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

• Question 321:

  Which of the following is incorrect with regard to government intervention in market operations?

  A. Government intervention may create a price different from the market price, thus causing either a surplus or a shortage.

  B. A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop.

  C. Price floors are minimum prices established by law, such as minimum wages and agricultural price supports.

  D. Rationing limits the availability of certain goods to a specified level, which lowers demand and prices for a given supply.

  Correct Answer: B

  Choice "b" is an incorrect statement and the correct choice. A price ceiling is a price that is established

  below the equilibrium price, which causes a shortage to develop. The statement in choice "b" defines a

  price floor.

  Choices "a", "c", and "d" are correct statements.

• Question 322:

  If demand is unit elastic:

  A. An increase in price will result in a decline in total revenue.

  B. An increase in price will result in a decline the quantity demanded that is less than the increase in price.

  C. An increase in price will result in an increase in total revenue.

  D. An increase in price will have no effect on total revenue.

  Correct Answer: D

  Choice "d" is correct. If demand is unit elastic, a change in price will have no effect on total revenue. Choices "a", "b", and "c" are incorrect, per the above statement.

• Question 323:

  If demand is price elastic: A. An increase in price will result in a decline in total revenue.

  B. An increase in price will result in a decline the quantity demanded that is less than the increase in price.

  C. An increase in price will result in an increase in total revenue.

  D. An increase in price will have no effect on total revenue.

  Correct Answer: A

  Choice "a" is correct. If demand is price elastic, an increase in price will result in a decline in total revenue (negative relationship). Choice "b" is incorrect. When demand is price elastic, an increase in price results in a decline in quantity demanded that is proportionately larger than the increase in price, thus having the result of a decline in total revenue (price multiplied by quantity). Choices "c" and "d" are incorrect, per the above statement.

• Question 324:

  If demand is price inelastic:

  A. An increase in price will result in a decrease in total revenue.

  B. An increase in price will result in an increase the quantity demanded that is more than the increase in price.

  C. An increase in price will result in an increase in total revenue.

  D. An increase in price will have no effect on total revenue.

  Correct Answer: C

  Choice "c" is correct. If demand is price inelastic, an increase in price will result in an increase in total

  revenue (positive relationship). Choice "b" is incorrect. When demand is price inelastic, an increase in

  price results in a decrease in quantity demanded that is proportionately smaller than the increase in price,

  thus having the result of an increase in total revenue (price multiplied by quantity).

  Choices "a" and "d" are incorrect, per the above statement.

• Question 325:

  With respect to price elasticity of demand:

  A. The shorter the time period, the more product demand becomes elastic because less choices are available.

  B. Product demand is more elastic when fewer substitutes are available.

  C. Product demand is more inelastic when more substitutes are available.

  D. Product demand is more elastic when more substitutes are available.

  Correct Answer: D

  Choice "d" is correct. Product demand is more elastic when more substitutes are available.

  Choice "a" is incorrect. The longer the time period, the more product demand becomes elastic because

  more choices are available.

  Choice "b" is incorrect. Product demand is more elastic when more substitutes are available, not fewer

  substitutes.

  Choice "c" is incorrect. Product demand is more inelastic when few substitutes are available.

• Question 326:

  Under monopoly, strategic plans focus on:

  A. Profitability from production levels that maximize profits.

  B. Maintaining the market share and being responsive to market conditions related to sales price.

  C. Maintaining the market share and planning for enhanced product differentiation.

  D. Maintaining the market share, ensuring product differentiation, and adapting to price changes or required changes in production volume.

  Correct Answer: A

  Choice "a" is correct. Under monopoly, strategic plans ignore market share and focus on profitability from

  production levels that will maximize profits.

  Choices "b", "c", and "d" are incorrect because they are characteristics of other types of market structures.

• Question 327:

  Under monopolistic competition, strategic plans focus on:

  A. Profitability from production levels that maximize profits.

  B. Maintaining the market share and being responsive to market conditions related to sales price.

  C. Maintaining the market share and planning for enhanced product differentiation.

  D. Maintaining the market share, ensuring product differentiation, and adapting to price changes or required changes in production volume.

  Correct Answer: C

  Choice "c" is correct. Under monopolistic competition, strategic plans include maintaining the market share (as with pure competition), but they also likely include plans for enhanced product differentiation and allocation of resources to advertising, product research, etc.

  Choices "a", "b", and "d" are incorrect because they are characteristics of other types of market structures.

• Question 328:

  The continual process of re-evaluating the strategic plans includes all of the following significant questions a firm should be concerned with, except:

  A. Has the firm been able to attain or maintain competitive advantage?

  B. Is the firm able to be profitable under the current strategy?

  C. Does the current strategy continue to be aligned with the established goals of the firm?

  D. Has the firm been able to adapt to the preferences of its employees?

  Correct Answer: D

  Choice "d" is correct. Although the firm needs to be flexible with respect to changes in many situations and then adapt to them, the ability to adapt to the preferences of its employees is not nearly as significant to the process as the other three choices, which are crucial to the success of the strategic plan. Choices "a", "b", and "c" are incorrect because they are all significant questions a firm should be concerned with when re-evaluating the strategic plan.

• Question 329:

  In a competitive labor market, a minimum wage that is set above the equilibrium wage will result in which of the following:

  A. A decrease in the quantity demanded of labor.

  B. An increase in the quantity supplied of labor.

  C. A decrease in total employment.

  D. All of the above.

  Correct Answer: D

  Choice "d" is correct. As illustrated in the graph, a minimum wage that is set above the equilibrium wage results in a decrease in the quantity demanded of labor (falls to LD), an increase in the quantity supplied of labor (increases to LS), and a decrease in total employment (total employment falls from L* to LD).

  

  Choices "a", "b", and "c" are incorrect. All are true, making choice "d" the only right answer.

• Question 330:

  Suppose the equilibrium wage for low skilled workers in California is $6.00 an hour. If the government increases the minimum wage to $7.00 an hour, what would be the effect on the market for low skilled labor?

  A. An excess demand for labor would result.

  B. An excess supply of labor would result.

  C. The demand for labor would decrease.

  D. The supply of labor would increase.

  Correct Answer: B

  Choice "b" is correct. A minimum wage that is set above the equilibrium wage will result in an excess supply (or surplus) of labor.

  

  Choice "a" is incorrect, since the quantity demanded of labor at $7 is less than the quantity supplied,

  implying an excess supply not an excess demand. Choice "c" is incorrect. An increase in the minimum

  wage causes a decrease in quantity demanded of labor, not a decrease in the demand (shift in demand)

  for labor.

  Choice "d" is incorrect, per the above Explanation.