Draw a diagram showing the effects of a decrease in the price of new cars on the equilibrium market price and output in the daily market for taxi journeys in the UK. Referring to your diagram for Q1, fully explain what happens to the equilibrium market price and output of taxi journeys.

Multiple Choice Questions

Answer all 18 questions. Marks available per question are indicated and the total marks available for the test is 100.

Answers to questions one and three (Q1 and Q3) are to be drawn by hand, digitally photographed, and then individually inserted as image files in the relevant spaces provided for the answers to these questions in the Answers Template.

Answers to questions two and four (Q2 and Q4) should be typed in the relevant space provided for the answers to these questions in the Answers Template and should adhere to the indicative word counts for these two questions.

Each answer for question five to question eighteen inclusive (Q5 to Q18) should be typed as either a capital letter “A”, “B”, “C” or “D” in the relevant space provided in the Online Test Answers Template.

ENSURE THAT THE ANSWERS TEMPLATE IS FULLY

COMPLETED BEFORE SENDING IT BACK

Q1. (10 marks)

Draw a diagram showing the effects of a decrease in the price of new cars on the equilibrium market price and output in the daily market for taxi journeys in the UK.

Q2. (10 marks) Indicative Word Count = 50 words

Referring to your diagram for Q1, fully explain what happens to the equilibrium market price and output of taxi journeys.

Q3. (10 marks)

Draw a diagram showing the effects of an increase in the wage rate of car workers on the equilibrium market price and output in the annual market for new cars in the USA.

Q4. (10 marks) Indicative Word Count = 50 words

Referring to your diagram for Q3, fully explain what happens to the equilibrium market price and output of new cars.

Q5. (6 marks)

A bicycle retailer decreases the price of its bicycles from £400 to £350 per bicycle and the quantity demanded increases from 60 bicycles per week to 66 bicycles per week.

The price elasticity of demand for the retailer’s bicycles is:

-1.25
-0.8
-0.125
-0.1

Q6, Q7 and Q8 relate to the information below.

The following data are for a bakery operating in perfectly competitive goods and labour markets. All figures are hourly and the market price for a cake is £2.39.

Number of workers	Wage Rate (£)	Total Physical Product of Labour (output in cakes)
1	11.49	1
2	11.49	10
3	11.49	18
4	11.49	25
5	11.49	31
6	11.49	36

Q6. (6 marks)

What is the profit-maximising number of workers?

3 workers per hour
4 workers per hour
5 workers per hour
6 workers per hour

Q7. (3 marks)

If the business also has fixed costs of £4.07 per hour, what is the level of profit when the business employs the profit-maximising number of workers?

£86.04 per hour
£68.94 per hour
£17.10 per hour
£13.03 per hour

Q8. (3 marks)

If the market price of a cake decreases from £2.39 to £1.99 per hour, what will be the new profit-maximising number of workers?

6 workers per hour
5 workers per hour
4 workers per hour
3 workers per hour

Q9. (5 marks)

If the price of a good with elastic price elasticity of demand increases, then the following would happen:

the quantity demanded would increase and total revenue would increase.
the quantity demanded would decrease and total revenue would increase. C the quantity demanded would increase and total revenue would decrease.

D the quantity demanded would decrease and total revenue would decrease.

Q10. (3 marks)

If the demand for a certain product in a goods market decreases, then according to the price mechanism:

there will be a surplus of the good, the price of the good will then decrease, market demand will then increase whilst market supply decreases until demand equals supply.
there will be a surplus of the good, the price of the good will then increase, market demand will then increase whilst market supply increases until demand equals supply.
there will be a surplus of the good, the price of the good will then decrease, market demand will then decrease whilst market supply increases until demand equals supply.
there will be a shortage of the good, the price of the good will then increase, market demand will then decrease whilst market supply decreases until demand equals supply.

Q11. (4 marks)

Which of the following is not associated with perfect competition?

The good is homogeneous.
Producers are price takers.
Advertising can increase demand for a particular producer’s good.
There are many producers.

Q12. (4 marks)

Contractionary monetary policy involves:

increasing tax rates or increasing the money supply.
decreasing the money supply and/or increasing the base interest rate. C increasing the money supply and/or decreasing the base interest rate.

D decreasing government spending and/or increasing tax rates.

Q13. (4 marks)

In the weekly market for domestic air flights, which of the following reasons would cause a shift to the right of the market supply curve?

A decrease in the wage rate of air pilots.
An increase in the price of air fuel.
A decrease in consumer incomes.
An increase in the price of travel insurance policies.

Q14. (5 marks)

In general, for a producer operating in perfectly competitive goods and labour markets, the profit-maximising number of workers will increase if:

the output the workers can produce per hour increases.
the market wage rate increases.
the demand for the output the workers can produce decreases.
the market price of the good decreases.

Q15. (4 marks)

Which of the following is not associated with monopolistic competition?

There are low barriers to entry.
Producers may collude over price.
The good is not homogeneous.
Market supply is dominated by a large number of producers.

Q16. (4 marks)

In the monthly market for driving lessons, which of the following reasons would cause a shift to the right of the market demand curve?

A decrease in consumer incomes.
An increase in the wage rate of driving instructors.
A decrease in the price of driving tests.
A decrease in the price of e-scooters.

Q17. (4 marks)

Aggregate demand in the economy may decrease if:

the value of exports decreases and/or the value of imports increases.
the government increases government spending or the base interest rate decreases.
the government decreases tax rates and/or increases the money supply.
the unemployment rate decreases.

Q18. (5 marks)

If the equilibrium wage rate in a particular labour market decreases, it may have been caused by:

an increase in the qualifications required to be employed in the market.
a decrease in the market supply of labour.
an increase in the fringe benefits of being employed in the market.
an increase in the market demand for labour.