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Myanmar Matriculation Economics study materials
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Myanmar Matriculation Economics practice questions

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Question 1Basic economic concepts, scarcity and opportunity cost

In economics, the fundamental problem of scarcity arises because

  1. human wants are unlimited while productive resources are limited Correct answer.
  2. some countries are poorer than other countries
  3. people do not know what goods they want
  4. governments refuse to print enough money

Explanation

Scarcity is the relationship between unlimited human wants and the limited resources available to satisfy them. It is a universal condition that affects rich and poor economies alike, not a problem of money supply or ignorance of wants.

Question 2Basic economic concepts, scarcity and opportunity cost

A student has 5,000 kyats and must choose between a textbook and a concert ticket. The opportunity cost of buying the textbook is

  1. the concert ticket given up Correct answer.
  2. the textbook plus the concert ticket
  3. nothing, because the student chose the textbook willingly
  4. the 5,000 kyats spent on the textbook

Explanation

Opportunity cost is the value of the next best alternative forgone when a choice is made. The money paid is the price, while the concert ticket is the alternative sacrificed, so the ticket measures the true cost of the choice.

Question 3Basic economic concepts, scarcity and opportunity cost

Which of the following is best classified as a factor of production called capital?

  1. a worker stitching clothes
  2. a sewing machine in a garment factory Correct answer.
  3. a rice field owned by a farmer
  4. the money a shopkeeper keeps in a till

Explanation

In economics, capital refers to man-made producer goods used to produce other goods and services, such as machinery and equipment. A sewing machine fits this definition because it is a produced input that helps make garments.

Question 4Basic economic concepts, scarcity and opportunity cost

The production possibility curve of an economy shifts outward when

  1. the economy moves from a point inside the curve to a point on the curve
  2. the quality and quantity of productive resources increase Correct answer.
  3. the economy decides to produce more of one good and less of the other
  4. consumers change their preferences between the two goods

Explanation

An outward shift of the production possibility curve represents economic growth, which requires an increase in the quantity or quality of resources or improved technology. Movements along or toward the curve do not change the economy's maximum capacity.

Question 5Basic economic concepts, scarcity and opportunity cost

A point lying inside a production possibility curve indicates that

  1. resources are unemployed or used inefficiently Correct answer.
  2. the economy is using its resources fully and efficiently
  3. the opportunity cost of production has become zero
  4. the economy is producing beyond its capacity

Explanation

Any point inside the curve shows that the economy could produce more of at least one good without sacrificing the other, which means resources are idle or poorly used. Points on the curve represent full and efficient use of available resources.

Question 6Basic economic concepts, scarcity and opportunity cost

The concave (bowed-out) shape of a production possibility curve is mainly explained by

  1. government taxation of producers
  2. decreasing total output as production rises
  3. increasing opportunity cost as resources are reallocated Correct answer.
  4. constant opportunity cost between the two goods

Explanation

Resources are not equally productive in all uses, so transferring them from one good to another yields smaller and smaller gains. As a result, each additional unit of one good costs increasingly more of the other, producing a bowed-out curve.

Question 7Basic economic concepts, scarcity and opportunity cost

Which statement best describes the economic concept of free goods?

  1. Goods produced by firms at zero cost of production
  2. Goods that consumers receive without paying any tax
  3. Goods supplied free of charge by the government
  4. Goods whose supply exceeds demand at a zero price and involve no opportunity cost Correct answer.

Explanation

Free goods are available in sufficient quantity to satisfy all wants at a zero price, so using them involves no sacrifice of alternatives. Air and sunlight are common examples, unlike economic goods, which are scarce and command a price.

Question 8Basic economic concepts, scarcity and opportunity cost

A farmer can use a plot of land either to grow rice or to grow beans. If the land is used for rice, the beans that could have been grown represent

  1. the fixed cost of growing rice
  2. the social cost of growing rice
  3. the money cost of growing rice
  4. the opportunity cost of growing rice Correct answer.

Explanation

Opportunity cost is measured by the value of the best alternative use of a resource that is given up. Since the land can grow beans instead, the forgone bean output is the opportunity cost of choosing rice.

Question 9Basic economic concepts, scarcity and opportunity cost

The central economic problem of what to produce, how to produce and for whom to produce exists because

  1. technology is always improving
  2. resources are scarce relative to wants Correct answer.
  3. consumers are always rational
  4. governments control all production decisions

Explanation

Because resources are limited while wants are unlimited, every society must decide which goods to make, which techniques to use and how output is distributed. These three allocation questions follow directly from scarcity.

Question 10Basic economic concepts, scarcity and opportunity cost

An economy that moves along its production possibility curve from producing more consumer goods to producing more capital goods will

  1. shift its production possibility curve inward
  2. sacrifice some present consumption in exchange for higher future production capacity Correct answer.
  3. increase its current consumption of consumer goods
  4. eliminate the problem of scarcity

Explanation

Capital goods are used to produce other goods, so producing more of them means giving up some consumer goods now. The reward is a larger productive capacity and an outward shift of the curve in the future.

Question 11Basic economic concepts, scarcity and opportunity cost

Which of the following best illustrates the concept of opportunity cost at the level of a whole economy?

  1. A firm paying wages to its workers
  2. A bank charging interest on a loan
  3. A household buying food with its monthly income
  4. A government using funds for a new road instead of a new hospital Correct answer.

Explanation

Opportunity cost at the economy-wide level is the value of the alternative public project forgone when resources are committed to one use. Building the road means the hospital is not built, so the hospital is the sacrificed alternative.

Question 12Basic economic concepts, scarcity and opportunity cost

In a mixed economy, the basic economic questions are answered by

  1. a combination of market forces and government decisions Correct answer.
  2. the price mechanism alone
  3. central planning alone
  4. tradition alone

Explanation

A mixed economy combines private enterprise and market prices with government intervention such as regulation, taxation and public provision. Decisions about what, how and for whom to produce therefore reflect both market signals and state choices.

Question 13Basic economic concepts, scarcity and opportunity cost

A production possibility table shows that producing the first 10 units of cloth costs 2 units of rice, while the next 10 units of cloth cost 4 units of rice. This pattern reflects

  1. zero opportunity cost
  2. decreasing opportunity cost
  3. constant opportunity cost
  4. increasing opportunity cost Correct answer.

Explanation

The opportunity cost of cloth rises from 2 to 4 units of rice as more cloth is produced, which is the definition of increasing opportunity cost. This occurs because resources are not perfectly transferable between the two products.

Question 14Basic economic concepts, scarcity and opportunity cost

Which of the following is an example of a want rather than a need?

  1. Clean drinking water for a household
  2. A luxury watch worn for prestige Correct answer.
  3. Shelter during a cold season
  4. Basic medical treatment for an illness

Explanation

Needs are goods and services essential for survival and basic well-being, whereas wants are desires that improve comfort or status but are not necessary. A luxury watch satisfies a want because life can continue without it.

Question 15Basic economic concepts, scarcity and opportunity cost

If a country's production possibility curve is a straight line, this implies that

  1. resources are perfectly adaptable between the two goods Correct answer.
  2. the country cannot achieve economic growth
  3. the country faces increasing opportunity cost
  4. one good requires no resources at all

Explanation

A straight-line production possibility curve shows that the opportunity cost of one good in terms of the other stays constant. This happens when resources can be switched between uses without any loss of productivity.

Question 16Basic economic concepts, scarcity and opportunity cost

The reward earned by the factor of production called enterprise is

  1. rent
  2. wages
  3. interest
  4. profit Correct answer.

Explanation

Each factor of production earns a distinct reward: land earns rent, labour earns wages, capital earns interest and enterprise earns profit. Enterprise involves organising the other factors and bearing the risk of the business.

Question 17Basic economic concepts, scarcity and opportunity cost

A student decides to spend an evening studying economics instead of working a part-time job that pays 8,000 kyats. The opportunity cost of studying is

  1. zero, because studying has no money price
  2. the cost of the economics textbook only
  3. the value of the student's leisure plus the textbook
  4. the 8,000 kyats of forgone earnings Correct answer.

Explanation

Opportunity cost includes the value of the next best alternative forgone, which here is the income from the part-time job. The absence of a money price for studying does not make its cost zero.

Question 18Basic economic concepts, scarcity and opportunity cost

Which statement about the relationship between scarcity and choice is correct?

  1. Scarcity forces individuals and societies to make choices Correct answer.
  2. Scarcity applies only to money, not to time
  3. Choice eliminates scarcity once a decision is made
  4. Choice is necessary only when goods are free

Explanation

Because resources cannot satisfy all wants, people must rank wants and select among alternatives, which is choice. Every choice made in response to scarcity leaves some wants unsatisfied.

Question 19Basic economic concepts, scarcity and opportunity cost

An economy is currently producing at a point on its production possibility curve. To produce more of good X, it must

  1. increase the output of good Y at the same time
  2. reduce the output of good Y Correct answer.
  3. wait for the curve to shift outward
  4. use unemployed resources only

Explanation

Points on the curve represent full employment of resources, so producing more of one good requires transferring resources away from the other. The sacrifice of good Y is the opportunity cost of extra units of good X.

Question 20Basic economic concepts, scarcity and opportunity cost

Economic goods differ from free goods mainly because economic goods

  1. are scarce and require the sacrifice of other goods to obtain Correct answer.
  2. cannot be traded in markets
  3. are always more expensive than free goods
  4. are produced only by the government

Explanation

Economic goods are limited in supply relative to demand, so producing or consuming them involves an opportunity cost. Free goods, by contrast, are abundant enough to satisfy all wants at zero price.

Question 21Demand, supply and market price determination

In economics, which statement best describes the relationship shown by a demand schedule?

  1. It lists the quantities of a good buyers are willing and able to purchase at various prices, other things being equal. Correct answer.
  2. It shows how a consumer's income changes as the price of a good changes.
  3. It records the quantities actually sold in a market over a given period of time.
  4. It shows the total amount of a good that sellers offer for sale at each possible price.

Explanation

A demand schedule relates price to the quantity demanded, holding other influences constant (ceteris paribus). It reflects willingness and ability to buy, not actual sales or supply. The schedule is the tabular form of the law of demand.

Question 22Demand, supply and market price determination

A market's demand curve slopes downward from left to right. Which explanation is consistent with the law of demand?

  1. As price rises, producers find it profitable to supply larger quantities to the market.
  2. As price falls, sellers reduce the quantity they are willing to offer for sale.
  3. As price falls, the good becomes cheaper relative to substitutes, so buyers purchase more of it. Correct answer.
  4. As income rises, consumers buy more of every good in the market.

Explanation

The law of demand states an inverse relationship between price and quantity demanded. One reason is the substitution effect: a lower price makes the good relatively cheaper than alternatives, encouraging more purchases. This explains the downward slope.

Question 23Demand, supply and market price determination

The government raises the price of a close substitute for rice while the price of rice stays unchanged. In the market for rice, this change is best described as:

  1. a movement upward along the demand curve for rice
  2. a rightward shift of the demand curve for rice Correct answer.
  3. a movement downward along the supply curve for rice
  4. a rightward shift of the supply curve for rice

Explanation

A rise in the price of a substitute makes rice relatively more attractive, so consumers demand more rice at every price. This shifts the entire demand curve to the right. A change in the good's own price would instead cause movement along the curve.

Question 24Demand, supply and market price determination

Which of the following would cause the supply curve for cloth to shift to the left?

  1. A fall in the market price of cloth
  2. An increase in consumers' income
  3. An increase in the price of cotton used in making cloth Correct answer.
  4. A rise in the price of a substitute for cloth

Explanation

Cotton is an input in cloth production. When input costs rise, producing each unit becomes more expensive, so sellers offer less at every price, shifting supply left. Changes in the good's own price cause movement along the curve instead.

Question 25Demand, supply and market price determination

At a price above the equilibrium price in a competitive market, which situation arises?

  1. Quantity demanded equals quantity supplied and the market clears.
  2. Quantity supplied exceeds quantity demanded, creating a surplus. Correct answer.
  3. Quantity demanded exceeds quantity supplied, creating a shortage.
  4. The supply curve shifts rightward until the surplus disappears.

Explanation

When price is set above equilibrium, the higher price encourages sellers to offer more while discouraging buyers. The result is excess supply, or a surplus. Competitive pressure then tends to push price back down toward equilibrium.

Question 26Demand, supply and market price determination

A market has a demand curve that shifts right while the supply curve remains unchanged. What is the predicted effect on equilibrium?

  1. Equilibrium price rises while equilibrium quantity falls.
  2. Both equilibrium price and equilibrium quantity fall.
  3. Equilibrium price falls while equilibrium quantity rises.
  4. Both equilibrium price and equilibrium quantity rise. Correct answer.

Explanation

A rightward demand shift means buyers want more at every price. Moving along the unchanged supply curve to the new intersection raises both the equilibrium price and the equilibrium quantity. This is the standard prediction of comparative statics for a demand increase.

Question 27Demand, supply and market price determination

Which pair of changes would both shift the supply curve of a normal good to the right?

  1. A rise in input prices and an increase in the number of buyers
  2. A rise in the price of the good and a rise in consumers' income
  3. A fall in wages paid to workers and an improvement in production technology Correct answer.
  4. An expectation of a future price rise and a fall in the number of sellers

Explanation

Lower wages reduce production costs, and better technology raises productivity, so producers can supply more at each price. Both changes shift supply rightward. The other options involve demand factors or cost increases that move supply left.

Question 28Demand, supply and market price determination

The demand for a good is price inelastic. If the price of the good rises, what happens to total expenditure on the good?

  1. Total expenditure stays exactly the same because quantity adjusts proportionally.
  2. Total expenditure falls to zero because inelastic demand means buyers stop purchasing.
  3. Total expenditure falls because buyers reduce quantity by a larger percentage than the price rise.
  4. Total expenditure rises because the percentage fall in quantity is smaller than the percentage rise in price. Correct answer.

Explanation

Price elasticity of demand measures the responsiveness of quantity to price. When demand is inelastic, the quantity purchased falls proportionally less than the price rises, so total expenditure (price times quantity) increases. This is why sellers of inelastic goods gain revenue from price rises.

Question 29Demand, supply and market price determination

Two goods, A and B, have a cross elasticity of demand that is positive. This indicates that:

  1. A is a normal good and B is an inferior good.
  2. A and B are unrelated goods with no connection in consumption.
  3. A and B are substitutes, since a rise in the price of one raises demand for the other. Correct answer.
  4. A and B are complements, since they are consumed together.

Explanation

Cross elasticity measures how demand for one good responds to a change in the price of another. A positive value means a price rise for one good increases demand for the other, which is the defining feature of substitutes. Complements give a negative cross elasticity.

Question 30Demand, supply and market price determination

A consumer's income rises and, as a result, the quantity of a good demanded falls. This good is best classified as:

  1. a normal good
  2. an inferior good Correct answer.
  3. a substitute good
  4. a luxury good

Explanation

Income elasticity of demand measures the response of quantity demanded to a change in income. A negative income elasticity means demand falls as income rises, which defines an inferior good. Normal and luxury goods both have positive income elasticity.

Question 31Demand, supply and market price determination

A price ceiling set below the equilibrium price in a competitive market will most likely produce:

  1. a persistent shortage, because quantity demanded exceeds quantity supplied at the controlled price Correct answer.
  2. no effect on the market, because ceilings never bind
  3. a persistent surplus, because sellers offer more than buyers want at the controlled price
  4. an immediate fall in the supply curve to match the lower price

Explanation

A price ceiling is a legal maximum price. When set below equilibrium, it prevents price from rising to clear the market, so quantity demanded exceeds quantity supplied. The result is excess demand, or a shortage, which may lead to queues or black markets.

Question 32Demand, supply and market price determination

A minimum wage law sets wages above the equilibrium wage for low-skilled labour. In the labour market, this is expected to cause:

  1. a shortage of labour, since firms want to hire more workers than are available
  2. no change in employment because wages do not affect hiring decisions
  3. an upward shift of the labour demand curve to match the higher wage
  4. a surplus of labour, since the quantity of labour supplied exceeds the quantity demanded Correct answer.

Explanation

A minimum wage above equilibrium acts as a price floor in the labour market. At the higher wage, more people offer their labour while firms demand fewer workers, creating excess supply of labour. This surplus is often associated with unemployment among low-skilled workers.

Question 33Demand, supply and market price determination

The supply of a good is perfectly inelastic. What does this mean for the supply curve?

  1. It slopes upward gently, showing a small response to price changes.
  2. It is a vertical line, showing that the same quantity is supplied at every price. Correct answer.
  3. It is a horizontal line, showing that any quantity is supplied at one price.
  4. It slopes downward, showing that higher prices reduce quantity supplied.

Explanation

Price elasticity of supply measures how quantity supplied responds to price. Perfectly inelastic supply means quantity supplied does not change at all when price changes, so the curve is vertical. This often applies to fixed stocks of goods that cannot be produced quickly.

Question 34Demand, supply and market price determination

Which factor is most likely to make the supply of a manufactured good more elastic over time?

  1. The number of close substitutes available to consumers increases.
  2. The good becomes a smaller share of consumers' total spending.
  3. Firms have more time to adjust production capacity and hire additional inputs. Correct answer.
  4. Consumers become more loyal to the brand and buy it regardless of price.

Explanation

Elasticity of supply depends on producers' ability to adjust output. Over a longer period, firms can build capacity, train workers, and source more inputs, making quantity supplied more responsive to price. Time is therefore a key determinant of supply elasticity.

Question 35Demand, supply and market price determination

In a free market, the equilibrium price is best described as the price at which:

  1. the government has fixed the price to protect consumers
  2. the quantity that buyers wish to purchase equals the quantity that sellers wish to offer Correct answer.
  3. the demand curve is at its highest point
  4. total revenue earned by sellers is at its maximum

Explanation

Equilibrium occurs where the demand and supply curves intersect. At that price, planned purchases equal planned sales, so there is neither excess demand nor excess supply. The market clears without upward or downward pressure on price.

Question 36Demand, supply and market price determination

Simultaneously, demand for a good increases and supply of the good decreases. What can be said with certainty about the new equilibrium?

  1. Both equilibrium price and equilibrium quantity will rise.
  2. The equilibrium price will rise, but the change in equilibrium quantity is uncertain. Correct answer.
  3. Both equilibrium price and equilibrium quantity will fall.
  4. The equilibrium quantity will rise, but the change in equilibrium price is uncertain.

Explanation

A demand increase pushes both price and quantity up, while a supply decrease pushes price up and quantity down. Since both changes raise price, the price effect is certain. The quantity effects work in opposite directions, so the net quantity change depends on the relative magnitudes.

Question 37Demand, supply and market price determination

A government imposes a tax on each unit of a good sold. In the market for that good, the immediate effect is best represented as:

  1. a downward shift of the demand curve by the amount of the tax per unit
  2. a movement along the supply curve to a higher quantity
  3. an upward shift of the supply curve by the amount of the tax per unit Correct answer.
  4. a rightward shift of the supply curve, since firms sell more to cover the tax

Explanation

A per-unit tax raises the cost of supplying each unit, so sellers require a higher price to offer the same quantity. This shifts the supply curve upward (or leftward) by the tax amount. The new equilibrium typically has a higher price and a lower quantity.

Question 38Demand, supply and market price determination

When a per-unit tax is imposed on a good with very inelastic demand and relatively elastic supply, who bears the larger share of the tax burden?

  1. Consumers bear most of the burden, because they cannot easily reduce quantity purchased. Correct answer.
  2. The burden is shared equally regardless of elasticity.
  3. Producers bear most of the burden, because they can easily adjust output.
  4. The government bears the burden because it collects the tax.

Explanation

Tax incidence depends on relative elasticities. The side of the market that is less able to change quantity bears more of the burden. With inelastic demand, consumers keep buying despite a higher price, so most of the tax is passed on to them.

Question 39Demand, supply and market price determination

Which of the following best explains why the demand curve for a necessity such as salt is likely to be steep?

  1. Salt has few close substitutes and takes a small share of household spending, so quantity demanded responds little to price. Correct answer.
  2. Salt is produced by many firms, so supply responds strongly to price changes.
  3. Salt is a luxury good, so demand rises sharply when its price falls.
  4. Consumers spend a large share of their income on salt, making them price sensitive.

Explanation

Price elasticity of demand is lower when few substitutes exist and when the good absorbs a small part of the budget. For salt, buyers cannot easily switch and the cost is minor, so quantity demanded changes little when price changes. This produces a steep, inelastic demand curve.

Question 40Demand, supply and market price determination

A fall in the price of petrol leads to an increase in the demand for motor cars. The cross elasticity of demand between petrol and motor cars is:

  1. positive, because the goods are substitutes
  2. zero, because the goods are unrelated
  3. positive, because motor cars are a normal good
  4. negative, because the goods are complements Correct answer.

Explanation

Goods consumed together are complements. A fall in the price of petrol increases demand for cars, so the cross elasticity is negative: a price fall in one good raises demand for the other. This confirms a complementary relationship.

Question 41Demand, supply and market price determination

Consumers expect the price of a good to rise sharply next month. In the current period, this expectation is most likely to:

  1. decrease current demand, shifting the demand curve to the left
  2. increase current demand, shifting the demand curve to the right Correct answer.
  3. have no effect until the price actually changes
  4. increase current supply, shifting the supply curve to the right

Explanation

Expectations about future prices influence current buying decisions. If buyers anticipate a price rise, they bring forward purchases, increasing demand now. This shifts the current demand curve to the right, often raising the current price.

Question 42Demand, supply and market price determination

In a market where supply is perfectly elastic and demand shifts to the right, what happens to equilibrium price and quantity?

  1. Price rises and quantity stays the same.
  2. Price stays the same and quantity increases. Correct answer.
  3. Price falls and quantity increases.
  4. Both price and quantity rise.

Explanation

Perfectly elastic supply is a horizontal line at a fixed price. A rightward demand shift moves the intersection along this horizontal line, so quantity rises while price remains unchanged. Producers are willing to supply any quantity at that price.

Question 43Demand, supply and market price determination

Which statement about a movement along a demand curve and a shift of the demand curve is correct?

  1. A movement along the curve is caused by a change in income, while a shift is caused by a change in the good's own price.
  2. A shift of the demand curve occurs whenever the price of the good changes.
  3. A movement along the curve is caused by a change in the good's own price, while a shift is caused by a change in another determinant of demand. Correct answer.
  4. Both a movement along the curve and a shift are caused only by changes in the good's own price.

Explanation

The demand curve is drawn for a given set of non-price determinants. A change in the good's own price changes quantity demanded and is shown as movement along the curve. Changes in income, tastes, related-good prices, or expectations shift the whole curve.

Question 44Demand, supply and market price determination

A firm faces demand whose price elasticity is exactly one (unit elastic) over a price range. Within that range, a small price increase will:

  1. lower total revenue, because quantity falls by a larger percentage than price rises
  2. raise total revenue, because price is higher on every unit sold
  3. reduce total revenue to zero, because buyers stop buying
  4. leave total revenue unchanged, because the percentage fall in quantity equals the percentage rise in price Correct answer.

Explanation

With unit elastic demand, the percentage change in quantity demanded exactly offsets the percentage change in price. Total revenue, price times quantity, therefore stays the same. Revenue rises only when demand is inelastic and falls when demand is elastic.

Question 45Demand, supply and market price determination

The supply of a good increases while demand stays unchanged. Which outcome is predicted for the market?

  1. Equilibrium price falls and equilibrium quantity rises. Correct answer.
  2. Equilibrium price rises and equilibrium quantity falls.
  3. Equilibrium price rises and equilibrium quantity rises.
  4. Equilibrium price falls and equilibrium quantity falls.

Explanation

A rightward shift of supply means more is offered at every price. Moving down the unchanged demand curve to the new intersection lowers the equilibrium price and raises the equilibrium quantity. This is the standard result of a supply increase.

Question 46Demand, supply and market price determination

In a competitive market for a normal good, the supply curve slopes upward to the right. What does this slope indicate about the relationship between price and quantity supplied?

  1. Quantity supplied is fixed regardless of the price charged.
  2. As price rises, the quantity supplied falls, other things being equal.
  3. As price rises, the supply curve shifts to the right.
  4. As price rises, the quantity supplied rises, other things being equal. Correct answer.

Explanation

The law of supply states a direct relationship: higher prices give producers an incentive to offer more units for sale, other things unchanged. This is shown as a movement upward along the same upward-sloping supply curve, not as a shift of the curve.

Question 47Demand, supply and market price determination

A market is in equilibrium at a price of 500 kyats. The government then sets a legal maximum price of 400 kyats. What is the expected result in this market?

  1. Quantity supplied exceeds quantity demanded, creating a surplus.
  2. Equilibrium price falls automatically to the new legal maximum.
  3. Quantity demanded exceeds quantity supplied, creating a shortage. Correct answer.
  4. The demand curve shifts to the right to restore equilibrium.

Explanation

A maximum price fixed below the equilibrium price is a binding price ceiling. At 400 kyats the quantity demanded is greater than the quantity supplied, so a shortage appears and the market cannot clear by price adjustment.

Question 48Demand, supply and market price determination

Which change would cause a movement along the demand curve for rice rather than a shift of that demand curve?

  1. An increase in consumers' money incomes.
  2. A change in consumers' tastes in favour of rice.
  3. A rise in the price of a substitute food such as noodles.
  4. A fall in the market price of rice. Correct answer.

Explanation

Only a change in the good's own price produces a movement along a given demand curve, altering quantity demanded. Income, substitute prices and tastes are non-price determinants, and changes in them shift the whole curve.

Question 49Demand, supply and market price determination

A per-unit tax is placed on sellers of a good whose demand is highly price-inelastic while supply is relatively price-elastic. What is the predicted outcome?

  1. The tax falls entirely on sellers because the tax is legally collected from them.
  2. The tax burden is shared equally because the tax is charged per unit.
  3. Sellers bear most of the tax burden and the price paid by buyers rises only slightly.
  4. Buyers bear most of the tax burden and the price paid by buyers rises substantially. Correct answer.

Explanation

The tax burden falls more heavily on the side of the market that is less able to change quantity, which here is buyers with inelastic demand. Most of the tax is therefore passed forward into a higher price paid by buyers, while sellers' net receipts fall only slightly.

Question 50Demand, supply and market price determination

In the market for a good, demand increases while supply decreases at the same time. Which statement is definitely true about the new equilibrium?

  1. Both equilibrium price and equilibrium quantity rise.
  2. Equilibrium price rises, but the change in equilibrium quantity cannot be determined. Correct answer.
  3. Equilibrium quantity rises, but the change in equilibrium price cannot be determined.
  4. Equilibrium price falls while equilibrium quantity is unchanged.

Explanation

A rightward shift of demand raises price, and a leftward shift of supply also raises price, so the two effects reinforce each other and price unambiguously rises. Their effects on quantity pull in opposite directions, so the change in equilibrium quantity depends on the relative sizes of the shifts.