Question 1

A free market is a market with

Accepted Answer

A)  goods that are free to the consumer but paid for by the government (e.g. schooling). 
B)  goods that are sold at no cost. 
C)  no government intervention. 
D)  government intervention to ensure the market price is affordable to all consumers. 
A)  goods that are free to the consumer but paid for by the government (e.g. schooling). 
B)  goods that are sold at no cost. 
C)  no government intervention. 
D)  government intervention to ensure the market price is affordable to all consumers.

Question 2

The position at which a demand curve and supply curve cross defines the _________price and equilibrium _________.

Accepted Answer

A)  demand; supply 
B)  equilibrium; quantity 
C)  best; balance 
D)  highest; expenditure 
A)  demand; supply 
B)  equilibrium; quantity 
C)  best; balance 
D)  highest; expenditure

Question 3

The law of demand states that, other things being equal, a decrease in the price of a good will result in

Accepted Answer

A)  a surplus. 
B)  an increase in the quantity willingly purchased. 
C)  a decrease in the quantity willingly purchased. 
D)  greater production of the good. 
A)  a surplus. 
B)  an increase in the quantity willingly purchased. 
C)  a decrease in the quantity willingly purchased. 
D)  greater production of the good.

Question 4

Which of the following will cause a rise in the demand for shares?

Accepted Answer

A)  An increase in the interest rate on savings in banks and building societies 
B)  A fall in the dividend yield 
C)  A rise in income, when there is a positive wealth effect 
D)  An expectation that share prices will soon fall 
A)  An increase in the interest rate on savings in banks and building societies 
B)  A fall in the dividend yield 
C)  A rise in income, when there is a positive wealth effect 
D)  An expectation that share prices will soon fall

Question 5

In a perfectly competitive market

Accepted Answer

A)  only producers are price- makers. 
B)  all producers and consumers are price- makers. 
C)  only consumers are price- takers. 
D)  all producers and consumers are price- takers. 
A)  only producers are price- makers. 
B)  all producers and consumers are price- makers. 
C)  only consumers are price- takers. 
D)  all producers and consumers are price- takers.

Question 6

Two goods are complementary if the price of one goes up and then the demand for both falls.

Accepted Answer

A) True 
 B)False

Question 7

The following diagram shows the demand curve for a product shifting from D0 to D1. Which of the following could have caused this shift?

Accepted Answer

A)  A fall in price of the product 
B)  A fall in price of a substitute product 
C)  A fall in income if the product is normal 
D)  A fall in price of a complementary product 
A)  A fall in price of the product 
B)  A fall in price of a substitute product 
C)  A fall in income if the product is normal 
D)  A fall in price of a complementary product

Question 8

What might cause a demand curve to shift?

Accepted Answer

It will shift in response to a change in

Question 9

The supply curve of an inferior good is negatively sloped.

Accepted Answer

A) True 
 B)False

Question 10

Explain how the fall in the market price of one good will influence the market of a substitute product.

Accepted Answer

As the price of one good falls the deman

Question 11

If a supply change results in a change in the amount that customers buy, this is termed 'a change in quantity demanded' by economists.

Accepted Answer

A) True 
 B)False

Question 12

If the market price is below equilibrium, then

Accepted Answer

A)  there is excess demand. 
B)  there is excess supply. 
C)  the supply curve will shift to the right. 
D)  the demand curve will shift to the right. 
A)  there is excess demand. 
B)  there is excess supply. 
C)  the supply curve will shift to the right. 
D)  the demand curve will shift to the right.

Question 13

A rise in population would cause the market demand curve for a normal good to shift to the right. Explain how changes in three other variables could shift a market demand curve to the right.

Accepted Answer

Variables could include:
• a shift in ta

Question 14

If the cost of raw materials increases, the supply curve of a product will

Accepted Answer

A)  become vertical. 
B)  become horizontal. 
C)  shift to the left. 
D)  not shift at all, but there will be a movement along the supply curve. 
E)  shift to the right. 
A)  become vertical. 
B)  become horizontal. 
C)  shift to the left. 
D)  not shift at all, but there will be a movement along the supply curve. 
E)  shift to the right.

Question 15

What might cause a supply curve to shift?

Accepted Answer

It will shift in response to a change in

Question 16

A shortage in a market will normally cause price to rise.

Accepted Answer

A) True 
 B)False

Question 17

Inferior goods are best defined as goods whose demand falls as people's income rises.

Accepted Answer

A) True 
 B)False

Question 18

A perfectly competitive market is one in which both producers and consumers are price- takers.

Accepted Answer

A) True 
 B)False

Question 19

If high street shops lower the price of televisions, the demand curve for televisions will shift to the right.

Accepted Answer

A) True 
 B)False

Question 20

When prices change and this makes customers financially better or worse off, this is called 'the income effect of the price change'.

Accepted Answer

A) True 
 B)False

Exam 4: The Working of Competitive Markets

A free market is a market with

The position at which a demand curve and supply curve cross defines the _________price and equilibrium _________.

The law of demand states that, other things being equal, a decrease in the price of a good will result in

Which of the following will cause a rise in the demand for shares?

In a perfectly competitive market

Two goods are complementary if the price of one goes up and then the demand for both falls.

The following diagram shows the demand curve for a product shifting from D0 to D1. Which of the following could have caused this shift?

What might cause a demand curve to shift?

The supply curve of an inferior good is negatively sloped.

Explain how the fall in the market price of one good will influence the market of a substitute product.

If a supply change results in a change in the amount that customers buy, this is termed 'a change in quantity demanded' by economists.

If the market price is below equilibrium, then

A rise in population would cause the market demand curve for a normal good to shift to the right. Explain how changes in three other variables could shift a market demand curve to the right.

If the cost of raw materials increases, the supply curve of a product will

What might cause a supply curve to shift?

A shortage in a market will normally cause price to rise.

Inferior goods are best defined as goods whose demand falls as people's income rises.

A perfectly competitive market is one in which both producers and consumers are price- takers.

If high street shops lower the price of televisions, the demand curve for televisions will shift to the right.

When prices change and this makes customers financially better or worse off, this is called 'the income effect of the price change'.

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

Business in a Market Environment

Demand and the Consumer

Demand and the Firm

Products, Marketing and Advertising

Costs of Production

Revenue and Profit

Profit Maximisation Under Perfect Competition and Monopoly

Profit Maximisation Under Imperfect Competition

An Introduction to Business Strategy

Alternative Theories of the Firm

Growth Strategy

The Small-Firm Sector

Pricing Strategy

Labour Markets, Wages and Industrial Relations

Investment and the Employment of Capital

Reasons for Government Intervention in the Market

Government and the Firm

Government and the Market

Globalisation and Multinational Business

International Trade

Trading Blocs

The Macroeconomic Environment of Business

The Balance of Payments and Exchange Rates

Banking, Money and Interest Rates

Business Activity, Employment and Inflation

Demand-Side Policy

Supply-Side Policy

International Economic Policy

Filters

The position at which a demand curve and supply curve cross defines the _price and equilibrium _.

The following diagram shows the demand curve for a product shifting from D₀to D₁. Which of the following could have caused this shift?