Multiple Choice questions on Supply and Demand

1. A company manufactures and sells widgets. It finds that, at a selling price of £3.50, it can sell 1000 widgets every month, but that if it increases the price to £4.00, it can only sell 800 widgets in a month. Which of the following would you most expect to be true?

   At a selling price of £3.00, the company would sell approximately 1200 widgets a month. At a selling price of £3.00, the company would sell approximately 1000 widgets a month. At a selling price of £4.50, the company would sell approximately 1000 widgets a month. At a selling price of £4.50, the company would sell approximately 800 widgets a month. At a selling price of £4.50, the company would sell approximately 200 widgets a month.

2. The price of an item drops 10% in such a way that the Price Elasticity of Demand of that item is unit-elastic. We would expect the quantity of the item demanded to

   drop by 5% stay the same increase by 5% increase by 10% increase by more than 10%

3. Which of the following situations best illustrates the concept of consumer surplus?

   A manufacturer reduces the price of an item from £2.50 to £2.30 in the hope of being able to sell more of that item. A consumer who was not willing to buy a car at £10,995, but was prepared to buy it at £9,995. An American tourist who was expecting to be charged at least £3.00 for a burger, but was only charged £1.99 instead. A market reaches a condition whereby the demand for a product is greater than the producers' ability to supply it. Government statistics show that house prices rose last year by 25%.

Consider the supply-demand diagram shown on the right. If the government imposes rationing and price controls on the item being offered, which of the five points shown is the most likely resulting position of the market?

5. A manufacturer is willing to supply 300 goods per month at a price of £1.25 and 400 goods per month at a price of £1.30. How many goods per month would you expect the company to supply at a price of £1.15?

   100 200 300 400 None

6. A manufacturer supplies goods in such a way that if the price rises by 10% they are prepared to supply 15% more. This supply is best described as

   inelastic unit-elastic elastic unit-inelastic none of the above

7. Which of the following headlines is best illustrated by the graph below?

   Cooked tomatoes contain more health-giving chemicals! Bumper tomato crop reported by growers. Survey finds people eating more cooked tomatoes. It's official - David Beckham loathes cooked tomatoes! New super-tomato bred to last longer and taste sweeter!

8. A manufacturer supplies a particular item at a given price. However, it decides that it would be prepared to increase the quantity of the item supplied by 25% if the price of the item were to rise from 50p to 60p. What is the elasticity of supply of the item?

   -1.25 -0.8 0 0.8 1.25

Consider the diagram shown below. If the government artificially limits the price of the item offered so that it cannot rise above £0.75, it will result in an excess supply. the market clearing. a consumer surplus of £1.00. an excess surplus of 240 units. an excess demand of 240 units.

10. There are a large number of alternatives to Tesco baked beans but few satisfactory alternatives to creamed spaghetti hoops. You would therefore expect

    the price of Tesco baked beans to be less elastic than the price of creamed spaghetti hoops. the price of Tesco baked beans hoops to be more elastic than the price of creamed spaghetti hoops. the price of Tesco baked beans to be more inelastic than the price of creamed spaghetti hoops. the prices of Tesco baked beans and creamed spaghetti hoops to be equally elastic. the prices of Tesco baked beans and creamed spaghetti hoops to be equally inelastic.

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