Senior Secondary (HKDSE) · Economics

Law of supply: Practice Questions

3 multiple-choice questions marked as you go, and 4 written questions with worked solutions. All on Law of supply.

7 questions26 marksFree, no account

Question 1

1 mark

According to the Law of Supply, ceteris paribus, which of the following diagrams correctly illustrates the relationship between the price of a good and its quantity supplied?

Question 2

1 mark

According to the law of supply, which of the following statements is correct, ceteris paribus?

Question 3

1 mark

Which of the following would lead to a movement along a supply curve rather than a shift of the supply curve?

Question 4

5 marks

Assuming the law of diminishing marginal returns holds, explain why a price-taking firm's marginal cost (\(MC\)) schedule represents its supply schedule, in accordance with the law of supply.

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Question 5

5 marks

Suppose producers of a non-perishable good expect its market price to rise significantly next month. Explain the immediate effect on the current supply of the good and why this phenomenon does not contradict the law of supply.

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Question 6

8 marks

The government of Country X is actively promoting the adoption of electric cars to combat air pollution and climate change. Consider the market for electric cars in Country X.

(a) State the Law of Supply. Provide two factors (other than the price of electric cars) that would increase the supply of electric cars and explain why for each factor. (3 marks)

(b) The government of Country X introduces two new policies: a subsidy for electric car manufacturers AND a significant increase in the sales tax on gasoline-powered cars.

(i) Explain how the subsidy for electric car manufacturers would affect the market for electric cars. (2 marks)

(ii) Explain how the increased sales tax on gasoline-powered cars would affect the market for electric cars, assuming gasoline-powered cars are substitutes for electric cars. (2 marks)

(iii) Analyze the combined overall impact of these two policies on the equilibrium price and equilibrium quantity of electric cars in Country X. (3 marks)

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Question 7

5 marks

The market for electric scooters has experienced significant changes in industry structure.
(a) Explain why the law of supply usually results in an upward-sloping supply curve. (2 marks)
(b) If the market price of electric scooters increases, identify whether this leads to a change in supply or a change in quantity supplied. (1 mark)
(c) Explain how a decrease in the number of manufacturers in the electric scooter industry would affect the market supply curve. (2 marks)

Write your answer out first, then check it against the worked solution.

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