Started on Saturday, 12 February 2022, 4:13 PM

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Completed on Saturday, 12 February 2022, 5:13 PM
Time taken 59 mins 52 secs
Marks 16.00/40.00
Grade 40.00 out of 100.00
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Question 1
Correct
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If good A and B are complements, an increase in the price of A, will result in …
Select one:

a.
a rightward shift in the demand for good B.

b.
a leftward shift in the demand for both goods.

c.
a rightward move in the quantity demanded of good A and a leftward move in
the quantity demanded of product good B.

d.
an upward movement along the demand curve for good A (i.e. a decrease in the
quantity demanded of good A) and a leftward shift of the demand curve for good
B.
Feedback
Your answer is correct.
Complements are the goods that tend to be used jointly to satisfy a want. In this
scenario the price of Good A increases, and this will result in a decrease in the
quantity demanded of Good A (a movement along curve D A in figure (a) below.
Because A and B are used together consumers will now want to use less of B as
well. This is illustrated by a leftward shift of the demand curve for Good B (a
decrease in demand for B), illustrated by a leftward shift of the demand curve
for B as illustrated in figure (b). Due to this change the price of Good B will also
be affected (decrease from P3 to P4 in figure (b). It is important that you
understand that a movement along the demand curve of the good for which
there was an initial price change, takes place, and that the demand curve for
the complement shifts as a result of this change.

The correct answer is: an upward movement along the demand curve for good A
(i.e. a decrease in the quantity demanded of good A) and a leftward shift of the
demand curve for good B.
Question 2
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If steel is a normal product, an increase in the general income level of
consumers will result in a decrease in the price of steel and an increase in the
equilibrium quantity of steel bought and sold in the steel market.
Select one:
a.
False

b.
True
Feedback
Your answer is correct.
When income level of consumers increase, the demand curve for steel will shift
to the right. This will result in an increase in the price of steel, and an increase
in the equilibrium quantity of steel supplied and demanded in the market for
steel.
The correct answer is: False
Question 3
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The questions is based on the following graph:
Which of the following statement(s) are correct?
[1] The shift from point C to E is caused by a decrease in prices.
[2] The shift from point A to B can be caused by an expectation that the price of
the product will decrease in future.
[3] The shift from point D to E can be caused by an increase in the price of a
complement in production.
[4] The shift from point A to B can be caused by a decrease in input prices.
Select one:

a.
Only statements [2] and [3] are correct

b.
Only statements [1] and [4] are correct

c.
Only statements [3] and [4] are correct

d.
Only statements [2] and [4] are correct
Feedback
Your answer is incorrect.
Option [1] is incorrect. The shift from point C to E is caused by the factors that
shift the supply curve. An example can be new efficient technology.
Option [2] is incorrect. When suppliers anticipate future low prices, they
decrease supply. This is shown by a leftward shift of the supply curve.
Option [3] is correct. Complements in production are goods that are produced
together, for example, beef and leather. Suppose that these curves show the
supply of leather. An increase in the price of a complement in production (e.g.
an increase in the price of beef) will result in an increase in the supply of the
complementary good (beef), and therefore also increase the supply of the good
in question (i.e. leather) which is illustrated by a rightward shift of the supply
curve.
Option [4] is correct. When input prices fall, the supply increases. This is shown
by a rightward shift of the supply curve.
The correct answer is: Only statements [3] and [4] are correct
Question 4
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If an increase in the price of dresses leads to a decrease in the demand for
scarfs, then dresses and scarfs are ……..
Select one:

a.
normal goods.

b.
substitutes.

c.
inferior goods.

d.
complements.
Feedback
Your answer is incorrect.
Complements are goods that tend to be used jointly to satisfy a want. If the
price of the one good changes, the quantity demand of that particular good will
also change, but in the opposite direction (due to the negative slope of the
demand curve). The demand for goods used with that good (i.e. the
complements) will then also shift in the same direction as the change in the
quantity demanded of the original good. In this case, the increase in the price of
dresses will result in a decrease in the quantity demanded of dresses, and since
this leads to a decrease in the demand for scarfs, we know that dresses and
scarves are complements.
An increase in the price of a substitute product will lead to an increase in the
demand for the alternative product.
Inferior goods are goods of which consumption falls as income increases. Normal
goods are goods for which consumption increases as income increases. This
question does not mention a change in income; thus the options that refer to
inferior goods and normal goods are not correct alternatives.

The correct answer is: complements.

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There is a drought in the areas in South Africa where oranges are produced. At
the same time a South African company won the prize for tastiest oranges in the
world, and everyone wants to buy oranges from South Africa. These events will
result in
[1] an increase in the price of South African oranges
[2] a decrease in the price of South African oranges
[3] an increase in the equilibrium quantity of South African oranges
[4] a decrease in the equilibrium quantity of South African oranges
[5] an unpredictable change in the price of South African oranges
[6] an unpredictable change in the equilibrium quantity of South African oranges

Select one:
a.
only 2 and 4 are correct

b.
only 4 and 5 are correct

c.
only 1 and 6 are correct

d.
only 1 and 4 are correct

e.
only 5 and 6 are correct

f.
only 2 and 3 are correct

g.
only 3 and 5 are correct

h.
only 1 and 3 are correct

i.
only 2 and 6 are correct
Feedback
Your answer is incorrect.
The drought will result in a decrease in the supply of South African oranges
(illustrated by a leftward shift of the supply curve). A decrease in supply will
result in an increase in the price and a decrease in the equilibrium quantity of
South African oranges.
The increase in preference for South African oranges results in an increase in
the demand for South African oranges (illustrated by a rightward shift of the
demand curve). Such an increase in demand will result in an increase in the
price of South African oranges and an increase in the equilibrium quantity of
South African oranges.
The combined effect of the decrease in supply and the increase in demand will
therefore be that the price of South African oranges will increase, but that we
cannot predict how the equilibrium quantity will change, as this will depend on
the extent of the changes in the demand and supply. Therefore the correct
alternatives are [1] and [6].
The correct answer is: only 1 and 6 are correct
Question 6
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An upward movement along a given demand curve is referred to as a decrease
in quantity demanded.
Select one:
True

False
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A demand curve slopes downwards from left to right. An upward movement
along a demand curve implies an increase in the price, and thus a decrease in
the quantity demanded.
The correct answer is 'True'.
Question 7
Correct
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Suppose Body Fragrances increases the price of its Adore Me fragrance from
$150 to $200. The result is a decrease in…

Select one:

a.
the quantity supplied of this product

b.
the demand for this product
c.
the quantity demanded of this product

d.
the supply of this product
Feedback
Your answer is correct.
A change in the price of a product will result in a change in the quantity
demanded of that product, and this is illustrated by a movement along the
demand curve. If the price of a product increases, the quantity demanded will
decrease.
The correct answer is: the quantity demanded of this product
Question 8
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Along the same supply curve _____________.
[1] prices should remain constant
[2] quantity should remain constant
[3] wages of labour should remain constant
[4] expected future prices should remain constant
Select one:

a.
All the statements are correct

b.
Only statements [3] and [4] are correct

c.
Only statement [3] is correct

d.
Only statements [1] and [2] are correct
Feedback
Your answer is incorrect.
To derive a demand curve we assume that all variables that affect supply,
except for price and quantity supplied, remain constant. Therefore options [1]
and [2] are not correct, as prices and quantity supplied are the two variables
that can change.
Along the same supply curve wages of labour should remain constant. If wages
of labour change, the supply curve will shift upwards or downwards; therefore
[3] is a correct option.
Expected future prices should also remain constant. If suppliers expect prices of
the product they produce and sell to change in future, they will adjust their
supply; therefore [4] is also a correct option.
The correct answer is: Only statements [3] and [4] are correct
Question 9
Correct
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Consumers regard tea as a substitute for coffee. When the price of tea increases
…
Select one:

a.
the demand for tea will increase

b.
the demand for coffee will increase

c.
the quantity of tea demanded will increase

d.
the quantity of coffee demanded will decrease
Feedback
Your answer is correct.
When the price of tea increases, this will result in a decrease in the quantity
demanded of tea, and a movement along the same demand curve from A to B in
Figure (a). Since coffee is a substitute for tea, consumers will now buy more
coffee to replace the tea they previously consumed. There is an increase in the
demand for coffee. This is illustrated by a movement of the demand for coffee
curve to Dcoffee' in Figure (b), i.e. a rightward shift of the demand.

In the coffee market, we can expect that the increase in the demand for coffee
will result in an increase in the equilibrium price of coffee, as well as an increase
in the equilibrium price of coffee (to see this in figure (b) you have to add a
supply curve).
The correct answer is: the demand for coffee will increase
Question 10
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Assume that desktops and laptops are substitutes. Which of the following will
lead to a decrease in the demand for desktops?
Select one:

a.
union action that arises in the laptop-producing industry and a simultaneous
increase in consumer incomes
b.
an increase in immigration

c.
an increase in the number of sellers of laptops

d.
an increase in the price of desktops
Feedback
Your answer is incorrect.
An increase in the number of sellers of laptops will increase supply of laptops
and thus result in a rightward shift of the supply curve of laptops. This will result
in a decrease in the price of laptops. As laptops and desktops are substitutes,
and laptops are now relatively cheaper, this will result in a decrease in the
demand for desktops, i.e. a leftward shift of the demand curve for desktops.
An increase in immigration can be expected to increase the size of the
population, and therefore the demand for most products can be expected to
increase. The demand for desktops will most likely also increase.
An increase in the price of desktops will result in a decrease in the quantity
demanded of desktops, i.e. an upward movement along the demand curve for
desktops. It will, however, not affect the position of the demand curve for
desktops.
Union action that arises in the laptop-producing industry will most likely result in
a decrease in supply in the laptop industry. This will increase the price of laptops
and therefore the quantity demanded of laptops will decrease. As laptops and
desktops are substitutes, the demand for desktops will increase. An increase in
consumer income will result in an increase in demand for all normal products,
therefore most likely also an increase in demand for desktops. The combined
effect of these two events will therefore be an increase in the demand for
desktops.
The correct answer is: an increase in the number of sellers of laptops
Question 11
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The income elasticity is +4 and income increases by 20%. Sales were 2 000
units, what will they be now?
Select one:

a.
2 400 units

b.
3 600 units

c.
1 600 units

d.
2 800 units
Feedback
Your answer is incorrect.
The formula for income elasticity is :

Therefore, if the income elasticity is equal to +4, and income increased by 20%,
we can calculate the % change in quantity demanded as
follows:

The quantity sold was equal to 2 000 before the income change. 80% of 2 000
units = 1 600 unit.
The quantity sold therefore increased by 1 600 units, and it was 2 000 before
the change in income. Therefore, the quantity sold after the increase in income
is 1 600 + 2 000 units = 3 600 units.
The correct answer is: 3 600 units
Question 12
Correct
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If price elasticity of demand for good A is _____ then we know that a ____ in
the price by ______will result in a (an) _____ in the quantity demanded.

a.
inelastic; decrease; 10%; more than a 10% decrease

b.
inelastic; decrease; 10%; less than a 10% increase

c.
elastic; increase; 10%; less than a 10% decrease

d.
elastic; increase; 10%; more than a 10% increase
Feedback
Your answer is correct.
In the first place, it is important to remember that an increase in the price of a
good results in a decrease in the quantity demanded and vice versa. When a
good has elastic demand, a certain percentage change in prices will realise a
larger percentage change in quantity demanded– a 10% decrease in the price
may result in a 15% increase in the quantity demanded. Similarly, for an
inelastic good, a certain percentage change in the price will realise a smaller
percentage in quantity demanded– a 10% increase in the price may result in a
5% decrease in the quantity demanded.
The correct answer is:
inelastic; decrease; 10%; less than a 10% increase
Question 13
Incorrect
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If the quantity supplied of good A was initially 13 units and increases to 22,5
units, due to a change in the price which was initially R23 and is now R29, we
can say that the price elasticity of supply is inelastic.
Select one:
True

False
Feedback
The statement is false.
First, we have to calculate the percentage change in price (%∆P):

Now we calculate the percentage change in quantity demanded:

Now we can calculate the supply elasticity as follows:

Since the price elasticity of supply is greater than 1, we know that the supply is
price elastic.

The correct answer is 'False'.

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A private college decides to raise tuition fees to increase the total revenue
received for tuition fees, and thus its profit. This strategy will definitely work if
the demand for education at that college is ________
Select one:

a.
not price sensitive.

b.
not income sensitive

c.
price sensitive.

d.
income sensitive.
Feedback
Your answer is incorrect.
If the demand for the college’s tuition is price elastic, it means that an increase
in the price (tuition fees) will result in a decrease in the quantity of tuition
demanded. This may affect the college’s revenue negatively, if the quantity of
tuition demanded decreases by a larger percentage than the increase in price. If
the demand for the college’s tuition is not price sensitive, it means that the
increase in the tuition fees will not change the quantity of tuition demanded by
a lot. Therefore, the revenue may increase when the price increases.
Income elasticity has to do with how much demand for a product or service will
change when the income level of consumers changes. This question is not about
a change in income, and therefore the alternatives that refer to income
elasticity are not the correct options
The correct answer is: not price sensitive.
Question 15
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If the cross-elasticity of the demand for product A, which is a complement for
product B, is larger than one, this implies that an increase in the income level
will result in an increase in the demand for product A.
Select one:

a.
True

b.
False
Feedback
Correct. Cross elasticity has to do with changes in the prices and quantities of
related products. It can be products that are used together, i.e. complements or
it can be products that can replace each other, i.e. substitutes. Income elasticity
measures how a change in income will affect the quantity demanded of a
product. If the income elasticity of a product is positive (thus larger than 0), it
means that an increase in income will result in an increase in the quantity
demanded of that product.
The statement is false. Cross elasticity has to do with changes in the prices and
quantities of related products. It can be products that are used together, i.e.
complements or it can be products that can replace each other, i.e. substitutes.

Income elasticity measures how a change in income will affect the quantity
demanded of a product. If the income elasticity of a product is positive (thus
larger than 0), it means that an increase in income will result in an increase in
the quantity demanded of that product.

Cross elasticity does not say anything about how the demand for products will
change due to a change in the income level.
The correct answer is: False
Question 16
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This question is based on the following information.

Based on the information in the table above, demand for motor cars will change
a lot when the income of consumers increases.
Select one:
True

False
Feedback
The information provided is not on the income elasticity of the demand for
motor cars, but on the price elasticity of the demand for motor cars. The
information tells us that 1% change in the price of motor cars will result in 1,8%
change in the quantity of motor cars demanded. However, it does not tell us
how sensitive the quantity demanded of motor cars is to changes in income.
The correct answer is 'False'.
Question 17
Correct
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Which ONE of the following statements is true?
Select one:

a.
If the demand for bread is price sensitive, the supply of bread will change by a
large quantity when the price of bread changes.

b.
If the supply of milk is price sensitive, the quantity supplied of milk will change
when the price of milk changes.

c.
The elasticity of the demand for milk cannot be compared to the elasticity of the
demand for advice provided by a dietician, because milk is a good while advice
by a dietician is a service.

d.
People generally buy more milk than beer; therefore, the demand for milk can
be expected to be more price sensitive than the demand for beer.

e.
The price elasticity of demand for milk can be expected to be more price
sensitive than the price elasticity of demand for beer, because beer is more
expensive per litre than milk is.
Feedback
Your answer is correct.
The price elasticity of demand is determined by the extent of the change in the
quantity demanded relative to the extent of the change in the price level. It
does not matter if a good is expensive or cheap; it is the percentage changes in
both quantity and price that determine the elasticity.
It is also not the initial quantity that was bought that determines the elasticity,
but the percentage change in the quantity.
Elasticities make it possible to compare changes in demand and supply
regardless of whether it is a good or a service that is provided.
If the demand for bread is price sensitive, it means that the quantity demanded
will change quite a lot when the price changes. It does not say anything about
the extent of the changes in supply.
If the supply of milk is not price sensitive, it does mean that the suppliers of milk
cannot adjust the amount of milk that is supplied easily when the price
changes.
The correct answer is: If the supply of milk is price sensitive, the quantity
supplied of milk will change when the price of milk changes.
Question 18
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What is the most likely effect of the introduction of the availability of online
movies on the movie theatre industry?

a.
The demand for movie theatre tickets increases.

b.
The price elasticity of the demand for movie theatre tickets increases.

c.
Movie theatre tickets become luxury goods.

d.
The cost of producing movies decreases.

e.
The price elasticity of the demand for movie theatre tickets decreases.

Feedback
Your answer is incorrect.
When movie substitute products become available for a specific product, it
means that more alternatives are available to use instead of the specific
product; and we can expect the demand for the product to become more
sensitive to price changes; therefore, the price elasticity of the demand for the
product will increase. The cost of producing movies will not be affected by the
way in which movies are delivered to the audience. It may affect the distribution
cost of the movie, but not the actual cost of making the movie. The demand for
movie theatre tickets may decrease due to the fact that more alternative
products are available. Movie theatre products will not become luxury products
due to the fact that movies are available online. Steps may be taken to turn
movie theatre tickets into luxury products, for example, by creating really
luxurious theatres with excellent sound, luxury seating and in-theatre service.
However, this is a separate process and the fact that more movies are available
online does not determine whether theatre tickets are normal, luxury or inferior
goods.
The correct answer is:

The price elasticity of the demand for movie theatre tickets increases.
Question 19
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Necessities tend to have a low price elasticity of demand, while luxury goods
tend to have a high price elasticity of demand.

Select one:
True

False
Feedback
This statement is true. It is not easy to adjust the quantity used of a necessity,
since it has to be purchased even if the price increases substantially. Therefore
the demand for a necessity will be inelastic, thus it will not react a lot to a price
change.
It is, however, easier to adjust the quantity demanded of a luxury good, as it is
not something that is essential. therefore the demand for a luxury good will be
price elastic, thus it can be expected to react substantially to a change in the
price.
The correct answer is 'True'.
Question 20
Correct
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Positive cross-elasticity of demand refers to a situation where __________

Select one:

a.
two products are complements in consumption.
b.
two products are substitutes in consumption.

c.
any change in income leaves demand for that product unchanged.

d.
a fall in income of consumers results in an increase in the demand for that
product.

e.
an increase in income of consumers results in an increase in the demand for
that product.
Feedback
Cross-elasticity of demand refers to the situation where a change in the price of
one product results in a change in the quantity demanded of another related
product.
If cross-elasticity is positive, it means that an increase in the price of one
product will result in an increase in the quantity demanded of another product.
That means the two products are substitutes, since the quantity demanded of
the product for which the price increased will decrease.
If two products are complements in consumption, the quantity demanded of the
two products will change in the same direction, as the two goods are used
together. Thus, when the price of the one good increases and the quantity
demanded of that good decreases, the quantity demanded of the other good will
also decrease. Therefore, the cross-elasticity of demand for complements will be
negative.
Income elasticity of demand refers to the relationship between the income level
of consumers and the quantity demanded of a certain good.
The correct answer is: two products are substitutes in consumption.