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CPT Economics

Microeconomics concepts including supply and demand, price elasticity, market equilibrium, and consumer behavior

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Questions

Question 1 Multiple Choice (Single Answer)

If both the supply and the demand show good increase, the market price will ____________.

  1. rise only in the case of an inelastic supply function
  2. fall only in the case of an inelastic supply function
  3. not be predictable with only these facts
  4. rise only in the case of an inelastic demand function
  5. none of these
Question 2 Multiple Choice (Single Answer)

The requirement is to identify which of the situations indicates inelastic demand. Elasticity of demand is measured by the percentage change in the quantity demanded divided by the percentage change in price. If the quotient is greater than one, demand for product is price elastic, and if it less than one, demand for the product is price inelastic. A quotient of exactly one indicates unitary elasticity.
In which of the following situations would there be inelastic demand?

  1. A 5% price increase results in 3% decrease in the quantity demanded.
  2. A 4% price increase results in a 6% decrease in the quantity demanded.
  3. A 4% price increase results in a 4% decrease in the quantity demanded.
  4. A 3% price decrease results in 5% increase in the quantity demanded.
  5. None of these
Question 3 Multiple Choice (Single Answer)

The requirement is to determine the immediate effect on one product of an increase in the price of a substitute good. The demand and price of substitute products are directly related. If the price of a good increases, the demand for its substitute will also increase.
X and Y are substitute products. If the price of product Y increases, the immediate impact on product X is ____________.

  1. price will increase
  2. quantity demanded will increase
  3. quantity supplied will increase
  4. price, quantity demanded and supply will increase
  5. none of these
Question 4 Multiple Choice (Single Answer)

The requirement is to apply the concept of price-elasticity of demand. If demand is inelastic an increase in price will increase total revenue.
As a business owner if one has determined that the demand for his product is inelastic. Based upon this assessment it is understood that _________.

  1. increasing the price of the product will increase total revenue
  2. decreasing the price of the product will increase total revenue
  3. increasing the price of the product will have no effect on total revenue
  4. increasing the price of your product will increase competition
  5. none of these
Question 5 Multiple Choice (Single Answer)

The requirement is to identify the price elasticity of an essential product with no substitutes.
In the pharmaceutical industry where a diabetic must have insulin no matter the cost and where there is no other substitute, the diabetic’s demand curve is best described as ___________.

  1. perfectly elastic
  2. perfectly inelastic
  3. elastic
  4. inelastic
  5. none of these
Question 6 Multiple Choice (Single Answer)

The requirement is to describe market conditions in a competitive market when both demand and supply increase. In a competitive market, the market will always clear at the equilibrium price. If there is an equal increase in both demand and supply, the equilibrium price may increase, decrease or remain the same. However, there will be more units sold.
In any competitive market, an equal increase in both demand and supply can be expected to always ____________.

  1. increase both price and market-clearing quantity
  2. decrease both price and market-clearing quantity
  3. increase market-clearing quantity
  4. increase price
  5. none of these
Question 7 Multiple Choice (Single Answer)

The requirement is to identify the effect on total revenue of a decrease in price of a price elastic product.
If a product’s demand is elastic and there is a decrease in price, the effect will be ___________.

  1. a decrease in total revenue
  2. no change in total revenue
  3. a decrease in total revenue and the demand curve shifts to the left
  4. an increase in total revenue
  5. none of these
Question 8 Multiple Choice (Single Answer)

The requirement is to identify the market feature that is likely to cause a surplus of a particular product.
Which of the following market features is likely to cause a surplus of a particular product?

  1. A monopoly
  2. A price floor
  3. A price ceiling
  4. A perfect market
  5. None of these
Question 9 Multiple Choice (Single Answer)

The requirement is to describe the law of diminishing marginal utility. The law states that marginal utility declines as consumers acquire more of a particular good.
The law of diminishing marginal utility states that ___________.

  1. marginal utility will decline as a consumer acquires additional units of a specific product
  2. total utility will decline as a consumer acquires additional units of a specific product
  3. declining utilities causes the demand curve to slope upwards
  4. consumers want will diminish with the passage of time
  5. none of these
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