Question

Questions 52 through 55 are related. You do not need to read the article.

52. In the attached article titled “Advanced Auto Parts Stock Slides After Profit Miss” the sixth paragraph reads: “During a call with analysts, Mr. Greco [the CEO] tied “temporary industry softness” to economic uncertainty for low-income consumers, the acceleration of new-car sales from 2010 and mild weather that has reduced the need for seasonal repairs”. The phrase “temporary softness” implies:

a.    The demand curve was further to the right or up than originally expected or forecast.

b.    The demand curve was further to the left or down than originally expected or forecast.

c.    Both the demand curve and supply curve were further to the right than originally expected or forecast.

d.    Both the demand curve and supply curve were further to the left than originally expected or forecast.

e.    The demand curve was further to the left or down than originally expected or forecast while the supply curve was further to the left or back than originally forecast.

53. The idea that “economic uncertainty for low-income consumers” contributed to the “temporary softness” implies:

a.    the income elasticity for auto parts is negative – i.e. auto parts are inferior goods.

b.    the income elasticity for auto parts is positive – i.e. auto parts are normal or luxury goods.

c.    the income elasticity for auto parts is zero – i.e. auto parts cannot be categorized.

d.    the prices of complementary products increased.

e.    None of the above answers is correct.

54. The idea that “mild weather” contributed to the “temporary softness” implies:

a.    Harsher than normal weather would cause the demand for auto parts to increase from the “typical” year.

b.    Harsher than normal weather would cause the demand for auto parts to decrease from the “typical” year.

c.    As a result of mild weather, the demand curve was further to the right or up than originally expected or forecast.

d.    As a result of mild weather, the demand curve was further to the left or down than originally expected or forecast.

e.    Both answers a. and d. are correct.

55. The idea that “the acceleration of new-car sales from 2010” contributed to the “temporary softness” implies:

a.    As cars age, their demand for auto parts decreases.

b.    As cars age, their demand for auto parts increases.

c.    As a result of the new-car sales, the demand curve was further to the right or up than originally expected or forecast.

d.    As a result of the new-car sales, the demand curve was further to the left or down than originally expected or forecast.

e. Both answers b. and d. are correct.

Answer 1

52. b. The demand curve was further to the left or down than originally expected or forecast.
(Temporary softness means decline in demand.)

53. b. the income elasticity for auto parts is positive – i.e. auto parts are normal or luxury goods.
(Auto parts for lower income group are a luxury.)

54. e. Both answers a. and d. are correct.
(Harsher weather would increase the demand and wild weather has led to a decrease.)

55. e. Both answers b. and d. are correct.
(Old cars require more auto parts while new cars does not.)