Question 1

True or False: The market equilibrium price is always set by the firm that has monopoly power in the market

Accepted Answer

false

Answer

true

Question 2

True or False: When the current market price is above the equilibrium price, there will tend to be excess supply

Accepted Answer

true

Answer

false

Question 3

True or False: The equilibrium price in a market cannot be influenced by the government

Accepted Answer

false

Answer

true

Question 4

A market is in equilibrium when

Accepted Answer

There is no tendency for price to change

Answer

Consumer satisfaction

Answer

There is maximum output at minimum cost

Answer

Prices are at their lowest level

Question 5

The table shows the market demand and supply for a product at each price level. The equilibrium price is

Accepted Answer

£11

Answer

£12

Answer

£14

Answer

£13

Question 6

A rise in consumer incomes causes market demand for the product in the table to rise by 200,000 at each price level. The effect of this change in demand, other factors remaining constant, is to change the equilibrium price to

Accepted Answer

£12

Answer

£14

Answer

£10

Answer

£15

Question 7

When excess demand occurs in a freely functioning market, there is a tendency for

Accepted Answer

Market price to rise

Answer

Quantity supplied to rise

Answer

Quantity supplied to fall

Answer

Market price to fall

Question 8

When the price mechanism is used to allocate resources, prices

Accepted Answer

Send signals to producers about the strength of demand and supply

Answer

Are determined solely by production costs

Answer

Are usually regulated by central government

Answer

Must rise to ensure producers make a profit

Question 9

Which one of the following statements referring to the price mechanism is correct?

Accepted Answer

High prices can ration demand for scarce goods and services

Answer

Producers and consumers take account of externalities

Answer

High prices are always associated with high profits for producers

Answer

Firms are unable to influence the market demand for their products

Question 10

The change in demand shown in the diagram might have been caused by

Accepted Answer

An increase in the price of a substitute good

Answer

A fall in income for a normal good

Answer

The introduction of a government subsidy for producers

Answer

A fall in the costs of production

Question 11

The change in equilibrium price brought about by the shifts in supply and demand shown in the diagram might have been caused by

Accepted Answer

An increase in consumer incomes and technological improvements in supply

Answer

An increase in the price of a complement and a subsidy to producers

Answer

The introduction of a maximum price by the government and a rise in labour productivity

Answer

A fall in the price of a substitute & an increase in production costs

Question 12

The diagram above shows the supply and demand curves for bricks used in the construction industry. The change in equilibrium price from P1 to P2 and quantity from Q1 to Q2 following the shift in supply and demand shown in the diagram might have been caused by

Accepted Answer

A recession in the construction industry and an increase in the costs of materials used in producing bricks

Answer

An increase in the demand for bricks from the main construction companies plus a fall in labour costs in the brick industry

Answer

A rise in the price of concrete blocks (a substitute for bricks) and a fall in labour costs used in producing bricks

Answer

A fall in mortgage interest rates and technological improvements in the brick industry

Question 13

"Pepper prices are soaring, thanks to poor rains in the major producing nations of India and Indonesia, industry experts have warned. The price of the spice is being further supported by growing consumption in India." Source: The Independent, 6 December 2002. Which one of the following best explains the reasons behind the changing price of pepper outlined in the passage above?

Accepted Answer

The market demand for pepper has shifted outwards and the market supply of pepper has shifted inwards

Answer

The market demand for pepper has shifted inwards and the market supply of pepper has shifted inwards

Answer

The market demand for pepper has shifted outwards and the market supply of pepper has shifted outwards

Answer

The market demand for pepper has remained the same and the market supply of pepper has shifted inwards

Question 14

Which one of the following is not held constant when a demand curve is drawn?

Accepted Answer

The price of the good itself

Answer

The prices of substitute and complementary products

Answer

Consumers' tastes and preferences

Answer

Consumers' money incomes

Question 15

The diagram relates to the market for DVD players. Which one of the following could explain the shift in the demand curve from D1 to D2?

Accepted Answer

A fall in the price of pre-recorded DVDs

Answer

An increase in the price of DVD players

Answer

A fall in the price of DVD players

Answer

An increase in the level of interest rates

Question 16

A government report states that the average price of British beef has fallen by 10% during the past year and that the quantity bought and sold has fallen by 4%. From this information we can deduce that

Accepted Answer

There has been an inward shift of market demand of beef

Answer

There has been an outward shift of market demand of beef

Answer

There has been an outward shift of market supply of beef

Answer

There has been an inward shift of market supply of beef

Question 17

A rise in the equilibrium prices of new houses available to buy in a small town might have been explained by

Accepted Answer

A rise in the cost of rented properties

Answer

A rise in mortgage interest rates

Answer

An increase in the market supply of new homes in the town

Answer

A fall in the cost of raw materials and components used in the construction of new homes

Question 18

New technology makes it possible to produce more of a product at every given price. What effect will this have on the equilibrium price and output in the industry?

Accepted Answer

B

Answer

A

Answer

D

Answer

C

Question 19

The world demand for petrol:

Accepted Answer

Is inelastic in the short run

Answer

Is perfectly inelastic

Answer

Is more inelastic in the long run

Answer

Is perfectly elastic

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