Question Bank- unit 2

8-mark questions
Q1. Explain two factors that are likely to make the supply of a product relatively
Price inelastic.

Q2. Outline the functions of the factor enterprise in a modern economy, and explain how
enterprise responds to a rise in the demand for a good.

Q3. Explain how economists measure the way in which demand for a good changes when
income changes and, with the help of a diagram, show why some goods are classified as
inferior goods.

Q4. Explain whether you would expect the price elasticity of supply of an agricultural product, such as rice, in a
market to be elastic or inelastic.

Q5. Distinguish between income elasticity of demand and cross elasticity of demand and
explain how each is used to identify different types of product.

Q6. Using a supply and demand diagram, explain how the imposition of a subsidy on a good
would affect the surplus enjoyed by the producers of that good.

Q7. Explain why the value of income elasticity of demand for a good can be positive, negative or zero, while
the value of its price elasticity of demand is most likely to be negative.

Q8. Explain the pricing policy that the firm should adopt for each of the flavours if it wants to
increase total revenue.

Q9. Explain, using elasticity of demand, the possible reasons why in some countries there has been an
increased use of private transport instead of public transport.

Q10. Explain, with the aid of a diagram, what changes will alter the amount of consumer surplus available from
the consumption of a good.

Q11. Explain how and why the price elasticity of supply of agricultural goods differs from that of manufactured
goods.

Q12. Explain the influences which determine the level of demand for healthcare in an economy.

Q13. Explain, with the aid of a diagram, how consumer surplus will be affected by the
introduction of an indirect tax.

Q14. With the help of a formula, explain the meaning of cross elasticity of demand and consider which
determinants are most important in establishing the size and sign of its coefficient.

Q15. With the help of a diagram(s), explain what is meant by consumer surplus and producer surplus and
consider whether a rise in the price of a product because of higher costs of production is likely to always
reduce the consumer surplus.

Q16. Explain, with the help of examples, the significance of the size and sign of the coefficient of income
elasticity of demand for the classification of a good and consider how confident you are of this classification.

Q17. Explain two factors that will determine the price elasticity of demand for a particular brand of car and
how this price elasticity of demand may change over time.
Q18. With the help of diagrams, use the concept of income elasticity of demand to explain the impact of a fall
in incomes on the equilibrium price and equilibrium quantity of a normal good and an inferior good.

Q19. Use examples to explain why the supply of some products is price elastic and the supply of other
products is price inelastic.

Q20. With the aid of a diagram, explain the consequences for consumers and producers of introducing a
minimum price in the market for a product.

Q21. Explain what is meant by consumer surplus and use diagrams to assess the impact on consumer surplus
when an indirect tax is imposed on a good with price-elastic demand compared with the impact when the
demand is price-inelastic.

Q22. Using the concept of price elasticity of demand, explain why increasing the price of the product is:

(i) a bad idea for a firm producing a product that constitutes a large proportion of household
income, and
(ii) (ii) a good idea for a firm producing a product that constitutes a small proportion of household
income.

Q23. Explain how you would use the concept of cross-elasticity of demand to measure the impact on the
demand for cars when there is a rise in the price of fuel for cars and when there is a rise in the price of public
transport.

12-mark questions
Q1. Discuss the policies that governments might use to increase the price elasticity of supply of essential
goods, and assess the likely effectiveness of such policies.

Q2. Discuss why entrepreneurs might want to change the price elasticity of demand for their
products, and consider the extent to which this is achievable

Q3. Discuss how useful governments might find the concepts of price and income elasticity of demand when
setting economic policy.

Q4. Discuss how, during a worldwide recession when incomes in most countries are falling,
economists might use the concept of income elasticity of demand to assess the impact of this recession.

Q5. Discuss the policies that businesses might adopt to maintain sales when incomes are falling and consider
which is most likely to be successful.

Q6. Discuss why businesses might attempt to change the price elasticity of demand for their
products and consider whether it is likely that they will be successful in their attempt.

Q7. Discuss whether price elasticity of demand is a more useful concept than income elasticity of demand for a
business that is trying to increase its sales revenue.

Q8. Explain on which goods and services the government should impose indirect taxes to ensure that the
incidence of the tax falls mainly on consumers, and discuss the extent to which consumer surplus would be
affected.

Q9. Discuss whether the payment of government subsidies to farmers is a beneficial policy.

Q10. Discuss the importance of price in the effective operation of a mixed economy.
Q11. When the price of a product changes, it usually changes the consumer surplus in the market. Assess how
variations in price elasticity of demand for a product determine the extent of changes in consumer surplus in a
market.

Q12. Discuss whether knowledge of price elasticity of demand or income elasticity of demand would be of
greater use to a business that produces cars.

Q13. Discuss the difficulties that businesses might have when they try to control the factors that determine the
price elasticity of demand for a product and consider whether attempts to control these factors are likely to be
successful.

Q14. Discuss whether decisions made by a business are more likely to be influenced by knowledge of the price
elasticity of demand for its product or by knowledge of the price elasticity of supply of its product.

Q15. Discuss whether cross elasticity of demand or income elasticity of demand is likely to be more useful in
assisting a firm in its pricing decisions.