Exam Practice

Attempt these under timed conditions, then mark yourself against the guidance in the next section. Treat the diagram questions as compulsory — they're where easy marks live.

Part A Quick knowledge checks

1. Define opportunity cost and give one example for a government.
2. State the formula for PED and explain why the answer is normally negative.
3. Distinguish between a movement along and a shift of a demand curve.
4. What are the two characteristics of a pure public good?
5. Give two causes of government failure.

Part B Exam-style questions

Q1. The price of a good rises from £20 to £25 and quantity demanded falls from 400 to 360 units per week. (a) Calculate the price elasticity of demand. (b) State whether demand is elastic or inelastic, and what this means for the firm's total revenue. (4 marks)

Q2. With the aid of a supply and demand diagram, explain the likely effect of a poor harvest on the market for wheat. (5 marks)

Q3. Examine, using a diagram, the effects of imposing an indirect tax on the market for cigarettes. (10 marks)

Q4. Discuss the likely impact of a government subsidy on the market for electric vehicles. (12 marks)

Q5. Evaluate the view that indirect taxes are the most effective way of correcting the market failure caused by demerit goods such as tobacco and alcohol. (25 marks)