Unit Test of Cahpter 2 : The Price system and Microeconomy

The diagram shows the market supply and demand for a good.

Which area represents producer surplus?

• S + T

• T

• U

• U+V

Vanilla is an important ingredient in the production of ice cream. Between 2011 and 2018 the price of vanilla increased from about US$100 per kg to nearly US$600 per kg. The diagram shows the market demand for and supply of ice cream. The original equilibrium is X.

Which point illustrates the effect of this price rise on the market for ice cream?

• A

• B

• C

• D

A government reduces income tax but at the same time raises the rate of sales tax (VAT).

What are the likely effects on the demand and supply of a normal good?

• A

• B

• C

• D

An increase in the popularity of air conditioning units has resulted in their price increasing by 20%. In response to this the quantity supplied increased by 30%.

What can be concluded from this?

• price elasticity of supply = 0

• price elasticity of supply < 1

• price elasticity of supply = 1

• price elasticity of supply > 1

Public transport in an economy has an income elasticity of demand of –0.36.

What does this mean about public transport?

• It has close substitutes.

• It is a necessity.

• It is a normal good.

• It is an inferior good.

D 1 and S1 are the initial demand and supply curves in the market for new cars with an equilibrium at X.

What will cause the demand curve to shift to D2 and the supply curve to shift to S2?

• a decrease in real incomes and a rise in the costs of new car production

• a decrease in the price of petrol and a subsidy on new car production

• an increase in the availability of loans for new car purchases and a specific tax on new cars

• an increase in the price of train travel and an increase in the number of car producers

A bus journey is considered an inferior good in a relatively rich country such as Singapore but a normal good in a relatively poor country such as Tanzania.

In which direction would an increase in incomes in both countries cause the demand curve for bus journeys in Singapore and Tanzania to shift?

• Singapore (left), Tanzania (left)

• Singapore (Left),Tanzania (Right)

• Singapore(Right), Tanzania (Left)

• Singapore (Right), Tanzania (Right)

The diagram shows the market demand for and supply of good E.

The equilibrium has changed from X to Y.

Which statement is not correct?

• Incomes of consumers may have increased and good E is a normal good.

• The quantity supplied has risen because price has increased.

• The quantity supplied has risen because the production of good E has been subsidised.

• The price of good F, which is a substitute for good E, may have risen.

The diagram shows the market for CDs.

A government raises the minimum price of CDs from $12 to $14.

What will be the outcome?

• Excess demand increases by 2 units.

• Excess demand increases by 4 units.

• Excess supply decreases by 2 units.

• Excess supply increases by 2 units.

A government subsidy of $50 per unit is paid to manufacturers of solar panels.

What will be the impact of this?

• It will guarantee equilibrium in the solar panel market.

• It will maintain high market prices.

• It will reduce total production costs.

• It will stabilise levels of output.