and able to purchase during a given period of time
Six variables that influence Qd - ANSWER •Price of good or service (P)
•Incomes of consumers (M)
•Prices of related goods & services (PR)
•Taste patterns of consumers (T)
•Expected future price of product (PE)
•Number of consumers in market (N)
General Demand Function - ANSWER Qd= f(P, M, PR, T, PE, N)
Slope Parameters of Qd
Qd= a + bP + cM + dPR + eT + fPE + gN - ANSWER *b, c, d, e, f & g are the slope
parameters
measures the effect on Qd changing one variable, holding others constant
Sign of Slope Parameter related to Qd - ANSWER positive sign- direct (+/+, -/-)
negative sign- inverse (+/-)
Effects on Qd when price (P) changes - ANSWER Law of Demand
-Qd increases when P falls, all else constant
-Qd decreases when P rises, all else constant
-Formula Total Qd/Total P and has to be negative
In most cases, Law of Demand holds (b<0)
Effects on Qd when income of consumers (M) changes - ANSWER Normal Good (c>0)-
good or service for which an increase (decrease) in income causes consumers to
demand more (less) of the good. *c is positive- direct relationship (+/+,-/-)
Inferior Good (c<0)- good or service for which an increase (decrease) in income causes
consumers to demand less (more) of the good *c is negative- inverse relationship to Qd
, (+/-)
Effects on Qd when prices of related goods/services (PR) changes - ANSWER
Substitutes (d>0)- two goods are substitutes if an increase (decrease) in the price of one
good causes consumers to demand more (less) of the other good. *d is positive- direct
relationship (+/+,-/-)
Complements (d<0)- two goods are inferior is an increase (decrease) in the price of one
good causes consumers to demand less (more) of the other good. *d is negative- inverse
relationship to Qd (+/-)
Effects on Qd when taste (T) changes - ANSWER *e is positive- direct relationship to Qd
(+/+,-/-)
Effects on Qd when expected future price of product (PE) changes - ANSWER *f is
positive- direct relationship (+/+,-/-)
Effects on Qd when number of consumers in market (N) changes - ANSWER *g is
positive- direct relationship (+/+,-/-)
The demand curve - ANSWER shows the relationship between quantity demanded and
price of the product, assuming all other factors remain constant.
*a point on demand curve shows either:
-max. amount of a good that will be purchased for a given price
-max. price consumers will pay for a specific amount of a good (demand price)
Change in quantity demanded - ANSWER -occurs only when price (P) changes
-movement along the demand curve
Change in market demand - ANSWER -occurs when other variables or determinants in
the demand function change (M, PR, T, PE, N/b, c, d, e, g)
-demand curve shifts right for increase or left for decrease
Quantity Supplied (Qs) - ANSWER amount of a good or service offered for sale during a
given period of time.
Six variables that influence Qs - ANSWER •Price of good or service (P)
•Input prices (PI)
•Prices of goods related in production (Pr)
•Technological advances (T)
•Expected future price of product (Pe)
Complete Solutions
Quantity demanded (Qd) - ANSWER amount of a good or service consumers are willing
and able to purchase during a given period of time
Six variables that influence Qd - ANSWER •Price of good or service (P)
•Incomes of consumers (M)
•Prices of related goods & services (PR)
•Taste patterns of consumers (T)
•Expected future price of product (PE)
•Number of consumers in market (N)
General Demand Function - ANSWER Qd= f(P, M, PR, T, PE, N)
Slope Parameters of Qd
Qd= a + bP + cM + dPR + eT + fPE + gN - ANSWER *b, c, d, e, f & g are the slope
parameters
measures the effect on Qd changing one variable, holding others constant
Sign of Slope Parameter related to Qd - ANSWER positive sign- direct (+/+, -/-)
negative sign- inverse (+/-)
Effects on Qd when price (P) changes - ANSWER Law of Demand
-Qd increases when P falls, all else constant
-Qd decreases when P rises, all else constant
-Formula Total Qd/Total P and has to be negative
In most cases, Law of Demand holds (b<0)
Effects on Qd when income of consumers (M) changes - ANSWER Normal Good (c>0)-
good or service for which an increase (decrease) in income causes consumers to
demand more (less) of the good. *c is positive- direct relationship (+/+,-/-)
Inferior Good (c<0)- good or service for which an increase (decrease) in income causes
consumers to demand less (more) of the good *c is negative- inverse relationship to Qd
, (+/-)
Effects on Qd when prices of related goods/services (PR) changes - ANSWER
Substitutes (d>0)- two goods are substitutes if an increase (decrease) in the price of one
good causes consumers to demand more (less) of the other good. *d is positive- direct
relationship (+/+,-/-)
Complements (d<0)- two goods are inferior is an increase (decrease) in the price of one
good causes consumers to demand less (more) of the other good. *d is negative- inverse
relationship to Qd (+/-)
Effects on Qd when taste (T) changes - ANSWER *e is positive- direct relationship to Qd
(+/+,-/-)
Effects on Qd when expected future price of product (PE) changes - ANSWER *f is
positive- direct relationship (+/+,-/-)
Effects on Qd when number of consumers in market (N) changes - ANSWER *g is
positive- direct relationship (+/+,-/-)
The demand curve - ANSWER shows the relationship between quantity demanded and
price of the product, assuming all other factors remain constant.
*a point on demand curve shows either:
-max. amount of a good that will be purchased for a given price
-max. price consumers will pay for a specific amount of a good (demand price)
Change in quantity demanded - ANSWER -occurs only when price (P) changes
-movement along the demand curve
Change in market demand - ANSWER -occurs when other variables or determinants in
the demand function change (M, PR, T, PE, N/b, c, d, e, g)
-demand curve shifts right for increase or left for decrease
Quantity Supplied (Qs) - ANSWER amount of a good or service offered for sale during a
given period of time.
Six variables that influence Qs - ANSWER •Price of good or service (P)
•Input prices (PI)
•Prices of goods related in production (Pr)
•Technological advances (T)
•Expected future price of product (Pe)
