An Advanced Level Microeconomics Quiz!

A market is a location or platform where buyers (demanders) and sellers (suppliers) come together to exchange goods and services. It is a place where the demand for products meets the supply, allowing transactions to take place. In a market, buyers express their demand by purchasing products or services, while sellers offer their goods or services for sale. This exchange of goods and services is the fundamental characteristic of a market.

A sum of money provided by the government to a producer in order to increase the supply of a certain good/service is known as a subsidy. This financial assistance helps to lower the production costs for the producer, enabling them to offer the product or service at a lower price. The aim of a subsidy is to encourage the production and availability of the good/service, ultimately benefiting the consumers by making it more affordable and accessible.

A "surplus" occurs when more is supplied than demanded. This means that there is an excess quantity of a particular item or resource available in the market or economy, which leads to a situation where the supply outweighs the demand. This can result in lower prices as suppliers try to sell off the excess stock, or it may lead to a decrease in production to balance the supply and demand.

Queuing and rationing are commonly implemented when there is a shortage of a particular resource or product. When demand exceeds supply, queuing is used to organize and manage the distribution of the limited resource. Rationing, on the other hand, involves limiting the amount of the resource that each individual can obtain. Both queuing and rationing are strategies used to address scarcity and ensure fair distribution during times of shortage. Therefore, the statement "Queuing and rationing can be is often caused by shortage" is true.

The law of supply states that as the price of a good or service increases, the quantity supplied by producers also increases. This is because higher prices incentivize producers to supply more of the good or service in order to maximize their profits. Therefore, the correct answer options "rises," "increases," and "goes up" all accurately describe the relationship between price and supply according to the law of supply.

The statement "As price goes up, real income goes down, and demand falls" describes the income effect. The income effect refers to the change in demand for a good or service due to a change in real income. When the price of a good increases, it reduces the purchasing power of consumers' income, leading to a decrease in demand for that good. This effect is particularly relevant for normal goods, where an increase in price leads to a decrease in quantity demanded.

The given statement reflects the law of demand, which states that as the price of a good or service increases, the demand for it decreases, and vice versa. This is because consumers are typically more willing to purchase a product at a lower price, while higher prices may deter them from buying. The law of demand is a fundamental principle in economics and helps explain the inverse relationship between price and demand.

Ceiling price is another word for "maximum price" because it refers to the highest price that can be charged for a product or service. It sets a limit on the price, preventing it from going any higher. This term is commonly used in economics and government regulations to control prices and protect consumers from excessive pricing.

When the demand for a good decreases with an increase in income, it is referred to as an inferior good. This means that as consumers' income rises, they tend to buy less of this particular good. This could be because they now have more purchasing power and can afford to buy higher-quality substitutes or more luxurious alternatives. Therefore, the demand for this inferior good falls or decreases as income increases.

Elasticities are a measure of the change in one variable following a change in another variable. This means that elasticities help us understand how a change in one factor affects another factor. It quantifies the level of responsiveness or sensitivity of one variable to changes in another variable.

An elastic good is a good that is highly responsive to changes in price. When the elasticity of a good is greater than 1, it means that a small change in price will result in a relatively larger change in demand. This indicates that consumers are sensitive to price fluctuations and will adjust their purchasing behavior accordingly. Therefore, an elastic good is the correct answer in this case.

A price control is a regulation placed on a market so that a set price determines the market price, and not the market.

The letter "e" is the most common diagrammatic representation of the point where the plans of supply and demand coincide. This is commonly known as the equilibrium point or the market equilibrium. At this point, the quantity demanded by consumers equals the quantity supplied by producers, resulting in a balance between supply and demand in the market. The "e" shape is used to represent this point on a supply and demand graph, with the quantity on the x-axis and the price on the y-axis.

The term "minimum/floor price" refers to a price control measure that is set at a certain level to prevent the market price from falling below that level. In this context, the correct answer options - above, higher than, and over - all indicate that the minimum/floor price is set at a level that is greater than the market equilibrium price. This means that the minimum/floor price acts as a price floor and ensures that the market price does not go below a certain threshold.

Resource allocation refers to the process of deciding how the four factors of production (land, labor, capital, and entrepreneurship) should be utilized in order to maximize efficiency and productivity. It involves making decisions about how much of each resource should be allocated to different activities or sectors in the economy. By effectively allocating resources, an economy can ensure that resources are used in the most efficient and productive manner, leading to economic growth and development.

A substitute good is a good that can be used as an alternative to another good. When the cross price elasticity between two goods is positive, it means that an increase in the price of one good leads to an increase in the demand for the substitute good. This suggests that the two goods are substitutes for each other, as consumers are willing to switch from one to the other when the price of one increases.

A good for which demand increases with income is known as a normal good. This means that as people's income increases, they tend to purchase more of this good. Normal goods are typically associated with luxury items or goods that are not considered essential for survival. As people's income rises, they have more disposable income to spend on these goods, leading to an increase in demand.

A Veblen good is a type of good for which demand increases as the price increases because it displays wealth. This means that as the price of the good goes up, people perceive it as more prestigious and desirable, leading to an increase in demand. This phenomenon is often seen with luxury goods or status symbols, where the high price is seen as a reflection of exclusivity and social status.

The given definition describes the substitution effect. This effect occurs when a consumer switches from purchasing a relatively higher-priced good to a relatively lower-priced good as a result of a price change. It reflects the change in consumer behavior due to the relative prices of goods. The substitution effect is an important concept in economics as it helps to understand how changes in prices can impact consumer choices and overall market demand.

Complementary goods are goods that are often used together, meaning that the demand for one good is directly related to the demand for the other. For example, if someone buys a printer, they will also need to buy ink cartridges to use with it. The demand for printers and ink cartridges is complementary because an increase in demand for printers will result in an increase in demand for ink cartridges. Therefore, both "complementary" and "complementary goods" are correct answers to the question.

The given definition is describing the concept of cross price elasticity of demand, which measures the responsiveness of the quantity demanded of a good to changes in the price of another good. Cross price elasticity of demand helps determine whether two goods are substitutes or complements. If the cross price elasticity is positive, it indicates that the goods are substitutes, meaning that an increase in the price of one good leads to an increase in the quantity demanded of the other good. If the cross price elasticity is negative, it suggests that the goods are complements, meaning that an increase in the price of one good leads to a decrease in the quantity demanded of the other good.

(YED - Income elasticity of demand) is the responsiveness of quantity demanded to changes in income

The correct answer is (a.), (b.), and (c.) because all three options accurately define infrastructure. Option (a.) states that infrastructure refers to essential facilities that contribute to the capital stock of the economy. Option (b.) explains that infrastructure includes capital such as roads, which are often provided by the government to support economic activity. Option (c.) states that infrastructure consists of essential factors like roads that are necessary for economic activity. By combining all three options, we have a comprehensive definition of infrastructure.

An indirect percentage tax on a good or a service is known as an ad valorem tax. This type of tax is based on the value of the product or service being taxed, usually calculated as a percentage of the price. Unlike a fixed amount tax, the ad valorem tax increases or decreases proportionally with the value of the item being taxed. This allows the tax to be more equitable as it takes into account the varying prices of different goods and services.

A flat rate tax is being defined. This type of tax is a fixed percentage applied uniformly to all individuals or entities, regardless of their income or financial status. It is a simple and straightforward method of taxation that does not take into account the ability to pay. Unlike direct taxes, which are based on the income or profits of individuals or businesses, a flat rate tax imposes the same tax rate on everyone, regardless of their income level. This type of tax system is often criticized for being regressive, as it may place a heavier burden on low-income individuals.

A parallel market refers to an illegal market where goods and services are traded outside of government regulations. This term is commonly used to describe underground economies that operate alongside the official economy, often involving activities such as smuggling, tax evasion, and counterfeiting. Participants in a parallel market typically seek to avoid government oversight and taxation, creating a system that operates independently from legal frameworks.

A buffer stock refers to a system where non-perishable excess commodities are accumulated and stored for future use. This is done with the intention of regulating and maintaining control over the supply of these commodities. By creating a buffer stock, the aim is to prevent extreme fluctuations in supply and stabilize prices in the market. This allows for a more balanced and controlled distribution of goods over time, ensuring that there is an adequate supply available during periods of high demand or scarcity.

The analysis of the effect of a tax on the distribution of economic welfare, or more simply put, the question of who benefits from a tax, is known as tax incidence. Tax incidence refers to how the burden of a tax is distributed among different groups in an economy, such as consumers, producers, or suppliers. It examines who ultimately bears the economic cost of a tax, whether it is passed on to consumers in the form of higher prices, absorbed by producers through reduced profits, or shared between both parties.

The term "indirect tax" refers to a type of tax that is imposed on spending or expenditure. It is not directly levied on individuals or entities, but rather on the goods, services, or transactions they engage in. This means that the burden of the tax is ultimately passed on to the consumer through increased prices or costs. Therefore, "tax on spending," "tax on expenditure," "taxes on spending," and "taxes on expenditure" are all accurate ways to define indirect tax.

This question is asking for the correct term to describe the situation where resources can be used to produce different goods or services. The term is "producer substitutes" or "producer substitute." This means that producers have the ability to switch between producing different products or services depending on the availability and profitability of resources.