2 The allocation of resources: how markets work;
market failure
1 A mixed economy has
A An agricultural and an industrial sector
B Consumer goods and capital goods
C A financial sector and an industrial sector
D A private sector and a public sector
2 During the 1990s many countries in Eastern Europe transformed from
planned economies to more market-oriented economies. Which of the
following best describes this change?
A More public sector control of resources
B Increased use of the price mechanism to allocate resources
C Less private sector ownership of resources
D Increased use of price controls
3 A firm publishes and sells books. The diagram shows a shift in the supply
curve from S1 to S2.
Price of books
S1
S2
Quantity of books per period
What could have caused the shift in supply?
A A fall in subsidies paid to book publishers
B A fall in the price of paper
C A rise in the income of consumers
D A rise in the wages of the firm’s workers
4 What is an external cost of building houses in a city centre?
A The cost of compensating residents for mud on local roads
B The cost of city centre traffic congestion caused by the building works
C The cost of obtaining planning permission
D The cost of building materials
© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
1
5 The diagram shows the market for bananas. The market equilibrium is X.
What will be the new market equilibrium if there is a bad harvest?
Price of bananas
A
B
C
X
D
Quantity of bananas per period
6 What information will you need to plot a market demand for a product?
A The equilibrium market price of the product
B The number of suppliers of the product at each price
C The number of consumers who would like to buy the product at each price
D The quantity each consumer would be willing and able to buy at each price
7 Cola and lemonade are substitute goods. What will happen when the price of
lemonade increases?
A The demand for lemonade will increase
B The price of cola will increase
C The demand for cola will increase
D The supply of chicken nuggets will rise
8 The diagram shows the demand curve for a product.
Price $
4
2
Demand
10
20
Quantity
What is the price elasticity of demand as price rises from $2 to $4?
A 1 B 2 C 0.5 D 1.5
© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
2