Consumer Behaviour and Demand
In July 2022 Amazon, the online retailer, announced that it would increase the price of its Amazon Prime subscription service from £79 to £95 per year. This resulted in 590 000 UK consumers cancelling their Amazon Prime subscriptions.
Which one of the following is the most likely explanation of this behaviour?
A Consumers are good at computation
B Consumers aim to maximise their utility
C Consumers are influenced by the behaviour of others
D Consumers feel undervalued by their current provider
C Consumers are influenced by the behaviour of others
Which one of the following is a function of the price mechanism?
A An increase in the price of hand sanitisers, caused by an increase in demand, will ration them to those who are most able to pay
B A decrease in the price of carrots, caused by excess supply, provides farmers with the incentive to increase supply
C A decrease in the price of tinned meat is a signal to producers that demand for it is increasing
D An increase in the price of petrol is a signal to the government to impose a maximum price
A An increase in the price of hand sanitisers, caused by an increase in demand, will ration them to those who are most able to pay
Which one of the following is an example of market failure?
A Lower prices create an incentive for firms to switch production to more profitable activities
B Excessive administrative costs are involved in meeting environmental regulations
C Government provision of street lights that is greater than the social optimum output
D Insured consumers take more risks in the knowledge that the insurer will pay any resulting costs
D Insured consumers take more risks in the knowledge that the insurer will pay any resulting costs
Which one of the following is a cause of government failure?
A Excessive administrative costs involved in meeting environmental regulations.
B A market bubble causing the price to rise excessively.
C The existence of free riders leading to the under-production of public goods.
D Under-production of foods with external benefits.
A Excessive administrative costs involved in meeting environmental regulations.
Which one of the following is an advantage of a free market economy?
A The profit motive gives firms the incentive to be more efficient
B Public goods may be under-provided by the price mechanism
C Goods may be over-provided compared with the social optimum level of output
D Government intervention leads to the correction of market failure
A The profit motive gives firms the incentive to be more efficient
Which one of the following will cause a movement along the demand curve in the market for rice?
A An increase in the global population
B An increase in real incomes
C A decrease in the price of noodles
D A decrease in the price of rice
D A decrease in the price of rice
Which one of the following is a function of the price mechanism?
A To create an incentive for producers to decrease the quantity supplied when the price increases.
B To encourage government intervention to allocate scarce resources.
C To provide a signal to producers and consumers about changes in supply and demand when prices change.
D To ration scarce resources by allowing prices to decrease when demand increases.
C To provide a signal to producers and consumers about changes in supply and demand when prices change.
Which one of the following is a characteristic of symmetric information?
A Buyers have more information than sellers
B Sellers have more information than buyers
C Buyers and sellers have the same level of information
D Buyers and sellers experience market failure
C Buyers and sellers have the same level of information
A relatively high rate of indirect taxation on fuel in the Philippines leads to the smuggling of fuel from neighbouring countries. This results in the Philippine Government losing $750 million of tax revenue a year.
Smuggling is an example of which one of the following concepts?
A Government failure
B Market failure
C Unobtainable production
D Consumer inertia
A Government failure
In 2018 government spending in South Korea accounted for 30.3% of GDP.
In Denmark government spending accounted for 52.1% of GDP.
Which one of the following describes economies where resources are allocated by both the government and the price mechanism?
A Free market
B Command
C Mixed
D Irrational
C Mixed
In North America the cross elasticity of demand for coffee with respect to a change in the price of milk was estimated to be –0.04.
Which one of the following can be deduced from this information?
A Coffee and milk are inferior goods
B Coffee and milk are substitute goods
C Coffee and milk are unrelated goods
D Coffee and milk are complementary goods
D Coffee and milk are complementary goods
Following a successful advertising campaign for organic milk, consumer preferences shift strongly in its favor. In a free market, what is the most likely sequence of events that follows?
A Demand increases → shortage at the original price → price rises → quantity supplied increases along the supply curve to a new equilibrium.
B Demand increases → surplus at the original price → price falls → quantity demanded decreases to a new equilibrium.
C Supply increases → surplus at the original price → price falls → quantity demanded increases to a new equilibrium.
D Supply decreases → shortage at the original price → price rises → new equilibrium with lower quantity.
A Demand increases → shortage at the original price → price rises → quantity supplied increases along the supply curve to a new equilibrium
Which one of the following is an example of market failure?
A Government provision of flood defences that is greater than the social optimum output
B Doctors prescribe too many medicines because the cost is covered by health insurance
C Lower prices create an incentive for firms to switch production to more profitable activities
D Unintended consequences that follow the introduction of an indirect tax
B Doctors prescribe too many medicines because the cost is covered by health insurance
Which one of the following is an example of government failure?
A Government intervention leads to a net welfare gain
B A new environmental regulation leads to excessive administrative costs
C Speculators cause a market bubble to emerge in the housing market
D Free riders lead to the underprovision of public goods
B A new environmental regulation leads to excessive administrative costs
Forward markets are available at one-month, three-month and one-year intervals.
Which one of the following is most likely to have a forward market?
A Furniture
B Currencies
C Smartphones
D Clothing
B Currencies
In the Netherlands the cross-elasticity of demand for organic meat with respect to a change in the price
of non-organic meat is +0.5.
Which one of the following can be deduced from this information?
A Organic meat and non-organic meat are substitutes
B Organic meat and non-organic meat are normal goods
C Organic meat and non-organic meat are unrelated goods
D Organic meat and non-organic meat are complements
A Organic meat and non-organic meat are substitutes
If the government imposes a specific (per-unit) indirect tax on the producer of a good with relatively price inelastic demand, which of the following outcomes is most probable?
A The government's tax revenue will be low, and the incidence of the tax will fall mostly on the producer.
B The government's tax revenue will be high, and the incidence of the tax will fall mostly on the consumer.
C The tax will create a large deadweight loss, and the market quantity will fall substantially.
D Producer surplus will increase significantly as they can pass all costs to consumers.
B The government's tax revenue will be high, and the incidence of the tax will fall mostly on the consumer
70 million citizens in Bangladesh live in areas where there is a risk of flooding.
The Government of Bangladesh plans to spend $400 billion to build 600 kilometres of sea defences.
Sea defences are an example of which one of the following?
A Consumer goods
B Free goods
C Private goods
D Public goods
D Public goods
Which one of the following is an example of government failure?
A Overconsumption of sugar that creates external costs
B Smuggling of petrol resulting from the introduction of an indirect tax
C An increase in the price of timber that creates an incentive to increase its production
D Government provision of flood defences to resolve the free rider problem
B Smuggling of petrol resulting from the introduction of an indirect tax
Singapore is considered to be close to being a free market economy, with low tax rates, minimal regulations on businesses and a reliance on the price mechanism.
Which one of the following is a disadvantage of a free market economy?
A The profit incentive encourages investment
B The non-provision of public goods
C The possibility of government failure
D An equal distribution of income
B The non-provision of public goods
Which one of the following statements is a consequence of diminishing marginal utility?
A Total utility will rise at a faster rate as more of a product is consumed
B The supply curve for a product will slope upwards
C The demand curve for a product will slope downwards
D Total utility will rise at a constant rate as more of a product is consumed
C The demand curve for a product will slope downwards
A government introduces a subsidy on electric bicycles to encourage their use. What is the immediate impact on the market's consumer and producer surplus?
A Both consumer surplus and producer surplus decrease.
B Consumer surplus increases, but producer surplus remains unchanged.
C Both consumer surplus and producer surplus increase.
D Producer surplus increases, but consumer surplus remains unchanged.
C Both consumer surplus and producer surplus increase.
Which one of the following combinations of characteristics best describes private goods?
A Rival and excludable
B Rival and non-excludable
C Non-rival and excludable
D Non-rival and non-excludable
A Rival and excludable
The Chinese Government introduced a carbon emissions trading scheme. The
objective of this tradeable pollution permit scheme is to reduce carbon emissions by
A forcing highly polluting firms to buy permits from low polluting firms
B forcing low polluting firms to buy permits from highly polluting firms
C paying subsidies to firms who manage to reduce their carbon emissions
D taxing firms who pollute less than their allowance
A forcing highly polluting firms to buy permits from low polluting firms
In 2022 it was estimated that $5.8 trillion worth of money was circulating in the USA.
Which one of the following is a function of money?
A To create a moral hazard
B To extend property rights
C To regulate financial markets
D To act as a medium of exchange
D To act as a medium of exchange