Acca paper F1 fia diploma in Accounting and Business Accountant in Business (AB/fab) exam kit

(2 marks) 
85 
E Co manufactures a single product. Which of the following would indicate that the 
product will have a low price elasticity of demand? 
A 
Customers spend a high proportion of their incomes on the product 
B 
Customers don’t see the product as being a necessity 
C 
Customers tend to buy the product by habit 
D 
Customers have a number of substitute products that they can choose from 
(2 marks) 
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P AP E R F 1 ( F A B ) :
AC COU N TAN T IN B US INES S
 
20
KA P LA N P UBL I SH IN G 
86 
The government of country X is planning to introduce minimum wage legislation that would 
set minimum worker pay at significantly above the current average level of pay in the 
country. The labour market in country X is currently regarded as having reached its 
equilibrium point. Consider the following two statements regarding this legislation: 
(1) 
The legislation will likely increase the unemployment level within country X.
(2) Manufacturers within country X will likely wish to make more labour-intensive 
products and reduce the amount of automation used within their businesses.
Which of these statements is/are correct? 
A (1) 
only 
B (2) 
only 
C Both 
D Neither
 (2 
marks) 
87 
Y is preparing a short-term budget for a cost incurred by her company. She is predicting 
that the company will experience significant increases in output during the period. How 
would Y expect to see the average cost per unit change within the short-term? 
A 
The cost per unit would be expected to fall for the entire period due to the increased 
output 
B 
The cost per unit would be expected to initially fall, then start to rise again due to 
diseconomies of scale 
C 
The cost per unit would be unlikely to change in the short-term 
D 
The cost per unit would be expected to initially fall, then start to rise again due to the 
law of diminishing returns