Economics

Basic Economic Problem & The Allocation of Resources

Basic Economic Problem:

1. Which terms summarise the nature of the economic problem?

a) Finite resources and limited wants.
b) Finite resources and unlimited wants.
c) Infinite resources and limited wants.
2. Which statement about the factors of production is correct?
a) A river from which a company draws water is called land.
b) Raising finance for a company is called capital.
c) Supervisors employed in a company are called enterprise.
d) The owner of a company is called labour.
3. Which economic change would increase the problem of scarcity?
a) A decrease in fish stocks.
b) A discovery of a new oil field.
c) An increase in labour productivity.
d) A reduction in waste.
4. The government of a country with a rapidly increasing population decides to
switch resources from investment to increased subsidies to farmers. What is
opportunity cost of this decision?

a) The profit earned by farmers.

b) The rent of the land on which food is grown.
c) The reduction in investment.
d) The wages of the farm workers.
5. Which terms summarise the nature of the economic problem?
a) Finite resources and limited wants.
b) Finite resources and unlimited wants.
c) Infinite resources and limited wants.
d) Infinite resources and unlimited wants.
6. A farmer pays a landowner for the use of a field. What is the income to the
landowner called?
a) Interest.
b) Profit.
c) Rent.
d) Wages.
7. What makes choice an important element in the basic economic problem?
a) Increased demand leads to higher market prices.
b) Limited resources have many alternative uses.
c) Reaching a market equilibrium may take a long time.
d) Scarce economic resources are distributed equally.
8. What is a factor of production?
a) An advantage if producing on a large scale.
b) A resource used to produce goods and service.
c) A sub- section of a manufacturing process.
d) A unit of output.
9. A government is faced with the choice of spending on either education or
healthcare. What is this an example of?
a) Conservation of resources.
 b) Monetary policy.
c) Opportunity cost.
d) Substitution factor.
10. Each of the factors of production earns an income. What are the incomes for land
and capital?

Land Capital
A Rent Interest
B Rent Profit
C Wages Interest
D Wages Profit

11. A firm decides to stop manufacturing ovens and to produce washing machines
instead. What is the opportunity cost to the firm?
a) The additional washing machines produced.
b) The cost of producing ovens.
c) The cost of producing washing machines.
d) The loss of the production of ovens.
12. What is an advantage of the market economic system?
a) It aims for equality of income.
b) It ensures the provision of defence and law and order.
c) It gives an incentive to produce.
d) It reduces pollution and congestion.
13. What is meant by the economic problem?
a) How to achieve efficiency with the existence of fixed resources and limited
wants.
b) How to allocate resources between public and private sectors.
c) How to balance unlimited wants against finite resources.
d) How to decide which methods to use to exploit all resources.
14. Every business organisation faces the problem of satisfying wants. What is the
reason why wants are not fully satisfied?
a) An economy can only produce a limited amount of goods and services.
b) Governments cannot print enough money to pay for goods and services.
c) There is an over- production of goods and services by business
organisation.
d) Workers are too skilled for the requirements of the jobs available.
15. A university rejects 2000 qualified applicants who wish to study there. What
factor of production could have caused the university to make this decision?
a) Infinite quantity of capital.
b) Scarcity of labour.
c) Surplus of land.
d) Unlimited supply of enterprise.
16. Economics is primarily concerned with:
a) Allocating scarce resources for unlimited wants.
b) Controlling unemployment and inflation.
c) Determining the level of government expenditure.
d) Studying how new wants and economic resources can be produced.
17. Which statement about the factors of production is correct?
a) Capital includes factories and machinery but not roads and ports.
b) Enterprise is more often found in the public sector rather than the private
sector.
c) Labour is the factor that takes risks and can become unemployed.
 d) Land is the natural factor that can be improved by human action.
18. A student leaves school and decides to spend the next two years at college to
improve her qualifications. What is the opportunity cost to the student of taking
this decision?
a) The cost the course fees at the college.
b) The increase in job opportunities she will have as a result of her extra
qualifications.
c) The lost production due to her not being in work.
d) The money she would have earned if she had been in work for the two
years.
19. In China, the government is concerned about the level of poverty and the need
for more resources in the poorer regions of the country. As a result, it is
increasing its expenditure there and reducing it in the wealthier regions. Which
economic concept does this government policy illustrate best?
a) Diseconomies of scale.
b) Market focus.
c) Opportunity cost.
d) Specialisation.
20. A country with a low income per head discovers large quantities of oil, which
eventually makes everybody better off. What is the basic economic problem of
scarcity not solved by this discovery?
a) People may not get jobs in the oil industry.
b) People’s wants are always changing and increasing.
c) Prices of oil can fluctuate on the world market.
d) Production of oil can damage the environment.
21. Two telecommunications companies are to merge to finance investments in new
technology, which will be more efficient and require smaller buildings. Three
hundred workers will lose their jobs. What will happen to the factors of production
used?

Land Labour Capital Enterprise

A Fall Fall Rise Fall
B Fall Fall Uncertain Rise
C Rise Rise Rise Rise
D Uncertain Rise Fall Fall

22. Why might a free market economy be more advantageous than a mixed
economy?
a) Equality of income is encouraged.
b) In a mixed economy, governments use taxes which are inefficient.
c) Production is determined solely by consumer wishes.
d) Social costs are taken into consideration.
23. Why will the economic problem never be solved?
a) People will always want more products than can be produced.
b) People will never agree on what is the best economic system.
c) There will always be an uneven distribution of income.
 d) There will always be some people unemployed.
24. A country is producing at point X on its production possibility curve which shows
how it can allocate its production between capital goods and consumer goods. A
period of recession then causes some of its factories to close. Which point could
represent the country’s new position.

25. Reena makes a living by selling paintings of the town in which she lives. She sells
them in open- air market once a week. In order to be able to sell more pictures in
a week she decides to buy a studio, pay someone help in the studio and try to
increase demand by advertising in the local newspaper. Which factors of
production were changed?
a) Capital and enterprise.
b) Enterprise and labour.
c) Labour and capital.
d) Labour only.
26. A country needs extra nurses. How could this be encouraged in a mixed economy
but not in a market economy?
a) Extra part- time nursing courses could be arranged by private colleges.
b) Nurses could be given a higher statutory minimum wage.
c) Nursing students could be asked to pay increased fees.
d) Nursing training colleges could have their subsidies reduced.
27. Sam wrote a list how he would prefer to spend his Saturday afternoon.

First choice Go to a cricket match

Second choice Watch the annual town parade
Third choice Go to the cinema
Fourth choice Visit relatives

Unfortunately, a thunderstorm caused the cricket match and the town parade to be
cancelled. Sam went to the cinema. What was the opportunity cost of going to the
cinema?

a) Going to the cricket match.

b) Watching the town parade.
c) Visiting his relatives.
d) Losing his Saturday free time.
28. How does a production possibility curve show that scarcity exists?
a) It shows that a rise in demand for one of the products increase its price.
b) It shows that as more resources are used to produce a product, its price rises.
c) It shows that at any point outside the production possibility curve an economy
is wasting its resources.
d) It shows that there is a limit to the
quantity of products that can be
produced with existing resources and
technology.
29. In which case it is possible to set the level of
reward before production takes place for the
first factor of production but not for the
second?

First factor Second

factor
 A Capital Land
B Enterprise Labour
C Labour Capital
D Land Enterprise

30. What is the cause of economic scarcity?

a) Limited wants with limited resources.
b) Limited wants with unlimited resources.
c) Unlimited wants with limited resources.
d) Unlimited wants with unlimited resources.
31. How is an immediate effect of an increase in unemployment illustrated on a
production possibility curve diagram?
a) A movement of the production point closer to the curve.
b) A movement of the production point further inside the curve.
c) A shift of the production possibility curve inwards.
d) A shift of the production possibility curve outwards.
32. What is a factor of production?
a) A semi- skilled, young worker.
b) Direct taxes received by a government.
c) Shares in a manufacturing company.
d) Stocks of money held a bank.
33. Economics textbooks often start by identifying the existence of the basic
economic problem. What is it that makes this problem ‘basic?’
a) It affects all economies and individuals.
b) It is the most urgent target of government economic policy.
c) It only affects low- income developing economics.
d) It relates to the production of raw materials in the primary sector.
34. Which statement about the factors of production is correct?
a) Capital includes man- made machines that do not keep their original value.
b) Enterprise is a natural factor of
production that cannot be
taught.
c) Labour is an immobile factor
that does not change its skill
level.
d) Land is only agricultural
fields that cannot be improved by
human effort.
35. The diagram shows two production possibility curves for an economy. What could
have caused the change in the economy’s production possibility curve from XX to
YY?
a) A decrease in the price level.
b) A large number of industrial disputes.
c) A major earthquake.
d) An increase in unemployment.
New oil reserves are discovered. What has increased in supply?

a) Capital.
b) Enterprise.
c) Labour.
d) Land.
36. The diagram shows production possibility curves (PPC) for a country that can
produce agricultural products or manufactured products. Its current PPC passes
through point Q and S but the country is currently experiencing unemployment.
If there is now full employment at the same time as new agricultural techniques
enable an increase in productivity, what would be the movement on the PPC
diagram?
a) P to R.
b) P to S.
c) Q to R.
d) S to Q.
37. In a rural community of Southern Africa, women were responsible for planting
and weeding crops by hand, while men used to control production and receive
profits. Which combination of factors of production was in operation?

Men Women
A Capital Land
B Enterprise Labour
C Labour Capital
D Land Enterprise

38. A person makes sandwiches at home for five hours each day. She makes 20
sandwiches per hour, and she sells each sandwich for $2 each. What is the
opportunity cost if she takes a holiday on a
working day?
a) $2.
b) $40.
c) 20 sandwiches.
d) 100 sandwiches.
39. The government of a prosperous country
announced that it would offer free food to
its citizens for a year. What would be the effect
of this measure?
a) Agricultural resources would become unlimited.
b) Human wants would become finite.
c) More resources would be devoted to food production.
d) The basic economic problem would be solved.
40. The diagram shows a production possibility curve for an economy that can
produce rice or electronic equipment. The economy is at point Q. A recession
causes unemployment in the electronics industries. At which point will the
economy be in the diagram?
41. A person works at home making
table cloths. He works for 6 hours
each day and makes 15 table cloths
an hour. He sells them for $10 each.
He then decides to work for only
4 hours each day. What can be concluded from the above information?
a) The lost profit would be $300.
b) The lost revenue would be $60.
c) The daily opportunity cost would be 30 table cloths.
d) The daily opportunity cost would be $50.
42. What economic concept must at work when there is movement by a country
along its production possibility curve?
a) Economies of scale.
b) Equilibrium price.
c) Maximum profit.
d) Opportunity cost.
43. The diagram shows the choices for an individual between leisure and earnings.

The person decides to take a job that gives more leisure time. What is the
opportunity cost to the individual of moving from position Y to position X?

a) $20.
b) $80.
c) 4 hours of leisure per day.
d) 12 hours of leisure per day.
44. What is the best example of the existence of the economic problem?
a) A government provides accommodation for all those who are homeless.
b) A police force has a lengthening list of unsolved crimes.
c) Janita hands her homework in at the last permitted deadline.
d) Mursa completes his journey without putting petrol in his car.
45. Each factor of production earns an income. What correctly identifies the income
for labour and capital?

Labour Capital
A Profit Interest
B Rent Profit
C Wages Profit
D Wages Interest

46. What could be the opportunity cost of a nuclear power station?

 a) The running costs of the power
station.
b) A coal- fired power station.
c) The current value of the power station.
d) The cost of building the power
station.
47. The diagram shows a production possibility
curve for maize and cotton. Bad weather
causes a poor harvest for both crops. Which
movement could be used to represent this
change?
a) P to R.
b) Q to R.
c) S to Q.
d) S to R.

The Allocation of Resources:

48. The diagram shows the market for fresh fish in

the Caribbean with equilibrium point X. New, more efficient boats with lower
running costs are then used. Which point represents the new equilibrium?

49. The diagram shows the demand for and the

supply of bread. A maximum price P1 is fixed by the government. What is likely
a) A movement of the demand curve to the right.
b) A movement of the supply curve to the right.
c) A shortage of bread.
d) A surplus of bread

50. The diagram shows a market for wheat that is in equilibrium. Which area
represents the total revenue for wheat farmers?
a) OTXY.
 b) OVXZ.
c) OVXY.
d) OWXY.

51. The diagram shows the supply curve for a good.

What is the price elasticity of supply when the price
rises from $2 to $4?
a) 0.2
b) 0.5
c) 1
d) 2

52. The diagram shows that when a tax of $2 on a good raises the supply curve from
S1 to S2, the price to the consumer rises from $4 to $5. What is the total tax yield
to the government?
a) $75
b) $150
c) $200
d) $375
53. The diagram shows demand and supply curves for a product at its equilibrium
price P. How would the introduction of a subsidy be shown?
a) Demand would shift to D1.
b) Demand would shift to D2.
c) Supply would shift to S1.
d) Supply would shift to S2.

54. Which statement could explain a decrease in the demand for natural rubber?
a) Demand for car tyres had increased.
b) New techniques of producing
substitutes for rubber have been
introduced.
c) Productivity of rubber plantations has
increased.
d) The area of land on which rubber is grown
has increased.
55. The table illustrates the demand and
supply for rice in a market in Africa.

Price per kg ($) Quantity demanded Quantity supplied (kg)

(kg)
10 50 10
20 40 20
30 30 30
40 20 40
When the price rises from $20 to $30 per kg, what is the approximate price elasticity
of demand for rice?

a) 0.25
b) 0.5
c) 1.0
d) 2.0
56. The table shows the changes in two influences on the demand for and supply of
televisions. If these two changes occurred at the same time, in which case is it
impossible for the price of televisions to rise?

Consumer’s incomes Costs of production

A Fall Fall
B Fall Rise
C Rise Fall
D Rise Rise

57. In a country where the demand for petrol

(gas) is price- inelastic, the incidence
of any increase in petrol tax will be mainly
on:
a) The company that refines the oil.
b) The motorist who buys the petrol.
c) The petrol station that sells the
petrol
d) The wholesale company that stores the petrol.
58. What is an example of market failure?
a) A growth of competition.
b) An existence of scarcity.
c) A spread of pollution.
d) A surplus of production in the short- term.
59. Which action by the operators of an airport directly reduces external costs?
a) The stopping of night flights.
b) The building of a new runway.
c) The payment of a productivity bonus.
d) The reduction of charges for landing aircraft.
60. Due to changes in the costs of production, an industry’s supply curve shifted at
various times from S1 to either S2 or S3. If a shift in supply was due to a seasonal
increase in the cost of raw materials, what would have been the effect on
demand?
a) The demand curve would move from D1 to D2.
b) The quantity demanded would move from x to w.
c) The quantity demanded would move from x to y.
d) The quantity demanded would remain the same at x.
61. What is an example of an external cost?
a) A company’s transport costs.
b) The cost of bringing about a merger.
c) The cost of buying components from suppliers.
d) The cost of industrial pollution.
62. How are economic decisions determined in a pure market system?
a) By a mixture of market forces and government regulation.
b) By central planners of production and consumption.
c) By government regulation of the price mechanism.
d) By the forces of demand and supply.
63. Wet weather in 2009 led to a fall in the sales of summer clothes. To support
businesses, the government reduced the sales tax (VAT). How would these
events be shown on a demand and supply diagram for summer clothes?

Demand Curve Supply Curve

A Move to the left Move to the right
B Move to the left No change
C Move to the right Move to the left
D No change Move to the right

64. Drought in African countries often results in poor harvests. Other countries then
help by sending quantities of food. What are the likely results of these events for
the price of food in the drought- affected countries?
a) It will fall and then rise.
b) It will rise and continue to rise.
c) It will rise and remain at this higher level.
d) It will rise and then fall.
65. 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?

66. Which person would wish to encourage the use of the market system?
a) Someone who believes that people should have equal living standards.
b) Someone who believes that people should have freedom of action.
c) Someone who believes that profit maximisation is wrong.
d) Someone who believes that the government should correct people’s bad
behaviour.
67. What is true of a mixed economy but is not true of a free market economy?
 a) There is a mixture of agricultural, manufacturing and service industries.
b) There is a mixture of central authorities, firms and consumers.
c) There is a mixture of external benefits and private costs.
d) There is a mixture of large and small companies.
68. Journeys in city centres may be made by made by bus or by car. What is an
external cost of this?
a) Bus fares.
b) Car fumes and noise.
c) License fees for cars.
d) Purchase of buses.
69. What is not held constant in constructing
a demand schedule?
a) The incomes of consumers.
b) The price of complementary goods.
c) The price of the good itself.
d) The tastes of consumers.
70. The table shows the demand for chocolates
at two different prices.

Price ($) Quantity demanded

0.50 400
0.45 480

What is the price elasticity of demand when the price falls from $0.50 to $0.4?

a) Less than 0.5

b) Between 0.5 and 1
c) Between 1 and 1.5
d) Greater than 1.5
71. What is an example of market failure?
a) A monopoly making abnormal profit.
b) Prices charged to cover social cost.
c) The closure of small, independent shops in a rural area.
d) The inability of a car producer to achieve economies of scale.
72. What changes would move the equilibrium in the diagram from point X to a new
point within area Z?
a) A decrease in demand with a decrease in supply.
b) A decrease in demand with an increase in supply.
c) An increase in demand with a decrease in supply.
d) An increase in demand with an increase in supply.
73. Cleaning the streets can be an unpleasant job and yet in many countries it is
badly paid. What is likely to be the reason for this?
a) There is a high degree of trade union
membership among these workers.
b) There is a high supply of labour
because the work is unskilled.
c) There is a high demand for staff in busy
urban areas.
d) There is a long working year because
there are a few holidays.
74. An international company drilled for oil in
deep water and caused a major oil leakage,
which affected the jobs of the fishing
community. The government ordered the company to close the well and to stop
drilling in the area. What are the external costs of this incident?
a) The costs borne by the fishing community.
b) The costs of closing the well.
c) The costs to the company of drilling the well in deep water.
d) The loss of revenue when the oil company stopped drilling.
75. A supply curve for a commodity is drawn to show how quantity supplied varies
with:
a) Government taxes.
b) Income.
c) Tastes.
d) The price of the commodity.
76. In 2010, floods caused severe damage to wheat production. How would this be
shown on a market demand and supply diagram for wheat?

Supply Curve Demand Curve

A No change Shift to the right
B Shift to the left No change
C Shift to the left Shift to the left
D Shift to the right Shift to the left

77. Which is a type of market failure?

a) A general increase in the price of hotel rooms in busy summer seasons.
b) An increase in house prices caused by easier burrowing for house buyers.
c) An increase in travel time caused by a road accident.
d) An increase in unsold goods because of a change in tastes.
78. The market for a normal good is in equilibrium at point X. Consumer’s incomes
fall and the cost of producing the good rises. In which area of the diagram will the
new equilibrium be?
79. There are a fixed number of seats at a concert. Most of the audience would
continue to attend even if the prices were increased. Which demand and supply
diagram represents this situation?

80. Many countries buy oil from Saudi Arabia. Which change is most likely to lead to
a fall in the price of a barrel of oil?
a) An increase in demand of 10% with no change in supply.
b) An increase in demand of 10% with an increase in supply of 10%.
c) No change in demand with a 10% decrease in supply.
d) No change in demand with a 10% increase in supply.
81. A recent study has found that the price elasticity of demand for cigarettes in the
USA is -0.7. What can be concluded from this information?
a) A fall in the price of cigarettes would lead to a fall in the revenue of cigarette
producers.
b) A rise in the price of cigarettes would lead to fall in consumer expenditure on
cigarettes.
c) A 7% increase in the price of cigarettes would reduce the quantity demanded
by 10%.
d) A 10% increase in the cost of producing cigarettes would lead to a 7% fall in
the quantity demanded.
82. A government makes public transport free to try to reduce car use in a city. What
might explain why people continue to use their own cars?
a) Cars are less crowded than public transport.
b) Car use does not cause external costs.
c) Public transport has a better safety record than cars.
d) Public transport networks require high capital costs.
83. When the price of a good doubles the demand falls by less than half, and the
revenue received by the seller increases. What does this suggest about the good?
a) It has substitutes.
b) It is a necessity.
c) It is in fixed supply.
d) It is perfectly elastic in demand.
84. In the 2016 Olympics in Brazil, the opening ceremony will take place in the
Maracanã Stadium, which can seat 82,000 spectators. It is expected that all
tickets for the ceremony will be sold quickly, leaving many people dissatisfied.
What can be concluded from this?
a) Price elasticity of demanded for tickets will be perfectly elastic.
b) Some people will be able to resell their tickets at a higher price than they paid
for them.
c) The Olympic authority will make more tickets available for sale.
d) This will be an example of market failure.
85. The diagrams show different conditions of demand and supply for a product. In
which diagram would market price remain unchanged if consumer’s income fell?
86. In 2011, a company selling milk in glass bottles replaced them with new plastic
bottles. When they were introduced, the equilibrium quantity on the market fell.
What could be a reason for this fall?
a) Consumers preferred the new bottle because if was lighter to carry.
b) Milk from the farms used to fill the bottle cost more.
c) The bottle was cheaper than the existing glass bottle to produce.
d) The new bottle was introduced with a successful advertising campaign.
87. Which change would make the supply of a product more price elastic?
a) An increase in the number of close substitutes for the product.
b) An increase in the proportion of firms working at full capacity.
c) A reduction in the time taken to make the product.
88. Developers want to increase the size of a major retail shopping area in a city. It is
thought that the proposal would create hundreds of jobs, be profitable for the
shops but cause major traffic congestion. What economic concepts are involved
in this statement?
a) External costs and private benefits.
b) Income distribution and inelastic demand.
c) Private investment and a decrease in supply.
d) Social benefit and perfect competition.
89. 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.
90. A supply curve shows the link between the quantity supplied and:
a) Demand.
b) Equilibrium output.
c) The price of the product.
d) The scale of production.
91. Which headline could apply to a mixed economy but not a free market economy?
a) ‘Cheap imports put domestic producers out of business.’
b) ‘Local government planning decision angers residents.’
c) ‘Many fish die as a company pollutes a river with waste material.’
d) ‘Small shops close as large supermarkets open in the area.’
92. In 2012, the local government of a city decided to increase parking charges for
motorists. It was intended to raise money to correct a deficit in the local
government’s budget. The local government said if they did not increase charges,
they would not be able to provide all their current services. Businesses
complained about the likely loss of revenue if parking charges were increased.
Which concepts does this statement involve?
a) Inflation and the private sector.
 b) Opportunity cost and public expenditure.
c) Private benefit and the free market.
d) Unlimited resources and a centrally planned economy.
93. In 2011, the US government declared that the country must increase the
manufacture of fuel from crops such as corn that have previously only been used
for food. What is likely to happen in the market for corn?
a) A movement along the demand curve for corn.
b) A movement along the supply curve for corn.
c) A shift to the left in the demand curve for corn.
d) A shift to the left in the supply curve for corn.
94. What is most likely to influence the price elasticity of demand for a food?
a) A change in consumer tastes.
b) The number of close substitutes.
c) The rate of inflation.
d) Whether the food can be stored easily.
95. What is meant by the equilibrium quantity in the market for a product?
a) The average quantity produced over the year.
b) The average quantity sold over the year.
c) The quantity at which profit occurs.
d) The quantity at which the demand and supply curves intersect.
96. The following is a headline from the newspaper.

‘Car drivers to pay higher taxes’

What will result from an increased tax on cars?

a) Increased employment in the car industry.

b) Increased petrol (gas) sales.
c) Reduced external costs of car use.
d) Reduced number of bus journeys.
97. The diagram shows the market for refined oil with equilibrium of X. What will be
the new equilibrium when a major oil refinery shuts down for repair work?

98. Asda, a supermarket chain,

noticed a regular, sharp decrease in sales
in the third week of the month as people
ran out of cash before their next wage
payment. The supermarket offered
their biggest price reduction at that time.
Why might this policy increase total
revenue?
 a) Because consumer’s demand curve shifts to the left in the third week of the
month.
b) Because consumer’s demand curve shifts to the right in the third week of the
month.
c) Because the price elasticity of demand for Asda’s products decreases in the
third week of the month.
d) Because the price elasticity of demand for Asda’s products decrease in the
third week of the month.
99. What would not be an example of the working of a market system?
a) A high price charged because of costly research to produce the good.
b) A high price charged for a well- known painting.
c) A low price charged because of economies of scale.
d) A low price charged for subsidised bus travel.
100. A product has a price elasticity of supply +2. A change in price causes the
quantity supplied to change from 100 units to 120 units. What is the price
change?
a) A fall of 10%
b) A fall of 40%
c) A rise of 10%
d) A rise of 40%
101. A large supermarket applied to build on land which was in an area of natural
beauty. The local government allowed the building, even though the natural
beauty of the area would be lost, because many jobs would be created, and much
needed income would be brought to the local community. Which economic ideas
cannot be found in the above statement?
a) External cost and private enterprise.
b) Free market and the conservation of resources.
c) Opportunity cost and improved standards of living.
d) Public sector and external benefit.
102. A trade union and employers agree a minimum wage (W1) which is above the
market equilibrium wage (W) for that industry.

What is the effect of paying the

a) Demand for workers will exceed the supply.

b) Fewer workers will be employed.
c) Some workers will continue to be paid at wage W.
d) Workers will be less willingly to work for the minimum wage.
103. What is meant by an equilibrium price?
a) A government price that ensures fairness for all.
b) A price that has no pressure to rise or fall.
c) A price that maximises the profits of the producers.
 d) A price that maximises the satisfaction of the consumers.
104. In August 2013, a lengthy strike in north- east India, where the finest and
most expensive Darjeeling tea is grown, shut down the tea industry at harvest
time. What is the likely outcome of such a situation on a demand and supply
diagram for Darjeeling tea?
a) The price will rise because demand will switch to other teas.
b) The price will rise because the strike will cause a movement down the supply
curve.
c) The price will rise because the supply curve will move to the left.
d) The price will rise because there will be a fall in demand for the remaining
Darjeeling tea.
105. Air travel and rail travel are substitute forms of transport. The diagram shows
the effect of new technology on the market for
air travel. What would be the most likely effect
on the market for rail transport?
a) A decrease in demand for rail transport.
b) An increase in the price of rail tickets.
c) An increase in supply of rail transport.
d) An increase in the total income of rail
companies.
106. A developer built some large houses in a
rural area which poorer people could not afford.
The houses destroyed an area of natural beauty.
What type of market failure resulted from the development?
a) Ignoring external cost.
b) Inequality of income.
c) Lack of information.
d) Price discrimination.
107. How do high direct taxes affect spending and how do high interest rates affect
saving by wage earners?

Spending Saving
A Decrease Decrease
B Decrease Increase
C Increase Decrease
D Increase Increase

108. 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.
109. Which pair of economic institutions is most likely found in a market economy?
a) Free accident and emergency hospitals and charities.
b) Partnerships and public corporations.
c) Stock exchange and monopolies.
d) Trade unions and local government schools.
110. Developers want to increase the size of a major retail shopping area in a city.
It is thought that the proposal would create hundreds of jobs, be profitable for the
shops but cause major traffic congestion. What economic concepts are directly
involved in this statement?
a) External cost and private benefit.
 b) Income distribution and inelastic demand.
c) Private investment and a decrease in supply.
d) Social benefit and perfect competition.
111. The diagram shows the price of a product
during year 1 and year 2.

Which changes in demand and supply are consistent

with the price behaviour in year 2?

Demand Supply
A Falls by 5% Falls by 10%
B Falls by 10% Falls by 5%
C Unchanged Falls by 10%
D Rises by 15% Falls by 5%

112. In the diagram, D1D1 and

S1S1 represent the demand for
and the supply of labour.
W indicates a legal minimum
wage. An influx of
immigrant labour causes the
supply curve for labour to shift
from S1S1 to S2S2.

How many people will be employed if the minimum wage legislation is then
abolished?

a) 4 million.
 b) 5 million.
c) 6 million.
d) 7 million.
113. The table shows how three people spend their income.

Person X Person Y Person Z

Food, Clothing and 35% 50% 20%
Housing
Entertainment and 25% 20% 40%
Leisure
Luxury Goods 40% 30% 40%
For these three people, what is the most likely order of income, from lowest income
to highest income?

a) X—Y—Z
b) Y – X – Z
c) Y – Z – X
d) Z – X – Y
114. How does a firm guarantee that it makes the maximum profit?
a) By maximising the difference between its total revenue and total cost.
b) By maximising the number of goods that it sells.
c) By minimising the number of goods that it keeps in stock.
d) By minimising the difference between average revenue and average cost.
115. The market for a good was in equilibrium. A change occurred which resulted
in a new equilibrium with a higher price for the good and a lower quantity traded.
What change would have caused this?
a) The demand curve moved to the left.
b) The demand curve moved to the right.
c) The supply curve moved to the left.
d) The supply curve moved to the right.
116. A demand curve shows the relationship between the quantity demanded
and…
a) A change in income.
b) Consumer tastes.
c) The supply of the product.
d) The price of the product.
117. A government subsidy the production of pineapples. This is likely to:
a) Increase the price of pineapples.
b) Raise the costs of supplying pineapples.
c) Raise revenue for the government.
d) Cause the supply of pineapples to increase at every price.
118. What indicates the existence of external costs in an economy?
a) An international trade deficit has caused the country to be in debt.
b) National companies have borrowed from foreign investors.
c) Private costs of production are less than social costs.
d) Private costs of production are more than social benefits.
119. A government gives farmers a subsidy of $5 per kilo to supply food on the open market
where X is the original equilibrium position. The effect is illustrated in the diagram.
What will be the new equilibrium price and quantity supplied as a result of the subsidy?

Equilibrium price ($ per kilo) Quantity supplied (000 kilos)

A 10 16
B 13 20
C 15 16
D 20 8