MULTIPLE CHOICE QUESTIONS TESTBANK –
CHAPTER 1
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Answer the following questions by selecting the appropriate answer from the list below.
Question 1
Which one of the following statements is correct (or closest to correct)?
A.
B.
C.
D.
E.
Economics is the study of money.
Economics teaches us how to avoid choices.
Economics is the study of profit and loss.
Economics can be described as the study of choice.
Economics teaches one how to become rich.
Question 2
Which of the following is key to the way in which economists think?
A.
B.
C.
D.
E.
Money
Wealth
Opportunity cost
Poverty
Balance sheet
Question 3
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
Rich people do not experience scarcity.
Because resources are scarce, everyone has to make choices.
Every time a choice is made, opportunity cost is incurred.
The opportunity cost of a particular choice is the value of the best opportunity forgone
(sacrificed) as a result of the choice.
The central elements of economics are scarcity and choice.
Question 4
Which one of the following is a microeconomic issue?
A.
B.
C.
D.
E.
The rate of economic growth in Japan.
The South African inflation rate.
The price of maize in Lesotho.
The unemployment rate in Zimbabwe.
The total production of goods and services in Zambia.
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Question 5
Which one of the following is a macroeconomic issue?
A.
B.
C.
D.
E.
The demand for houses in Cape Town.
The supply of tomatoes in South Africa.
The price of bananas in Natal.
The total exports of South African goods and services to the rest of the world.
The total sales of beer in South Africa.
Question 6
Which one of the following is a macroeconomic concept?
A.
B.
C.
D.
E.
The price of petrol.
The demand for potatoes.
The consumer price index.
The supply of pumpkins.
The e-toll fee in Gauteng.
Question 7
Which one of the following statements is correct?
A.
B.
C.
D.
E.
Wants, needs and demand are essentially simply different terms that have the same
meaning.
Wants and needs are essentially the same, but differ from demand.
Needs and demand amount to the same thing.
Wants and demand are essentially the same – people only demand things that they want.
Demand differs from wants and needs.
Question 8
Which one of the following statements is incorrect?
A. Our wants are unlimited.
B. Our needs are limited.
C. Demand differs from wants and needs in the sense that it has to be backed by purchasing
power.
D. A typical example of market demand is a demand (claim) by a trade union for increased
wages.
E. People demand only the things that they want.
Question 9
Which one of the following statements is correct?
A. John is hungry. He wants a hamburger. John thus has a demand for a hamburger.
B. Peter is cold. He wants a blanket. Peter thus has a demand for a blanket.
C. Mary is ill. She thus needs medical attention.
D. Jack has money available to spend on chocolates. However, he may not demand
chocolates because he does not need chocolates to survive.
E. Paul has R5, but a bar of chocolate costs R10. Paul thus cannot have a demand for a bar of
chocolate.
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Question 10
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
Choice always involves sacrifice.
Choice always involves opportunity cost.
Economists measure cost in terms of opportunity cost.
Economists consider only explicit monetary costs.
There are always costs involved in the use of scarce resources.
Question 11
Which one of the following statements is false?
A.
B.
C.
D.
E.
The basic economic problem is one of choice.
Choice is necessary because of limited wants.
The means available to satisfy wants are limited.
The wants of human beings are unlimited.
The opportunity cost of producing a given commodity is the value of the best forgone
alternative which could have been produced with the factors of production used in its
production.
Question 12
Rich economies which produce more goods and services each year:
A.
B.
C.
D.
do not have an economic problem.
still have an economic problem.
do have an economic problem but are solving it.
give more money to the government to solve its problems.
Question 13
Which one of the following is a macroeconomic issue?
A.
B.
C.
D.
E.
A sharp rise in the price of vegetables.
A shortage of maths teachers.
A surplus of tomatoes in Limpopo.
A rise in the inflation rate.
An increase in medical tariffs.
Question 14
John spends R5 000 on a new carpet. What is the opportunity cost to him of the carpet?
A.
B.
C.
D.
E.
R5 000.
The land, labour and capital used in manufacturing the carpet.
The other things he could have bought with the R5 000.
The reduction in his bank balance due to purchasing the carpet.
The increased value of a better decorated house.
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Question 15
The essence of the economic problem is that:
A.
B.
C.
D.
E.
there is a need for a price system.
inflation exists in many economies.
exports seldom pay for imports.
resources are limited but human wants are unlimited.
two-thirds of the world’s population experience a food shortage.
Question 16
Which one of the following statements is false?
A.
B.
C.
D.
E.
The determinants of a country’s economic growth are an example of a macroeconomic
issue.
The total production of wine in South Africa is a macroeconomic issue.
The determination of the price of maize is a microeconomic issue.
Inflation is a macroeconomic issue.
The production of tomatoes is a microeconomic issue.
Question 17
Which one of the following statements is false?
A.
B.
C.
D.
Ten per cent of R2 000 is less than 95 per cent of R100.
The percentage increase from R1 320 million to R1 560 million is less than the percentage
increase from R2 170 million to R2 604 million.
Annual production in Country X increased from R570 billion to R610 billion, while annual
production in Country Y increased from R293 billion to R320 billion. Production in Country
Y thus grew at a faster rate than production in Country X.
Eight per cent of R220 is less than five per cent of R380.
Question 18
The economic problem arises from the coexistence of:
A.
B.
C.
D.
E.
limited wants and unlimited resources.
unlimited wants and limited money in circulation.
limited wants and limited resources.
unlimited wants and unlimited resources.
unlimited wants and limited resources.
Question 19
Microeconomics is a branch of economics that studies:
A.
B.
C.
D.
E.
the determination of the gross domestic product.
the behaviour of individual decision-making units in the economy.
the impact of inflation in South Africa.
the effects and consequences of the aggregate behaviour of all decision-making units.
both B and D above.
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Question 20
Macroeconomics is a branch of economics that studies:
A.
B.
C.
D.
E.
the determination of the price of a specific product.
the behaviour of individual decision-making units in the economy.
decisions by households regarding the most efficient use of resources.
the effects and consequences of the aggregate behaviour of all decision-making units.
both A and D above.
Question 21
Opportunity cost is best defined as:
A.
B.
C.
D.
E.
the actual money expenditure incurred when a decision is made.
the value of the best alternative sacrificed when a choice is made.
the total value of all the alternatives given up when a choice is made.
the value of time used to make a choice.
both B and C above.
Question 22
An economist decides to give up her job at a commercial bank, where she earns R800 000 per year.
She is offered another full-time job for R850 000 per year or can work for herself from home as a
private consultant. What is the opportunity cost of working from home?
A.
B.
C.
D.
E.
Zero
R800 000
R850 000
R1 650 000
R800 000 in addition to the cost of her monthly home loan repayments
Question 23
A production possibility frontier shows:
A.
B.
C.
D.
E.
the maximum combination of inputs that can be used to produce output in a typical
economy.
the maximum revenue that can be generated from the sale of output produced by limited
resources in an economy.
the minimum quantities of commodities that can be produced from limited but fullyemployed resources in an economy.
the maximum quantities of commodities that can be produced from limited but fullyemployed resources in an economy.
the quantities of factors of production available to produce goods and services in an
economy.
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Question 24
The diagram below shows an economy’s production possibilities for two goods: aeroplanes and
motor vehicles. Use this diagram to answer the question below.
With reference to the above production possibilities frontier, we can say that:
A.
B.
C.
D.
E.
the opportunity cost of producing 0a motor vehicles is 0b aeroplanes.
the production of both motor vehicles and aeroplanes appears to require similar resources
in similar proportions.
the opportunity cost of producing one more motor vehicle is higher at f than at g.
the opportunity cost of producing one more aeroplane is higher at g than at f.
the opportunity cost of producing 0a motor vehicles is cb aeroplanes.
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Question 25
Use the diagram below, which shows production possibilities for beer and textbooks, to answer this
question.
The opportunity cost of producing an additional textbook would be greatest at:
A.
B.
C.
D.
E.
A.
B.
C.
D.
E.
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Question 26
The diagram below shows a society’s production possibility frontier for coffee mugs and calculators.
Use this information to answer this question.
The opportunity cost of producing an additional coffee mug would be lowest at:
A.
B.
C.
D.
E.
A.
B.
C.
D.
The opportunity cost of producing an additional coffee mug would be equal at A, B, C and
D.
Question 27
Economists tend to disagree because:
A.
B.
C.
D.
they tend to be difficult.
they might be biased.
they use different scales on their production possibility frontiers.
one economist might calculate total production in rands and the other economist might
calculate total production in dollars.
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Question 28
The problem of economising is essentially one of deciding how to make the best use of
A.
B.
C.
D.
E.
virtually unlimited resources to satisfy limited wants.
virtually unlimited resources to satisfy virtually unlimited wants.
limited resources to satisfy virtually unlimited wants.
limited resources to satisfy limited wants.
limited resources to generate wants.
Question 29
Read the following statements and then answer the question that follows.
Economics concerns itself with
i. a systematic understanding of patterns of production, consumption and distribution
of goods and services
ii. a study of money, banking, capital formation and wealth.
iii. a study of how limited resources are used to satisfy unlimited human wants.
iv. a study of the application of scarce means to a multitude of human wants.
Which of the above statements can be associated with the broad subject matter studied in
economics?
A.
None of them.
B.
All of them.
C.
Only statements i, ii and iii.
D.
Only statements i, iii and iv.
E.
All except statement iii.
Question 30
A basis for the systematic study of economics exists because
A.
B.
C.
D.
E.
resources are scarce in relation to material wants.
governments interfere with the efficient allocation of scarce resources.
individual economic actors cannot be relied upon to make rational economic decisions.
resources are plentiful relative to wants, therefore an allocation problem arises.
the market consistently fails to allocate resources efficiently, thereby establishing the
need to study economics.
Question 31
Opportunity cost is best defined as
A.
B.
C.
D.
E.
the out-of-pocket money costs incurred when a decision is made.
the value of the best alternative sacrificed when a choice is made.
the value of all the alternatives given up when a choice is made.
the value of time lost when a choice is made.
Both b and c above.
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Question 32
After being caught allegedly smoking dagga in his hotel room in the West Indies, Herschelle Gibbs
receives a fine of R10 000 and a three-match suspension from international cricket. For each match,
Gibbs receives a match fee of R25 000 and a further R50 000 per match from his sponsors. He also
pays R5 000 per match for insurance against injury. In opportunity cost terms, the cost of this
incident to Gibbs can be estimated as
A.
B.
C.
D.
E.
R10 000.
R35 000.
R85 000.
R220 000.
R235 000.
Question 33
An economics lecturer decides to give up her job at the University of South Africa, where she earns
R350 000 per year. She is offered another full-time job for R400 000 per year or can work for herself
from home as a private consultant. What is the opportunity cost of working from home?
A.
B.
C.
D.
E.
Zero
R350 000
R400 000
R750 000
R350 000 in addition to the cost of her monthly home loan repayments.
Question 34
Microeconomics is a branch of economics that studies
A.
B.
C.
D.
E.
the determination of national income.
the behaviour of individual decision-making units in the economy.
the impact of unemployment in South Africa.
the effects and consequences of the aggregate behaviour of all decision-making units.
both B and D above.
Question 35
Macroeconomics is a branch of economics that studies
A.
B.
C.
D.
E.
the determination of total economic activity.
the behaviour of individual decision-making units in the economy.
decisions by firms regarding the most efficient use of resources.
the effects and consequences of the aggregate behaviour of all decision-making units.
both A and D above.
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Question 36
The axes of the production possibility curve measure
A.
B.
C.
D.
E.
quantities of productive inputs.
quantities of finished commodities.
quantities of raw materials.
values of finished commodities.
values of raw materials.
Question 37
A production possibility curve shows
A.
B.
C.
D.
E.
the maximum combination of inputs that can be used to produce output in a typical
economy.
the maximum revenue that can be generated from the sale of output produced by
limited resources in an economy.
the minimum quantities of commodities that can be produced from limited but fullyemployed resources in an economy.
the maximum quantities of commodities that can be produced from limited but fullyemployed resources in an economy.
the quantities of factors of production available to produce goods and services in an
economy.
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Question 38
The diagram below shows an economy’s production possibilities for two goods: submarines and
hospitals. Use this diagram to answer the question below.
With reference to the above production possibilities curve, we can say that
A.
B.
C.
D.
E.
the opportunity cost of producing 0a hospitals is 0b submarines.
the production of both submarines and hospitals appears to require similar resources in
similar proportions.
the opportunity cost of producing one more hospital is higher at f than at g.
the opportunity cost of producing one more submarine is higher at g than at f.
the opportunity cost of producing 0a hospitals is cb submarines.
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Question 39
Use the diagram below, which shows production possibilities for cigars and cameras, to answer the
question below.
The opportunity cost of producing an additional kilogram of cigars would be greatest at
A.
B.
C.
D.
E.
A.
B.
C.
D.
The opportunity cost of producing an additional kilogram of cigars would be equal at A,
B, C and D.
Question 40
If the production possibility curve for a two-good economy is a straight line, then
A.
B.
C.
D.
E.
opportunity costs increase as production of one good rises.
opportunity costs fall as production of one good rises.
the goods must make use of inputs in similar proportions.
the economy must be producing at a point where there is inefficient use of resources.
the economy must be experiencing economic growth.
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Question 41
To answer the question, refer to the production possibility curve below.
As the output of Good Y increases along the curve, which of the following changes involves the
largest opportunity cost?
A.
B.
C.
D.
E.
0 to 5 units.
5 to 10 units.
10 to 15 units.
15 to 20 units.
The opportunity cost is the same in each case.
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Question 42
The diagram below shows a society’s production possibility curve for motor cars and wheat. Use this
information to answer the question below.
The opportunity cost of producing an additional motor car would be lowest at
A.
B.
C.
D.
E.
A.
B.
C.
D.
The opportunity cost of producing an additional car would be equal at A, B, C and D.
Question 43
Which of the following pairs of commodities could most plausibly be associated with a straight-line
production possibility curve?
A.
B.
C.
D.
E.
Guns and roses
Daffodils and roses
Guns and butter
Motor cars and economics textbooks
None of them, because straight-line production possibility curves are never plausible.
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Question 44
The figures in the tale below show maximum combinations of houses and steel that can be produced
per month from a given set of resources in a particular economy. Use this information to answer the
question below.
HOUSES (thousands)
STEEL (thousand tons)
100
0
50
75
0
X
If the resultant production possibility curve has its normal concave shape, then X will be
A.
B.
C.
D.
E.
less than 150 000 tons.
more than 150 000 tons.
150 000 tons.
50 000 tons.
impossible to estimate, even in these broad terms, from the information given.
Question 45
Consider a production possibility curve showing maximum combinations of guns and roses that
could be produced from a given set of resources. If this curve has a conventional concave shape,
then the opportunity cost of producing one more ton of roses could be zero only if
A.
B.
C.
D.
the maximum feasible output of roses is already being produced.
the maximum feasible output of guns is already being produced.
we are operating at a point above and to the right of the frontier.
we are producing equal quantities of guns and roses.
Question 46
The government has R1 billion to spend either on health services or building a new road. It decides
on health services. The opportunity cost is
A.
B.
C.
R1 billion.
a new road.
better health services.
Question 47
Tito, a consultant, gets an opportunity to work on a project over the weekend in which he can earn a
quick R2 000. He did, however, arrange to go hunting with one of his friends. He decides that the
R2 000 is not worth the effort. The opportunity cost of going away for the weekend is
A.
B.
C.
R2 000.
biltong.
a weekend away from work.
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Question 48
Winnie has R10 to spend on either a hamburger or a new exam pad to take down notes in class. She
decides that she rather needs to eat than take down notes. The opportunity cost is
A.
B.
C.
hamburger
R10
a new exam pad to take down notes
Question 49
Which one of the following is NOT a macroeconomic issue?
A.
B.
C.
D.
E.
South Africa’s inflation rate.
The total production of goods and services in Botswana.
The total production of cement in South Africa.
The total number of unemployed persons in South Africa.
Economic growth in South Africa.
Question 50
Which one of the following statements is correct?
A.
B.
C.
D.
E.
Macroeconomics is not concerned with scarcity.
Macroeconomics is not concerned with limited means.
Macroeconomics is not concerned with the choices of individual consumers.
Macroeconomics is not concerned with opportunity cost.
Macroeconomics is not concerned with unlimited wants.
Question 51
Which one of the following statements is false?
A.
B.
C.
D.
E.
An item of clothing is a durable consumer good.
A vacuum cleaner is a durable consumer good.
Petrol is a non-durable consumer good.
A pair of shoes is a semi-durable consumer good.
An item of household furniture is a semi-durable consumer good.
Question 52
Which one of the following statements is false?
A.
B.
C.
D.
E.
Grapes that are consumed by a household are final goods.
Grapes that are used by a housewife to make grape jam for her family are final goods.
Grapes that are used in a factory to make grape jam are intermediate goods.
Grapes that are used by a company to make wine are intermediate goods.
Grapes that are sold by a greengrocer are intermediate goods.
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Question 53
Which one of the following statements is correct?
A.
B.
C.
D.
E.
Clothes worn in public are public goods.
Economic goods do not have a price.
Goods produced by public companies are public goods.
A motor car driven on a public road is a public good.
Television sets are heterogeneous (differentiated) goods.
Question 54
Which one of the following statements is correct?
A.
B.
C.
D.
E.
Invention and innovation are synonyms.
Money is the most important factor of production.
Goods and services can be produced only by employing factors of production.
Entrepreneur is simply another term for manager.
Capital as a factor of production refers to intangible things such as finance.
Question 55
If all factors of production are equally suitable for the production of different goods, then the
production possibility curve (ppc) is likely to be ______ in shape, illustrating a situation of ______
opportunity costs. However, if factors of production are not equally suitable for the production of
different goods, then the ppc will be ______ in shape, reflecting a situation of ______ opportunity
costs.
A.
Linear; increasing; concave; constant
B.
Linear; constant; concave; increasing
C.
Concave; constant; linear; increasing
D.
Concave; increasing; linear; constant
E.
Linear; increasing; concave; increasing
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Question 56
Use the diagram below, which indicates maximum combinations of good X and good Y that can be
produced with available resources, to answer the questions below.
Question (a)
On production possibility curve AC
A.
B.
C.
D.
E.
output combinations D and E represent full and efficient use of resources, but A, C and F
represent inefficient resource use.
output combination D represents the most efficient use of resources.
output combinations A, D, E and C all represent full and efficient resource use.
output combination A and C represents less efficient resource use than either D or E.
the production of goods X and Y require similar factor inputs in similar proportions.
Question (b)
The outward shift of the curve from AC to BC could arise from
A.
B.
C.
D.
E.
a decrease in the level of unemployment
technological progress that affects good X production and good Y production equally.
an improvement in labour productivity only in the industry producing good X.
an improvement in labour productivity only in the industry producing good Y.
a reallocation of resources from X production to Y production.
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Question 57
A shift in the production possibility curve would be caused by all but one of the following. Which one
of the following events would not cause a shift?
A.
B.
C.
D.
E.
A rise in the price of one or both of the goods being produced.
An improvement in the technology used to produce one of the goods.
An improvement in the technology used to produce both of the goods.
An increase in the quantity of resources available in the economy.
A reduction in the quantity of resources available in the economy.
Question 58
Which of the following will bring about an inward shift of the production possibility curve?
A.
B.
C.
D.
E.
An increase in the level of unemployment.
A decrease in the demand for goods and services.
An increase in the allocation of resources to the production of capital goods.
An increase in the number of skilled people emigrating.
A, B and C could all be associated with an inward shift of the ppc.
Question 59
Which of the following is likely to bring about an outward shift of a country’s production possibility
curve?
A.
B.
C.
D.
E.
A relaxation of the country’s previously strict immigration laws.
An increase in the level of unemployment.
A decrease in the level of unemployment.
An increase in the demand for goods and services.
A reallocation of resources from the production of capital goods to the production of
consumer goods.
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Question 60
The production possibility curve below shows maximum combinations of capital goods per capita
and consumption goods per capita that could be produced with available resources in Lesotho.
If the subsistence level of per capita consumption in Lesotho is shown by the line AA, then
A.
B.
C.
D.
E.
Lesotho can choose any combination of capital goods and consumption goods on the
curve, without pushing current consumption below the subsistence level.
0A represents the maximum level of capital good production per capita that can be
achieved without pushing current consumption below the subsistence level.
0b represents the maximum level of capital good production per capita that can be
achieved without pushing current consumption below the subsistence level.
0c represents the maximum level of capital good production per capita that can be
achieved without pushing current consumption below the subsistence level.
at point d, all economic resources are devoted to the production of consumption goods.
Question 61
The term ceteris paribus means:
A.
B.
C.
D.
E.
that if event X precedes event Z, X has caused Z.
that economics deals with facts only, not with suppositions.
all other things being equal.
what is true for one is seldom true for all.
that useful economic theories can seldom be formulated if changes in only one factor are
considered.
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Question 62
If we were to say that two variables are positively related, this means that:
A.
B.
C.
D.
E.
F.
G.
the relationship between the two is purely random.
the relationship between the two would graph as a line sloping downward.
the relationship between the two would graph as a horizontal line.
the relationship between the two would graph as a line sloping upward.
an increase in one variable can be associated with an increase in the other.
the relationship between the two cannot be depicted graphically in any simple way.
D and E above.
Question 63
From the information in the table below, it appears that:
A.
B.
C.
D.
E.
Year
X
y
2010
6,1
143
2011
6,2
125
2012
6,5
112
x and y tend to exhibit a negative relationship.
there is no relationship between x and y
x and y tend to exhibit a positive relationship.
there is first a negative and then a positive relationship between x and y.
there is first a positive and then a negative relationship between x and y.
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Question 64
The use of ceteris paribus techniques in theory building:
A.
B.
C.
D.
is very limiting, because it restricts economics to theories with only one variable.
allows economists to conduct laboratory-type tests of their theories.
shows that the use of unrealistic techniques will produce implausible theories.
allows economists to build useful theories by isolating, one at a time, the effects of changes
in a large number of variables.
E. seldom generates useful economic models.
Question 65
Use the graph to answer Question 72.
What is the slope of the line?
A. 2
B. 1/2
C. 1/4
D. 1
E. –4
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Question 66
If the line in the above figure were to continue down to the x-axis, what would the value of x be
when y is zero?
A.
B.
C.
D.
E.
0
2
2/3
–2/3
-2
Question 67
Given the general form of the equation of a straight line as y = a + bx, the y-intercept and the xintercept respectively are:
A.
B.
C.
D.
E.
a and –a/b.
b and –a/b.
a and –b/a.
a and a/b.
b and a/b.
Question 68
If we were to say that two variables are positively related, this means that
A.
B.
C.
D.
E.
the relationship between the two is purely random.
the relationship between the two would graph as a line sloping downward.
the relationship between the two would graph as a horizontal line.
an increase in one variable can be associated with an increase in the other.
the relationship between the two cannot be depicted graphically in any simple way.
Question 69
The relationship between two variables that move in opposite directions is shown graphically by a
line that is
A.
B.
C.
D.
E.
positively sloped.
relatively steep.
relatively flat.
negatively sloped.
curved.
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Question 70
Use the graph below to answer the question below.
From this it can be concluded that
A.
B.
C.
D.
E.
x and y have a positive, linear relationship.
x and y are negatively related.
as x decreases, y decreases.
x and y are inversely related.
x and y exhibit no clear relationship.
Question 71
Given the general form of the equation of a straight line as y = a + bx, the slope is given by
A.
B.
C.
D.
E.
y–x
x–y
a+b
a
b
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Question 72
Which two of the following statements are false?
1.
2.
3.
4.
Macroeconomic theory inevitably involves a lot of simplification and abstraction.
Macroeconomic theory can be useful only if it replicates every possible detail of the real world.
Because macroeconomic theory uses concepts that do not exist in a physical sense, it cannot
serve as a basis for economic policy decisions.
One of the main purposes of economic theory is to help us to predict what will happen if
something changes.
A.
B.
C.
D.
E.
1 and 2 are false
2 and 3 are false
3 and 4 are false
1 and 4 are false
2 and 4 are false
Question 73
Which one of the following is NOT a purpose of economic theory?
A.
B.
C.
D.
E.
To describe what happens in the real world.
To help us to understand what is happening in the real world.
To serve as a basis for policy decisions.
To help us to explain what is happening in the economy.
To help us to predict what will happen if something changes.
© VAN SCHAIK PUBLISHERS
MULTIPLE CHOICE QUESTIONS TESTBANK –
CHAPTER 2
Go to Memorandum
Answer the following questions by selecting the appropriate answer from the list below.
Question 1
Which one of the following is necessary for the existence of a market?
A.
B.
C.
D.
A particular building or market place.
A fixed price for the product that is traded.
Contact between prospective buyers and sellers.
Telephone or cellphone links.
Question 2
The fundamental purpose of production is to:
A.
B.
C.
D.
E.
earn high profits.
increase exports.
fulfil government plans.
meet human wants.
employ factors of production.
Question 3
If the principal concern of economics is the question of how best to use society’s resources, then
economics would be irrelevant if
A.
B.
C.
D.
E.
we had unlimited wants.
economies were organised around command rather than market principles.
economies were organised around market rather than command principles.
resources were available in unlimited quantities.
incomes were distributed more equally.
Question 4
The economic problem arises from the coexistence of
A.
B.
C.
D.
E.
unlimited wants and unlimited resources.
limited wants and limited resources.
unlimited wants and limited money in circulation.
unlimited wants and limited resources.
limited wants and unlimited resources.
© VAN SCHAIK PUBLISHERS
Question 5
The basic economic problems faced by a socialist economy are:
A.
B.
C.
D.
different from those faced by a market economy.
different from those faced by a mixed economy.
different from those faced by a market economy, but the same as those faced by a mixed
economy.
similar to those faced by both a market and a mixed economy.
Question 6
Problems relating to the allocation of the factors of production and the distribution of income exist:
A.
B.
C.
D.
E.
in socialist economies only.
in capitalist economies only.
in market economies only.
in mixed economies only.
in all economies.
Question 7
In the South African economy, the problem of “what to produce” is solved primarily by:
A.
B.
C.
D.
E.
the National Planning Commission.
the South African Reserve Bank.
people advertising their wants.
the pattern of consumers’ spending.
direction by government.
Question 8
In economics, the “how” or input question refers to:
A.
B.
C.
D.
E.
the problem of allocating scarce resources among competing uses.
the ways in which factors of production may be combined to produce output.
the way in which a firm decides on its profit-maximising rate of output.
the problem of how output is distributed among individuals and groups in society.
the way in which the state sets output targets in a command economy.
Question 9
In a pure market economy, the “for whom” or distribution question is largely answered:
A.
B.
C.
D.
E.
by existing patterns of income and wealth.
by a democratic vote.
by the preferences of central planners.
according to the needs of individuals and groups in society.
by the extent to which government decides to redistribute purchasing power.
© VAN SCHAIK PUBLISHERS
Question 10
The basic questions of “what to produce” and “for whom” to produce are essentially interdependent
because:
A.
B.
C.
D.
E.
a particular level of output may be produced by many different combinations of inputs.
different patterns of factor use generate different patterns of income distribution.
income and wealth are concentrated in the hands of the economically powerful.
markets cannot be relied upon to allocate resources efficiently.
different patterns of distribution generate different patterns of demand and therefore
different patterns of resource allocation.
Question 11
In a market system, which of the following is incorrect?
A. Prices allocate resources equally among competing industries and sectors in the economy.
B. Prices indicate relative scarcities and costs of production.
C. Relative price changes are a determinant of firms’ profits and therefore encourage or
discourage production.
D. Prices are measures of consumers’ willingness to pay for goods and services.
E. Prices signal to consumers how much they must sacrifice to obtain a commodity.
Question 12
In the context of a market system, which of the following statements is incorrect?
A.
B.
C.
D.
E.
The market mechanism acts to coordinate the plans of consumers and producers.
Firms face incentives to produce what consumers demand.
Price signals steer scarce economic resources into optimal use.
A highly unequal distribution of income and wealth may exist.
Goods and services are distributed in accordance with consumers’ needs.
Question 13
Adam Smith’s concept of the invisible hand suggests that:
A. the selfish actions of rational individuals will generate an efficient allocation of scarce
resources.
B. the public-spirited actions of individuals will generate an efficient allocation of scarce
resources.
C. the systematic but largely invisible intervention of government in the operation of markets
will generate an efficient allocation of scarce resources.
D. market failure cannot arise, and there is therefore no economic role for the state.
E. no overall efficient allocation of scarce resources is likely without coordinated economic
planning.
Question 14
In terms of Adam Smith’s concept of the invisible hand, an efficient overall allocation of resources is
likely to result from:
A. the regulation of markets by economic planners.
© VAN SCHAIK PUBLISHERS
B. the operation of command rather than market economies.
C. the behaviour of public-spirited people, who consider the benefits that their actions will
have on others.
D. the behaviour of self-interested individuals striving to maximise their own wellbeing.
Question 15
In a command system, economic planners would be concerned with all but one of the following
areas. The exception is:
A. an appropriate allocation of resources between the production of consumer goods and
capital goods.
B. the elimination of bottlenecks in the supply of key commodities.
C. the establishment of an effective chain of command to pass production targets to producer
units.
D. implementation of incentives to achieve output targets.
E. freedom of movement of capital to respond to profit signals throughout the economy.
Question 16
In economics, the “how” or production question refers to
A.
B.
C.
D.
E.
the problem of allocating scarce resources among competing users.
the ways in which factors of production may be combined to produce output.
the way in which a firm decides on its profit-maximising rate of output.
the problem of how output is distributed among individuals and groups in society.
the way in which the state sets output targets in a command economy.
Question 17
In a pure market economy, the for whom or distribution question is largely answered
A.
B.
C.
D.
E.
by existing patterns of income and wealth.
by democratic vote.
by the preferences of central planners.
according to the needs of individuals and groups in society.
by the extent to which government decides to redistribute purchasing power.
Question 18
The basic questions of what to produce and for whom to produce are essentially interdependent
because
A.
B.
C.
D.
a particular level of output may be produced by many different combinations of inputs.
different patterns of factor use generate different patterns of income distribution.
income and wealth are concentrated in the hands of the economically powerful.
markets cannot be relied upon to allocate resources efficiently.
© VAN SCHAIK PUBLISHERS
Question 19
If households have a greater desire to purchase fresh pasta, more resources will ultimately be
allocated to the production of fresh pasta in a market economy because
A.
B.
C.
D.
E.
fresh pasta has a good nutritional content.
consumer groups will inform pasta manufacturers of the change in demand.
the price of fresh pasta will be driven up, thereby making fresh pasta production more
profitable.
economic planners will respond to the change in demand by raising the output quotas
of fresh pasta producers.
the prices paid for factors of production used in the fresh pasta industry will tend to fall.
Question 20
In a capitalist market economy, which of the following is incorrect?
A.
B.
C.
D.
E.
Prices allocate resources equally among competing industries and sectors in the
economy.
Prices indicate relative scarcities and costs of production.
Relative price changes are a determinant of firms’ profits and therefore encourage or
discourage production.
Prices are measures of consumers’ willingness to pay for goods and services.
Prices signal to consumers how much they must sacrifice to obtain a commodity.
Question 21
In the context of a pure market economy, which of the following statements is incorrect?
A.
B.
C.
D.
E.
The market mechanism acts to coordinate the plans of consumers and producers.
Firms face incentives to produce what consumers demand.
Price signals steer scarce economic resources into optimal use.
A highly unequal distribution of income and wealth may exist.
Goods and services are distributed in accordance with consumers’ needs.
Question 22
In a command economy, resource allocation is brought about by
A.
B.
C.
D.
E.
price signals driven by relative price changes.
the collective preferences of central planners.
the behaviour of self-interested individuals striving to maximise their own well-being.
the principle of consumer sovereignty.
the desire of producers to maximise profits.
Question 23
In a command-type economy, economic planners would be concerned with all but one of the
following areas. The exception is
© VAN SCHAIK PUBLISHERS
A.
B.
C.
D.
E.
an appropriate allocation of resources between the production of consumer goods and
capital goods.
the elimination of bottlenecks in the supply of key commodities.
the establishment of an effective chain of command to pass production targets to
producer units.
implementation of incentives to achieve output targets.
freedom of movement of capital to respond to profit signals throughout the economy.
Question 24
Which one of the following is not a basic economic system?
A.
B.
C.
D.
E.
Monetary system
Market system
Mixed system
Command system
Traditional system
Question 25
Which one of the following statements about economic systems is correct?
A.
B.
C.
D.
E.
A traditional system is a dynamic system.
A command system is an efficient system.
A market system is a fair/equitable system.
Most economic systems are mixed systems.
There are many examples of pure market economies in the world.
Question 26
Which one of the following statements is correct?
A.
B.
C.
D.
E.
Modern economic systems are largely based on tradition.
During the past few decades many countries have abandoned command as the major
coordinating mechanism of their economic systems.
A market can exist only if there is physical contact between prospective buyers and
prospective sellers of a good or a service.
Competition and negotiation is essentially the same thing.
In market capitalism each participant is acutely aware of the needs of others.
Question 27
South Africa has a:
A.
B.
C.
D.
E.
pure market economy.
pure command economy.
traditional economy.
mixed economy.
classical economy.
© VAN SCHAIK PUBLISHERS
Question 28
Which one of the following is incorrect?
Market capitalism is characterised by:
A.
B.
C.
D.
E.
strong government intervention.
individualism.
private freedom.
private property.
decentralised decision making.
Question 29
In market capitalism, economic activity is driven by:
A.
B.
C.
D.
E.
altruism.
concern for others.
self-interest.
the public interest.
religious values.
Question 30
Privatisation means that:
A.
B.
C.
D.
E.
the private sector sells assets to the government.
the government obtains private assets without compensation.
the government obtains private assets but compensates the owners.
the government sells some of its assets to the private sector.
one private firm sells assets to another private firm, thereby keeping the assets private.
Question 31
Nationalisation:
A.
B.
C.
D.
E.
means that government obtains assets from the private sector, with or without
compensation.
is a common feature of market economies.
tends to occur in capitalist economies.
means that the national government sells assets to private companies.
tends to boost the confidence of foreign investors in an economy.
Question 32
Which one of the following statements is correct?
A.
B.
C.
South Africa has an unlimited supply of natural resources.
The N1 highway between Cape Town and Johannesburg is an example of a capital good.
Wealth and income are synonyms (have the same meaning).
© VAN SCHAIK PUBLISHERS
D.
E.
In a market system there is an agency that instructs the various participants in the
economy how to allocate their resources.
South Africa has a pure market economy.
Question 33
Which one of the following is correct?
The South African economy is a:
A.
B.
C.
D.
E.
pure market economy.
pure command economy.
pure traditional economy.
mixed economy.
multilateral economy.
© VAN SCHAIK PUBLISHERS
MULTIPLE CHOICE QUESTIONS TESTBANK –
CHAPTER 3
Go to Memorandum
Answer the following questions by selecting the appropriate answer from the list below.
Question 1
Simple economies can be described in terms of three major economic flows. These are:
A.
B.
C.
D.
E.
income, spending and saving.
spending, production and saving.
income, saving and production.
income, spending and production.
income, spending and net exports.
Question 2
The two major market types in the simple circular flow of income and expenditure are:
A.
B.
C.
D.
E.
public markets and private markets.
free markets and regulated markets.
factor markets and foreign exchange markets.
goods markets and service markets.
goods markets and factor markets.
Question 3
Complete the following statement. Households sell their ____________ in the __________ market.
They then use their income to buy __________ in the __________ market.
A.
B.
C.
D.
goods; goods; factors of production; factor
factors of production; factor; goods; goods
goods; factor; factors of production; goods
factors of production; goods; goods; factor
Question 4
Which of the following would not be viewed by economists as a firm?
A.
B.
C.
D.
E.
The University of South Africa
Pizza Hut
Spoornet
The Consumer Council
A cell phone service provider such as MTN
© VAN SCHAIK PUBLISHERS
Question 5
Which one of the following statements is incorrect?
A. The three major flows in the economy are total production, total income and total spending.
B. There are two sets of markets in a simple economy: goods markets and factor markets.
C. In the simple circular flow of economic activity, “real” flows of goods and factors, and
financial flows, move in opposite directions.
D. Firms are buyers in goods markets and sellers in factor markets, while households are buyers
in factor markets and sellers in goods markets.
E. Firms are the largest purchasers of capital goods.
Question 6
In the simple circular flow of economic activity, goods and services flow via:
A. factor markets to goods markets.
B. factor markets from households to firms.
C. goods markets from households to firms.
D. factor markets from firms to households.
E. goods markets from firms to households.
Question 7
In the circular flow of economic activity, ________ households in ________ markets represents
________ firms. Taxes and imports represent ________ the circular flow.
A.
B.
C.
D.
E.
expenditure by; goods; income to; injections into
expenditure by; factor; income to; withdrawals from
income to; factor; expenditure by; withdrawals from
income to; goods; expenditure by; injections into
expenditure by; factor; income to; injections into
Question 8
In the circular flow of income and spending in South Africa, ________ firms in the factor market
becomes ________ households, while ________ households in the goods market becomes ________
firms. Expenditure by foreigners on South African products constitutes ________ the circular flow.
A. income to; spending by; income to; spending by; a leakage from
B. income to; income to; spending by; spending by; an injection into
C. spending by; income to; spending by; income to; an injection into
D. spending by; spending by; income to; income to; a leakage from
E. production of; spending by; production of; income to; a leakage from
© VAN SCHAIK PUBLISHERS
Question 9
In the context of the circular flow of economic activity, which of the following would NOT be a
traditional activity of the government?
A.
B.
C.
D.
E.
Purchases of labour services from households.
Purchases of capital goods from firms.
Provision of public goods and services.
Transfers of tax revenues to low-income groups or regions.
Sales of consumer goods to foreign buyers.
Question 10
In the circular flow of income and spending, ie the basic flow of income and spending between
households and firms supplemented by the foreign, financial and government sectors:
A.
B.
C.
D.
E.
exports are leakages from the circular flow.
investment is a leakage from the circular flow.
savings are injections into the circular flow.
imports are injections into the circular flow.
taxes are leakages from the circular flow.
Question 11
Which of the following is a leakage from the circular flow of income and expenditure in South Africa?
A. Defence expenditure by the South African government, via contracts with local military
suppliers.
B. Government purchases of textbooks for state-run schools.
C. The sale of export fruit to the European Union.
D. Investment by South African Breweries in a new brewery.
E. A decision by a major supermarket chain to sell Danish beer.
Question 12
In a mixed economy, which of the following is not a legitimate area of government intervention?
A.
B.
C.
D.
E.
Expenditure on major infrastructure projects.
Taxation of the profits of private companies.
Taxation of the income of wage and salary earners.
Control of prices that change in response to changes in demand.
Transfers of tax revenues to poor communities.
© VAN SCHAIK PUBLISHERS
Question 13
In South Africa, the largest single component of aggregate expenditure is:
A.
B.
C.
D.
E.
net exports.
private consumption spending.
private investment spending.
government spending on consumption and investment goods.
private savings.
Question 14
Aggregate spending on South African production comprises:
A.
B.
C.
D.
E.
private consumption, government spending, private investment and total savings.
private consumption, government spending, private investment and net exports.
private consumption, government transfers, private investment and net exports.
private consumption, government investment, private savings and net exports.
private consumption, government spending, private investment and spending by foreigners
on South African goods.
Question 15
Which one of the following statements is correct?
A. The quality of the factors of production is insignificant; it is only the quantity that matters.
B. The difference between capital goods and consumer goods is that the former maintain their
full value over time.
C. Capital as a factor of production refers to the amount of money required to produce a good
or service.
D. It is possible to increase the total income for the economy as a whole without increasing
production. This is the miracle of the modern monetary economy.
E. The total income in the economy is equal to the total remuneration of the factors of
production.
Question 16
Which one of the following statements is false?
A. There are four broad groups of decision-making units in the economy: households, firms,
government and the foreign sector.
B. Imports are an important injection into the circular flow of income and spending in the
economy.
C. Taxes are a leakage or withdrawal from the flow of income and spending in the economy.
D. Spending by households on consumer goods and services is called consumption spending.
E. Spending on capital goods is called investment spending and is an important addition to, or
injection into, the circular flow of income and spending in the domestic economy.
© VAN SCHAIK PUBLISHERS
Question 17
Which one of the following is NOT a major source of spending in the economy?
A.
B.
C.
D.
E.
Households
Banks
Firms
Government
The foreign sector
Question 18
Which one of the following does NOT represent an injection into the flow of income and spending in
the economy?
A.
B.
C.
D.
E.
Spending by local government.
Spending on imported goods and services.
Spending on exports.
Spending on capital goods.
Investment spending.
Question 19
Which one of the following does NOT represent an injection into the flow of income and spending in
the economy?
A.
B.
C.
D.
E.
Investment spending.
Spending by provincial government.
Spending by national government.
Spending on exports.
Money created by the South African Reserve Bank.
Question 20
Which one of the following is/are NOT a leakage or withdrawal from the circular flow of income and
spending in the domestic economy?
A.
B.
C.
D.
E.
Personal income tax.
Value added tax.
Spending on imported goods and services.
Government transfer payments (eg old-age pensions).
Fuel levies.
© VAN SCHAIK PUBLISHERS
Question 21
Which one of the following statements is false?
A. Total spending in the economy consists of consumption spending by households plus
investment spending by firms plus government spending plus net spending by the foreign
sector (ie exports minus imports).
B. From a macroeconomic point of view, total income in the economy is equal to the total
value of production.
C. Total income in the economy consists of the total remuneration of the various factors of
production.
D. Total spending in the economy is equal to the total value of injections minus the total value
of withdrawals (leakages).
E. Households and firms are linked via the goods market and the factor market.
Question 22
Which one of the following statements is false?
A. The flow of income and spending in the economy runs in the opposite direction to the flow
of goods and services.
B. Firms are suppliers in the goods market.
C. Households are suppliers in the factor market.
D. Households earn income by selling their factors of production in the goods market.
E. Government spends in the goods market and the factor market.
Question 23
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
Money is the most important factor of production. Without money, nothing can be
produced.
Natural resources (also called land) is one of the factors of production.
Both the quality and the quantity of factors of production are important.
Capital as a factor of production refers to tangible things that are used to produce other
things.
Although the quantity of labour is important, the quality of labour is usually more
important.
Question 24
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
An entrepreneur is a person who combines the other factors of production and is the
driving force behind production.
The quality of labour is usually described by the term human capital.
Capital as a factor of production refers to the finance that is required to make production
possible.
The quality of labour in South Africa is a serious concern.
Even capital goods do not have an unlimited life.
© VAN SCHAIK PUBLISHERS
Question 25
Which one of the following statements is false?
A.
B.
C.
D.
E.
A truck used to transport goods is a capital good.
A bus used to transport people is a capital good.
A mathematics lecture is an example of a service.
A large loan (eg a mortgage bond) is a capital good.
Capital goods lose their value over time.
Question 26
Which one of the following is not a capital good?
A.
B.
C.
D.
E.
A machine tool.
A wrist-watch.
A power saw.
A truck.
A business computer.
Question 27
Which of the following would not be viewed by economists as part of the factor of production,
capital?
A.
B.
C.
D.
E.
The lecture theatres at the University of Cape Town.
The subsidy income received by the University of Pretoria from the National
Department of Education.
The Volkswagen motor vehicle assembly plant in Uitenhage.
The unsold stocks of motor vehicles held by the Toyota factory in Durban.
The N3 national road between Durban and Johannesburg.
Question 28
Which of the following would not be viewed by economists as a factor of production?
A.
B.
C.
D.
E.
The chemistry laboratories at Stellenbosch University.
A skilled bricklayer.
An unskilled labourer.
The wages earned by a skilled bricklayer.
A sugar-cane plantation in northern KwaZulu-Natal.
Question 29
A commercial forest planted to provide raw material inputs into a wood pulp mill would be viewed
by economists as
A.
B.
C.
D.
E.
Part of the factor production, land.
Part of the factor of production, labour, since labour has to be used to create and
maintain the commercial forest.
Part of the capital stock of the economy.
An unproductive use of land, and therefore not a factor of production.
An unproductive asset, since it may take several years before the forest is ready for
© VAN SCHAIK PUBLISHERS
harvesting.
Question 30
In economics, the four main factors of production are
A.
B.
C.
D.
E.
land, human capital, physical capital and finance capital.
natural resources, man-made resources, labour and money.
land, capital, labour and notes and coins in circulation.
human capital, physical capital, financial capital and entrepreneurship.
land, labour, capital and entrepreneurship.
© VAN SCHAIK PUBLISHERS
MULTIPLE CHOICE QUESTIONS TESTBANK –
CHAPTER 4
Go to Memorandum
Answer the following questions by selecting the appropriate answer from the list below.
Question 1
Demand is the quantity of goods:
A.
B.
C.
D.
desired by consumers.
ordered by consumers in a particular period.
consumers are willing and able to buy at particular prices in a certain period.
that consumers require in order to survive.
Question 2
Which one of the following statements is false?
A.
B.
C.
D.
E.
Motor vehicles and petrol are complements.
Credit cards and cash are substitutes.
Honey and jam are complements.
A house and furniture are complements.
Butter and margarine are substitutes.
Question 3
Consumer surplus indicates that:
A.
B.
C.
D.
E.
more will be demanded at lower than at higher prices.
it is impossible to increase consumer wellbeing by changing the way in which income is
spent.
consumers often get more value from a good than is represented by the price.
the allocation of resources is decided by the interaction of buyers and sellers.
market equilibrium can always be attained.
Question 4
Which one of the following may result in a decrease in the demand for frozen vegetables?
A.
B.
C.
D.
E.
A rise in consumers’ incomes.
An increase in the price of frozen vegetables.
A decrease in the price of freezers.
A decrease in the price of fresh vegetables.
A decrease in the price of frozen vegetables.
© VAN SCHAIK PUBLISHERS
Question 5
How can the impact of an increase in the price of petrol on the demand curve for petrol be
illustrated?
A.
B.
C.
D.
E.
The demand curve for petrol will shift to the left.
The demand curve for petrol will shift to the right.
The demand curve for petrol will remain unchanged.
The demand curve will become more elastic.
The demand curve will become more inelastic.
Question 6
An increase in supply:
A.
B.
C.
D.
E.
indicates that more is supplied at higher prices.
indicates that more is supplied at lower prices.
indicates that more is supplied at all prices.
is illustrated by an upward shift of the supply curve.
is illustrated by a leftward shift of the supply curve.
Question 7
Which one of the following will result in a decline in the demand for oil (illustrated by a leftward shift
of the demand curve):
A.
B.
C.
D.
E.
a rise in oil prices.
a decrease in oil prices.
a recession in the USA and Europe.
the discovery of new oil deposits in the Seychelles.
increased sales of motor vehicles.
Question 8
Which one of the following statements is correct?
A.
B.
C.
D.
E.
A rise in the price of a good will cause the supply curve of that good to shift to the right (ie
the supply of the good will increase).
A fall in the price of a good will result in a rightward shift of the demand curve, ceteris
paribus (ie the demand for the product will increase).
The quantity demanded of a good depends on the availability of the good.
Demand is a synonym for wants. In other words, if a consumer demands a good it simply
means that he or she wants the good.
A decrease in the prices of the factors of production used to produce a certain product will
give rise to an increase in the supply of the product (illustrated by a rightward shift of the
supply curve).
© VAN SCHAIK PUBLISHERS
Question 9
Which of the following will not cause a change in the demand for coffee (illustrated by a shift of the
demand curve)?
A.
B.
C.
D.
E.
A decrease in the price of milk, a complement.
An increase in the price of coffee.
An increase in the price of tea, a substitute.
An increase in the number of people drinking coffee.
An increase in the income of households.
Question 10
When an individual’s income rises, ceteris paribus, his/her demand for half a loaf of bread, an
inferior good:
A.
B.
C.
D.
E.
rises.
falls.
remains unchanged.
becomes more positive.
can be affected in different ways – we need additional information to provide an answer.
Question 11
If the price of domestic airline tickets increases, then, ceteris paribus:
A.
B.
C.
D.
E.
the demand for domestic air travel will increase.
the demand for car rentals, a complement in consumption, will increase.
the demand for domestic air travel will decrease.
the demand for car rentals, a complement in consumption, will decrease.
the demand for car rentals, a substitute in consumption, will decrease.
Question 12
In the market for public transport, which of the following variables would decrease demand, ceteris
paribus?
A.
B.
C.
D.
E.
An increase in the price of private motor vehicles.
A decrease in the price of private motor vehicles.
An increase in price of private motor vehicle service plans.
A decrease in the price of bus tyres.
An increase in the price of motorbikes, a substitute.
© VAN SCHAIK PUBLISHERS
Question 13
If there is an increase in the price of red meat, a substitute in production for milk, then:
A.
B.
C.
D.
E.
the supply of milk will increase.
the demand for milk will decrease.
the supply of milk will decrease.
there will be a movement along the supply curve for milk.
none of the above will result.
Question 14
A decrease in the cost of petrol used to transport LED television sets from a harbour to Gauteng, is
most likely to:
A.
B.
C.
D.
E.
decrease the demand for LED television sets in Gauteng.
increase the supply of LED television sets in Gauteng.
decrease the equilibrium quantity of LED television sets traded in Gauteng.
decrease the quantity of LED television sets demanded in Mpumalanga.
decrease the supply of LED television sets in Gauteng.
Question 15
As the price of fresh grapes (a substitute in production for wine) decreases, ceteris paribus:
A.
B.
C.
D.
E.
the supply of wine will decrease.
the supply of wine will increase.
the demand for wine will decrease.
the demand for wine will increase.
the supply of wine will be unaffected.
© VAN SCHAIK PUBLISHERS
Question 16
The diagram below shows the market for hamburgers.
If the price of hamburgers is fixed at R35 per burger, then:
A.
B.
C.
D.
E.
there will be a surplus of 80 hamburgers.
there will be a shortage of 50 hamburgers.
the quantity of hamburgers supplied will fall to zero.
there will be a shortage of 80 hamburgers.
there will be a surplus of 50 hamburgers.
© VAN SCHAIK PUBLISHERS
Question 17
The diagram below shows the market for Gautrain rides. Use this diagram to answer the questions
below.
Question (a)
If the price of Gautrain rides is currently R60 per ride, then:
A.
B.
C.
D.
E.
there will be a surplus of 30.
there will be a shortage of 50.
there will be a surplus of 50.
there will be a shortage of 30.
the quantity demanded will decrease to 120.
Question (b)
What is likely to happen in the market for Gautrain rides (assuming there is no intervention by
government)?
A.
B.
C.
D.
E.
There is likely to be an increase in the price of Gautrain rides.
There is likely to be an increase in the quantity of Gautrain rides supplied as the price
decreases.
There is likely to be a decrease in the quantity of Gautrain rides demanded as the price
rises.
There is likely to be a decrease in the quantity of Gautrain rides supplied as the price
decreases.
The market is likely to stay as it is.
© VAN SCHAIK PUBLISHERS
Question 18
If milk is a normal good, then a decrease in consumers’ income will definitely cause
A.
B.
C.
D.
E.
a decrease in the demand for milk.
an increase in the demand for milk.
an increase in the supply of milk.
a decrease in the supply of milk.
an increase in the demand and supply of milk.
Question 19
If there is a successful advertising campaign promoting the health benefits of drinking milk, then,
ceteris paribus
A.
B.
C.
D.
E.
the demand for milk will increase.
the demand for milk will decrease.
the supply of milk will increase.
the supply of milk will decrease.
the demand and supply of milk will increase.
Question 20
In the market for cream, which of the following events would increase demand, ceteris paribus?
A.
B.
C.
D.
E.
Increased health fears regarding the consumption of too much fat (cream contains fat)
A fall in the income of consumers.
An increase in the price of scones, a complement.
A drop in the price of yoghurt, a substitute.
A decrease in the price of waffles, a complement.
Question 21
In the market for air travel, which of the following variables would decrease demand, ceteris
paribus?
A.
B.
C.
D.
E.
An increase in rental rates for hired cars, a substitute.
A rise in income of tourists.
A rise in the price of air travel.
A rise in the price of hotel accommodation, a complement.
A drop in the price of air travel.
Question 22
Which of the following is true with regard to a decrease in the demand for cheese, ceteris paribus?
A.
B.
C.
D.
E.
It is represented by a rightward shift of the demand curve.
It is represented by a movement upward along the demand curve.
It is represented by a movement downward along the demand curve.
It is most likely caused by an increase in the price of the good.
It is represented by a leftward shift of the demand curve.
© VAN SCHAIK PUBLISHERS
Question 23
In the market for bicycles, which of the following variables would decrease demand, ceteris paribus?
A.
B.
C.
D.
E.
An increase in the price of bicycles.
A decrease in the price of bicycles.
A fall in the income of consumers.
A decrease in the price of bicycle pumps, a complement.
An increase in the price of motorbikes, a substitute.
Question 24
If there is an increase in the price of DVDs, a substitute in production for CDs, then
A.
B.
C.
D.
E.
the supply of CDs will increase.
the demand for CDs will fall.
the supply of CDs will decrease.
there will be a movement along the supply curve for CDs.
none of the above will result.
Question 25
A decrease in the cost of flour used to bake bread, is most like to
A.
B.
C.
D.
E.
decrease the demand for bread.
increase the supply of bread.
decrease the equilibrium quantity of bread traded.
decrease the quantity of bread demanded.
decrease the supply of bread.
Question 26
A rise in the price of butter, an input into the manufacture of shortbread biscuits, is likely to
A.
B.
C.
D.
E.
increase the demand for shortbread biscuits.
put downward pressure on the price of shortbread biscuits.
increase the quantity of shortbread biscuits demanded.
increase the supply of shortbread biscuits.
put upward pressure on the price of shortbread biscuits.
Question 27
If there is a relative rise in the price of broccoli, a substitute in agricultural production for beans,
then
A. the supply curve for broccoli will shift to the left.
B. the supply of beans will increase.
C. the demand for broccoli will increase.
D. the supply curve for beans will shift to the left.
E. there will be no effect on the production of beans.
© VAN SCHAIK PUBLISHERS
Question 28
If there is a technological breakthrough in the beer manufacturing process then, ceteris paribus
A. the supply of beer will increase.
B. the supply of beer will decrease.
C. the demand for beer will increase.
D. the demand for beer will decrease.
E. there will be no effect on the supply or demand of beer.
Question 29
If the equation for a market demand curve is Qd = 100 – 0,5P and the equation for a market supply
curve is Qs = –20 + P, the market equilibrium price and quantity are:
A.
B.
C.
D.
E.
P = 0,5; Q = -20
P = 60; Q = 80
P = 0,5; Q = 80
P = 80; Q = 60
P = 60; Q = 100
Question 30
If the equation for the demand curve is Q = 45 – 2P and the equation for the supply curve is Q = –21
+ 4P, then the equilibrium values for price and quantity are:
A.
B.
C.
D.
E.
P = 23 and Q = 11.
P = 11 and Q = 23.
P = 11 and Q = 45.
P = -21 and Q = 23.
P = 12 and Q = 15.
Question 31
If the equation for a market demand curve is Qd = 15 – 0,2P and the equation for a market supply
curve is Qs = ̶ 1 + 0,6P, the market equilibrium price and quantity are
A.
B.
C.
D.
E.
P = 25; Q = 10.
P = 20; Q = 11.
P = 15; Q = 12.
P = 10; Q = 13.
P = 5; Q = 14.
Question 32
If the equation for the demand curve is Q = 450 – 25P and the equation for the supply curve is Q =
-175 + 37,5P, then the equilibrium values for price and quantity are
A.
P = 4,4 and Q = 340.
© VAN SCHAIK PUBLISHERS
B.
C.
D.
E.
P = 5 and Q = 325.
P = 10 and Q = 200.
P = 11 and Q = 175.
P = 12 and Q = 150.
© VAN SCHAIK PUBLISHERS
Question 33
Which of the following will not increase the demand for bicycles in Polokwane?
A.A regulation banning motorised vehicles from the city centre.
B. A substantial rise in the price of motorcycles and cars.
C. A boycott of Polokwane by taxi operators.
D. A fall in the price of bicycles.
Question 34
Which of the following variables are not held fixed when drawing a market demand curve?
A.Prices of substitute goods.
B. Consumer incomes.
C. Consumer tastes.
D. Quantity of the good demanded.
Question 35
Which of the following variables are not held fixed when drawing a market supply curve?
A.Price of the good.
B. Technology
C. Number of sellers
D. Prices of inputs
Question 36
Which of the following will not affect a firm’s supply decision?
A.The price of the good.
B. The state of technology.
C. The prices of joint products.
D. The wealth of consumers.
Question 37
Butter is a substitute for margarine and bread is a complement of both. If the price of margarine
falls, one can expect that
A.the demand for butter will increase and the quantity of bread demanded will increase.
B. the demand for butter will decrease and the demand for bread will increase.
C. the quantity of butter demanded will decrease and the demand for bread will increase.
D. the quantity of butter demanded will decrease and the quantity of bread demanded will
increase.
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Question 38
Which one of the following statements is correct?
A.
B.
C.
D.
E.
“Demand” and “claim” have the same meaning.
To demand a good requires only a desire to possess the good.
Demand relates to plans, not to events that have occurred already.
“Demand” and “need” have the same meaning.
Demand refers to the quantities that consumers bought recently.
Question 39
Which one of the following statements is incorrect?
A. Market demand consists of the combined demand of all the participants in the market.
B. The quantity demanded of a good, say a loaf of bread, depends heavily on the availability of
the good.
C. The quantity demanded of a good depends on the income of consumers.
D. The quantity demanded of a good also depends on the prices of related goods
(complements and substitutes).
E. Demand decisions have to be analysed independently of the supply situation.
Question 40
Which one of the following is not a determinant of the quantity of a good that is demanded?
A.
B.
C.
D.
E.
The availability of the good.
The price of the good.
The income of consumers.
The prices of substitutes.
The prices of complements.
Question 41
Which one of the following is incorrect?
Demand can be expressed:
A.
B.
C.
D.
E.
in terms of the supply of the good.
using words.
using graphs.
using numbers.
using equations.
© VAN SCHAIK PUBLISHERS
Question 42
Which one of the following statements is correct?
A. We cannot analyse demand without using the ceteris paribus assumption.
B. Ceteris paribus means that all possible changes are taken into account.
C. With the ceteris paribus assumption we can allow at least three changes to occur
simultaneously.
D. With the ceteris paribus assumption everything is changing at the same time.
E. The ceteris paribus assumption applies to demand schedules but not to demand curves.
Question 43
Which one of the following statements is incorrect?
A. A demand curve illustrates the quantities demanded at different prices, on the assumption
that all other possible influences on the quantity demanded remain unchanged.
B. There is an inverse relationship between the price of the product and the quantity
demanded of that product.
C. A conventional demand curve normally slopes downward from left to right.
D. The inverse relationship between the price of a product and the quantity demanded is called
the law of demand.
E. We cannot analyse the demand for a product without considering the availability of the
product.
Question 44
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
A movement along a demand curve relates to the slope of the curve.
A movement along a demand curve is called a change in the quantity demanded.
A shift of a demand curve relates to the position of the curve.
A shift of a demand curve relates to the intercept of the curve.
There is no real difference between a shift of a demand curve and a change in the quantity
demanded.
Question 45
Which one of the following statements is incorrect?
A. A movement along a demand curve for bananas indicates what happens to the quantity
demanded if the price of bananas changes.
B. A movement along a demand curve is referred to as a change in demand.
C. A shift of a demand curve is also referred to as a change in demand.
D. The whole demand curve represents the demand for the product (eg bananas).
E. A change in the quantity demanded refers to a movement from one point along a demand
curve to another point along the same demand curve.
© VAN SCHAIK PUBLISHERS
Question 46
Which one of the following will not give rise to an increase in the demand for pumpkins?
A.
B.
C.
D.
E.
A decrease in the price of pumpkins.
An increase in the income of consumers.
An increase in the number of consumers in the market.
An increase in the price of butternuts (a substitute).
A research finding which indicates that eating pumpkins helps to avoid certain serious
diseases.
Question 47
Which one of the following will not give rise to a decrease in the demand for butter, illustrated by a
leftward shift of the demand curve?
A.
B.
C.
D.
E.
An increase in the price of butter.
A decrease in consumers’ incomes.
A decrease in the number of consumers in the market.
A decrease in the price of margarine (a substitute).
A research finding which indicates that butter is bad for your health.
Question 48
Which one of the following will give rise to an increase in the quantity of margarine demanded,
illustrated by a movement along the demand curve?
A.
B.
C.
D.
E.
A decrease in the price of margarine.
An increase in consumers’ incomes.
An increase in the number of consumers.
An increase in the price of butter (a substitute).
A research finding which indicates that margarine is good for your health.
Question 49
Which one of the following will give rise to a decrease in the quantity of margarine demanded,
illustrated by a movement along the demand curve?
A.
B.
C.
D.
E.
A decrease in consumers’ incomes.
A decrease in the price of butter (a substitute).
A decrease in the number of consumers.
An increase in the price of margarine.
A research finding which indicates that margarine is bad for your health.
© VAN SCHAIK PUBLISHERS
Question 50
Which one of the following will not give rise to a rightward shift of the demand curve for beef?
A.
B.
C.
D.
E.
An increase in the number of consumers.
An increase in the price of mutton (a substitute).
An increase in consumers’ income.
A decrease in the price of beef.
A decrease in the price of potatoes (a complement).
Question 51
Which one of the following statements is incorrect?
A. An increase in the price of bus trips will lead to an increase in the demand for train trips (a
substitute).
B. An increase in the price of bus trips will lead to a decrease in the quantity of bus trips
demanded.
C. An increase in consumers’ incomes will result in an increase in the demand for a normal
good, illustrated by a rightward shift of the demand curve.
D. A decrease in the price of bus trips will lead to an increase in the demand for bus trips,
illustrated by a rightward shift of the demand curve.
E. A change in demand is illustrated by a shift of the demand curve.
Question 52
Which one of the following does not influence the supply of precast concrete walls?
A.
B.
C.
D.
E.
The demand for precast concrete walls.
The price of precast concrete walls.
The price of concrete.
The wages of workers in the industry.
The state of technology.
Question 53
Which one of the following will not lead to an increase in the supply of precast concrete walls,
illustrated by a rightward shift of the supply curve?
A.
B.
C.
D.
E.
A decrease in wage rates in the industry.
A decrease in the price of concrete.
A decrease in the price of cement.
An increase in the price of precast concrete walls.
An improvement in technology pertaining to the manufacture of precast concrete walls.
© VAN SCHAIK PUBLISHERS
Question 54
Which one of the following will not lead to a decrease in the supply of precast concrete walls,
illustrated by a leftward shift of the supply curve?
A.
B.
C.
D.
E.
A decrease in the price of precast concrete walls.
An increase in wage rates in the industry.
An increase in the price of concrete stone.
An increase in the price of cement.
An increase in the cost of machinery required to manufacture the concrete slabs.
Question 55
Which one of the following will result in a decrease in the quantity of precast concrete walls
supplied, illustrated by a downward movement along the supply curve?
A.
B.
C.
D.
E.
An increase in wage rates in the industry.
A decline in productivity in the industry.
An increase in the price of cement.
A decrease in the price of precast concrete walls.
An increase in the cost of equipment required to manufacture concrete slabs.
Question 56
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
Supply can be expressed in words.
Supply can be expressed without the ceteris paribus assumption.
Supply can be expressed as a table.
Supply can be expressed as an equation.
Supply can be expressed graphically.
Question 57
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
An increase in supply is illustrated by a rightward shift of the supply curve.
An increase in the quantity supplied is illustrated by an upward movement along the
supply curve.
There is a positive relationship between the price of a product and the quantity
supplied.
A decrease in supply is illustrated by a downward movement along the supply curve.
A supply curve illustrates the quantities supplied at different prices, ceteris paribus.
© VAN SCHAIK PUBLISHERS
Question 58
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
If the market price is above the equilibrium price, a market surplus will develop.
If the market price is below the equilibrium price, there will be an excess demand for
the product.
If the market price is below the equilibrium price, a market shortage will develop.
If the market price is above the equilibrium price, there will be an excess supply of the
product.
If the market price is above the equilibrium price, the quantity demanded is greater
than the quantity supplied.
Question 59
Which one of the following statements is incorrect?
At equilibrium:
A.
B.
C.
D.
E.
demand is equal to supply.
the quantity demanded is equal to the quantity supplied.
there is no excess demand.
there is no excess supply.
there is no market surplus.
Question 60
The consumer surplus is:
A.
B.
C.
D.
E.
the difference between what consumers pay and the maximum amount that they are
willing to pay to obtain the goods in question.
what is left after consumers have bought their monthly groceries.
what consumers have left after all their monthly needs have been satisfied.
the difference between what consumers earn and what they spend.
the positive difference between consumers’ income and their expenditure.
Question 61
The producer surplus is:
A.
B.
C.
D.
E.
always greater than the consumer surplus.
the difference between producers’ revenue and their cost of production.
the difference between the price that producers receive and the lowest prices at which
they are willing to supply the different quantities.
what producers have left after all their expenses have been paid.
simply another term for profit.
© VAN SCHAIK PUBLISHERS
Question 62
Use the following information to answer the questions below:
The demand and supply curves are represented by the following equations:
Qd = 100 – P and Qs = 50 + P
Question (a)
The equilibrium price is:
A.
B.
C.
D.
E.
150
75
50
25
10
Question (b)
The equilibrium quantity is:
A.
B.
C.
D.
E.
150
75
50
25
10
Question 63
Use the following information to answer questions 63a and 63b.
The demand and supply curves are represented by the following equations:
Qd = 30 – 2P and Qs = 10 + 2P
Question (a)
The equilibrium price is:
A.
B.
C.
D.
E.
5
10
15
20
25
© VAN SCHAIK PUBLISHERS
Question (b)
The equilibrium quantity is:
A.
B.
C.
D.
E.
5
10
20
30
40
Question 64
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
Demand refers to plans of households, not to actual events.
A change in the price of guavas will result in a change in the quantity of guavas
demanded.
The demand for a product depends on the availability of the product.
The market demand is the sum of all the individual demands.
An increase in demand indicates that greater quantities of the good are demanded at
the different prices.
Question 65
Which one of the following statements is correct?
A.
B.
C.
D.
E.
Equilibrium is often observed in our daily lives.
A market is in equilibrium when the quantity demanded is equal to the quantity
supplied.
A market is in equilibrium when demand is equal to supply.
At any price above the equilibrium price there will be an excess demand for the
product.
At any price below the equilibrium price excess supply will put downward pressure on
the price.
Question 66
The market demand curve for a good:
A.
B.
C.
D.
E.
indicates the equilibrium price in the market.
indicates the equilibrium quantity in the market.
indicates the quantities that consumers actually bought during the previous week.
indicates the quantities that consumers plan to buy at different prices.
indicates the quantities that firms will produce at each price.
© VAN SCHAIK PUBLISHERS
Question 67
Which one of the following will definitely not give rise to a change in the demand for raincoats
(illustrated by a shift of the demand curve)?
A.
B.
C.
D.
E.
A decrease in the price of raincoats.
An increase in rainfall.
A decrease in rainfall.
An increase in the number of sunny days.
A decrease in the number of sunny days.
Question 68
Which one of the following will definitely cause a decrease in the equilibrium price of bananas?
A.
B.
C.
D.
A simultaneous increase in both demand and supply.
A simultaneous decrease in both demand and supply.
An increase in demand combined with a decrease in supply.
A decrease in demand combined with an increase in supply.
Question 69
If the price of Croxley writing pads increases and the quantity of Croxley writing pads increases, it is
likely that the:
A.
B.
C.
D.
E.
demand for Croxley writing pads has decreased.
supply of Croxley writing pads has decreased.
demand for Croxley writing pads has increased.
supply of Croxley writing pads has increased.
demand for and supply of Croxley writing pads have both decreased.
Question 70
Suppose the equilibrium price for a tin of baked beans is R5 but that the price is set at R6. Will the
price of R6 per tin be maintained?
A.
B.
C.
D.
E.
Yes, because consumers are buying as much as they want at that price.
Yes, because suppliers are fulfilling their plans.
No, because there is an excess demand for baked beans at that price.
No, because there is a surplus of unsold baked beans at that price.
Yes, because there is no reason for consumers or suppliers to change their plans.
© VAN SCHAIK PUBLISHERS
Question 71
If there is a surplus of good X on the market:
A.
B.
C.
D.
E.
the price of X will tend to rise.
the government should apply price control, to prevent an increase in the price of X.
the price of X will tend to fall.
the government should set a minimum price to avoid a fall in the price of X.
the price of X will remain unchanged.
Multiple Choice Questions Testbank –
Chapter 5
Go to memorandum
Answer the following questions by selecting the appropriate answer from the list below.
Question 1
Which one of the following statements is correct?
A.
B.
C.
D.
If a minimum price is set above the equilibrium price, the market will be unaffected.
If a minimum price is set below the equilibrium price, the market will be unaffected.
The imposition of minimum prices does not affect market outcomes.
If a minimum price is set below the equilibrium price, an excess demand will develop.
Question 2
In the market for IPADs, assuming everything else remains unchanged, the equilibrium price of IPADs
will decrease if:
A. there is a shortage of IPADs.
B. the price of iPhones, a complement, decreases.
C. the supply of IPADs decreases.
D. the price of Samsung Galaxy tablets, a substitute in consumption, increases.
E. there is a technological improvement in the manufacturing of IPADs.
Question 3
There is an increase in the number of adverts highlighting the dangers of consuming sugar. Which of
the following is likely to occur in the market for sugarless sweets, as a result of this?
A.
B.
C.
D.
E.
An increase in both price and equilibrium quantity traded.
A decrease in price and an increase in equilibrium quantity traded.
A decrease in both price and equilibrium quantity traded.
An increase in price and a fall in equilibrium quantity traded.
None of the above is likely to result.
© VAN SCHAIK PUBLISHERS
Question 4
In the market for first-year economics textbooks, assuming everything else remains unchanged, the
equilibrium price of textbooks will increase if:
A.
B.
C.
D.
E.
there is a surplus of textbooks.
the price of university education, a complement, increases.
the supply of textbooks increases.
the cost of the publication of textbooks increases.
there is a drop in the cost of paper necessary to produce textbooks.
Question 5
If the price and the quantity of beer decrease, it is likely that:
A.
B.
C.
D.
E.
demand for beer has increased.
demand for beer has decreased.
supply of beer has decreased.
supply of beer has increased.
supply and demand for beer have both increased.
Question 6
If the price of 3G data bundles, a substitute for fixed-line data bundles, decreases, then:
A.
B.
C.
D.
E.
the supply curve of fixed-line data bundles will shift to the right.
the demand curve for fixed-line data bundles will shift to the right.
the equilibrium quantity and price of fixed-line data bundles will not change.
the quantity of fixed-line data bundles demanded will increase.
the demand curve for fixed-line data bundles will shift to the left.
Question 7
The equilibrium price of rhino horns will increase if, ceteris paribus:
A. consumers are more aware that there are no medical benefits from rhino horn
consumption.
B. there is a surplus of rhino horns.
C. the supply of rhino horns decreases.
D. rhino horn is a normal good and income decreases.
E. a and c above.
Question 8
Which of the following will definitely cause an increase in the equilibrium price?
A.
B.
C.
D.
E.
An increase in both demand and supply.
A decrease in both demand and supply.
An increase in demand combined with a decrease in supply.
A decrease in demand combined with an increase in supply.
Any of the above, depending on the circumstances.
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Question 9
Which of the following will definitely result in a decrease in the equilibrium price of a good?
A. An increase in both demand and supply.
B. A decrease in both demand and supply.
C. An increase in demand together with a decrease in supply.
D. A decrease in demand together with an increase in supply.
E. A decrease in supply only.
Question 10
Use the diagram below to answer the question below.
The diagram depicts a decrease in the demand for pies on a campus. If at the same time there was a
rent increase for food outlets on campus, then in comparison with the original equilibrium E0, there
would be:
A.
B.
C.
D.
E.
an increase in equilibrium price and quantity.
an increase in equilibrium quantity but a decrease in price.
a decrease in equilibrium quantity but an increase in price.
a decrease in equilibrium quantity but an indeterminate effect on price.
an increase in equilibrium quantity but an indeterminate effect on price.
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Question 11
Use the diagram below to answer the question below.
The diagram depicts an increase in the demand for wine, following research reports highlighting the
benefits of its consumption to one’s health. If at the same time there was a strike by workers on
wine farms, then in comparison with the original equilibrium E0, there would be:
A.
B.
C.
D.
E.
an increase in equilibrium price and quantity.
an increase in equilibrium quantity but a decrease in price.
a decrease in equilibrium quantity but an increase in price.
a decrease in equilibrium quantity but an indeterminate effect on price.
an increase in equilibrium price but an indeterminate effect on quantity.
Question 12
In the market for diamonds, assuming everything else remains unchanged, the equilibrium price of
diamonds will decrease if
A.
B.
C.
D.
E.
there is a shortage of diamonds.
the price of gold, a complement, decreases.
the supply of diamonds decreases.
the price of cubic zirconia’s, a substitute, increases.
there is a technological improvement in mining equipment.
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Question 13
There is an increase in the number of adverts highlighting the dangers of consuming artificial
sweeteners (as opposed to sugar). Which of the following is likely to occur in the market for sugar, as
a result of this?
A.
B.
C.
D.
E.
An increase in both price and equilibrium quantity traded.
A decrease in price and an increase in equilibrium quantity traded.
A decrease in both price and equilibrium quantity traded.
An increase in price and a fall in equilibrium quantity traded.
None of the above is likely to result.
Question 14
If the price and the quantity of curtains exchanged falls, it is likely that
A.
B.
C.
D.
E.
demand for curtains has increased.
demand for curtains has decreased.
supply of curtains has decreased.
supply of curtains has increased.
supply and demand for curtains have both increased.
Question 15
If the price of powdered milk, a substitute for fresh milk, falls then
A.
B.
C.
D.
E.
the supply curve of fresh milk will shift to the right.
the demand curve for fresh milk will shift to the right,
the equilibrium quantity and price of fresh milk will not change.
the quantity of fresh milk demanded will increase.
the demand curve for fresh milk will shift to the left.
Question 16
The equilibrium price of wine will increase if, ceteris paribus,
A.
B.
C.
D.
E.
consumers are more aware of the risks of alcohol abuse.
there is a surplus of wine.
the supply of wine decreases.
wine is a normal good and income decreases.
all wine adverts are banned.
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Question 17
Consider the market for South African biltong. Assuming everything else remains unchanged, the
equilibrium price of biltong will decrease if
A.
B.
C.
D.
E.
there is a shortage of biltong.
the price of beer, a complement, increases.
the supply of biltong decreases.
the price of peanuts, a substitute, increases.
there is an animal disease that affects the supply of biltong.
Question 18
Consider a decrease in the demand for domestic air tickets in South Africa. If at the same time there
were a rise in the cost of insurance of airlines, then in comparison with the original equilibrium,
there would be
A.
B.
C.
D.
E.
an increase in equilibrium price and quantity.
an increase in equilibrium quantity but a decrease in price.
a decrease in equilibrium quantity but an increase in price.
a decrease in equilibrium quantity but an indeterminate effect on price.
an increase in equilibrium quantity but an indeterminate effect on price.
Question 19
Consider the demand and supply of labour in the sugar industry. If there is a minimum wage in this
industry (above equilibrium wage/price), then the effect of removing this minimum wage would be
to
A.
B.
C.
D.
E.
increase the equilibrium price (wage) and increase the quantity of labour demanded.
decrease the equilibrium price (wage) and remove the shortage of labour.
decrease the equilibrium price (wage) and remove the surplus of labour.
increase the equilibrium price (wage) and cause a shortage of labour.
none of the above.
Question 20
Which one of the following will not cause an increase in the demand for cabbage?
A.
B.
C.
D.
E.
A decrease in the price of cabbage.
An increase in the price of cauliflower (a substitute).
A decrease in the price of meatballs (a complement).
An increase in consumers’ income.
A greater consumer preference for cabbage.
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Question 21
Which one of the following will not cause an increase in the demand for cement?
A.
B.
C.
D.
E.
The government launches a major new construction programme.
The construction of a large new dam in Limpopo.
A major new housing project in Mpumalanga.
An expected decrease in the price of cement.
The construction of a new power station by Eskom.
Question 22
Which one of the following will not affect the demand for bananas, and therefore leave the demand
curve unchanged.
A.
B.
C.
D.
E.
An increase in the price of a substitute product (eg avocados).
A decrease in the price of a substitute product (eg apples).
An increase in consumers’ incomes.
A decrease in consumers’ incomes.
An increase in the price of bananas.
Question 23
Which one of the following will not lead to a decrease in the demand for petrol?
A.
B.
C.
D.
E.
Motorists switch to motorcars that use diesel rather than motorcars that use fuel.
A decrease in consumers’ incomes, forcing them to travel less.
An expected fall in the price of petrol.
An increase in the prices of motorcars.
An increase in the price of petrol.
Question 24
Which one of the following statements is incorrect?
An increase in the supply of plastic bags:
A.
B.
C.
D.
E.
may be illustrated by a rightward shift of the supply curve.
may be caused by an increase in labour productivity.
could be the result of lower wages in the plastic industry.
could be the result of a decrease in the cost of producing plastic bags.
may be illustrated by an upward movement along the supply curve.
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Question 25
Which one of the following statements is incorrect?
A.
B.
C.
D.
An increase in supply tends to result in a lower price.
An increase in demand tends to result in a higher price.
A simultaneous increase in demand and supply has an uncertain impact on price.
A simultaneous increase in demand and supply tends to result in a higher equilibrium
quantity in the market.
E. The impact of a simultaneous decrease in demand and supply on the equilibrium quantity is
impossible to predict.
Question 26
Suppose A and B are substitutes. Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
An increase in the price of A will lead to an increase in the demand for B.
An increase in the price of B will result in an increase in the demand for A.
An increase in the price of A will lead to a rightward shift of the demand for B.
An increase in the price of A will lead to a leftward shift of the demand for A.
An increase in the price of A will eventually tend to result in an increase in the price of B as
well.
Question 27
Suppose C and D are complements. Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
An increase in the price of C will result in a decrease in the quantity demanded of C and will
therefore also lead to a reduction in the demand for D.
A decrease in the price of C will result in an increase in the quantity demanded of C and will
therefore also lead to an increase in the demand for D.
An increase in the price of C will eventually tend to lead to a decrease in the price of D,
once all the interactions have been taken into account.
A decrease in the price of C will eventually tend to lead to an increase in the price of D,
once all the interactions have been taken into account.
An increase in the price of C can be illustrated by a shift of the demand curve for C.
Question 28
Which one of the following statements is incorrect?
Governments set maximum prices:
A.
B.
C.
D.
E.
to boost the efficiency of the market mechanism.
to assist the poor.
to avoid exploitation.
to combat inflation.
to limit the production of certain goods and services.
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Question 29
If government sets a maximum price above the equilibrium price:
A.
B.
C.
D.
E.
a surplus will develop.
a shortage will develop.
excess supply will develop.
excess demand will develop.
the market will be unaffected.
Question 30
If government sets a maximum price below the equilibrium price:
A.
B.
C.
D.
E.
the market will be unaffected.
the quantity supplied will be greater than the quantity demanded.
a market shortage will develop.
the market will still be able to fulfil its rationing function.
there will be an excess supply.
Question 31
Which one of the following statements is incorrect?
If government sets a price ceiling below the equilibrium price:
A.
B.
C.
the market cannot fulfil its rationing function.
a black market may develop.
consumers who are able to obtain the product may resell it to other consumers at higher
prices.
D. the government would have to devise plans about how to get rid of the surplus.
E. the market forces of supply and demand are prevented from eliminating excess demand.
Question 32
Which one of the following statements is incorrect?
Rent control:
A.
B.
C.
D.
E.
is often driven by praiseworthy motives.
is the most effective strategy to solve the housing crisis.
has various unintended consequences.
tends to result in shortages of rental accommodation.
prevents market forces from fulfilling their rationing and allocative functions.
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Question 33
Which one of the following statements is incorrect?
A minimum price:
A.
B.
C.
D.
E.
is effective only if it is set above the equilibrium price.
below the equilibrium price has no impact on the market.
above the equilibrium price results in a market surplus (excess supply).
below the equilibrium price results in an excess demand (market shortage).
above the equilibrium price requires further measures to deal with the market surplus.
Question 34
Which one of the following is not, strictly speaking, an option for dealing with a market surplus
resulting from the imposition of a minimum price for maize?
A.
B.
C.
D.
The government purchases the surplus and stores it.
The government purchases the surplus and exports it.
The government purchases and destroys the surplus.
The government sells the surplus in the domestic market at low prices.
Question 35
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
Government may grant a subsidy to producers in order to lower the price of a good to the
consumer while at the same time stimulating the production of the good.
Government may use excise taxes to raise the price of “sinful” goods such as cigarettes,
while at the same time raising revenue.
Government may intervene in the market by imposing production quotas.
To be effective, a production quota has to be introduced above the equilibrium quantity.
Government sometimes imposes import tariffs in an attempt to reduce the loss of
production and employment as a result of imports.
Question 36
Which one of the following does not share in the burden of an excise tax on wine?
A.
B.
C.
D.
E.
The consumers of wine.
The owners of private wine companies.
The shareholders in public wine companies.
The workers in the wine industry.
The government.
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Question 37
Which one of the following statements is incorrect?
An import tariff on imported clothes:
A.
B.
C.
D.
E.
raises the price to domestic consumers.
reduces the volume of imports.
is aimed at increasing domestic production.
raises revenue for government.
has no welfare cost to society (ie no deadweight loss).
Question 38
Agricultural prices:
A.
B.
C.
D.
E.
tend to be more stable than other prices.
do not respond much to changes in supply.
often vary significantly, even if demand remains unchanged.
are not influenced by the forces of supply and demand.
are all administered prices.
Question 39
Which one of the following statements is incorrect?
In a speculative market:
A.
B.
C.
D.
market participants’ behaviour is guided by expectations.
an expected price increase will tend to result in an increase in supply.
an expected decrease in price will tend to result in a decrease in demand.
that which is expected to happen will occur now, if all market participants have the same
expectations and these expectations are incorporated into their current behaviour.
Question 40
Which one of the following statements about the gold market is incorrect?
A.
B.
C.
If buyers all expect a price increase, the demand for gold will increase.
If sellers all expect a price increase, the supply of gold will increase.
If sellers and buyers all expect a price increase and incorporate this expectation into their
actions, the price of gold will increase immediately.
D. If buyers all expect that the price of gold will fall, the demand for gold will decrease.
E. If different market participants have different price expectations, it is impossible to predict
what will happen to the price.
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Question 41
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
Fixing a maximum price for diesel above the equilibrium price will result in an excess supply
of diesel.
Fixing a maximum price for rugby tickets below the equilibrium price will result in an excess
demand for rugby tickets.
Fixing a maximum price for soccer tickets below the equilibrium price may lead to black
market activity.
Black market activity will occur only if there is a market shortage of the good or service.
Fixing a maximum price below the equilibrium price results in a welfare loss to society (ie a
deadweight loss).
Question 42
Suppose rent control is in force in a particular town, with the rent fixed at a level which is lower than
the equilibrium rent. Which one of the following is likely to happen if rent control is abolished?
A.
B.
C.
D.
E.
The supply of housing will decrease.
The quantity of houses demanded will increase.
Rents will increase and the quantity of houses supplied will also increase.
Rents will decrease and the quantity of houses supplied will also decrease.
The quantity of houses demanded will remain unchanged.
Question 43
Suppose the government sets a maximum price for maize that is lower than the equilibrium price in
a competitive market. Which one of the following will not tend to occur?
A.
B.
C.
D.
E.
An excess supply of maize.
A shortage of maize.
An excess demand for maize.
A black market.
A disequilibrium situation.
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