Question

QUESTION 33 

For substitutes, cross price elasticity of demand is: 

a. Negative 

b. Positive 

c. zero. 

d. between zero and one only 

QUESTION 34 

An increase in price could occur due to a(n) 

a. Increase in de rand and no change in supply 

b. Decrease in supply and no change in demand 

c. An increase in demand and decrease in supply 

d. All of the above 

QUESTION 35 

A firewood supplier has a very seasonal demand for its product. Its transport trucks lay idle during the warmer parts of the year. It can exploit economies of scope if 

a. It merges with a manufacturer of wooden Christmas ornaments 

b. It turns into a rental trucking company during the warmer months for other seasonal producers such as ice-cream makers 

c. It starts producing other seasonal products that would sell mostly during the warmer months such as rustic lawn chairs 

d. B and C

Answer 1

33.

Since two goods which can be used in place of each other, is called substitute goods. There is a positive relation of price of one good and quantity demand of its substitute goods. It means the cross price elasticity of two good is positive.

Hence option b is the correct answer.

34.

There will be an increase in the price when demand curve shifts rightward and supply remains same.

There will be an increase in the price when supply curve shifts leftward and demand curve remains same.

Hence option a is the correct answer.

35.

In case of Economies of scope the main focuses is on the average total cost of production of a variety of goods.

It means when a firm produces many goods instead of a single good and the average total cost of all goods decreases, then the economics of scope arises.

Therefore when a firewood supplier has a very seasonal demand for its product. Its transport truks lay idle during the warmer parts of the year. Then it can exploit economies of scope only when it starts producing other seasonal product that would sell mostly during the warmer months such as rustic lawn chair. Hence in this case the average total cost will decrease. Hence economies of scope will arise.

Hence option c is the correct answer.