Cambridge IGCSE · Economics (0455)
5 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Price changes.
A local market for avocados experiences a significant increase in the costs of fertilizer and fuel used by farmers. At the same time, there is no change in consumer demand. Which statement describes the most likely impact on the market equilibrium?
In the market for bicycles, the following events occur at the same time:
1. The price of steel (an input) falls significantly.
2. The government launches a nationwide health campaign promoting cycling.
What is the most likely consequence for the equilibrium price and equilibrium quantity of bicycles?
There is a significant increase in the price of aviation fuel. At the same time, high-speed rail travel (a substitute) becomes significantly cheaper.
What is the most likely effect on the market for air travel?
Which of the following events would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of a product, assuming all other factors remain constant?
In the market for digital cameras, there is a simultaneous increase in the number of producers and a decrease in consumer preference for the product. What will be the certain effect on the equilibrium price and quantity?
State one reason why the market price of a consumer good might increase even if the demand for that good remains constant.
Write your answer out first, then check it against the worked solution.
In a market for electric vehicles, there is a simultaneous increase in consumer subsidies and a decrease in the cost of lithium batteries.
Explain the likely effect on the equilibrium quantity and the equilibrium price of electric vehicles.
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In the market for electric vehicles, two specific changes occur simultaneously:
1. Advances in robotics significantly lower the marginal cost of battery production.
2. The government introduces a substantial income tax cut for all households.
Analyse the combined effect of these changes on the equilibrium price and equilibrium quantity of electric vehicles, and identify which of these outcomes is certain.
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In the market for bottled water, there is a sudden and significant increase in the cost of plastic used for the bottles. At the same time, a heatwave occurs, leading to a rise in consumer demand for cold drinks.
(a) Define the term market equilibrium.
(b) Using a demand and supply diagram, explain how these two changes will affect the equilibrium price of bottled water.
(c) State whether the equilibrium quantity will definitely increase, decrease, or if the effect is uncertain, and explain your reasoning.
Write your answer out first, then check it against the worked solution.
In the market for electric vehicles (EVs), the following two events occur simultaneously:
1. There is a significant technological advancement in battery production, which reduces the marginal cost of manufacturing EVs.
2. The government introduces a large income tax cut for all households, leading to an increase in their disposable income.
(a) Define the term market equilibrium.
(b) Explain how the technological advancement affects the supply curve for EVs.
(c) Explain how the income tax cut affects the demand curve for EVs.
(d) Using your knowledge of price changes, analyse the certain effect on the equilibrium quantity and the uncertain effect on the equilibrium price of EVs. Use a demand and supply diagram to support your answer.
Write your answer out first, then check it against the worked solution.
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