How the market works
1 The diagram shows the demand for chocolate.
What could cause the movement from point X to point Y?
A a change in tastes
B a fall in the price of chocolate
C an increase in income
D a successful advertising campaign for chocolate
2 The table shows the price of, demand for and supply of X per week.
What will be the effect if the government imposes a minimum price of $40 per tonne?
A a fall in the price of X
B a shortage of X
C a surplus of X
D a waiting-list for X
3 A bus company knows that demand for travel before 09 00 hours is inelastic and that after 09 00 hours it is elastic.
How is the company certain to increase total revenue?
A by increasing all fares
B by increasing fares before 09 00 hours
C by reducing all fares
D by reducing fares before 09 00 hours
4 In many countries, extra staff are employed by the postal service and additional collections of post are made to clear the large amount of mail before holiday periods.
What happens to the demand and supply curves for postal services during these periods?
5 Which of the following is true for any inelastic demand curve?
A A price cut causes a fall in expenditure.
B A price rise has no effect on demand.
C A price rise has no effect on total profit.
D The percentage change in demand is greater than the percentage change in price.
6 The graph shows the market for rice. It was in equilibrium at X. Later, there is a very good harvest
of rice.
What is the new equilibrium point?
7 The diagram shows a market for wheat that is in equilibrium.
Which area represents the total revenue for wheat farmers?
A OTXY B OVXY C OVXZ D OWXY
8 A government taxes the production of cars.
What is likely to decrease?
A the cost of supplying cars
B the price of cars
C the revenue for the government
D the supply of cars at every price
9 The graph shows the market for bread.
Which of the following might have caused a change in demand from D1 to D2?
A a fall in the cost of producing bread
B a fall in the price of an alternative to bread
C a newspaper report that eating bread is healthy
D a rise in price of a complement to bread
10. Demand for Japanese video-recorders on sale in Germany is price-elastic.
Which statement will therefore be true?
A A tariff will keep all the Japanese video-recorders out of Germany.
B German manufacturers cannot compete in the video-recorder market.
C Japanese manufacturers’ profits will decrease if the price is reduced.
D Japanese manufacturers’ revenue from sales will increase if the price is reduced.
11 The demand for a product is known to be price-elastic.
Which fall in quantity demanded could follow a 10 % price rise?
A 0% B 5% C 10% D 15%
13 The diagram shows the demand for and supply of a product. The original equilibrium is at X.
Which point indicates the new equilibrium position if there is an increase in the price of a close
substitute for the commodity while other things remain the same?
14 The diagram shows the demand for and supply of a firm's product. The original equilibrium is
at X. The firm pays for a successful advertising campaign.
What is the new equilibrium?
15 The diagram shows the market for bicycles. The demand for bicycles increases and at the same time manufacturers are able to cut costs through new production methods.
According to the diagram, what would be the result of these changes?
16 The major oil producers sometimes try to raise the price of oil.
How would this be shown on a demand and supply diagram?
A a movement along the demand curve to the right
B a shift in the supply curve to the right
C a shift in the demand curve to the left
D a shift in the supply curve to the left
17 If ‘Sunshine Oranges’ were successfully advertised with the statement ‘They help you live longer’, which would be likely to occur?
18 Which will encourage domestic producers to grow more maize?
A granting subsidies to maize producers
B increasing the sales tax on maize
C removing guaranteed minimum prices for maize
D removing quotas on imported maize
19 The world price of cocoa has been falling while the prices of products made from cocoa have
been rising. Which combination might explain this?
20 The graphs, drawn to the same scale, show the demand curves of four firms. The market price is $10. The price then falls to $8.
Which firm will have the largest increase in total revenue?
21 What would not cause a shift in the demand curve for a good?
A a change in incomes
B a change in the price of a substitute good
C a change in the price of the good
D a change in the tastes of consumers
22 Four changes affecting the supply of a good are listed below.
What would cause the supply curve to shift to the right?
A an improvement in technology
B an increase in its market price
C a reduction in labour productivity
D the introduction of a sales tax
23 What is an example of complementary demand?
A buses and bus fares
B cotton and cotton seed
C televisions and electricity
D wood and sawdust
24 A good is successfully advertised.
What is the most likely impact on the demand and supply curves for the good?
25 The diagram shows the supply and demand curves for a good. The market is in equilibrium at
point X.
What is the excess demand at price P?
A PT B QR C QT D ST
26 The table shows the value of the price elasticity of demand for four products.
What would have an increase in sales revenue if prices rose by 10 %?
A cars only
B cars and mobile phones
C radios and salt
D salt only
27 What is most likely to cause a shift in the supply curve for oil?
A an increase in purchases of cars
B an increase in the price of oil
C a rise in consumer incomes
D the discovery of new oilfields
28 A consumer’s demand curve for a commodity shows how quantity purchased varies with
A the consumer’s income.
B the consumer’s tastes.
C the price of substitutes.
D the price of the commodity.
30 What is most likely to cause an increase in the demand for oranges?
A a decrease in the supply of oranges
B a health scare about eating oranges
C an increase in the price of a complement
D an increase in the price of a substitute
31 Which method of advertising is likely to be the most effective for promoting the sales of textbooks?
A direct mail
B local radio
C national television
D posters on buses and taxis
32 In 2003 the US government was asked to stop subsidising tobacco growers.
What would happen if the government agreed?
33 The diagram shows demand and supply curves for a good. The market is in equilibrium at point X. What would be the new equilibrium position if there were a successful advertising campaign for the good and an increase in the cost of raw materials?
34 In 2002 the world price of cocoa was higher than in 2001. Which combination of changes in the demand for and the supply of cocoa would always lead to a rise in price?
35 A product has a price elasticity of demand that is greater than one.
What will happen to total revenue if the price of the product is reduced by 3 %?
A It will fall by more than 3 %.
B It will fall to zero.
C It will be unchanged.
D It will rise.
36What is most likely to cause a shift in the supply curve for oil?
A an increase in purchases of cars
B an increase in the price of oil
C a rise in consumer incomes
D the discovery of new oilfields
37 A consumer’s demand curve for a commodity shows how quantity purchased varies with
A the consumer’s income.
B the consumer’s tastes.
C the price of substitutes.
D the price of the commodity.
38 What is most likely to cause an increase in the demand for oranges?
A a decrease in the supply of oranges
B a health scare about eating oranges
C an increase in the price of a complement
D an increase in the price of a substitute
39 The diagram shows the relationship between railway fares and passenger use in a capital city.
What is this diagram?
A a demand curve
B a supply curve
C an average total cost curve
D a variable cost curve
40 The demand for cocoa beans is price-inelastic.
What is most likely to increase as a result of a decrease in demand for cocoa beans?
A income of cocoa bean producers
B price of cocoa bean products
C production of cocoa beans
D unemployment among cocoa bean farmers
41 The graph shows the market for unskilled workers in a city. The original equilibrium is at X.
What would be the new equilibrium if there was a migration of workers to the city?
42 There are a fixed number of seats at a concert. Most of the audience would continue to attend
even if the seat prices were increased.
Which diagram represents this situation?
43 The diagram shows the supply and demand curves for a good. The market is in equilibrium at
point X.
What would be the new equilibrium situation if this good were successfully advertised and the cost
of raw materials for the good rose?
44 The table shows Rover car sales in the UK in 1999 and 2000. In 1999 the sales followed the usual
seasonal pattern.
In which month of 2000 did an aggressive price cutting policy disturb the usual pattern?
A January B March C April D May
45 A product has totally inelastic price elasticity of demand.
What will happen to total revenue if the price of the product rises by 10%?
A It will fall by 10%.
B It will fall to zero.
C It will remain unchanged.
D It will rise by 10%.
46 Changes in the market for gasoline (petrol) in Zimbabwe in 2000 resulted in fuel shortages and
long queues.
Which combination of changes would have been certain to cause this situation?
47 In the 1970s and 1980s coffee was a high proportion of Brazil’s exports. Brazil is now also a major
exporter of sugar, orange juice, tobacco and beef. What is this change an example of?
A diversification
B economies of scale
C expansion of the secondary sector
D specialisation
48 The table illustrates the demand and supply for rice in a market in Africa.
When the price rises from $20 to $30 per kg, what is the approximate price elasticity of demand
for rice?
A 0.2 B 0.5 C 1.0 D 2.0
49 A firm spends a fixed amount on advertising but becomes more successful when the advertising
changes from radio to television.
Which diagram shows the effect of this on price and quantity sold of the firm’s product?
50 Owing to an explosion in a refinery, gasoline (petrol) production fell.
Which diagram shows the effect of this on price and quantity sold of gasoline (petrol)?