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Markets: Demand - Question Bank

Question Bank ''Markets: Demand'' with interactive revision questions on a variety of economics topics.

Question Bank - Economics

Markets: Demand

Q1. A change in the relative prices of which of the following pair of goods would likely cause the smallest substitution effect?

(Select one answer)

(a) * right shoes and left shoes
(b) * petrol from BP and petrol from Shell
(c) * Kit-Kat chocolate snacks and Twix chocolate snacks
(d) * Coke and Pepsi

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Q2. If an increase in a consumer's income causes the consumer to increase his quantity demanded of a good, then the good is

(Select one answer)

(a) * a complementary good
(b) * a inferior good
(c) * a normal good
(d) * a substitute good

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Q3. Consumer surplus is the area

(Select one answer)

(a) * below the demand curve and above the price
(b) * above the supply curve and below the price
(c) * above the demand curve and below the price
(d) * below the supply curve and above the price
(e) * below the demand curve and above the supply curve

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Q4. Which of the following shifts the demand for watches to the right?

(Select one answer)

(a) * an increase in the price of watches
(b) * none of these answers
(c) * a decrease in the price of watch batteries if watch batteries and watches are complements
(d) * a decrease in consumer incomes if watches are a normal good
(e) * a decrease in the price of watches

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Q5. If an increase in a consumer's income causes the consumer to decrease her quantity demanded of a good, then the good is

(Select one answer)

(a) * a substitute good
(b) * a normal good
(c) * a complementary good
(d) * an inferior good

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Q6. The limit on the consumption bundles that a consumer can afford is known as

(Select one answer)

(a) * an indifference curve
(b) * the budget constraint
(c) * the marginal rate of substitution
(d) * the consumption limit

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Q7. Utilitarianism suggests that the government should choose policies that maximize the total utility of everyone in society by

(Select one answer)

(a) * redistributing income from rich to poor, because this is what the members of society would choose to do if they were behind a 'veil of ignorance'
(b) * redistributing income from rich to poor because, due to the diminishing marginal utility of income, taking a pound from the rich reduces their utility by less than the gain in utility generated by giving a pound to the poor
(c) * allowing each individual to maximize their own utility without interference from the government
(d) * redistributing income from rich to poor because this would maximize the well-being of the worst-off person in society

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Q8. An increase in the price of a good along a stationary demand curve

(Select one answer)

(a) * improves the material welfare of the buyers
(b) * decreases consumer surplus
(c) * improves market efficiency
(d) * increases consumer surplus

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Q9. Which of the following is not true regarding the outcome of a consumer's optimization process?

(Select one answer)

(a) * The marginal utility per dollar spent on each good is the same
(b) * The marginal rate of substitution between goods is equal to the ratio of the prices between goods
(c) * The consumer's indifference curve is tangent to his budget constraint
(d) * The consumer has reached his highest indifference curve subject to his budget constraint
(e) * The consumer is indifferent between any two points on his budget constraint

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Q10. The slope at any point on an indifference curve is known as

(Select one answer)

(a) * the marginal rate of substitution
(b) * the marginal rate of trade-off
(c) * the trade-off rate
(d) * the marginal rate of indifference

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