Take this Quiz: A-Level Economics: Demand, Supply and Equilibrium | Zestly

Question 1

In a perfectly competitive market for widgets, if the price of a complementary good increases, what is the immediate effect on the market equilibrium?

Accepted Answer

The demand curve shifts left, leading to a lower equilibrium price and quantity.

Question 2

If a market is currently experiencing excess supply at a price of £10, how does the price mechanism restore equilibrium?

Accepted Answer

Producers lower prices to clear unsold inventory, incentivizing consumers to buy more.

Question 3

Which of the following scenarios illustrate the 'signalling' function of the price mechanism?

Accepted Answer

A rise in the price of lithium signals to producers that there is a shortage and they should increase production.

Question 4

Consider a market where the equilibrium price is £50. If the government imposes a maximum price (price ceiling) at £40, what is the most likely outcome?

Answer

The market remains at equilibrium because the ceiling is non-binding.

Answer

A shortage occurs because the quantity demanded exceeds the quantity supplied at £40.

Answer

A surplus occurs because producers are willing to supply more at £40 than consumers want.

Answer

The equilibrium price will automatically rise to £60 to compensate for the ceiling.

Question 5

Which of the following correctly describes the components of total surplus in a market equilibrium?

Answer

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay.

Answer

Producer surplus is the total revenue earned by firms in the market.

Answer

Producer surplus is the difference between the price firms receive and the minimum price they were willing to accept.

Answer

Consumer surplus is the total amount of money spent by consumers on a good.