AS Microeconomics Test November 2012
Calculators are permitted
Name
You are reminded of the need for clear and legible work
at all times. Untidy work will score zero
Important: This test lasts forty minutes and there are forty marks available in total
Section 1: Define the following terms – accurate definitions needed, support with an example if you can
(2 mark each. Spend no more than two minutes on each, 16 marks in total for this section)
Term
1. Ceteris paribus
2. Producer
surplus
3. Joint supply
4. Perverse
demand curve
5. Price elastic
demand
6. Supply shock
7. Normative
statement
8. Freemium
Pricing Model
Your Answer
Section 2: Multiple Choice – One mark for each correct answer (max of 12 marks for this section)
1
An increase in the price of good X results in a fall in demand for good Y. This implies
that the two goods
A
B
C
D
Are in joint supply
Are complements
Are substitutes
Are produced by competing firms
2
Assume the price elasticity of demand for best-quality French wine is zero. What would
be the effect in New Zealand if the New Zealand government imposed a tariff (tax) on
such wine?
A
B
C
D
The price of the wine would rise by an amount less than the tariff
Demand for the wine would fall
Expenditure on the wine would rise
Sales of the wine would cease
3
A change in market conditions causes a reduction in supply causing a higher price for
the product, which has a downward-sloping demand curve. What must be the result of
this higher price?
A
B
C
D
An increase in the factors employed in the industry
An increase in producer’s revenue
A reduction in the quantity demanded
A reduction in the demand for substitutes
4
The diagram shows demand and supply curves for petrol. The present equilibrium is at
X. What could be the new equilibrium if there were a large fall in the price of cars?
Your
answer
Your
answer
Your
answer
Your
answer
5
In 2008 the demand curve for new cars in the European Union shifted to the left.
Which change could have caused such a shift?
A
B
C
D
An increase in real disposable income
An increase in the cost of borrowing
An increase in the price of new cars
An increase in the price of train travel
6
Worldwide, the film industry has increased its expenditure to over $1 billion each year
on successful anti-piracy measures which it finances by charges on DVD products. How
would this be shown in a demand and supply diagram of the market for legally
produced DVDs?
Your
answer
7
The table below shows a consumer's expenditure on a range of goods at different
levels of income. For which good does the consumer have an income elasticity of
demand greater than zero, but less than one?
Your
answer
8
Which one of the following combinations, A, B, C or D, is true for a normal good which
has a downward sloping demand curve?
Your
answer
Combination
A
B
C
D
Income elasticity of
demand
Positive
Positive
Negative
Negative
Price elasticity of
demand
Positive
Negative
Negative
Positive
Your
answer
9
The diagram shows a demand curve for a good
Your
answer
Which statement describes the nature of this demand curve?
A
B
C
D
A greater or smaller quantity is demanded as price changes
As demand increases so does price
Quantity changes in proportion to the change in price
A fall in price is the result of a fall in demand
10
Which statement is normative?
A
B
C
D
As a general rule, people are happier in more equal societies
Despite a large increase in income per head, people are no happier today than 50 years ago
Happiness depends not on the absolute level of a person’s income but on relative income
The promotion of happiness is a more important goal than the maximisation of production
11
What could cause a shift in the supply curve of good X and a movement along its
supply curve?
12
The price of good X rises by 15 %. As a result, the demand for a complementary good Y
changes by 45 %.
What is the cross price elasticity of demand for good Y with respect to good X?
A
B
C
D
+3
+15
-3
-15
Your
answer
Your
answer
Your
answer
Section 3: General Micro Analysis
A/
The diagram below shows a change in market supply for beer
Identify 3 factors that might have caused the shift in the market supply curve shown in the diagram (3)
1)
2)
3)
B/
The diagram shows two production possibility curves (EF and GH)
The initial PPF curve is EF and then there is a shift to the new PPF which is GH
(i)
Identify two factors that might have caused a shift in the PPF from EF to GH (1 mark each)
1/
2/
(ii)
On the PPF GH, what is the opportunity cost in capital goods of producing OX consumer
goods? (1 mark)
C/ Shifts in supply and demand in the market for owner-occupied housing
Complete the final two columns of the following table. ½ mark for each correct entry in the table below (the max
mark is 6)
Market Change
For each change assume ceteris paribus
1.
A fall in the price of building land
2.
A reduction in the supply of mortgage finance available from
UK banks
A rise in monthly rent for rented properties in Britain
3.
4.
5.
The government introduces a subsidy for firms building new
owner-occupied housing on derelict land
An increase in expected property prices in the UK
6.
A fall in the price of bricks
Shift in supply or
demand?
(Write Supply or
Demand below)
Effect on
average house
prices?
(Choose: Up or
down)
Total marks for this test = 40 marks, check your work carefully if you have time at the end.