Category: Economics

The price elasticity for a product is -2.5. The firm sells 2,000 units. What would you expect the new sales to be following a 10% price increase?

Select ONE answer:

1. 1,500
2. 2,000
3. 2,500
4. 2,200
5. 1,800

Show your workings to arrive at your answer, and explain and justify your reasons?
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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 1 – Normal formula is PED = % change QD / % change P. We know PED = -2.5 & % change in P is 10%. Substituting in this formula we know -2.5 = -x% / 10% where needs to be a higher % therefore this must be -25% / 10% to equal -2.5. 25% of 2,000 units sold is 500 units. 500 less units sold from a 10% increase in price means 2,000 – 500 i.e. new quantity sold will be 1,500 units.

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Price elasticity of demand measures?

Select ONE answer:

1. % change in quantity demanded compared to % change in price
2. % change in quantity supplied compared to % change in price
3. % change in price compared to % change in supply
4. % change in quantity demanded compared to % change in income
5. % change in quantity demanded compared to % change in advertising

Explain what is meant by price-inelastic demand:
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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 1 – The price elasticity of demand measures the sensitivity of the quantity demanded to changes in the price. Demand is inelastic if it does not respond much to price changes, and elastic if demand changes a lot when the price changes. Necessities tend to have inelastic demand.

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Demand for a good is said to be effective only when it is associated with?

Select ONE answer:

1. Knowledge of the characteristics of the good
2. Willingness and ability to pay for the good
3. Consumer expenditure
4. Sufficient disposable income to pay for the good
5. The existence of an adequate supply of the good

What are the determinants of supply?
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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 2 – At first glance all these answers might seem reasonable. Look at 1 – People do indeed make better choices when they are well informed about a good, but you don’t effectively purchase just because you know about it. Now look at 4 – Having sufficient disposable income (after tax) is essential but not sufficient, as you may not like the good at all but if you have sufficient income and are willing to pay for it, then the demand is effective. But we haven’t mentioned 5 – If the good isn’t supplied consumers can’t purchase, but its provision isn’t sufficient to make consumers purchase. 3 – is a pure distraction.

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Which of the following is not held constant when a demand curve is drawn?

Select ONE answer:

1. Consumer expenditure
2. Consumers’ money incomes
3. Consumers’ tastes
4. The price of the good itself
5. The prices of complementary goods

Explain and justify your answer through sketching and annotating a supply and demand curve diagram?

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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 4 – This is a very straightforward question if you have a basic grasp of the topic. You are not given a diagram but sketching one for yourself will make the question easy. Sketch a demand curve. If you have done it correctly you have the price of the good up the vertical axis and the quantity demanded along the horizontal axis. The demand curve, then, shows the relationship between the price of the good and quantity demanded, all other things being held equal, or ceteris paribus as we sometimes say. As you lower the price you move along the curve and see the higher quantities now being demanded. The price of the good itself is varying as you do so. All other things affecting demand, including the factors described in 1, 2, 3 and 5 are held constant.

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Which of the following is a normative statement?

Select ONE answer:

1. Increased government spending cannot reduce unemployment
2. The imposition of import tariffs will reduce unemployment
3. A policy of controlling inflation which results in increased unemployment is undesirable
4. The level of social security benefits is the primary factor influencing the level of unemployment
5. Increased government spending will lead to higher taxes

Give and explain 3 positive economic statements?

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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 3 – You should know the basic distinction between normative and positive statements. This question tests whether you can apply that knowledge. At first, it seems that you have to have a huge level of knowledge. It covers various aspects of employment policy, inflation, and even international trade policy. But don’t panic. It isn’t very hard if you know the meaning of normative and positive. Recall that a positive statement is one that can, in principle, be tested by reference to evidence. A normative statement cannot be so tested.  Now look at option 1 again – You do not have to have a view about the effect of government spending on employment, you just have to recognise that in principle it is possible to test this assertion by examining data relating to government spending and unemployment levels. Exactly the same argument applies to statement 2 – In this case, the evidence is very strong. Import tariffs tend to increase unemployment, but the issue is not whether the statement is correct – It is whether it is testable. Statement 4 & 5 are also clearly testable in principle. Now look at 3 once more – The word ‘undesirable’ is the key, as the word begs the question: desirable in whose eyes? Statement 3 can’t be tested by evidence.

This work is licensed under a Creative Commons Attribution 4.0 International License.