Economic Mock Exam - 2

When the price of a good falls and customers tend to buy more of it instead of other goods, economists call this the ________ effect.

• Diminishing marginal utility

• Income

• Ceteris paribus

• Substitution

When a decrease in the price of good A causes an increase in demand for good B, the goods are:

• Complements

• Inferior

• Normal

• Substitutes

Inferior goods are best defined as:

• Goods whose supply falls as people's income rises

• Goods that only those who are relatively poor purchase

• Goods whose demand falls as people's income rises

• Goods that have higher-quality alternatives

Expectations about price changes will affect:

• Both the demand and supply curves

• The demand curve only

• Neither curve

• The supply curve only

Which of the following correctly describes how price adjustments eliminate a shortage?

• As the price rises, the quantity demanded will increase while the quantity supplied will decrease

• As the price falls, the quantity demanded will decrease while the quantity supplied will increase

A movement upward along the demand curve to the left could be caused by:

• A rise in income

• A decrease in supply

• A rise in inflation

• A fall in the price of substitutes

Which of the following is the most likely cause of a decrease in demand for petrol?

• An increase in bus fares

• A decrease in the price of cars

• A decrease in the price of petrol

• The imposition of road charging in most major cities

Reasons for supply curves being positively sloped include:

• The higher the demand for a good the more firms can charge

• Typically, as output rises, unit costs rise, so price must also rise

• Firms always want to raise prices to boost profits

• All of the above

Which one of the following correctly describes how price adjustments eliminate a surplus?

• As the price rises, the quantity demanded will increase while the quantity supplied will decrease

• As the price rises, the quantity demanded will decrease while the quantity supplied will increase

• As the price falls, the quantity demanded will increase while the quantity supplied will decrease

• As the price falls, the quantity demanded will decrease while the quantity supplied will increase

What will be the effect on equilibrium price if supply increases by 40 units at all prices?

• Fall by £1

• Fall by £2

• Rise by £1

• Rise by £2