Economics 9708 · AS & A Level
Income elasticity of demand
100 practice questions on Income elasticity of demand, with worked solutions and instant marking.
The demand for tablets rises, while the cost of making them falls. What effect will this have on the price of tablets and on the quantity supplied?
Feb/March 2016
In which market would equilibrium not be reached at point E if price were above Op?
Feb/March 2016
The diagram illustrates the market for new houses. What would bring about the shift in the market equilibrium position from X to Y?
Feb/March 2017
Jam and honey are substitutes. Honey and beeswax are produced in joint supply. Assuming all other factors stay unchanged, what is likely to happen if the price of jam increases? (columns: honey price / beeswax price)
Feb/March 2017
For price to function as a rationing mechanism for a final product, an increase in price has to
Feb/March 2017
In 2014, some supermarkets cut the price they were prepared to pay farmers for milk to a level below the market equilibrium price at that time. They then passed this lower price on to consumers in an attempt to draw them into the store. After that, the government introduced an effective minimum price that the supermarkets had to pay the farmers. These two moves are represented in the diagram. What would be the result after the supermarket move and then the government move?
Feb/March 2017
In 2014, as part of efforts to discover new uses for seven sites that had formerly been used to bury rubbish, the Hong Kong government said that private companies would be permitted to bid for redevelopment of the sites. Which diagram illustrates the change in the market for these sites?
Feb/March 2017
The diagram illustrates the market for coffee. The starting equilibrium position is X. The price of tea, a substitute good, decreases and an indirect tax is introduced on coffee. Which position will be the new equilibrium?
Feb/March 2017
What might have led the price to move from P1 to P2? (the diagram shows the diamond market, with supply moving from S1 to S2)
Feb/March 2018
Good X has a substitute, good Y, and a complement, good Z. The price of good Y falls, while the price of good Z rises. Why could the equilibrium price of good X stay unchanged?
Feb/March 2018
The diagram illustrates the equilibrium price and quantity of good X. The starting market equilibrium is marked by point E. What could make the market equilibrium shift to point F?
Feb/March 2018
The table presents the demand and supply schedules for a product both before and after the government gives producers a subsidy of $4 per unit. If any additional sales are made to new consumers, how much do the original consumers of the product benefit from the subsidy by saving?
Feb/March 2018
In 2016, car drivers bought a larger quantity of fuel (gas) because the price of the oil used to produce it had decreased. Which diagram illustrates this change in the market for fuel?
Feb/March 2018
The market demand for a product is formed from the demand of three firms, X, Y and Z. The table displays the demand from each firm together with the market supply. What is the equilibrium price in the market?
Feb/March 2018
The diagram illustrates the market demand and supply for a good. Which statement is not valid?
Feb/March 2019
The diagram illustrates the demand and supply for rice. Supply rises from S1 to S2. What change occurs in the rice farmer’s sales revenue?
Feb/March 2019
A taxi company increases fares during its peak periods to as much as five times the usual fare. Taxi drivers and customers are informed about the changes through mobile (cell) phones. What outcome will this policy produce?
Feb/March 2019
A power station burns waste in order to generate electricity. As a by-product, this also creates fertiliser for farmers. What is the effect in the fertiliser market of an increase in demand for electricity?
Feb/March 2020
The table sets out the supply and demand for avocados in Mexico City. Because transport costs have fallen, supply increases by 60 kg at every price. What is the equilibrium price now?
Feb/March 2020
A government sets a ceiling on rent so that rented accommodation becomes more affordable. What long-term result is likely if the ceiling is fixed below the present free market price?
Feb/March 2020
The diagram illustrates the market for strawberries. The initial equilibrium point is X. What will the new point be after strawberries fail to ripen and the price of cream, a complement to strawberries, falls?
Feb/March 2020
When the free market for a good is in disequilibrium, what must be true?
Feb/March 2020
Explain what causes the shift in equilibrium price and equilibrium quantity of a good when incomes in an economy rise.
Feb/March 2020
The diagram illustrates the sugar market, which is first at equilibrium with a price of OP. A government then sets a maximum price at OP1. What will be the outcome?
Feb/March 2021
The table presents a competitive market at equilibrium across two periods (period 1: price 50 cents quantity 10 000; period 2: price 60 cents quantity 12 000). What might account for the shift from period 1 to period 2?
Feb/March 2021
A manufacturer cuts the price of its goods after creating a more efficient manufacturing process. It produces leather belts that compete with belts made from artificial material. What outcomes are likely to result from the change in the manufacturing process?
Feb/March 2021
Explain what is meant by equilibrium price and quantity in the market for a good and how price and quantity will be affected by both a rise in the wage rate paid to the workers producing the good and a rise in wages paid to all workers in the economy.
Feb/March 2021
What effects would result if a government set a maximum price below the equilibrium price?
Feb/March 2022
In a rural area, the fare for a bus journey is $5. To improve local transport, the government provides bus firms with a subsidy of $2 per journey. The diagram shows the possible changes in demand and supply. What is the new quantity of journeys and the bus fare for a journey?
Feb/March 2022
The diagram illustrates the demand and supply curves for cars in India. The market begins at equilibrium at X. What will be the new equilibrium if Indian car manufacturers are given a subsidy and the price of train and bus journeys in India also increases?
Feb/March 2022
Butter and buttermilk are products in joint supply. In each market, the supply curves slope upwards to the right. Due to health concerns, consumers reduce their consumption of butter. What are the initial effects of this on supply in the butter market and the buttermilk market?
Feb/March 2023
A company makes goods solely for export. Which change could lead to an increase in the price of its goods, while the quantity sold remains the same?
Feb/March 2023
Butter is a normal good. It is jointly demanded with bread and jointly supplied with buttermilk. Demand for butter rises because consumer incomes have increased. What effects will this rise have on the prices of bread and buttermilk?
Feb/March 2024
The quantity demanded for a product is QD = 400 – 10P, where P represents the price in dollars. The supply of the product is set at 100 units. If the price is $20, what will be the market outcome?
Feb/March 2025
The diagram shows the market for a good. Which statement is correct?
Feb/March 2025
The diagram illustrates the effect on equilibrium of a rise in the costs of production. The initial price is $72. The price elasticity of demand is –2.0. What is the revised equilibrium price, P2?
Feb/March 2025
The government sets a maximum price of P2 for a product. What would the situation be after this action?
May/June 2010
What is not the case when price operates as a way of allocating resources?
May/June 2010
James cultivates fruit trees in his garden. They draw butterflies and bees. Which of the following is not an externality of this?
May/June 2010
The table lists some of the costs involved when a firm makes a good. What is the extra cost to the firm of making the 24th unit?
May/June 2010
Why is it especially hard to make decisions by using cost-benefit analysis?
May/June 2010
Which good can be made excludable even though it is non-rival?
May/June 2010
The diagram illustrates the demand and supply curves for a good. The government imposes a maximum price of OJ for the good. What effect will this have on the consumers and producers of the good?
May/June 2010
A group of countries chooses to move from a customs union to an economic union. What extra feature would this provide for the group?
May/June 2010
The table presents the balance, in $ million, for four items in a country’s current account across two years. What conclusion can be drawn about the changes from Year 1 to Year 2?
May/June 2010
The diagram illustrates how the number of people employed in four different industries in a city changed between 2002 and 2007. What can be concluded from the diagram?
May/June 2010
The typical consumer allocates expenditure to food, accommodation and clothing in the ratio 5 : 3 : 2. Over one year, the price of food increases by 10 %, the price of accommodation stays the same and the price of clothing decreases by 5 %. By how much does the Consumer Price Index increase over the year?
May/June 2010
The table gives a country’s inflation rate over four years. What decreased between 2005 and 2008?
May/June 2010
At what time is a deficit in the current account of the balance of payments likely to deteriorate?
May/June 2010
A worker is able to produce 10 hats or 5 pairs of shoes in a day. In the market, the selling price of three hats is the same as that of two pairs of shoes. The worker ought to make
May/June 2010
The table gives the market supply of a raw material and the separate demand of the three firms, X, Y and Z, who are the only purchasers. What is the equilibrium market price of the raw material?
May/June 2010
In 2008, the demand curve for new cars in the European Union moved leftwards. Which change might have led to this shift?
May/June 2010
Across the world, the film industry now spends more than $1 billion each year on effective anti-piracy measures, and it funds this by levies on DVD products. How would this be represented on a demand and supply diagram for the market in legally produced DVDs?
May/June 2010
The demand for a commodity has unitary price elasticity. Which diagram illustrates how total expenditure on the commodity varies with its price?
May/June 2010
The table shows data on the market for two car models. If the prices of the cars stay the same, but the price of petrol rises by 100 %, what effect will this have on the number of cars sold each week?
May/June 2010
The diagram illustrates the demand and supply curves for a good. The government imposes a maximum price of OJ for the good. What effect will this have on the consumers and producers of the good?
May/June 2010
The table gives the market supply of a raw material and the separate demand of the three firms, X, Y and Z, which are the only buyers of it. What is the equilibrium market price of the raw material?
May/June 2010
Across the world, the film industry has raised its spending to more than $1 billion each year on successful anti-piracy measures, and it funds this through charges on DVD products. In a demand and supply diagram for the market for legally produced DVDs, how would this be represented?
May/June 2010
In 2008, a disease caused a large number of sheep that were kept for wool production to die. How would the short-run impact be illustrated on a demand and supply diagram for wool?
May/June 2010
The diagram illustrates the demand curve and supply curve for a good. The government imposes a maximum price of OJ for this good. What impact will this have on the consumers and producers of the good?
May/June 2010
The table gives the market supply of a raw material and the separate demand from the three firms, X, Y and Z, which are its only buyers. What is the equilibrium market price of the raw material?
May/June 2010
Across the world, the film industry has raised its spending to more than $1 billion per year on effective anti-piracy measures, and it funds this through charges on DVD products. How would this be represented in a demand and supply diagram for the market for DVDs produced legally?
May/June 2010
The government sets a maximum price of P2 for a product. What will the situation be after this action?
May/June 2010
‘A free market price functions as a rationing and allocating mechanism.’ Explain how it does this.
May/June 2010
The diagram illustrates the demand curves and supply curves for loanable funds. Which changes might lead the equilibrium in the market for loanable funds to shift from E1 to E2?
May/June 2010
The diagram illustrates the demand and supply curves for a good. The government imposed a maximum price of OP1. What would this have achieved?
May/June 2011
Global stocks of cod are now being endangered by over-fishing, whereas supplies of the less favoured Alaskan pollock remain abundant. How may the price mechanism work to reduce the depletion of fish stocks?
May/June 2011
The diagram illustrates the demand and supply curves for a good. The government imposed a maximum price at OP1. What would this have resulted in?
May/June 2011
Global stocks of cod are now at risk because of over-fishing, while supplies of the less popular Alaskan pollock are abundant. In what way might the price mechanism work to reduce the depletion of fish stocks?
May/June 2011
Worldwide cod stocks are now at risk because of over-fishing, whereas supplies of the less popular Alaskan pollock remain abundant. In what way could the price mechanism work to help reduce the depletion of fish stocks?
May/June 2011
Using economic analysis, explain the possible reasons for the rise in sales of electronic goods, such as mp3 players, in recent years.
May/June 2011
When demand for a good decreases and its costs of production also decline, what combined impact will these changes have on the good’s price and the quantity supplied?
May/June 2012
The diagram indicates the average world price of coffee in US cents per pound weight (lb) from 1997 to 2005. Which event fits the price pattern shown over the stated period?
May/June 2012
Which is not a function of the price mechanism?
May/June 2012
The diagram illustrates the demand and supply curves for a commodity both before and after a particular tax is withdrawn. What is the tax per unit of output and what is the price following the tax removal?
May/June 2012
Demand for a good drops while its costs of production also fall. What combined impact will these changes have on the good’s price and on the quantity supplied?
May/June 2012
The diagrams indicate a movement in demand from D1 to D2 and a movement in supply from S1 to S2 for four different goods. Which diagram represents the good for which further new uses have been found and which also experiences an increase in government subsidy?
May/June 2012
The diagram illustrates the demand and supply curves for parking spaces in a hospital car park. The managers choose to depend on the price mechanism to distribute parking spaces at the hospital. What is needed for this to work?
May/June 2012
On the diagram, D represents the demand curve for an agricultural commodity, while S1 shows the original supply curve. A good harvest shifts the supply curve to S2. By what amount must the demand curve shift so that farm incomes remain unchanged?
May/June 2012
The diagram illustrates the average world price of coffee in US cents per pound weight (lb) from 1997 to 2005. Which event is in line with the price pattern shown during the period stated?
May/June 2012
On the diagram, D1 and S1 show the demand and supply curves for a Malaysian industry in its domestic market. The equilibrium is at X. The industry must meet a substantial rise in wages and, at the same time, it encounters stronger rivalry from imported substitutes. Which point on the diagram might indicate the new equilibrium?
May/June 2013
Which combination of price and quantity will cause price to fall and quantity produced to contract until equilibrium is reached?
May/June 2013
A country’s government announces that the penalties for anyone convicted of supplying an illegal drug to other people will be raised, but that having small amounts of the drug for personal use will no longer count as an offence. What effect are these changes likely to have on the illegal market price of that drug and on the quantity consumed?
May/June 2013
A specific tax is levied on each bottle of perfume sold. In the diagram, SS shows the supply curve before tax, while StSt shows the supply curve after tax. Which area shows the part of the tax revenue borne by consumers?
May/June 2013
When a tax on a product is removed, supply rises from SS to S1S1 as shown in the diagram. What effect does this change have on government tax revenue and consumer expenditure?
May/June 2013
Palm oil and sunflower oil are substitutes. Palm oil and palm kernel cake for animal feed are in joint supply. If all other factors stay the same, what effects will a fall in the price of sunflower oil have?
May/June 2013
The diagram illustrates the market for wheat. If the government wants to set the price at OP2, what quantity of wheat will it need to buy?
May/June 2013
Give two reasons why palm oil matters for the economy of Malaysia.
May/June 2013
Explain this statement and, with the help of a diagram, show how price rations scarce goods when there is an increase in the costs of production.
May/June 2013
The table illustrates a competitive market at equilibrium across two periods. What might account for the shift from period 1 to period 2?
May/June 2014
If a country has a summer that is very wet and cold, how could this affect the price of umbrellas and the price of ice creams?
May/June 2014
The demand in the market for a product is formed by the demand of three firms, X, Y and Z. The table gives the demand for each firm together with the market supply. What is the equilibrium price in the market?
May/June 2014
The diagram illustrates the demand for and supply of a product. What conclusion can be drawn about the product?
May/June 2014
In a market for a good, demand and supply both alter at the same time. Which pair of changes would let an economist say with certainty that greater resources will be required for its production, while not knowing the direction of the resulting change in price?
May/June 2014
On the diagram, the starting quantity traded was Q and the price was P. The price later increased to P1 and the quantity traded increased to Q1. Which combination of government policy measures could account for this change?
May/June 2014
The diagram represents the market for milk. Two changes occur. First, the price of cattle feed increases sharply, then the government increases the tax on cheese, which uses milk in its production. Which movements of the demand curves for milk on the diagram are consistent with these events?
May/June 2014
If demand and supply in a competitive market each fall by 10% at every price, what happens to the equilibrium price and the quantity sold?
May/June 2014
From 2006 to 2007, the world-market price of skimmed milk powder increased from $1000 per tonne to $2400 per tonne. If the market is a free market, what outcome will follow from this price change?
May/June 2014
Explain what is meant by the term ‘equilibrium price and quantity’ in the market for a good or service, and demonstrate how a new equilibrium is formed when demand increases.
May/June 2014
In the diagram, the introduction of a specific tax shifts an industry’s supply curve from S1 to S2. Which area measures the resulting deadweight loss to society, given that there was no market failure at the outset?
May/June 2014