Test Prep Test Prep Certifications BUSINESS-ENVIRONMENT-AND-CONCEPTS Questions & Answers

• Question 251:

  All of the following are complementary goods, except:

  A. Margarine and butter.

  B. Gas and motor oil.

  C. Cameras and rolls of film.

  D. VCRs and video cassettes.

  Correct Answer: A

  Choice "a" is correct. Margarine and butter are substitute goods. If the price of one goes up, demand for the substitute increases. Choices "b", "c", and "d" are incorrect. They are complements. Two goods are complements if they are used together or their demand curves move together (breakfast cereal and milk, e.g., or tennis balls and tennis racquets). Thus, if the price of one complement goes up, demand for the other good goes down.

• Question 252:

  Utility companies can generally price their product, a good that establishes a comfortable life-style (i.e., electricity, gas for home heating) based on the fact that the demand:

  A. Is relatively elastic.

  B. Is perfectly elastic.

  C. Is relatively inelastic.

  D. Is perfectly inelastic.

  Correct Answer: C

  Choice "c" is correct. Goods that are important for a comfortable life-style would be relatively price

  insensitive (i.e., inelastic). For example, demand for electricity would only decrease if there were an

  enormous increase in price (people might then use other forms of energy - such as solar). Only goods that

  are absolute necessities (a theoretical example is water) have perfectly inelastic demand curves.

  That is, no matter what price is charged, people will still buy the product because they need it to stay alive.

  Choices "a", "b", and "d" are incorrect, per for choice "c" above.

• Question 253:

  Product demands become more elastic the:

  A. Greater the number of substitute products available.

  B. Greater the consumer income.

  C. Greater the elasticity of supply.

  D. Shorter the time period considered.

  Correct Answer: A

  Choice "a" is correct. Product demands become more elastic the greater the number of substitutes available. With price increases, consumers will switch to substitute goods.

  Choice "b" is incorrect. Consumer income will not affect demand elasticity.

  Choice "c" is incorrect. Elasticity of supply and demand is unrelated.

  Choice "d" is incorrect. Product demand is more elastic the longer the time period, since more choices

  become available.

• Question 254:

  If a product's demand is elastic and there is a decrease in price, the effect will be:

  A. A decrease in total revenue.

  B. No change in total revenue.

  C. A decrease in total revenue and the demand curve shifts to the left.

  D. An increase in total revenue.

  Correct Answer: D

  Choice "d" is correct. If demand is relatively elastic, then the reduction in price will, by definition, produce a

  proportionately greater increase in quantity demanded. Hence, total revenue will increase.

  Choices "a", "b", and "c" are incorrect, per above.

• Question 255:

  In any competitive market, an equal increase in both demand and supply can be expected to always:

  A. Increase both price and market-clearing quantity.

  B. Increase market-clearing quantity.

  C. Increase price.

  D. Decrease price.

  Correct Answer: B

  

  Choice "b" is correct. As illustrated above, a shift outward (increase) in supply increases quantity supplied

  at equilibrium. As illustrated, this is true even when demand increases.

  Choice "a" is incorrect. As illustrated, price may stay the same but quantity will increase. Draw the graph!

  Choices "c" and "d" are incorrect. Price may remain the same, but quantity will "always" increase.

• Question 256:

  When the federal government imposes health and safety regulations on certain products, one of the most likely results is:

  A. Greater consumption of the product.

  B. Lower prices for the product.

  C. Higher prices for the product.

  D. Increased supply of the product.

  Correct Answer: C

  Choice "c" is correct. One of the consequences of greater government regulation of certain products is the

  resulting higher cost to the consumer when the government imposes health and safety regulations on

  certain products it is likely that expenses will increase and that the added costs will be passed on to

  consumers in terms of higher prices. The total output for the product may decrease.

  Choice "a" is incorrect. Since the price goes up, consumption will decrease.

  Choice "b" is incorrect. The price can be expected to increase (see choice "c" above).

  Choice "d" is incorrect. Since the price goes up, supply goes down.

• Question 257:

  Tennis rackets and tennis balls are:

  A. Substitute goods.

  B. Independent goods.

  C. Inferior goods.

  D. Complementary goods.

  Correct Answer: D

  Choice "d" is correct. Complementary goods are ones whose demand fluctuates together. If Good A and Good B are complements, then if the demand for Good A increases, the demand for Good B will also increase, tennis rackets and tennis balls are complements. Choice "a" is incorrect. For substitutive goods, as the price of one of the goods increases, the other good experiences an increase in demand as it is substituted for the first good. An example of substitute goods is apple and orange juice. Choice "b" is incorrect. Independent goods have demand functions that are not interrelated. An example would be bread and vacuum cleaners. Choice "c" is incorrect. Inferior goods experience a decrease in demand when income levels rise. An example is hamburger, which experiences decrease in demand as incomes rise and buyers switch to higher priced meats.

• Question 258:

  Which one of the following would cause the demand curve for a commodity to shift to the left?

  A. A rise in the price of a substitute product.

  B. A rise in average household income.

  C. A rise in the price of a complementary commodity.

  D. A rise in the population.

  Correct Answer: C

  Choice "c" is correct. A rise in the price of a complementary commodity would cause a shift to the left in any demand curve (representing decrease in demand, at all price levels, for that product). With respect to complementary goods, the demand for the primary product is directly impacted by the demand (and hence the price changes) for the complementary goods. For instance, if the price of gasoline goes up, the demand for cars will decrease, causing the demand curve for cars to shift left. Choice "a" is incorrect. A rise in the price of a substitute product will make the demand curve shift to the right. Choice "b" is incorrect. A rise in average household income would make the demand curve shift to the right, representing an increase in demand. Choice "d" is incorrect. A rise in population, or a change in consumers' tastes in favor of the commodity are also changes that may cause an increase in demand, making the demand curve shift to the right.

• Question 259:

  The movement along the demand curve from one price-quantity combination to another is called a(n): A. Change in demand.

  B. Shift in the demand curve.

  C. Change in the quantity demanded.

  D. Increase in demand.

  Correct Answer: C

  Choice "c" is correct. References to the change in quantity demanded refer to a single demand curve, which is downward sloping to the right.

  

  Changes in the quantity demanded result from changes in price.

  Choices "a", "b", and "d" are incorrect. All refer to changes in the demand curve itself, like an outward shift

  from curve D - D to D1 - D1.

  

• Question 260:

  An increase in the minimum wage will benefit specific economic wage groups as outlined below:

  I. Employees at the minimum wage rate who remain employed will benefit, since they will receive more money.

  II.

  Many of the unskilled could lose their jobs. There would be fewer jobs for the currently unemployed such as less educated and untrained personnel (e.g., teenagers) who will have more difficulty finding work as firms reduce their labor force and pursue more efficiency.

  A.

  Only I.

  B.

  Only II.

  C.

  Both I and II.

  D.

  Neither I nor II.

  Correct Answer: A

  Choice "a" is correct. Only I.

  Choices "b", "c", and "d" are incorrect, since II is a disadvantage - not a benefit.