Economics 9708 · AS & A Level
Maximum and minimum prices
100 practice questions on Maximum and minimum prices, with worked solutions and instant marking.
A specific tax is charged on each bottle of perfume sold. In the diagram, SS is the supply curve before tax, while StSt is the supply curve after tax. Which area shows the part of the tax revenue paid by producers?
Feb/March 2016
A company made a garden open to the public and asked visitors to pay to enter. The government later awarded a grant to improve the garden, provided that admission was made free. What would be the outcome of the government’s action?
Feb/March 2016
The diagram presents the percentages of people on low pay and those on extremely low pay in the UK from 1976 to 2012. A national minimum wage was introduced in 1999. Which conclusion is consistent with the diagram?
Feb/March 2016
The diagram illustrates the market for wheat. If the government wants to set the price at OP2, what quantity of wheat does the government need to purchase?
Feb/March 2016
Compare the trend in crude oil price from April 2014 to June 2014 with the trend from June 2014 to September 2014.
Feb/March 2016
Explain, with examples, why the prices set for merit goods and demerit goods in a free market do not match the value to consumers.
Feb/March 2016
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
The starting market for a product is shown by the demand and supply curves D1 and S1 respectively. A subsidy is then added, shown by the movement of S1 to S2 (+ subsidy). What is the incidence of the subsidy for the consumer and producer?
Feb/March 2017
In the diagram, D shows the demand curve for an agricultural commodity and S shows the original supply curve. The government undertakes to keep farmers’ incomes at no less than this starting level. The harvests in four later years are represented by the supply curves S1–S4. What total amount will the government have to pay to subsidise farmers across the four later years?
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 prevent a market failure?
Feb/March 2017
Additional fishing boats begin working from a nearby harbour that relies on fishing as its chief source of income. Which measure taken by the local authority would be an example of nudge theory?
Feb/March 2017
What is the principal drawback of government regulation intended to limit the profits made in a monopolistic industry?
Feb/March 2017
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
The Bureau of Alcohol, Tobacco, Firearms and Explosives is an agency of the United States Government that oversees markets. What does its name suggest is most likely to be its principal responsibility?
Feb/March 2018
Use a production possibility curve diagram to show what is expected to happen to the Venezuelan economy from 2014 to 2017.
Feb/March 2018
A government sets a ceiling price for electricity. Which statement supporting this policy could be regarded as economically valid?
Feb/March 2018
The diagram illustrates how a market changes when a government imposes a production quota OQt on the output of a good that had earlier been traded at quantity OQ. Which welfare loss is caused by the government’s policy?
Feb/March 2018
A government levies a $10 tax on every unit of output for a product. How will this influence the firm?
Feb/March 2018
A government wants to increase farmers’ incomes without increasing the price of food for consumers. Which policy should it adopt?
Feb/March 2019
A government is worried that companies owned by foreigners account for a large share of the economy’s output. It therefore nationalises timber extraction, which is run by a foreign-owned company. What benefit will the economy receive from the change in ownership?
Feb/March 2019
Show how a production possibility curve can be used to illustrate scarcity, choice and opportunity cost.
Feb/March 2019
Explain how understanding a good’s price elasticity of demand can help a business judge the effect of price changes for that good on total revenue.
Feb/March 2019
Which of the following statements about government intervention is correct?
Feb/March 2019
‘Governments should use whatever methods they can to regulate monopolies because they are inefficient.’ Judge whether monopolies are always inefficient and which methods governments might use to regulate them.
Feb/March 2019
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
What kinds of activity would be classified as direct government provision of goods and services?
Feb/March 2020
What kind of tax is the 15% sales tax imposed in South Africa?
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
At present, motorists who drive their cars within area 1 on the map pay a daily congestion fee of $8. Which car journeys would fall in number if the congestion charge zone were expanded to include area 2?
Feb/March 2020
The table presents the outcome of a cost-benefit analysis carried out by a government while it was deciding whether to invest US$200 million in a new airport construction project. The airport will be built if the net social benefit delivers a return of at least 10% on the investment. What minimum external benefit, in US$ million, is required to reach this?
Feb/March 2020
The wheat market is initially in equilibrium at price P, with supply standing at 40 million tonnes. Because a drought occurs during the growing season, supply drops to 20 million tonnes. What immediate action should be taken to keep the equilibrium price at P?
Feb/March 2021
Following several bad harvests, a government sets an effective maximum price for cereals. What would be a consequence of this policy?
Feb/March 2021
A government aims to increase the number of houses supplied. It offers a subsidy to brick manufacturers so that the supply of bricks rises to S2. The diagram illustrates the supply of and demand for bricks. Which per-unit subsidy is needed to raise supply to S2?
Feb/March 2021
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
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
A government is trying to achieve allocative efficiency in a nationalised industry. What action will the government take?
Feb/March 2021
Recent research has indicated that eating some foods may be harmful. A government committee is considering how to intervene in markets. Which intervention is most likely to cut consumption of these foods without lowering income equality?
Feb/March 2021
What effects would result if a government set a maximum price below the equilibrium price?
Feb/March 2022
The following three taxes are named. • a sales tax (VAT) applied to fuel • a specific tax at 10% on cigarettes • the percentage rate of income tax on individual earnings rises as taxable income rises Which combination shows the effect of each tax type?
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
A monopoly firm is producing output OT and charging a price of OW for its product, which is how it is maximising profit, as the diagram shows. The government then judges that the firm’s activities create positive externalities, so it awards the firm a subsidy. If the firm still aims to achieve maximum profit, what will happen?
Feb/March 2022
What is one example of ‘nudge’ theory?
Feb/March 2022
What is shown by the Laffer curve?
Feb/March 2022
Explain the likely economic causes of income inequality and assess whether inequality of income can benefit an economy.
Feb/March 2023
When the marginal cost of a good is below its price, allocative efficiency has not been reached. What is likely to correct this?
Feb/March 2023
A government wants to cut down car use in cities. Which policy ought to be used?
Feb/March 2023
Using a diagram, assess how far government intervention can be used to correct this market failure.
Feb/March 2023
Using a demand and supply diagram, explain the impact of introducing an indirect tax on market equilibrium and assess how far the tax burden will be passed on to consumers.
Feb/March 2024
A government wants to use market forces to eliminate a negative externality in the consumption of a good. Which policy is most likely to be the most effective?
Feb/March 2024
What does a failure of government microeconomic intervention mean?
Feb/March 2024
In a country where most raw materials used as factor inputs are imported, which policy would be most likely to keep cost-push inflation under control?
Feb/March 2024
Using a diagram, assess how effective a government’s intervention in the price mechanism is in dealing with the causes of climate change.
Feb/March 2024
A government may employ a variety of methods to intervene in a market in order to influence both demand and supply. What is one method that will move the demand curve for a good?
Feb/March 2025
In order to promote price stability, the government in country F runs a buffer stock scheme, with a minimum price of P1 and a maximum price of P2. The present demand and supply in the market are shown. What should the government do to make the scheme effective?
Feb/March 2025
The diagram illustrates the effect of a government introducing an export subsidy for its domestic producers of oil. How will this export subsidy affect how the domestic market operates?
Feb/March 2025
Explain the difference between a public good and a private good (economic good), and assess the extent to which a beach can be regarded as a public good.
Feb/March 2025
A government put in place a tax on soft drinks that contain sugar. It was predicted that this tax would generate £520m each year for the government. In fact, the amount of tax collected was only £240m. What is the most likely explanation for why the tax revenue was below the forecast?
Feb/March 2025
What factor is most likely to stop an effective cartel from developing in an industry?
Feb/March 2025
Which of the following is not an example of government failure?
Feb/March 2025
With the help of a diagram, evaluate the effects of introducing an effective minimum wage on employment and wage levels in a monopsony labour market.
Feb/March 2025
Explain, using examples, how a demerit good differs from a merit good.
May/June 2006
Explain, with the help of a diagram, how consumer surplus changes when an indirect tax is introduced.
May/June 2009
In a command economy, what determines how factors of production are allocated?
May/June 2010
The government sets a maximum price of P2 on a product. What would the position be after this measure?
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 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 government sets a maximum price of P2 for a product. What will the situation be after this action?
May/June 2010
Using a normal demand curve, explain how consumer surplus is created.
May/June 2010
What impact would an increase in marginal tax rates have?
May/June 2010
Explain why producers are usually the winners while consumers are usually the losers when market failure occurs.
May/June 2010
‘Developing countries have a low standard of living, yet many have much wealth in natural resources which multi-national companies would like to exploit.’ Discuss which is the better way of increasing the standard of living: to allow multi-national companies to exploit all the natural resources, or for the government to increase expenditure on education and health.
May/June 2010
Explain why producers are usually the winners and consumers are usually the losers when market failure occurs.
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
What is one advantage, instead of a disadvantage, of cost-benefit analysis when deciding on a government investment project?
May/June 2011
In the diagram, S and S1 show the supply curves for an agricultural product in years 1 and 2, respectively, while D shows the demand curve in years 1 and 2. During year 1, the government bought the quantity needed to keep the price at OP. The price remains fixed at OP in year 2. By how much more does the government need to buy in year 2 than it bought in year 1?
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
What is one benefit, instead of a drawback, of cost-benefit analysis when choosing a government investment project?
May/June 2011
In the diagram, S and S1 show the supply curves for an agricultural product in years 1 and 2 respectively. D is the demand curve for years 1 and 2. In year 1, the government bought the quantity needed to keep the price at OP. The price remains at OP in year 2. By how much does the government need to increase its purchases in year 2 compared with year 1?
May/June 2011
The diagram presents the demand and supply curves for a good. The government set a maximum price of OP1. What would this have achieved?
May/June 2011
In the diagram, S and S1 represent the supply curves for an agricultural product in years 1 and 2, respectively. D shows the demand curve in years 1 and 2. During year 1, the government bought the quantity needed to keep the price at OP. The price remains fixed at OP in year 2. By how much does the government need to increase its purchases in year 2 compared with year 1?
May/June 2011
Explain how one group, other than dairy farmers, would be harmed by lower milk prices and how another group would benefit from lower milk prices.
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
Explain how resources are distributed in a free market economy.
May/June 2011
Explain how and why the price elasticity of supply of agricultural goods is different from that of manufactured goods.
May/June 2011
A government sets a maximum price for electricity. Which justification for this action might be regarded as valid on economic grounds?
May/June 2011
Individuals are able to decide how many hours to work, how much income to set aside as savings and which goods and services to purchase. Which kind of tax will not affect the choices that individuals make?
May/June 2011
Individuals can decide how many hours to work, what proportion of their income to save, and which goods and services to purchase. Which type of tax will not affect the choices individuals make?
May/June 2011
Discuss whether economic efficiency can be improved when governments regulate and provide goods and services in the presence of market failure.
May/June 2011
The diagram illustrates the effect of a tax of FG being placed on a commodity. Which area shows the fall in consumer surplus?
May/June 2012
The diagram depicts the market for spectacles. At first, the market equilibrium price is PO and quantity Q3 is bought and sold. The government then imposes a maximum price of PX as well as a minimum price of PM. What impact will these policies have on the market for spectacles?
May/June 2012
The diagram indicates that the introduction of a tariff increases the price from $10 to $14. What is the amount of tax revenue generated?
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
The diagram illustrates the spectacles market. At first, market equilibrium is at price PO, with quantity Q3 being purchased and sold. The government then introduces a maximum price of PX and also a minimum price of PM. What impact will these measures have on the spectacles market?
May/June 2012
The diagram illustrates the demand and supply curves for a commodity before and after a particular tax is abolished. What is the tax per unit of output, and what is the price after the tax is removed?
May/June 2012
The diagram indicates the equilibrium price (OP) and quantity (OQ) in the maize market. The government aims to reach a target price of OP1. What would happen if the government intervenes in the market and raises demand by Q-Q1?
May/June 2012
In Europe, it was agreed that farm subsidies would be given to farmers who safeguard the environment as well as produce food. What would this mean for farmers who receive the subsidy?
May/June 2012
The government must select the best location from four possible sites for a port. The benefits and costs for each site are given in $m in the table. Which site would be selected?
May/June 2012
The diagram illustrates the market for apples. A government keeps a minimum price at P2 by purchasing apples. Which area indicates the amount of money the government must spend to sustain price P2?
May/June 2012
Explain how income elasticity of demand and cross elasticity of demand may be used to sort different types of goods.
May/June 2012