Test Questions.

1.	There is an increase in the demand for oranges. This could be explained by:
A.	an increase in imports of oranges
B.	a successful advertising campaign for oranges
C.	a fall in the price of apples
D.	poor weather reducing the supply of oranges
2.	Which of the following would cause a movement along the market demand curve for gloves?
A.	a rise in consumer income
B.	a fall in the price of gloves
C.	severe weather conditions
D.	a change in consumer tastes in knitwear
3.	In order for a consumer’s demand for a new car to be effective, that consumer must have:
A.	a want for the car
B.	a need for a car
C.	an available supply of cars
D.	an ability to pay for the car
4.	The market demand for bread is very price inelastic. This could be explained by the fact that bread:
A.	is a basic necessity
B.	has many competing products
C.	is poorly advertised
D.	accounts for a large proportion of household expenditure
5.	The following table shows consumer demand for a given product at different prices: Price Market demand 10 pounds 14,000 11 pounds 10,000 The price elasticity of demand for the product can be said to be:
A.	of unitary elasticity
B.	inelastic
C.	elastic
D.	of zero elasticity
6.	Which factor will have caused the inward shift of the demand curve for the compact disc players?
A.	a fall in the price of vinyl LPs
B.	a fall in the price of compact discs
C.	a fall in the supply of components for disc players
7.	The telephone company has cut charges for phone calls made during off-peak periods. Revenues have increased as a result. It concludes that peak-off demand for phone calls is:
A.	price inelastic
B.	price elastic
C.	unrelated to price
D.	of unitary elasticity
8.	The rightward shift in the supply curve of microwave ovens may have been caused by:
A.	a rise in the price of gas ovens
B.	an increase in demand for microwave ovens
C.	a fall in production costs
D.	a rise in the market price of microwaves
9.	The ability of a producer to supply a good at a given price will be affected by:
A.	a change in consumer incomes
B.	a change in the amount of imported goods
C.	a change in the production technology
D.	a change in the price of the good
10.	Which of the following is unlikely to be an important factor in the product pricing decision of a company?
A.	the price of close substitutes
B.	total production costs
C.	consumer willingness to pay
D.	shifts in the market supply curve
11.	You work for a new company that is about to launch a new mobile phone network to compete with the already existing. In preparation you will need to provide answers to the following questions:
	· What factors are likely to affect the demand for mobile phones? · What is likely relationship between consumer demand for mobile phone services and the price per month? Show this relationship on an appropriate diagram. · What impact will your organization have on the supply of mobile phone services? Draw an appropriate diagram to illustrate the impact on supply. · What will determine the market price for mobile phone services and how many mobile phones are bought? Draw a diagram to illustrate how market price and quantity traded are determined. · What will happen to the market price if there is a fall in the demand for mobile phone services? Show this on a diagram. · What is price elasticity of demand? · Explain how knowledge of price elasticity of demand for mobile phones can help the firm decide an appropriate service charging.
12.	‘Potato prices rocket after crop failure.’ Consider this headline and explain, using appropriate diagrams: · Why the price of potatoes increased? · What is ‘effective demand’? · Why is it important to firms selling to make a profit? · What will be the likely impact on the market price for potatoes if there is a corresponding rise in demand for them?
13.	Explain, using diagrams, what will be the likely impact on the market price of butter and the quantity sold of each of the following events:
	· Income tax is raised by 2% · The price of milk used to make butter rises · The price of margarine increases · A successful advertising campaign declaring ‘butter is best’ · The cost of equipment used to make butter falls
14.	The demand for butter tends to be fairly price inelastic. Explain this statement and assess the likely impact on butter producers’ revenues of a rise in its price.

Case study ‘Understanding the Market’

You represent a large Korean firm called Proteus. Your firm manufactures cars, hi-fi, and computer equipment. Recently senior management at Proteus have become concerned about entering Russian markets. If Proteus sets up in Russia, it will be in full competition with other producers such as Ford, Nissan, Sony, Panasonic, Sega, and Nintendo, to name but a few of the foreign-owned companies already operating in Russia. Proteus are aware that price of its products will be a key factor in its success. As a first step, Proteus intends to begin the production of computer games and game consoles in Russia. If they are able to break into the market, they will then begin to produce their entire range of goods. Proteus management have little knowledge of the market for computer games products in Russia and have asked you to report. Your document should be written using a word processor and include computer-generated graphs and diagrams where appropriate.

Tasks:

1. What are the main influences on the demand for computer games in Russia?

2. Draw a demand curve for computer games and explain some of the factors that might cause the curve to shift, giving examples relevant to the computer games industry.

3. Sega, Nintendo, and 3DO games and consoles are rather expensive. Proteus could enter the market in the same price range or lower. Management would, therefore, like to know how sales revenues are likely to respond to a higher or lower price. This requires knowledge of the elasticity of demand for computer products. Explain the meaning of elasticity of demand and its relevance to business decision-making.

4. What are the main influences on the elasticity of demand for a product? List these and consider how they apply to the case of computer games and consoles.

5. Investigate the supply of computer games and consoles in Russia:

· Who are the main producers?

· What prices do they charge?

· How much competition will Proteus face in the market?

· How have prices changed recently and why?

6. What will be the likely impact on the market supply and price of computer games following the entrance of Proteus into the Russian market? Draw a market supply curve for computer games in Russia before and after this event.

7. What other factors may affect the market supply of computer games and consoles? Give examples, where possible, with relevance to the computer games industry.

8. Discuss why the management of Proteus need to be aware of influences on the market demand and supply of computer games in Russia when deciding what price to charge for their products?

Alternative: Analyse the market demand and supply of a product of a local business with which you are familiar. Complete the same tasks above.

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