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CFA Questions

QUIZ NO. 4

Multiple Choice— Select the option that best completes the sentence or provides the answer to the question.

The increase in demand would cause supply to:
Decrease (shift to the left)
Increase (shift to the right)
First increase due to substitution effect, then decrease due income effect
Neither rise nor fall, although quantity supplied would increase


Which of the following would not produce a shift in the demand curve for apple juice?
An increase in the price of orange juice which is a substitute for apple juice
A decrease in the price of biscuits which are a complement for apple juice
An increase in the income of apple juice consumers
A decrease in the price of apples which are used in juice production


The price elasticity of demand is equal to - 4. It means that
If the price of a commodity increases by 0.25%, the quantity demanded will fall by 1%.
If the price of a commodity decreases by 1%, the quantity demanded will increase by 0.25%.
If the price of a commodity increases by 0.25%, the quantity demanded will increase by 1%.
If the price of a commodity decreases by 0.25%, the quantity demanded will fall by 1%.


You can figure out whether demand is elastic or inelastic by observing
Whether total revenue (expenditure) increases or decreases as price changes
Whether quantity demanded increases or decreases as price changes
Whether price goes up or down as the supply curve shifts outward
Either (A) or (C)


Assume the demand curve for compact discs slopes downwards, and the supply curve slopes upwards. If the price of CD players decreases, then:
The equilibrium price of compact discs will fall
The equilibrium price of compact discs will rise
Both are correct
None of the given is correct



If the slope of the demand curve is -0.167, price is $8 and quantity demanded 12 units, then demand for this good is
Perfectly elastic
Elastic
Unit elastic
Inelastic


Producer surplus is the
Area under the supply curve to the left of the amount sold
Area under the supply curve to the right of the amount sold
Amount the seller is paid less the cost of production
None of the above


The value of price elasticity of demand:
Depends on the units that are used to measure quantities
Has the same value as the slope of the demand curve
Does not depend on the units in which quantity and price are measured
None of the above


A horizontal demand curve has a price elasticity (in absolute value) of
Infinity
Between one and infinity
Zero
One


Demand for a good is likely to be more elastic:
The smaller the fraction of consumer income absorbed by the good
In the short run than in the long run
The greater the number of available substitutes for the good
None of the above