PRESIDENT OF AFRICA

DEMAND AND SUPPLY ANALYSIS

1. An increase in the price of beef will

a) Increase the demand for chicken, a substitute
b) Increase the demand for hamburger buns, a complement
c) Increase the demand for beef
d) Decrease the demand for beef
e) Both a) and d)

2. Changes in which of the following variables will not shift

the demand curve?
a) Income
b) Price of other goods
c) The price of the good itself
d) Population size
e) Preferences

3.If an increase in the price of good A causes the demand

curve for B to shift to the left,
then
a) A and B are substitutes
b) A and B are complements
c) The price of A must be higher than the price of B
d) B must be a normal good
e) None of the above

3. If an increase in the price of good A causes the demand

curve for B to shift to the left,
then
a) A and B are substitutes
b) A and B are complements
c) The price of A must be higher than the price of B
d) B must be a normal good
e) None of the above

4. When the demand for good A increases,

a) Both the price and quantity traded will increase
b) The price will increase but quantity traded will decrease
c) Both the price and quantity traded will decrease
d) The price will decrease but the quantity traded will increase
e) A surplus will result
5. The price of a good will increase it
a) Demand for the good decreases
b) Supply of the good decreases
c) There is a surplus of the good
d) The price of a substitute decreases
e) It is an inferior good and income increases

6.An increase in income will

a) Increases the demand for oranges if oranges are inferior
goods
b) Increases the demand for oranges if oranges are normal
goods
c) Increase the supply of oranges
d) Decrease the demand for oranges if oranges have a very
low price
e)Decrease the supply of oranges

11. If A and B are substitute goods (in consumption) and the

price of A increases, we will
observe
a) An increase in the price and the quantity traded of B
b) A decrease in the price and the quantity traded of B
c) An increase in the price but a decrease in the quantity
traded of B
d) A decrease in price but an increase in the quantity traded of
B
e) None of the above

12. When the supply of good A decreases,

a) Both the price and quantity traded will increase
b) The price will increase but quantity traded will decrease
C)Both the price and quantity traded will decrease
d)The price will decrease but the quantity traded will increase
e)A surplus will result

13. Assume the market equilibrium price of rice is $5.00 per

kilo. If the government does
not allow rice farmers to charge more than $1.00 per kilo of
rice,
a) the market equilibrium price will move from $5.00 to
$1.00.
b) there will be a rice shortage.
c) there will be a rice surplus.
d) quantity demanded will equal quantity supplied.
e) None of the above
Use the following information to answer the next three (3)
questions
Ama is willing to pay $5 for the first loaf of bread she
purchases each week, $4.50 for the
next one, $3.50 for the next, and so on. The current market
price is V1 per loaf.

14. What is the consumers' surplus on the last loaf Ama buys?
a) dl
b) SOP
c) ¢1.50
d) zero

15. How much money will Ama spend?

a) €9
b) d1
c) ¢6/
d) ¢5

16. How many loaves will Ama buy?

a) five
b)one
C)nine
d)SiX

17. For a floor price to be binding or effective, it must be set

a) below the equilibrium price.
b) at a level such that there exists some unsatisfied demand.
c) at the equilibrium price.
d) above the equilibrium price.
e) none of the above

18. Crude oil is a very important resource used in the

production of gasoline. If the price
of crude oil increases, we would expect
a) The price of gasoline to rise due to an increase in demand
b) The price of gasoline to fall due to an increase in demand
c) The price of gasoline to rise due to a decrease in supply
d) The quantity of gasoline to fall due to an increase in supply
e) The quantity of gasoline to rise due to an increase in
demand

19. A shortage will exist if

a)The price is above equilibrium
b) The price is below equilibrium
c) There are not enough producers
d) There are not enough consumers
e)Demand falls

20. If demand increases and supply decreases, then

a) The quantity traded will increase but the effect on the price
is indeterminate
b) The quantity traded will decreases but the effect on the
price is indeterminate
c) The price will fall but the effect on the quantity traded will
be indeterminate
d) The price will rise but the effect on the quantity traded will
be indeterminate
e) The effect on, both price and quantity traded will be
indeterminate

21. If demand decreases and supply increases then,

a) The quantity traded will increase but the effect on the price
is indeterminate
b) The quantity traded will decreases but the effect on the
price is indeterminate
c) The price will fall but the elect on the quantity traded will
be indeterminate
d) The price will rise but the effect on the quantity traded will
be indeterminate
e) The effect on both price and quantity traded will be
indeterminate

22. If nothing changes except that producers sell more of a

good or service when the price
increases, we know this is an example of the law of
a) increasing profit.
b) supply.
c) demand.
d)opportunity cost.
e) reduced real income.

Use these equations for questions the next two questions.

Qd= 80 - 3P
05=-20 + 2p

23. What is the equilibrium price and quantity in the market?

a) P = 20, Q=20
b) P= 12, Q=44
c) P= 100, Q=20
d) P= 40, Q = 20

24. Suppose the government imposes a tax of &5 per unit on

suppliers. What is the new
equilibrium price and quantity?
a) P = 20, Q = 2
b) P=24, Q=8
c) P= 22, Q = 24
d) P= 22, Q=14
e) P= 20, Q = 10

Use the following information for the next two questions.

Suppose the demand for light bulbs is Qd= 120 - 2P - 4PI+ Y
where PL is the price of lamps
and Y is income. Supply is defined by Qs = 30 + 3P. Initially,
Y = ¿40 and Pl= ¢10.

25. What is the equilibrium price and quantity?

a)P= 20, 0 = 30
b) P= 30, Q=30
c) P= 24, 0 = 42
d) P= 28; 0 = 10
e) P=30, Q=60

26. The difference between normal and inferior goods is that

a) normal goods are of better quality than inferior goods.
b) an increase in price will shift the demand curve for a
normal good
rightward and the demand curve for an inferior good leftward.
c) if the price of a normal good increases, individuals who buy
it are poorer; with
inferior goods, the opposite is true.
d) an inferior good is something that will not be demanded
until quantities of the
normal good have been exhausted.
e) an increase in income will shift the demand curve for a
normal good rightward
and the demand curve for an inferior good leftward.

27. A group of buyers and sellers with the potential to trade

with each other is known as an/a
a) trading bloc
b) Cartel
c) Market
d) Industry
e)Sector

28. The demand curve for dolls shows the quantity of dolls
demanded
a) by suppliers of those dolls
b) by Ghanaian consumers
c) at the equilibrium price for dolls
d) at each level of income
e) at each possible price of dolls

Price per CD(¢) Qty demanded

10 5.0 million
11 3.5 million
12 2.8 million
13 2.3 million
14 2.0 million

29. The table above shows the market demand schedule for
compact disks. If the price per
disk rises from ¿10 to ¢12, the
a) demand will decrease by 2.2 million disks
b) quantity demanded will decrease by 2.2 million disks
c)supply will rise by 2.8 million disks
d) quantity demanded will decrease by 3.5 million disks
e) demand curve will shift to the left

30. What do supply and demand curves have in common?

a) They both usually slope upward.
b) They both show a relationship between quantity and price.
c) They both usually slope downward.
d) They can both shift in response to changes in income or
wealth,
e) Neither of them is influenced by the size of the population.

1. E
2. C
3. B
4. C
5. B
6. B
7. C
8. A
9. B
10. B
11. D
12. B
13.B
14.D
15.C
16.B
17.D
18.A
19.B
20.A
21.D
22.B
23.E
24.B
25.C
26.E
27. B
28. D
29. C
30. C

1.Which of the following cases will yield a measured price

elasticity of demand of
5.0? A percent increase in the price results in a
a) 10% decrease in quantity demanded
b) 5% decrease in quantity demanded
c) 2 % decrease in quantity demanded
d) 50% decrease in quantity demanded
e) 0.5 % decrease in quantity demanded

2.For which of the following is demand likely to be most

inelastic?
a) Diamonds
b) Insulin for a diabetic
c) Potatoes
d) Gasoline
e)Books

3. The price elasticity of demand along a linear demand curve

a) becomes numerically larger for larger quantities demanded.
b) becomes numerically smaller as the price is increased.
c) is constant.
d) becomes numerically greater as the price is increased.
e) None of the above
4. The price elasticity of demand along a linear demand curve
a) becomes numerically larger for larger quantities demanded.
b) becomes numerically smaller as the price is increased.
c) is constant.
d) becomes numerically greater as the price is increased.
e) None of the above

5. If the total revenue of clothing manufacturers decreases

when the price of clothing
falls, the price elasticity of demand is
a) unity (demand is unit elastic).
b) greater than one (demand is elastic).
c)less than one (demand is inelastic)
d)not determinable from the information given.

6. Demand will be inelastic if

a) an increase in price results in an increase in total revenue
b) an increase in price results in a decrease in total revenue
c) an increase in increase results in a decrease in total revenue
d) an increase in income results in an increase in total revenue
e) the good is a necessity

7. If the total revenue of clothing manufacturers decreases

when the price of clothing
falls, the price elasticity of demand is
a) unity (demand is unit elastic).
b) greater than one (demand is elastic).
c) less than one (demand is inelastic).
d) not determinable from the information given.

Use the information in the table below to answer questions 8

and 9.
Price ¢
8.00
7.00
6.00
5.00
4.00
3.00

Quantity demanded
2.000
4,000
6,000
8,000
10.000
12,000

8. Refer to the table above. If the price of the good is cut from
$4.00 to $ 3.00
a) Total revenue will increase
b) Total revenue will remain constant
c) We observe that demand is elastic in this range
d) We observe that demand is elastic unit elastic in this range
e) We observe that demand is inelastic in this range

9. Refer to the table above. The price elasticity of demand

between ¢6.00 and ¢7.00 is
a) 1.0
b) 2.0
c) 2.6
d) 0.5
e) 1.5

10. If the Petroleum Authority of a country argues that an

increase in the supply of
OPEC oil will decrease total oil sales revenue, then the
Authority must believe that
demand for oil is
a) income inelastic
b) income elastic
c) price elastic
d) price inelastic
e) price unit elastic

Use these equations for questions the next five questions.

0d= 80 - 3P
Q5=-20 + 2P

11. What is the own price elasticity of demand at the

equilibrium?
a)3
b) 6
c) 1
d) ½
e)-2

Use the following information for questions the two

questions. Suppose the demand fo
light bulbs is Qd= 120 - 2P - 4PL+ Y where Pl is the price of
lamps and Y is income
Supply is defined by Qs = - 30 + 3P. Initially, Y = $40 and Pl=
$10.

12. What is the elasticity of supply at the equilibrium?

a)1
b) 5
C)½
d) 2
e)0

13. The price of a substitute for good X rises and we observe

that the equilibrium price
of good X rises, but quantity does not change. Which of these
is consistent with this
evidence?
a) The demand curve is perfectly inelastic and the supply
curve is upward
sloping
b) The supply curve is perfectly elastic and the demand curve
is downward
sloping.
c) The supply curve is perfectly inelastic and the demand
curve is downward
sloping.
d) Supply also increased.
e) Nothing, this violates the law of demand.

14. A price elasticity of demand of 2 for a specific cola means

that if the price increases
1 percent, the quantity demanded of the cola will decrease by
2 percent.
a) True
b) False

15. The price elasticity of demand is important to firms

because
a) it explains the relationship between income and demand for
the goods they
sell
b) it shows how price changes affect total expenditures on the
goods they sell
c) the law of demand suggests that elasticity falls as total
expenditures
continuously rises
d) it helps identify the equilibrium price and quantity in the
market
e) it relates price to supply

16. If the price elasticity of demand for Omo detergent is 3.0,

then a
a)
12 percent drop in price leads to a 36 percent rise in the
quantity
demanded
b) 12 percent drop in price leads to a 4 percent rise in the
quantity demandec
c) $1,000 drop in price leads to a 3,000-unit rise in the
quantity demanded
d) $1,000 drop in price leads to a 333-unit rise in the quantity
demanded
e) 12 percent rise in price ieads to a 36 percent rise in the
quantity demanded

ANSWERS (ELASTICITY)
1.B
2A
3. D
4. A
5. C
6. A
7. C
8. E
9. B
10. D
11 A
12. C
13. C
14 A
15. B
16 A

CONSUMER CHOICE THEORY

1
The utility-maximizing rule can be stated in words in the
following way: A person will
maximize utility when the
is equalized across products.
a) marginal utility per cedi spent
b) total utility per cedi spent
c) marginal utility
d) total utility

2.
Which of the following is not consistent with assumptions
economists make about
consumer preferences?
a) Pat enjoys his second ice cream cone less than his first.
b) Chris enjoys her second ice cream cone more than her
second candy bar.
c) Steve enjoys two ice cream cones more than one.
d) Jane enjoys two ice cream cones more than Tomas enjoys
one ice cream cone.
e)
Tim enjoys an ice cream cone more than a candy bar.

3. The principle of diminishing marginal utility implies that

total utility falls as consumption
rises above a certain level.
a) True
b) False

4. Let MUA and MUB stand tor the marginal utility of goods
A and B, respectively. Let PA
and PB stand for the price of goods A and B respectively.
Which statement must hold for
consumer equilibrium?
a) MUA = MUB
b) MUA = MUB and PA = PB
c) MUA/MUß = PB/PA
d) MUA/MUB = PA/PB
e) MUAPA = MUpPB

5. 5. Salim can consume apples and oranges. He likes them

equally well and currently is in
consumer equilibrium. Now the price of oranges goes up
while his income remains the
same. What will happen to his consumption?
a) Consumption of oranges increases, consumption of apples
decreases
b) Consumption of oranges increases, consumption of apples
increases
c) Consumption of oranges decreases, consumption of apples
decreases
d) Consumption of oranges decreases, consumption of apples
increases
e) We cannot tell; it depends on Salim's utility levels

6. The concept of diminishing marginal utility is that increases

in the consumption of a good
lead io
a) a decrease in total utility.
b) a decrease in marginal utility.
C)an increase in marginal utility
d)no change in marginal utility.

7. Given a fixed level of spending, you will maximize utility

when:
a) the marginal satisfactions are maximized
b) the ratios of marginal utilities to their prices are equal
c) the total satisfaction from both goods is maximized
regardless
d) the ratios of the total utilities to their prices are equal.
Suppose Paul has chosen a combination of two goods, A and
B such that marginal utility
per cedi spent for good A (MUa/Pa) is 0.6 and the marginal
utility per cedi spent for good
B (MUb /Pb) is

8. To increase utility with the same amount of money, Paul

should
a) increase the number of B consumed and decrease the
number of A consumed
b) do nothing. He cannot increase total utility.
c) increase the number of A consumed and decrease the
number of B consumed.
d) increase the number of both A and B consumed.

9. The principle of diminishing marginal utility says that as

you consume more of an item.
beyond some point, the:
a) additional units of consumption will yield more units of
utility than the previous
units.
b) additional units of consumption will yield fewer additional
units of utility than the
previous units.
c) price of additional units of consumption will be less than
the price of the previous
unit.
d) total satisfaction will decrease

10. Clement is maximizing utility by consuming 3 colas at $2

apiece and 4 sausages at ¢3
apiece. The last cola gave him 200 units of utility. How many
units of utility did the last
sausage give him?
a) 300
b) 10
c) 600
d) 133.33

ANSWERS (CONSUMER THEORY)

1.A
2B
3B
4. D
5. D
6. B
7B
8A
9. B
10. A
UNIVERSITY OF GHANA
(All rights reserved)
FIRST SEMESTER EXAMINATIONS, 2019/2020
DEPARTMENT OF DISTANCE EDUCATION
DIPLOMA IN PUBLIC ADMINISTRATION
UGBS 003: ECONOMICS (3 Credits)

INSTRUCTIONS
ANSWER ALL QUESTIONS IN SECTION A
ANSWER ALL QUESTIONS IN THE ANSWER
BOOKLET
TIME ALLOWED: TWO HOURS
SECTION A: ANSWER ALL QUESTIONS
WRITE THE ALPHABET CORRESPONDING TO THE
CORRECT ANSWER
1. Average fixed cost is
a. constant as output changes
b. total cost minus variable cost
c. variable cost plus marginal cost
*d) total fixed cost per unit of output*
2. The change in total output when one additional unit of labor
is hired is known as the
a. capacity utilization rate
b. average product of labor
c. Marginal product of labor
d. Total product of labor

3. A perfectly inelastic supply curve:

a. has a relatively flat, positive slone
b. has a relatively steep, positive slope.
C. is vertical.
d. is horizontal.

WE LIVE TO SEE GREATNESS