Questions:

a. Identify two causes, apart from an increase in income, of an increase in demand for a

product.(2)

b. Explain why an increase in wages in likely to increase demand but may reduce supply?(4)

Analyze, using a demand and supply diagram, the granting of a subsidy to the producers of a product. (6)

MCQs

1. During a recession, economies experience increased unemployment and a reduced level of activity. How would a recession be likely to affect the market demand for new cars?

a. Demand will shift to the right.

b. Demand will shift to the left.

c. Demand will not shift, but the quantity of cars sold per month will decrease.

d. Demand will not shift, but the quantity of cars sold per month will increase.

2. If automobile manufacturers are producing cars faster than people want to buy them,

a. there is an excess supply and price can be expected to decrease.

b. there is an excess supply and price can be expected to increase.

c. there is an excess demand and price can be expected to decrease.

d. there is an excess demand and price can be expected to increase.

3. Market equilibrium refers to a situation in which market price

a. is high enough to allow firms to earn a fair profit.

b. is low enough for consumers to buy all that they want.

c. is at a level where there is neither a shortage nor a surplus.

d. is just above the intersection of the market supply and demand curves.