Revision Paper-Economics-02

General Certificate of Education (A/Level)

Examination 2014

Market Equilibrium
1.People benefit by participating in the market because:
a. Resources are no longer limited.
b. There are always participants in the market that are more efficient than you are in
production.
c. Market participation allows individuals to specialize and, ultimately, consume more.
d. Participants in the market do not have to make choices.
e. None of the above reasons
2.Which of the following determinants might change in the consumer-goods market as a result of
an increase in unemployment?

a. Income. d. None of the above.

b. Buyer expectations. e. All of the above
c. Tastes

3.Ceteris paribus, which of the following would generally cause an increase in the demand
for automobiles?
a. A decrease in the price of automobiles.
b. An increase in consumers' income.
c. The new models are perceived as ugly compared with old models.
d. Consumer expectations that the price of automobiles will be lower next year.
e. All of the above
4.Which determinant of demand changes in the personal computer market as more
individuals become interested in "surfing the Internet"?

a. Cost of factors of production. d. Number of buyers.

b. Income. e. None of the above
c. Expectations

5.Assume a series of forest fires reduces the supply of lumber which is an input in the
production of wooden bats. Baseballs and wooden bats are complements. If the price of
wooden bats increases, we can expect the:

a. Demand for baseballs to decrease.

b. Supply of baseballs to decrease.
c. Demand for baseballs to increase.
d. Supply of baseballs to increase
e. Quantity demand for baseballs increase

6.Which of the following would not cause the market supply of cell phones to change?
a. Telecommunications are deregulated, and anyone who wants to can produce and sell
cell phones.
b. A cheaper technology for producing plastics used in producing cell phones is
developed.

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 c. A reduction in the demand for cell phones causes the price to fall.
d. Taxes levied on cell phone production are reduced.
e. None of the above are correct.
7.Market supply and market demand curves are similar in that both:
a. Involve the willingness and ability of a supplier to sell a product or service.
b. Involve the willingness and ability of a buyer to buy a product or service.
c. Have price on the x-axis and quantity on the y-axis.
d. Can be derived by adding horizontally all the curves of the individuals in the market
e. All of the above reasons are correct
8.Which of the following can change without shifting either demand or supply, ceteris
paribus?

a. The price of the good itself. d. Taste for the good

b. Incomes. e. All of the above
c. The prices of other goods.

9.Suppose there are buyers and sellers in a market but no exchange takes place. Assume there
is no government intervention in this market. This implies that:
a. The price must be so high that no one can afford this good.
b. There must be a shortage of the good.
c. The market supply and demand curves do not intersect.
d. Market demand must be upward sloping.
e. There must be surplus of the good.
10. A ballet performance had many empty seats. This implies that the:
a. Hall where the performance was being held was very large.
b. Price of the tickets must have been very low because of the low demand.
c. Ballet group was not very well known.
d. Price of the tickets must have been above the equilibrium price
e. Ballet group performance is very low
11. A market shortage is:
a. The amount by which the quantity demanded exceeds the quantity supplied at a given
price.
b. The result of a price ceiling.
c. A situation in which people cannot buy all the goods and services that they are
willing and otherwise able to buy.
d. All of the above.
e. None of the above situations are correct
12. A rightward shift in a demand curve and a rightward shift in a supply curve both result in

a. Lower equilibrium price. d. Higher equilibrium quantity.

b. Lower equilibrium quantity. e. No change in equilibrium
c. Higher equilibrium price. quantity or price

13. A leftward shift of the market demand curve for HDTVs, ceteris paribus, causes
equilibrium:
a. Price to increase and quantity to decrease.
b. Price to decrease and quantity to decrease.
c. Price to increase and quantity to increase.

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 d. Price to decrease and quantity to increase.
e. No change in price or quantity
14. When half of the consumers in a small town move away, the markets for different goods
and services will generally experience:
a. Lower equilibrium price and lower equilibrium quantity.
b. Lower equilibrium price and higher equilibrium quantity.
c. Higher equilibrium price and lower equilibrium quantity.
d. Higher equilibrium price and higher equilibrium quantity.
e. Lower equilibrium price and higher equilibrium quantity.
15. In 2012 a company sold 35,000 CD players at Rs.100 each. In 2012 the same company
sold 40,000 CD players at Rs.120 each. The information suggests that:
a. The supply of CD players increased from 2012 to 2013.
b. The demand of CD players increased from 2012 to 2013.
c. The price of CD players increased because the costs of production increased from
2012 to 2013.
d. From 2012 to 2013 the demand curve for CD players was upward sloping
because of improved technology
e. All of the above are correct
16. Price ceilings are intended to address the problem of:
a. Inefficiency in production.
b. Inequity in the distribution of goods and services.
c. Business bankruptcies.
d. Shortages.
e. All of the above reasons

17.Use the following to answer questions 17-19

S u p p ly
$ 2 5

$ 2 0
D o lla rs P e r U n it

$ 1 5

$ 1 0

$ 5
D e m a n d

$ 0
18. 1 0 2 0 3 0 4 0 5 0

Q u a n tity

19. Equilibrium price and quantity occur at:

a. A price of $15 and a quantity of 10 units.
b. A price of $20 and a quantity of 20 units.
c. A price of $15 and a quantity of 30 units.
d. A price of $10 and a quantity of 30 units.
e. A price of $10 and a quantity of 20 units.
20. If a price ceiling of $10 was in effect in Figure 3.4:
a. A shortage of 20 units would occur.
b. A shortage of 10 units would occur.
c. A surplus of 20 units would occur.

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 d. A surplus of 10 units would occur
e. None of the above may occur
21. In Figure at a price of $20:
a. The market is in equilibrium.
b. The quantity demanded is greater than the quantity supplied.
c. The quantity supplied is greater than the quantity demanded.
d. A shortage exists.
e. All of the situations may exists.
22. The tax incidence is equivalent
a. if the tax is levied on only the seller.
b. if the tax is levied only on the buyer.
c. if the tax is levied on both the buyer and the seller.
d. regardless of whether the tax is levied on buyers or sellers.
e. The income received by the government
23. If a tax is imposed on a market with inelastic demand and elastic supply,
a. buyers will bear most of the burden of the tax.
b. sellers will bear most of the burden of the tax.
c. the burden of the tax will be shared equally between buyers and sellers.
d. it is impossible to determine how the burden of the tax will be shared.
e. Both parties will not bear the tax burden
24. Suppose that the demand for picture frames is price elastic and the supply of picture
frames is price inelastic. A tax of Rs.10 per frame levied on buyers of picture frames will
increase the equilibrium price paid by buyers of picture frames by
a. Rs.10.
b. more than Rs.5.00 but less than Rs.10.00.
c. less than Rs.5.00.
d. It is impossible to say without more information
e. Rs.5
25.
26. You have responsibility for economic policy in the country of Sri Lanka. Recently the
neighboring country of India has cut off all exports of onions to Sri Lanka. Harpo, who is
one of your advisors, suggests that you should impose a binding price ceiling in order to
avoid a shortage of oranges. Chico, another one of your advisors, argues that without a
binding price floor, a shortage will certainly develop. Zeppo, a third advisor, says that the
best way to avoid a shortage of oranges is to take no action at all. Which of your three
advisors is most likely to have studied economics?

a. Harpo
b. Chico
c. Zeppo
d. none of them
e. all of them

27. The demand for commodity is perfectly elastic. A firm producing this commodity
currently sells 100 units Rs.150 each. What will be the revenue obtained by the firm if it
increases its price to Rs.160/=

a. Zero b. Rs.16000

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 c. Rs.1000 e. No relative answer
d. Rs.15000

28. 200 units of giffen good are sold at a price of Rs.30/-. The price elasticity of demand for
the good is 0.9. what will be the new quantity demand if price is increased to Rs.33/-.

a. 180 c. 218 e. 290

b. 182 d. 220

29. The price elasticity of supply for new housing

a. Depends on the levels of consumer income
b. Is likely to be greater the shorter the time period under consideration
c. Is normally negative rather than positive
d. Is likely to be greater the longer the time period under consideration
e. Depends on the levels of consumer expenditure
30. If increase in real consumer income leads to an increase in demand for travel by taxi and
decrease in demand for travel by public transport: then it follows that
a. Travel by taxi, and travel by public transport have negative cross elasticity of
demand
b. Travel by taxi is a normal good and travel by public transport is an inferior good
c. The demand for Travel by taxi is income elastic and travel by public transport is
income inelastic
d. Travel by taxi, and travel by public transport are complements
e. Travel by taxi is an inferior good and travel by public transport is normal good
31.
32. A firm finds that when the price of good X falls by 10% , the demand for its own product,
Y rises by 30%. Which of the following describes the relationship between the two
goods?
a. X and Y are substitute goods
b. Both goods are price inelastic in demandThe following data represent the daily
demand and supply schedule for good
c. X and Y are complementary goods
d. X is inferior good whilst Y is normal good
e. Y is inferior good whilst X is normal good
f.

33. Price(Rs) 34. Qd(units) 35. Qs(Units)

36. 16 37. 2000 38. 2800
39. 14 40. 2200 41. 2600
42. 12 43. 2400 44. 2400
45. 10 46. 2600 47. 2200
48. 8 49. 2800 50. 2000

51. If government introduces a subsidy of Rs.4/- per unit to be paid to the producers
of the good, the new equilibrium price will be

a. Rs.8/- c. Rs.12/- e. Rs.15/-

b. Rs.10/- d. Rs.14/-

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 52. Good X has a very low price elasticity of supply. Which of the following is most likely to
be good X?
a. Toothpaste: because it is an essential good with no close substitutes
b. A newspaper: because it forms a relatively insignificant part of total expenditure
of the household
c. Soap powder: because enormous sums of money are spent on advertising to
develop brand loyalty
d. Fresh mangoes : because it takes long time to grow
e. None of the above
53. Market demand curve for Sanvardhana Wasana is Qd=500,000-20,000P and supply curve
is P=20 , the equilibrium quantity is

a. 100,000 c. 900,000 e. 20,000

b. 400,000 d. 480,000

54. Following diagram shows the impacts after imposing unit tax for a certain good. Which
area represent the producer surplus after tax?

55.

56.

57.

a. A c. E+F+H e. H+F+C
b. H d. B+C+E+F

58. Following graph illustrates maintenance of guaranteed price with a deficiency payment
system. What is the net welfare loss accordingly?

f.
g.
h.

a. 2250 c. 9000 e. 12000

b. 4500 d. 6000

59. Following function shows the income function of demand.

f. Q=1000-0.2Y accordingly the income elasticity at 1000 income level is

a. 0.25 c. 0.25 e. 1.5

b. -0.5 d. 0.5

60. Assume the price elasticity of demand for bottled water is 0.4. If the price of bottled
water increases by 20%, how much would we expect the quantity of bottled water
demanded to decrease?

a. 4% b. 8% c. 16%

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 d. 24% e. 80%

f.
g.
61. According to the graph, if price falls in the A range of the demand curve we can expect
total revenue to

a. increase.
b. decrease.
c. stay the same.
d. decrease, then increase.
e. None of the above are correct
62. If a 6 percent increase in income results in a 10 percent increase in the quantity
demanded of pizza, then the income elasticity of demand for pizza is
a. negative and therefore pizza is an normal good.
b. negative and therefore pizza is a inferior good.
c. positive and therefore pizza is an inferior good.
d. positive and therefore pizza is a normal good.
e. No relationships can be found

f.
g.

h.

63. Which of the following is NOT a determinant of the price elasticity of demand for a
product?
a. time
b. price
c. market definition
d. substitutes
e. none of the above
64. If the demand curve is linear and downward sloping, which of the following would NOT
be correct?
a. The upper part of the demand curve is more elastic than the lower
part.
b. Elasticity will change with a movement down the curve.
c. The lower part of the demand curve would be less elastic than the
upper part.
d. Slope will change with a movement down the curve
e. All of the above are correct
65. ABC Bakery earned Rs.200 in total revenue last month when it sold 100 loaves of bread.
This month it earned Rs.300 in total revenue when it sold 60 loaves of bread. The price

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 elasticity of demand for ABC's bread is

i. a. 0.27.

j. b. 0.58.

k. c. 1.25.

l. d. 1.71.
e. 1.00
m. 40.The government is considering placing a tax on cigarettes to raise revenue
to finance health-care benefits. The demand for cigarettes is price inelastic. Which of
the following statements is TRUE?
a. No tax revenue can be raised in this way because sellers of cigarettes
will just lower their price by the amount of the tax and, therefore, the
price of cigarettes to consumers will not change.
b. This tax will not raise much revenue either in the short term or the long
term since demand is price inelastic.
c. The tax on cigarettes may not raise as much revenue as anticipated in
the years to come because the demand for cigarettes is likely to
become more elastic over time.
d. This is a very good way to raise revenue, both in the short term and in
the long term, because there are no substitutes for cigarettes.
e. None of the above are correct
66. You produce jewelry boxes. If the demand for jewelry boxes is elastic and you
want to increase your total revenue, you should
a. increase the price of your jewelry boxes.
b. decrease the price of your jewelry boxes.
c. not change the price of your jewelry boxes.
d. None of the above answers are correct.
e. All of the above are correct
n.

a. o.

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67. According to the graph given below as price falls from
PA to PB, which demand curve is least elastic?
a. D1
b. D2
c. D3
d. All of the above are equally elastic
e. All of the above are equally inelastic
68. The difference between slope and elasticity is that
a. slope measures actual changes and elasticity measures percentage changes.
b. slope measures percentage changes and elasticity measures actual changes.
c. slope measures changes in quantity demanded more accurately than elasticity.
d. there is no difference between slope and elasticity calculations
e. slope is a mathematical concept and elasticity is an economic concept
69. Last year, Sheila bought 6 pairs of shoes when her income was $40,000. This year, her income is
$50,000 and she purchased 10 pairs of shoes. All else constant, it is obvious that Sheila
a. prefers shoes to boots.
b. considers shoes to be an inferior good.
c. considers shoes to be a normal good.
d. has a price-inelastic demand for shoes.
e. has a price-elastic demand for shoes.
70. The discovery of a new hybrid seeds would tend to increase the supply of vegetables. Under what
conditions would vegetable farmers realize an increase in revenue?
a. if the supply of wheat is elastic
b. if the supply of wheat is inelastic
c. if the demand for wheat is inelastic
d. if the demand for wheat is elastic
e. if the both demand and supply are elastic
71. Some firms experience elastic supply curves at low levels of quantity supplied and more inelastic
supply curves at higher levels of quantity supplied because
a. at low levels of quantity supplied, firms have idle capacity.
b. at high levels of quantity supplied, firms incur higher production costs.
c. as low levels of quantity supplied, per unit production costs are less than at high
levels of quantity supplied.
d. Both a and b are correct.
e. Both a and c are correct.
 p. q. Supply Curve r. Supply Curve t. Supply Curve C
A B

s.

u. P v. w. x. y. R z. R aa. Rs
r Rs Rs Rs s s 5.
i 2 00
c 3 .
e . 0
0 0
0

ab. Q ad. ae. af. ag. 9 ah. 4 ai. 70

u 50 60 60 0 0 0
a 0 0
n
t
i
t
y

ac. S
u
p
p
l
i
e
d

72. According to the table, which of the following would represent a more inelastic supply curve?
a. supply curve A
b. supply curve B
c. supply curve C
d. There is no difference in the elasticity of the 3 supply curves.
e. All the supply curves are elastic
73. In the long run, the quantity supplied of most goods
a. cannot respond at all to a change in price.
b. cannot respond much to a change in price.
c. can respond substantially to a change in price.
d. will naturally increase regardless of what happens to price.
e. None of the above answers are correct
74. Suppose there is a baseball park with 10,000 seats and a demand for seats in the park as follow:
 aj. Referring to the given information, the supply of seats
a. Price b. Quantity a. is perfectly elastic.
per Demande b. is perfectly inelastic.
Tick d c. increases as price increases.
et d. decreases as price increases
e. is elastic
ak.
c. Rs.2 d. 2,000
0 75. Referring to the given information, notice that
lowering the price from Rs.8 to Rs.6 per ticket
decreases revenue by Rs.4,000. In the Rs.6 to Rs.8
e. Rs f. 4,000 price range, demand for baseball tickets must be
16 a. price inelastic
b. price elastic
c. price unit elastic
g. Rs h. 6,000 d. income elastic
12 e. perfectly elastic

i. Rs 8 j. 8,000

k. Rs 6 l. 10,000

m. Rs 4 n. 12,000

o. Rs 2 p. 14,000
76.