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Multiple Choice Questions for AQA AS Economics

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1 Multiple Choice Questions for AQA AS Economics
UNIT 1 Markets & Market Failure Click here to Commence quiz 1.2 The Allocation of Resources in Competitive Markets Test 2 © APT Initiatives Ltd

2 Question 1 AQA AS Economics Unit 1 – Markets & Market Failure
Movement down a demand curve arises because of… an increase in income Incorrect Changes in income cause a shift of the demand curve, whereas changes in price (prompted by a rightward shift in the supply curve) cause a downward movement along the demand curve. A movement down a demand curve means a reduction in price which causes an extension of demand. a reduction in price Correct an increase in price Incorrect a decrease in income Incorrect Next question APT Initiatives Ltd

3 Question 2 AQA AS Economics Unit 1 – Markets & Market Failure
A demand curve for a product would shift to the left if there was… an increase in income Incorrect We can rule out B which causes a movement along the demand curve. A and D cause a rightward shift of the demand curve (an increase in demand). Only D causes a decrease in demand for the product. This is because people switch to the less expensive substitute. an increase in its price Incorrect a decrease in the price of a substitute product Correct a decrease in the price of a complementary product Incorrect Next question APT Initiatives Ltd

4 Question 3 AQA AS Economics Unit 1 – Markets & Market Failure
A demand curve for a DVD is drawn on the assumption that all factors are constant except… the price of the DVD Correct This is the ceteris paribus (other things remain equal) principle. We assume that all factors remain unchanged except the variable that we are focusing on. the price of substitute products Incorrect consumer incomes Incorrect the price of DVD players Incorrect Next question APT Initiatives Ltd

5 Quantity demand rises by 15%.
AQA AS Economics Unit 1 – Markets & Market Failure Question 4 A garage reduces the price of a new model from £15,000 to £13,500. As a result, the quantity demanded rises from 20 units a week to 23 units a week. The price elasticity of demand is… -0.67 Incorrect Quantity demand rises by 15%. Price is reduced by 10%. PED = +15% / -10% = -1.5. -0.9 Incorrect -1.3 Incorrect -1.5 Correct Next question APT Initiatives Ltd

6 Question 5 AQA AS Economics Unit 1 – Markets & Market Failure
If demand for a product has unitary price elasticity, it means that… changing price will leave a business’s revenue unchanged Correct A is correct because one feature of unitary demand is that price changes are cancelled out by quantity changes to leave revenue unchanged. B might be a tempting answer but the line of causation is the wrong way round. a percentage change in demand leads to the same percentage change in price Incorrect the product is a necessity Incorrect the price elasticity of demand is zero Incorrect Next question APT Initiatives Ltd

7 Income elasticity of demand
AQA AS Economics Unit 1 – Markets & Market Failure Question 6 A car manufacturer has been studying market research data, shown in the table below, regarding income elasticity of demand for four of its models. Following a 5% fall in real incomes this business can expect… a fall in demand for the Paris of 3.5% Correct Model Income elasticity of demand Paris +0.7 Viaggio +1.0 Belmont +1.25 Tucson +2.2 As income elasticity of demand is positive then it is certain that a fall in income leads to a fall in demand. Therefore, logic demands that only A can be correct. This is confirmed by the data -3.5 / -5 = +0.7. an increase in demand for the Viaggio of 5% Incorrect an increase in demand for the Belmont of 4% Incorrect no change in demand for the Tucson Incorrect Next question APT Initiatives Ltd

8 Question 7 AQA AS Economics Unit 1 – Markets & Market Failure
A normal good is one where… demand increases when income increases Correct The explanation lies in the definition of a normal good. Most goods are normal goods. As our income rises, we buy an increased quantity of these goods. demand rises when income falls Incorrect demand falls when prices rise Incorrect demand changes in proportion to changes in income Incorrect Next question APT Initiatives Ltd

9 Question 8 AQA AS Economics Unit 1 – Markets & Market Failure
When the price of tea recently rose from £140 per kg to £160 per kg, demand for milk fell from 1.62m litres to 1.57m litres. To two decimal places, the cross elasticity of demand was… -1.79 Incorrect Demand fell by 3.09. Price rose by 14.29%. Cross elasticity of demand is -3.09% / = -3.44 Incorrect -0.22 Correct -4.61 Incorrect Next question APT Initiatives Ltd

10 Question 9 AQA AS Economics Unit 1 – Markets & Market Failure
Movement down a supply curve reflects… a shift in demand arising from higher incomes Incorrect A shift of a demand curve causes a movement along the supply curve. As demand for a complementary product has declined so has the demand for the product with which we are concerned. The demand for this product shifts inwards and there is a sliding down on the supply curve. To fully understand this, construct a sketch graph. a shift in demand arising from a decrease in the demand for a complementary product Correct a shift in supply arising from an increase in supplier costs Incorrect an increase in equilibrium price Incorrect Next question APT Initiatives Ltd

11 Question 10 AQA AS Economics Unit 1 – Markets & Market Failure
A shift to the left in a supply curve would arise if… a unit tax on the product was reduced Incorrect A shift to the left means a decrease in supply. A and C would cause an increase in supply. Notice that A is not the imposition of a tax, but a reduction in a tax. B would impact upon demand rather than supply. Hence, none of the above is the correct answer. there was an increase in consumer incomes Incorrect there was an improvement in technology Incorrect none of the above Correct Next question APT Initiatives Ltd

12 Question 11 AQA AS Economics Unit 1 – Markets & Market Failure
A supply curve would shift to the right when… there was a decrease in the price elasticity of supply Incorrect A shift of the supply curve to the right (more is supplied at each price) is the result of a reduction in the cost of production. Of the four responses, only D relates to a fall in the cost of production. producers increased output in response to an increase in market price Incorrect output per employee falls Incorrect raw material costs fall Correct Next question APT Initiatives Ltd

13 Question 12 AQA AS Economics Unit 1 – Markets & Market Failure
The elasticity of supply for a product is more likely to change if… output increases significantly Incorrect Existence of spare capacity facilitates a rise in output, thus it makes supply more elastic. the business responds to an increase in market price Incorrect the business has found some spare capacity Correct there is a change in the price elasticity of demand Incorrect Next question APT Initiatives Ltd

14 Question 13 AQA AS Economics Unit 1 – Markets & Market Failure
If price elasticity of supply is +2.2, what percentage rise (to two decimal places) is required to bring about a 5.6% increase in the quantity supplied?… 12.23% Incorrect +2.2 = +5.6% / x. Therefore: x = 5.6% / 2.2 = 2.55. 5.25% Incorrect 2.55% Correct 2.12% Incorrect Next question APT Initiatives Ltd

15 Question 14 AQA AS Economics Unit 1 – Markets & Market Failure
Refer to the diagram below. The producers’ revenue is represented by the triangles… A + D Incorrect Triangles A and C combined = price multiplied by quantity = sales revenue. A + C Price S Correct D B + C A Incorrect C B D Quantity A + B + C Incorrect Next question APT Initiatives Ltd

16 Question 15 AQA AS Economics Unit 1 – Markets & Market Failure
A shift to the right in a demand curve, where supply is perfectly inelastic will result in… an increase in price and quantity sold Incorrect The rise in demand pushes up price and if supply is perfectly inelastic then quantity sold will remain unchanged. Logically, if price rises by 10% so will revenue in these circumstances. an increase in producer revenue, proportional to the increase in price Correct an increase in producer revenue, and quantity supplied Incorrect a fall in quantity sold and in producer revenue Incorrect Next question APT Initiatives Ltd

17 Question 16 AQA AS Economics Unit 1 – Markets & Market Failure
An equilibrium price for a product is certain to rise when… business costs rise and the price of a substitute falls Incorrect D is the only combination of events which is certain to lead to a rise in price. demand is perfectly inelastic and technology improves production efficiency Incorrect supply and demand are both perfectly inelastic Incorrect incomes rise and supply is perfectly inelastic Correct Next question APT Initiatives Ltd

18 Question 17 AQA AS Economics Unit 1 – Markets & Market Failure
Markets for agricultural products can often function poorly because… price elasticity of supply is low Correct Price elasticity is low because the production cycle is long, eg a planned increase in the grain production must await the next harvest which, in the case of the UK, will be next year. In the meantime farmers will be unable to respond to changes in demand and, as a result, the whole of the adjustment will be in the form of price rises. demand for these products is volatile Incorrect there is a shortage of agricultural land Incorrect the products are too expensive Incorrect Next question APT Initiatives Ltd

19 Question 18 AQA AS Economics Unit 1 – Markets & Market Failure
Supply of health care services is price inelastic because… improving technology improves decision-making and treatment outcomes Incorrect As it takes many years to train medical professionals, supply cannot respond quickly to changing demand. The other three statements might be accurate in themselves, but do not explain why supply is inelastic. it is labour-intensive, much of which requires prolonged and intensive training Correct people are living longer and demand a quicker response to their health concerns Incorrect the private sector is becoming more significant, as it relieves pressure on the NHS Incorrect Next question APT Initiatives Ltd

20 Question 19 AQA AS Economics Unit 1 – Markets & Market Failure
If rented accommodation is seen as an inferior good compared with owner occupation then… demand for rented accommodation rises as incomes fall Correct An inferior good is defined as one in which demand rises as income falls. In the case of an inferior good income elasticity is negative. Cross elasticity between substitutes is positive not negative. demand for owner occupation falls as income rises Incorrect the income elasticity of demand for rented accommodation is positive Incorrect cross elasticity between rented accommodation and owner occupied accommodation is negative Incorrect Next question APT Initiatives Ltd

21 Question 20 AQA AS Economics Unit 1 – Markets & Market Failure
The entry of a new competitor to an existing market will… result in higher prices Incorrect The entry of new firms increases competitive forces in the market and will push prices down, illustrated by a leftward shift in the demand curve for the products of established market participants. force prices down Correct increase the degree of monopoly within the market Incorrect increase demand for the product Incorrect Next question APT Initiatives Ltd

22 Question 21 AQA AS Economics Unit 1 – Markets & Market Failure
Demand for oil for chemicals has led to an increase in the price of petrol. This relationship is an example of products in… joint supply Incorrect Composite demand refers to demand for a good that is wanted for more than one purpose, so that an increase in demand for one purpose reduces the availability of supply for other purposes. joint demand Incorrect composite demand Correct competitive demand Incorrect Next question APT Initiatives Ltd

23 Question 22 AQA AS Economics Unit 1 – Markets & Market Failure
The relationship between the demand for computers and the demand for computer technicians is an example of… derived demand Correct The demand for computer technicians is derived from (comes from) the demand for computers. joint demand Incorrect composite demand Incorrect complementary demand Incorrect Next question APT Initiatives Ltd

24 Question 23 AQA AS Economics Unit 1 – Markets & Market Failure
Resources are often allocated most efficiently through the price mechanism because… those factors of production which produce the most get paid the least Incorrect Changes in consumer demand are reflected in changes in the relative prices of the products, and also of the factors of production needed to make the products. This ensures that resources are shifted into the production of goods required by consumers. the competition which arises results in high profits Incorrect prices of resources rise as demand for their product rises Correct the resulting output is distributed fairly among individuals Incorrect Next question APT Initiatives Ltd

25 Question 24 AQA AS Economics Unit 1 – Markets & Market Failure
Which of the following statements is not true? The price mechanism ensures that the quantity demanded equals the quantity supplied Incorrect The weakness in response D (and why it is not true) is that there is no reference to price or willingness to pay. We might all like to acquire certain goods, but without the means and willingness to pay our demand is not effective. For Economists, demand is only meaningful if desire is backed up by ability and willingness to pay. Rationing coupons is unnecessary in a free market Incorrect A black market only exists when price is fixed below the equilibrium level Incorrect The price mechanism ensures that everyone who wants to buy the product is able to do so Correct Next question APT Initiatives Ltd

26 Quiz Completed Question 25
AQA AS Economics Unit 1 – Markets & Market Failure Quiz Completed Question 25 Resources are allocated in a market economy in response to… the resources which are available to producers Incorrect In the free market the consumer is sovereign. In a competitive market the profit motive ensures that supply responds to demand. government’s objective of increasing the population’s standard of living Incorrect the need for everyone to have the necessities which they need Incorrect the products consumers wish to buy Correct Exit APT Initiatives Ltd


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