Category: Economics

What is NOT a function of the price mechanism in a market economy?

Select ONE answer:

1. to act as an incentive for supply to respond to changes in demand
2. to ensure there is an even distribution of income
3. to indicate changes in consumer tastes and preferences
4. to ration scarce resources

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 2

1. The price mechanism provides an incentive (via profits) for firms to adjust their supply to match changes in consumer demand.
2. Correct: The price mechanism does not ensure an even distribution of income. Indeed, it can result in some people earning very high incomes while other people receive low or no income.
3. The price mechanism does signal consumer preferences, with more popular products rising in price while less popular products fall in price.
4. The price mechanism allocates resources to the production of products in high demand.

 

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A product has a cross-elasticity of demand of – 0.2 in relation to another product.

What does this indicate?

Select ONE answer:

1. It is a close complement to another product.
2. It is a distant complement to another product.
3. It is a close substitute for another product.
4. It is a distant substitute for another product.

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 2

1. A close complement would have a high negative XED.
2. Correct: the minus figure indicates that the product is a complement and the low figure of 0.2 suggests that it is not very responsive to a change in the price of the product it is purchased to use with it.
3. A close substitute would have a high positive XED.
4. A distant substitute would have a low figure such 0.2 but it would be a positive and not a negative figure.

 

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Product X has a price elasticity of demand (PED) of – 3.0. Product Y has a PED of – 0.2.

Which combination of characteristics is correct?

Select ONE answer:

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 2

1. Product X may be a luxury but if Product Y is non-habit forming it is likely to have elastic demand rather than inelastic demand.
2. Correct: Product X has elastic demand whilst Product Y has inelastic demand. So Product X is likely to have substitutes while Product Y may be a necessity.
3. In this case, both products are likely to have inelastic demand, which is not the case with Product X.
4. Product X could be non-habit forming but it is not likely that Product Y is a luxury as luxuries tend to have elastic demand.

 

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Which type of demand best explains the relationship between the demand for new houses and the demand for bricklayers?

Select ONE answer:

1. competitive demand
2. composite demand
3. derived demand
4. joint demand

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 3

1. Competitive demand occurs when goods are substitutes.
2. Composite demand occurs when a product has multiple uses.
3. Correct: derived demand is when the demand for one good or service is dependent on the demand for another good or service.
4. Joint demand occurs when products are complements.

 

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In which situation is a market allocatively efficient?

Select ONE answer:

1. It is when consumer surplus equals producer surplus.
2. It is when marginal social benefit equals marginal social cost.
3. It is when there are both positive consumption externalities and positive production externalities.
4. It is when the value of external benefits exceeds the value of external costs.

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 2

1. Allocative efficiency would be achieved where consumer surplus plus producer surplus is maximised.
2. Correct: Marginal social benefit equalling marginal social cost ensures that the value society places on the last unit produced equals the cost of that unit.
3. The existence of externalities is likely to mean that market failure will occur.
4. To ascertain whether allocative efficiency is being achieved, it is not sufficient just to compare external benefits and costs – social benefits and costs needed to be compared.

 

This work is licensed under a Creative Commons Attribution 4.0 International License.