DP Economics Questionbank

Using a definition of price elasticity of demand, explain why “the revenues received by the nation’s biggest exporters continue to fall” (paragraph 5).

Calculate the price elasticity of demand when price falls from $10 to $8.

Evaluate the consequences of rising incomes on service sector producers (such as hotels) and primary sector producers (such as rice farmers).

Explain why an increase in incomes over time may lead to an increase in demand for some goods but a decrease in demand for other goods.

The income elasticity of demand for primary commodities tends to be relatively low, while the income elasticity of demand for manufactured goods and services tends to be higher. Examine the likely effects of this for individual producers and for the economy as a whole.

Explain how the value of the cross price elasticity of demand (XED) for a particular good is determined by its relationship to other goods.

Examine the significance of both cross price elasticity of demand and income elasticity of demand for a firm.

Examine the significance of price elasticity of demand for the decision making of firms and government.

Widgets and Pidgets have negative cross price elasticity of demand (XED).
Explain how the demand function for Widgets, Qd = 249 − 4P, is likely to change as a result of an increase in the price of Pidgets.

Explain two determinants of the price elasticity of demand (PED).

State the value of the price elasticity of supply (PES) for tickets to the 2018 Football World Cup final.

Explain why price elasticity of demand varies along the length of a straight-line demand curve.

Examine the significance of price elasticity of demand for the decision-making of firms and governments. 

The time taken to produce goods is an important determinant of the price elasticity of supply.

Apart from time, explain two factors which influence the price elasticity of supply.

Evaluate the importance of cross price elasticity of demand for a business selling a good if the price of a related good increases.

Discuss the significance of price elasticity of demand (PED) for a government imposing an indirect tax on a good.

Explain how knowledge of price elasticity of demand could be used by a firm that is considering changing the price of its product.

Explain why the price elasticity of demand for primary commodities is often relatively low while the price elasticity of demand for manufactured goods is often relatively high.

Discuss the importance of price elasticity of demand and cross price elasticity of demand for a firm’s decision making.

Table 1 provides information about Good X and Good Y, which are related goods.

Table 1

Using Table 1, calculate the cross price elasticity of demand between Good X and Good Y when the price of Good X increases.

Country D is an economically less developed country that specializes in the production of primary products. 

Explain two implications for Country D of a relatively low income elasticity of demand for its primary products.

Good A and Good B are in joint supply.

Using a diagram to support your answer, explain the impact on the market for Good B of an increase in the price of Good A.

Using a production possibilities curve (PPC) diagram, explain why choices have to be made in all economies.

Assuming that there are no restrictions on the importing of bananas into Country A:

State the quantity of bananas which will be purchased each month in Country A.

Assuming that there are no restrictions on the importing of bananas into Country A:

Calculate the monthly expenditure on bananas imported into Country A.

Assuming that there are no restrictions on the importing of bananas into Country A:

Calculate the domestic producer surplus.

Outline the reason why a fall in the price of the dollar should lead to an increase in the quantity of dollars demanded.

Using a supply and demand diagram with international trade values from the text, explain the statement that “The US imported 1200 million pounds (lb) of shrimp last year and produced 100 million pounds (lb) of shrimp domestically” (paragraph [2]) (Does not need to be to scale).

Using a demand and supply diagram, explain why “the double effect of slowing growth in China and higher levels of production in Australia has driven the price of iron ore lower” (paragraph 1).

Using a definition of the term opportunity cost and information from the text, explain how the servicing of debt has an opportunity cost that may affect economic development in Sri Lanka.

Calculate the social surplus at the equilibrium market price.

Explain how an increase in the costs of factors of production would affect the market price and output of a good.

Discuss the view that competitive markets will always achieve allocative efficiency.

Calculate the equilibrium price and quantity per month.

Calculate the excess demand/excess supply (state which of these) at a price of $8.50.

Calculate the price at which excess demand of 18 widgets would result.

Define the term social (community) surplus.

Calculate the social (community) surplus in the market for cotton in San Marcus.

Calculate the resulting change in producer surplus following the introduction of the subsidy to cotton producers in San Marcus.

Calculate the change in the consumer surplus resulting from the subsidy.

Examine the view that the best allocation of resources, from society’s point of view, occurs where the marginal private benefit equals the marginal private cost.

Define the term excess demand indicated in bold in the text (paragraph [3]).

Identify the slope of the supply curve.

Draw and label the new supply curve on Figure 1.

Using your answer to part (c), outline the reason why an increase in costs of production has resulted in a new supply function.

Calculate the change in producer surplus resulting from the increase in costs of production.

Calculate the change in consumer surplus in Country Z as a result of the increase in demand for oranges.

Calculate the change in social (community) surplus as a result of the increase in demand for oranges.

Draw and label a curve that illustrates Fairland’s minimum wage on Figure 6.

Calculate the resulting unemployment among the low-wage workers.

Determine the slope of the market supply function for the corn farmers in Nissos.

Calculate the monthly equilibrium quantity of corn in Nissos.

Using Figure 1, calculate the consumer surplus in Nissos at the market equilibrium.

Plot and label the new supply curve on Figure 2.

Assuming that 25 000 pencils are produced initially, identify the opportunity cost for Country H if the production of rice is to be increased by 100 %.

Discuss the view that governments should not intervene in housing markets.

Define the term subsidies indicated in bold in the text (paragraph [2]).

Using a demand and supply diagram, explain the effect on the price and quantity of fuel consumed in Angola, caused by the elimination of domestic fuel subsidies (paragraph 4).

Using a demand and supply diagram, explain the impact on the market for fuel of the government’s decision to reduce fuel subsidies (paragraph 2).

The government in Alpha imposes a price ceiling of $5 per kilogram.

Calculate the change in the consumer surplus after the imposition of the price ceiling.

The government in Alpha imposes a price ceiling of $5 per kilogram.

Calculate the welfare loss after the imposition of the price ceiling.

Discuss the consequences for different stakeholders in the economy of the government providing subsidies on goods, such as renewable energy.

A government decides to impose an indirect tax on unhealthy drinks. Discuss the consequences for the stakeholders in these markets.

Explain two reasons why a government might want to subsidize a good or service.

Discuss the view that governments should tax the consumption of gasoline (petroleum).

Using a demand and supply diagram, explain the effect of government subsidies on the US corn market (paragraph [5]).

Draw and label the new supply curve following the granting of the subsidy to domestic cotton producers on Figure 3.

Calculate the cost to the government of San Marcus of providing this subsidy to domestic cotton producers.

Explain why a government might decide to impose a price ceiling on goods and services such as essential foods or rented housing.

Discuss the view that the provision of subsidies by the government on goods such as agricultural products will always be beneficial to stakeholders.

Using an appropriate externalities diagram, explain why a government might decide to impose a price floor on a demerit good.

Using a demand and supply diagram, explain how the cut in fuel subsidies may have had “severe consequences for low-income households” (paragraph [7]).

Using a demand and supply diagram, explain why the increase in the minimum wage might affect Cambodia’s garment manufacturing competitiveness against other countries in the region (paragraph [4]).

Explain one possible advantage and one possible disadvantage of governments setting a price floor in agricultural markets.

Draw and label on Figure 1 a curve that illustrates the price floor in Nissos that leads to a monthly surplus of 3 million kg of corn.

State one measure that the government of Nissos might take to deal with this corn surplus, following the imposition of the price floor.

Using Figure 1, determine the size of the decrease in monthly corn consumption following the imposition of the price floor.

Using Figure 1, calculate the change in consumer expenditure on corn in Nissos.

Explain the impact of a price floor on market outcomes.

Discuss the consequences for different stakeholders when the government imposes a price ceiling on a market.

Discuss how the introduction of a subsidy in a market will affect consumers, producers and the government.

Explain two reasons why a government might impose indirect taxes.

Discuss the view that price floors are more effective than subsidies in providing assistance to producers in the agricultural sector.

Explain why governments impose price floors in the market for agricultural products.

Explain why governments provide subsidies.

Evaluate the effectiveness of price floors in achieving a reduction in the consumption of demerit goods.

Using a demand and supply diagram, explain the impact on households of “removing some subsidies on food” (paragraph [5]).

Calculate the shortage resulting from the imposition of the maximum price.

Calculate the change in producer surplus resulting from the imposition of the maximum price.

Calculate the change in consumer expenditure on rice resulting from the imposition of the maximum price.

State two methods of non-price rationing.

Examine the consequences of the lack of a pricing mechanism for common access resources.

Discuss whether there should always be direct provision of public goods by the government.

Define the term monopoly power.

Explain why the consumption of merit goods, such as healthy food, can lead to positive externalities of consumption.

Discuss whether advertising by the government is the most appropriate way of increasing consumption of a merit good.

Explain why demerit goods are an example of market failure.

Evaluate the effectiveness of using indirect taxation to correct market failure.

Explain how the overuse of common access resources can lead to negative externalities.

Discuss the view that the best way to reduce the threat to sustainability, arising from the burning of fossil fuels, is for the government to provide subsidies to firms that produce energy through renewable sources.

Discuss the view that competitive markets will always achieve allocative efficiency.

Discuss the view that legislation is the best way of dealing with the problem of monopoly power.

To what extent is advertising the most effective way of increasing the consumption of merit goods?

Using an externalities diagram, explain how the widespread use of solar panels will decrease the negative externalities of consumption caused by the use of kerosene lamps (paragraph [5]).

Discuss the view that imposing an indirect tax on gasoline (petrol) is the most effective way of reducing the market failure caused by cars.

Using an appropriate externalities diagram, explain why a government might decide to impose a price floor on a demerit good.

Using an externalities diagram, explain how the Chinese infrastructure projects have caused negative externalities (paragraph [6]).

Discuss the implications of the direct provision of public goods by a government.

Define the term sustainability indicated in bold in the text (paragraph [6]).

Using an externalities diagram, explain why the percentage of infants receiving measles vaccinations in Nigeria indicates the existence of a market failure (Table 1).

Using an externalities diagram, explain why the garment industry is a source of market failure (paragraph [8]).

Discuss whether government regulation is the most effective way to deal with negative externalities of consumption.

Using an externalities diagram, explain how “greater access to education” for girls in Pakistan could reduce market failure (paragraph [5]).

Using an externalities diagram, explain why “business pollution” is leading to market failure in STP (paragraph [5]).

Define the term asymmetric information indicated in bold in the text (paragraph [6]).

Evaluate the view that the threat to sustainability, caused by economic activity requiring the use of fossil fuels, is best addressed through the use of carbon taxes.

Evaluate the effectiveness of government regulations in achieving a reduction in the consumption of demerit goods.

Discuss the view that tradable permits are more effective than taxes in reducing pollution.

Using an externalities diagram, explain why the construction of dams on the Mekong River might lead to market failure (paragraph [2]).

Using an externalities diagram, explain the benefits of hygiene and sanitation education programmes (paragraph [5]).

State two government responses to the abuse of monopoly power.

Using the figures provided in Table 1, calculate the monthly level of profits Firm A is making at the current level of output, Q’.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

State the reason Firm A cannot be a perfect competitor.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Determine whether Firm A should increase or decrease its level of output in order to maximize profits. You must give a reason for your choice.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Determine whether total revenue collected will increase, decrease or remain unchanged if Firm A increases its level of output. You must give a reason for your choice.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Describe how average cost will be affected if Firm A increases its level of output.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Determine whether Firm A is productively efficient at the current level of output. You must give a reason for your choice.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Explain why allocative efficiency is achieved, in the absence of externalities, at a level of output where price (average revenue) is equal to marginal cost.

On the following axes, sketch a fully labelled diagram showing the level of output Q’ for which the relationship
P = AR > MR > AC > MC is true. The use of figures provided in Table 1 is not required.

Now assume that the market in which Firm A operates has evolved into an oligopoly with only two firms, Firm A and Firm B. Each firm can cut price or maintain the current price. The following payoff matrix shows the profits they face. The profit payoffs for Firm A are in bold.

Using the profit figures in the payoff matrix, explain why strategic interdependence will lead both firms to cut price.

Define the term variable costs indicated in bold in the text (paragraph [7]).

Using an average costs diagram, explain the short-run consequence for shrimp farmers if the price received “is not enough to cover their variable costs” (paragraph [7]).

Define the term marginal cost indicated in bold in the text (paragraph 4).

Define the term increasing returns to scale.

Using the data in Table 1 to support your answer, identify how changes in inputs may result in constant returns to scale and in decreasing returns to scale.

Determine:

• economic profit if output is equal to 2 units and average cost is equal to $130 per unit.

Calculate the marginal revenue resulting from a fall in price from $8 to $6.

Explain why a profit-maximizing monopolist would never choose to operate on the inelastic portion of its demand curve.

State two characteristics of monopolistic competition.

Calculate Firm B’s short-run profit/loss at the profit-maximizing level of output.

Using the diagram, explain how long-run equilibrium will be reached.

With reference to the diagram, outline whether allocative efficiency will be achieved in the long run in a monopolistically competitive market.

Explain why a loss-making firm in perfect competition would shut down in the long run.

Discuss the view that perfect competition is a more desirable market structure than monopoly.

Explain two factors that might give rise to economies of scale for a firm.

Discuss the view that legislation is the best way of dealing with the problem of monopoly power.

Explain why some firms might choose the goal of profit maximization while others might choose to adopt satisficing behaviour.

Discuss whether price will always be lower and output will always be higher in perfect competition compared to monopoly.

Draw and label the marginal revenue (MR) curve for the 2018 Football World Cup final.

Using the diagram and your answers to parts (j) and (k), explain how the organizers could achieve their goal of profit maximisation.

Discuss whether an oligopolistic firm should collude rather than compete.

Define the term total revenue indicated in bold in the text (paragraph [6]).

Using a theory of the firm diagram, explain the output and pricing decision of M-Kopa if it chooses to pursue the goal of revenue maximization (paragraph [6]).

Calculate Firm A’s average fixed costs when it is producing 125 cartons of coffee per month.

Calculate Firm A’s average variable costs when it is producing 125 cartons of coffee per month.

Using Figure 2, calculate the average fixed costs when 80 cans per month are produced.

Using Figure 2, calculate the total costs when 55 cans per month are produced.

Using this information, draw and label the average revenue curve on Figure 2.

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

Firm B conducted a market survey and found out that the price elasticity of demand for its brand of tea is 0.8 among urban customers, whereas it is 1.2 among customers in rural areas. The sales director said “This information could help Firm B to raise its revenue, by trying to separate the two markets, provided that certain conditions are satisfied”. Explain this statement.

Explain the relationship between the law of diminishing returns and a firm’s short-run cost curves.

Evaluate the view that monopoly is an undesirable market structure as it fails to achieve productive and allocative efficiency.

Examine the role of barriers to entry in making monopoly a less desirable market structure than perfect competition.

Define the term variable costs indicated in bold in the text (paragraph [4]).

Draw and label the marginal revenue (MR) curve for the concert on Figure 3.

Calculate the maximum revenue that could be earned from selling tickets for the concert.

Calculate the average fixed cost per ticket if all tickets are sold.

Assuming the event organizers aim to maximize profit, calculate the profit that will be made from the concert.

Calculate the change in expenditure on imported oranges as a result of the increase in demand.

Explain how two types of economies of scale can lead to a fall in long-run average costs.

Discuss the view that barriers to entry in a monopoly will always lead to abnormal profits in the long run.

State two characteristics of a perfectly competitive market.

Using a fully labelled diagram, outline the relationship between marginal product (MP) and average product (AP) of labour.

Draw and label the marginal revenue (MR) curve for corn for an individual farmer in Nissos on the grid below.

Using information from Figure 1, calculate Firm A’s total fixed costs.

The market price of almonds is $11 per kilogram. Using Figure 1, identify the quantity of almonds Firm A must produce in order to maximize profits.

Calculate the economic profit/loss when Firm A is producing at the output level identified in part (b)(i).

Based on the information in Figure 2, state whether the firms in this market are making normal profits, economic profits or economic losses.

On Figure 2, draw and label appropriate additional curves to show how a perfectly competitive market will move from short-run equilibrium to long-run equilibrium.

Using your answer to part (c)(ii), explain how the market adjustment takes place.

State two assumed characteristics of a monopoly.

Explain two reasons why a monopoly may be considered desirable for an economy.

Using Figure 3, calculate the economic profit when Firm B is maximizing its profits.

Using Figure 3, calculate the total revenue when Firm B is maximizing its revenue.

Sketch and label a diagram to illustrate the long-run equilibrium for a firm in monopolistic competition.

Explain how a natural monopoly may arise.

Discuss how governments restrict monopoly power.

Define the term economies of scale indicated in bold in the text (paragraph [3]).

Using a costs diagram, explain how the expansion of the coconut industry could lead to economies of scale (paragraph [4]).

Explain why a monopolistically competitive firm can make economic (abnormal) profit in the short run, but not in the long run.

Discuss the consequences of a perfectly competitive market becoming a monopoly market.

Explain the reasons for the shape of the long-run average total cost curve.

Discuss the view that governments should always try to prevent the creation of barriers to entry in a market.

Using a perfect competition diagram, explain whether farmers in the Philippines are making an economic profit or loss (Table 1).

Using a perfectly competitive firm diagram, explain the effect of declining prices of coffee beans on the profits of Honduras’ coffee farmers in the short run (paragraph [2]).

Sketch the marginal product (MP) and average product (AP) curves for this firm.

Sketch the total product (TP) curve for this firm.

Sketch the marginal revenue (MR) curve for firms in the widget industry.

Sketch the total revenue (TR) curve for firms in the widget industry.

Calculate the firm’s total variable costs if output is 20 000 widgets per month.

Identify the level of output at which the firm would achieve productive efficiency.

Calculate the firm’s monthly total fixed costs if output equals 50 000 units per month.

State two conditions necessary for price discrimination to take place.

Using a diagram (or diagrams), explain why a profit maximizing firm might charge a higher price in one market than in another.