Week 5 Test
IG Economics
Part A Multiple-choice Questions (1 point for each)
1. Which one of the following might be an aim of a firm in the private
sector?
A Maximise costs
B Reduce interest rates
C Maximise profits
D Reduce economies of scale
2. Following a price reduction, the demand for a product remains
unchanged, this suggests that demand for the product is
A Inelastic
B Elastic
C Perfectly inelastic
D Perfectly elastic
3. For which one of the following will demand increase when incomes
decrease?
A Capital good
B Inferior good
C Luxury good
D Normal good
4. Which of the following is an example of an external cost?
A An increase in job opportunities
B Higher levels of inflation
C Pollution
D Low economic growth rate
5. Which one of the following is an example of an economic want?
A Food
B Water
C Shelter
D Education
6. Which one of the following may result in economic growth?
A Increasing unemployment
B Decreasing government spending
C Decreasing productivity
D Increasing technological advancements
7. Which one of the following is most likely to be provided by the public
sector in Cyprus?
A Cars
B Roads
C Driving lessons
D Petrol
8. Which one of the following values shows perfectly price inelastic
supply?
A 0
B 0.5
C 1
D 2
9. As a result of government policy, a firm had a decrease in its total costs
of $200 each month. Which one of the following is the most likely type of
government policy to produce this decrease in costs?
A Fine
B Regulation
C Increased subsidy
D Increased taxation
10. A court in China ordered a firm to pay 10 000 Yuan because it polluted
a local river. This is an example of which one of the following.
A A Fine
B A permit
C A subsidy
D A tax
11. A pollution permit is a type of
A factor of production
B government intervention
C economy of scale
D economic assumption
12. The income elasticity of demand (YED) for a product can be calculated
by using the
information below.
Which one of the following options best describes the demand for the
product?
A Unitary
B Luxury
C Inferior
D Inelastic
13. Which one of the following diagrams shows excess demand?
14. The figure below shows a change in demand for tickets to a sporting
event.
Which one of the following statements is true?
A When the price falls, the quantity demanded falls
B The demand curve slopes upwards from left to the right
C An increase in demand is shown by a shift to the right
D A decrease in demand is shown by a shift to the right
Part B Baisc-knowledge Questions
15. Define the term free rider. (1’)
16. Define the term excess supply. (1’)
17. State one reason why a supply curve will shift to the left. (1’)
18. Describe one reason why congestion is an example of an external
cost. (2’)
19. Describe one reason why infinite wants lead to scarcity. (2’)
20. What is meant by the term social costs? (2’)
21. What is meant by the term supply? (2’)
22. What is meant by the term opportunity cost? (2’)
23. A firm has decided to purchase a new delivery vehicle.
Explain one possible opportunity cost for the firm of this decision. (3’)
24. The figure below shows the demand for cocoa beans during 2019.
Explain one effect on the demand curve for cocoa beans following a
change in
the price. (3’)
Part C Calculations (2 points for each)
25. Calculate, to two decimal places, the income elasticity of demand
(YED) for a
good if income increases by 6.2% and quantity demanded increases by
1.7%. You are advised to show your working.
26. Calculate the percentage change in quantity supplied for a product if
the price
elasticity of supply (PES) is 1.5 and the price increases by 12%. You are
advised to
show your working.
27. Inny provides a window cleaning service to homeowners in his local
area. He recently increased prices by 1.6% and quantity demanded fell by
2.1%.
Calculate, to two decimal places, the price elasticity of demand (PED) for
Inny’s
window cleaning service. You are advised to show your working.
28. The demand for meals over three lunchtimes at a café in Austria is
shown below.
Calculate the excess supply of meals if the quantity supplied during these
three
days totalled 261. You are advised to show your working.
Part D Diagrams (3 points for each)
29. Using the diagram below, draw the likely effects on the market for
tennis balls
after a fall in the price of tennis rackets. Label the new curve, the new
equilibrium
price and the new equilibrium quantity.
30. Using the diagram below, draw the likely effects on the market for
electric cars
following the introduction of a subsidy on electric cars. Label the new
curve, the
new equilibrium price and the new equilibrium quantity.
31. The table below shows the estimated demand for car park spaces at a
given price.
Using the information above, draw and label the demand curve for car
park spaces on the diagram below.
32. Using the diagram below, draw a diagram to show a demand curve
that has price
inelastic demand. Label the curve and show the impact on both axes from
a change in price.
Part E Open-answer Questions (6 points for each)
33. Jags owns a café in a small town in Malaysia. During a recent school
holiday, she
offered a free lunch to each child visiting the café with a paying adult. This
was
welcomed by customers who have had problems in the last few months
due to the
rising cost of living.
With reference to the data above and your knowledge of economics,
analyse a
possible reason why Jags chose not to maximise profit.
34. The Tallinn Song Festival Grounds (TSFG) is a popular live music venue
in Estonia and can hold 65,000 people. Although it is very popular there
are only a few firms selling
food and drink at the TSFG venue.
The lack of competition at the TSFG venue means that service is slow and
queues are
long. Food and drink prices are expensive, and security checks mean that
no food and
drink can be brought in from outside the TSFG venue.
With reference to the data above and your knowledge of economics,
analyse how
market failure is likely to occur at the TSFG venue.
35. The education system in Japan is one of the best in the world. Primary
and secondary education is free, with a typical school day from 08:00 to
15:00 or 16:00, depending on the age of the students.
With reference to the data above and your knowledge of economics,
analyse why
education in Japan may be an external benefit.