Introduction to Economics 1 Ara 8. Deneme Sınavı
Toplam 20 Soru1.Soru
Which of the following is true?
Cross-price elasticity of demand is positive for complement goods |
Cross-price elasticity of demand is greater than zero for complement goods |
Cross-price elasticity of demand is smaller than zero for substitute goods |
Cross-price elasticity of demand is negative for substitute goods |
Cross-price elasticity of demand is positive for substitute goods |
For Substitute goods, the cross-price elasticity of demand is positive since the price increase of good X causes the quantity demanded of good Y to increase.
For substitutes, Cross-price elasticity of demand is greater than zero.
For complement goods, the cross-price elasticity of demand is negative because a price increase in good X causes the quantity demanded of good Y to decrease.
For complements,Cross-price elasticity of demand is less than zero.
Answer is E.
2.Soru
I. A firm is willing to increase the production of a good when the marginal cost becomes higher than the market price of this good. II. Developments in technology lead to a decrease in the supply of goods by causing an increase in the cost of production. III. Supply is the willingness and the ability of producers to produce a quantity of a good or a service at a given price in a given time period. IV. The Law of Supply states that, under the assumption of ceteris paribus, an increase in the price of a product causes an increase in the quantity supplied. Which of the above statements is true regarding ‘supply’?
I and III |
I and IV |
II and III |
II and IV |
III and IV |
A perfectly competitive firm should normally stops increasing the production when the marginal cost becomes as high as the market price. Otherwise, they cannot make a profit at all. Moreover, as everybody knows, improvements in the production technology lead to an increase in the supply of goods by causing the cost of production per unit to decrease. The statements III and IV are true in terms of the concept of supply. The correct answer is E.
3.Soru
Which of the followings is within the scope of tax incedence?
Who pays the tax |
How much tax is paid |
The effect of taxation on the markets |
Why taxation causes elasticity |
What the tax is for |
Tax incidence is the study of who bears the burden of taxation. The correct answer is A.
4.Soru
When the demand is elastic (If we are on the elastic portion of demand curve), what would be the effect of a price increase or price hike on the total revenue from the sales?
An increase in price causes total revenue to decrease, |
An increase in price causes total revenue to increase, |
An increase in price does not cause total revenue to change, |
An increase in price causes total revenue to decrease for normal goods but increases for Veblen goods, |
An increase in price causes total revenue to decrease for Giffen goods but increase for normal goods. |
Price Elasticity-Total Revenue Relationship with a Linear Demand Curve
When the demand is elastic (If we are on the elastic portion of demand curve), then Price elasticity of demand is greater than 1, ?P d ( >1), in case of a price increase or price hike, Percentage change in Quantity>Percentage change in Price. The decrease in total revenue from lower Quantity is greater than the increase in total revenue from higher Price, so total revenue from sales falls.
5.Soru
Which of the following defines the type of a market where there are many buyers and sellers so that the effect of each one on market price is negligible?
Oligopoly |
Perfect Competition |
Monopoly |
Monopsony |
Monopolistic competition |
A competitive market is a type of market in which there are many buyers and sellers so that the effect of each one on market price is negligible. The answer is B.
6.Soru
I. A potato chip factory owner who buys wholesale potatoes from the farmers who grow the potato. II. A car company which sells car in a town in which there are other car companies. III. A spice factory owner who buys wholesale cummin from the farmers who grow the cummin. IV. A toy shop owner who sells toys in a city in which there are many other toy shops. Which of the markets described above are imperfectly competitive monopsony markets?
I and II |
I and III |
II and IV |
III and IV |
I and IV |
Most of the markets are imperfectly competitive. The extreme cases of imperfect competition are monopoly and monopsony. Monopoly is a market where there is only one seller.
The Türk Telekom, for example, is a monopoly in internet infrastructure. All the other internet providers have to use Telekom’s infrastructure. Likewise, TCDD is a state owned monopoly in railway transportation. There are also local monopolies. Many cities in Turkey are served by a single airline (typically THY subsidiary Anadolu Jet). In smaller towns, many goods and services could be offered by a single seller. There are a few worldwide monopolies as well: SpaceX, for example, is the only company selling touristic trips to the space. The pricing behavior of a monopoly is totally different than the behavior of firms operating in a competitive market. Monopsonist markets are the ones in which there exist only one buyer and many sellers. The relatively high agricultural prices in Turkey might be attributed to near monopsonist local markets where there are only a few merchants buying the farmers’ products. For example, larger milk and dairy product firms generally act as monopsonist buying wholesale milk from cow owners in many towns around Turkey.
As it is understood from the information given the correct answer is “B”.
7.Soru
The difference between the maximum amount a person is willing to pay for a good and the market price is called:
Income elasticity of demand. |
Price ceiling. |
Dead-weight loss. |
Consumer surplus. |
Tax incidence. |
Consumer surplus (CS) is the amount a buyer is willing to pay minus the buyer actually pays, which is the market price. That is: CS=WTP–P. The consumer surplus that each buyer gets is different.
8.Soru
I. Fake brand cheese II. Lor cheese III. White bread IV. Cinema tickets Which of the above are examples of inferior goods?
I and II |
III and IV |
I, II and III |
I, II and IV |
II, III and IV |
A product is said to be inferior if the demand for that product goes down when the income of the consumers increases. Consumers prefer to buy higher priced substitutes in place of the inferior goods when their income rises. Examples of inferior goods may be ordinary (white) bread, cheap cheese (“lor”) or fake brand (imitation) jeans. The correct answer is C.
9.Soru
Which of the following is not listed as a required characteristics for a market to be called competitive market?
The good or service being exchanged is the same across all sellers; the quality or the characteristics of it do not change from one seller to another |
There is a high number of potential buyers and sellers of this good; and all act independently from each othe |
Entry of new sellers into the market is not restricted by any means |
Buyers and sellers readily and freely have access to information with regards to the prices at which other buyers and sellers are exchanging the good. |
It is a market where there is only one seller of the product and this seller sets the price alone. |
Perfect Competition
The conventional ideal market model represents perfect competition. This is a hypothetical market in which:
- The good or service being exchanged is the same across all sellers; the quality or the characteristics of it do not change from one seller to another
- There is a high number of potential buyers and sellers of this good; and all act independently from each other
- Entry of new sellers into the market is not restricted by any means
- Buyers and sellers readily and freely have access to information with regards to the prices at which other buyers and sellers are exchanging the good.
10.Soru
Given the price and quantity for two points on the demand curve at the table below, calculate the price elasticity of demand using mid-point method. Which of the below is the closest value to the price elasticity you have calculated?
-0.666667 |
4.76 |
-1 |
-2.25 |
-0.66667 |
11.Soru
I. The tax reduces the market size by reducing the equilibrium quantity.
II. The tax imposed on goods and services causes the price the buyers pay to increase.
III. The governments usually tend to levy the taxes on buyers, not sellers.
Which of the statements above is true in terms of ‘the effects of taxation on market outcomes’?
Only I |
Only II |
Only III |
I and II |
II and III |
Governments generally levy taxes on many goods and services to raise revenue to pay for expenditures such as national defense, public schools, etc. Taxes may be imposed on the market transactions, institutions, property, meals, and other things. The government can choose and make buyers or sellers to pay the tax. Moreover, regardless of whether the tax is levied on buyers or sellers, the effects of taxation are the same: the price that the buyers pay rises and the price that the sellers receive falls. Finally, the tax also reduces the market size by reducing the equilibrium quantity. The correct answer is D.
12.Soru
Assume that the coffee market consists of three individuals. Let’s call them A, B and C. Consider the case in which the price of coffee PT is 5 TL per cup. Individual A’s quantity demanded is 3 cups, individual B’s quantity demanded is 2 cup, and individual C’s quantity demanded is 4 cups. Which of the following gives the quantity demanded for PT = 5 TL?
2 |
3 |
5 |
7 |
9 |
The price of coffee PT is 5 TL per cup. Individual A’s quantity demanded is 3 cups, individual B’s quantity demanded is 2 cups, and individual C’s quantity demanded is 4 cups. Summing up all the quantities demanded at the price of 4 TL, we arrive at the quantity demanded (9 cups) for PT = 5 TL in the market. Replicating the procedure for all prices, we derive the market demand curve for the market. The market demand is the sum of individual demands. The correct answer is Choice E.
13.Soru
Which of the following interpretations is true when price elasticity of demand is equal to -4?
Which of the following interpretations is true when price elasticity of demand is equal to -4?
An increase in price by 25 percent will cause an increase in demand by 100 percent. |
A decrease in price by 25 percent will cause an increase in demand by 100 percent. |
A decrease in price by 10 percent will cause an increase in demand by 2.5 percent. |
A decrease in price by 40 percent will cause an increase in demand by 10 percent. |
A decrease in price by 100 percent will cause a decrease in demand by 25 percent. |
Price elasticity of demand is percentage change in quantity demanded divided by percentage change in price. An increase is a positive change and a decrease is a negative change. Hence the statement "A decrease in price by 25 percent will cause an increase in demand by 100 percent" means -100/25 = -4.
14.Soru
Which of the basic assumptions liste below is not one the economists make about the nature of the consumer’s tastes or preferences?
Which of the basic assumptions liste below is not one the economists make about the nature of the consumer’s tastes or preferences?
The preferences are complete. |
Negatively sloped budget constraint. |
Consumer’s preferences are transitive. |
Consumers always prefer more of a commodity to less. |
A diminishing marginal rate of substitution |
Budget constraint is not related to consumer’s tastes or preferences, it is related to the income or in other words the budget of the consumer.
15.Soru
Which of the following refers to the situation when the marginal utility derived from consuming successive units of a product will eventually decline as the rate of consumption increases?
Completeness of preferences. |
The law of diminishing marginal utility. |
Limited income necessitates choice. |
A diminishing marginal rate of substitution. |
Consumer’s preferences are transitive. |
The law of diminishing marginal utility is that the marginal (or additional) utility derived from consuming successive units of a product will eventually decline as the rate of consumption increases.
16.Soru
Which of the following statements is true in terms of ‘the price elasticity of supply’?
The price elasticity of supply is a measure of the response of quantity supplied of a good to a change in price. |
The price elasticity of supply is computed as the percentage change in price divided by the percentage change in quantity supplied. |
An increase in the price of a good causes the quantity supplied by the sellers to decrease, as there is a negative relationship. |
It can be claimed that if the price elasticity of supply takes the value between 0 and 1, the good has elastic supply. |
If the price elasticity of supply is greater, the sellers cannot easily change the quantity they produce due to unavailability of inputs. |
The price elasticity of supply measures how much quantity supplied responds (Qs) to a change in price (P). In other words, the price elasticity of supply measures the price-sensitivity of sellers’ supply. Moreover if you want to calculate the price elasticity of supply, you need to divide the percentage change in quantity supplied divided by the percentage change in price. Moreover, because of the law of supply, the price elasticity of supply has always a positive sign. An increase in price causes the quantity supplied to increase. The supply of a good is said to be elastic if the quantity supplied changes more than the price changes. That is, we can say that if the price elasticity of supply takes the value between 0 and 1, the good has inelastic supply. If the value is larger than 1, we say the good has elastic supply. Lastly, we can say that, the more easily sellers can change the quantity they produce due to availability of inputs, the greater the price elasticity of supply. The correct answer is A.
17.Soru
How the use of mid-point approach of price elastic of demand differs from the standard way to compute price elasticity of demand?
It is calculated as the percentage change in the quantity demanded of the good divided by the percentage of change in the price of that good. |
The mid-point method calculates the percentage change by dividing the change by the average of the initial and final levels of price and quantities. |
It is calculated as the change in the quantity demanded of the good divided by the change in the price of that good |
The mid-point method calculates the percentage change by dividing the change by the maximum of the initial and final levels of price and quantities. |
The mid-point method calculates the percentage change by dividing the change by the minimum of the initial and final levels of price and quantities. |
Price Elasticity of Demand-Mid-point Approach
When we take two points such as points A and B, on the demand curve, then calculating the price elasticity of demand moving from point A to B or B to A and have the same elasticity measure requires the following equation. Different than the standard way to compute price elasticity of demand, the mid-point method calculates the percentage change by dividing the change by the average of the initial and final levels of price and quantities.
18.Soru
Which of the following is true regarding the effects of taxation on the market?
When the government levies a tax on buyers, the tax causes the shift of the demand curve up right. |
When a tax is levied on sellers causes the shift of the supply curve down right. |
A tax levied on sellers always means that the buyers are not affected by the tax. |
A tax levied on buyers always means that the sellers are not affected by the tax. |
The tax reduces the market size by reducing the equilibrium quantity. |
A tax levied on buyers means that the buyers will have to pay more, which causes their demand to fall. The fall in demand also hurts sellers, by forcing them to reduce their sale price. Similarly, a tax levied on sellers is like a cost of production increase, and sellers have to pass along a portion of that cost increase to buyers in the form of higher prices. So the effects of taxation on Prices, on quantity and on tax incidence are the same whether the tax is imposed on buyers or sellers. Finally, the tax also reduces the market size by reducing the equilibrium quantity.
19.Soru
What is the term used for the measures of the responsiveness of demand to changes in price is called?
income elasticity of demand |
cross-price elasticity of demand |
the law of demand |
the price elasticity of demand |
price elasticity of supply |
The price elasticity of demand measures the responsiveness of demand to changes in price. The correct answer is D.
20.Soru
What is the trade-off between inflation and unemployment?
Opportunity cost |
Phillips curve |
Taylor rule |
Inflation rate |
Externality |
Cutting money supply to reduce inflation is often thought to raise unemployment. This tradeoff between inflation and unemployment is sometimes illustrated by a curve called the Phillips curve.
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