Supply and Demand

 The price elasticity of supply for most goods is – A  zero. – B  between zero and –1. – C  between –1 and minus infinity. – D  positive.

The existence of scarcity in an economy implies that – A  there are no free goods. – B  there are no public goods. – C  individuals must make choices. – D  there has been a misallocation of resources.

An increase in UK incomes leads to an increase in demand for holidays abroad and a decrease in demand for holidays in the UK. It can therefore be concluded that

– A  holidays in the UK are an inferior good while holidays abroad are a normal good.

– B  the demand for holidays abroad is income elastic while the demand for holidays in the UK is income inelastic.

– C  there is a negative cross price elasticity of demand between holidays abroad and holidays in the UK.

– D  holidays abroad have a high price elasticity of demand while holidays in the UK have a low price elasticity of demand.

A product has a price elasticity of demand of –0.5. If the price of this product increases by 10%, then total revenue will

– A  rise by more than 10%. – B  rise by less than 10%. – C  fall by more than 10%. – D  fall by less than 10%.

An inferior good always has

– A  positive price elasticity of demand. – B  many substitutes. – C  negative cross elasticity of demand. – D  negative income elasticity of demand.

The table below indicates the average price of clothing in price index number form.

Which one of the following can be deduced from the data to the right?

• A  The price of clothing rose throughout the whole period 2008 to 2012.

• B  Compared with 2012, the price of clothing was 20% cheaper in 2008.

• C  Revenue from the sale of clothing fell in 2011.

• D  Between 2010 and 2011, the price of clothing fell by 10%.

Year Price Index

2008 100

2009 105

2010 120

2011 110

2012 125

The income elasticity of demand for bus travel is −1.5. This means that – A  a 10% increase in fares will lead to a 15%

decrease in passengers. – B  bus travel is an inferior good. – C  bus travel has a negative cross elasticity of

demand. – D  as unemployment falls, more people will use

buses.

The diagram below shows the demand for, and supply of, rail services.

The shift of the curve from D1 to D2 is most likely to result from

A  a government decision to increase subsidies for rail travel. B  a reduction in the tax imposed on the price of a litre of petrol. C  a major expansion of the government’s new railway track-building programme. D  a decision by the government to impose a tax on all car parking.

A shift to the right of the supply curve for a product can be caused by – A  a rise in popularity of the product. – B  a rise in costs of production. – C  a tax on the product. – D  the entry of new firms into the industry.

The diagram below shows demand (D) and supply (S) curves for beef, where the initial equilibrium price is £25.

Which one of the following combinations, A, B, C or D, is correct?

The price elasticity of supply of wheat is – A  less elastic in the long run than in the short run. – B  determined by the availability of substitutes. – C  affected by the stocks of wheat available. – D  more elastic when there are restrictions on the

amount of wheat that can be imported.

The diagram below shows the supply (S) and demand (D) curves for a normal good.

The shift in demand from D1 to D2 could have been caused by

A a decrease in the price of a close substitute.B an increase in the price of a complementary good.C consumers’ expectations that the price of the good is about to fall.D an increase in the income of buyers.

To calculate the percentage change in the quantity supplied of a good following a change in its price, the price elasticity of supply should be • A  divided by the percentage change in price. • B  divided by the percentage change in quantity. • C  multiplied by the percentage change in price. • D  multiplied by the percentage change in quantity.

All other things being equal, supply curves slope upwards from left to right because • A  higher prices lead to higher costs. • B  lower prices lead to higher output. • C  lower prices lead to higher demand. • D  higher prices lead to higher profits.