Price Mechanism

Worksheet

Multiple Choice Questions (MCQs)

Question Answer Reason

Concept.
1. C
Producer surplus is the area below the market
price above the supply curve.
The closure of local course results in the fall
of supply of facilities in Singapore.
2. B
The travel restrictions result in higher demand
in Singapore.
The decrease in the cost of production
because of the subsidy given by the
government results in the supply curve to shift
outward.

The rise in the price of the alternative sources

of energy results in the demand for solar
3. B
energy to rise – a rightward shift in the
demand curve takes place.

The rise in the price factor for the alternative

sources of energy is a non-price factor for the
solar energy – therefore, there is a shift in the
demand curve.
The increase in environmental awareness is a
4. C
non-price factor as it denotes a change in the
 tastes. Therefore, there is a rightward shift of
the demand curve.

The decrease in the price of the batteries is a

reduction in the costs of production of
electric vehicles. Therefore, the supply curve
shifts downward and rightward in this case.

The new equilibrium is then Point/Option C.

When the demand falls for a good falls, the
price has to fall – a decrease in the quantity
supplied is noted as producers are willing to
supply less at a lower price and consumers
are buying less now that there is a fall in the
demand.
5. B
The change in the price has not taken place in
a manner that the quantity supplied is equal
to the quantity demanded – the producer are
still supplying more than is being demanded.

Therefore, the B option is a market in

disequilibrium.
A non-price factor – therefore, a shift in the
supply curve can take place due to the size of
the industry changing.

A smaller market with fewer number of firms

6. C can result in there being a greater share of the
market occupied by the single rice producing
firm; or vice versa, if the market is growing in
size.

C is then the answer.

When a shortage takes place, there is a
7. C greater quantity demanded than there is a
quantity supplied.
 To come to equilibrium, the market price
increases – which results in producers willing
to supply a greater quantity due to the cost
and profit motive. The quantity demanded
decreases as there is a smaller quantity that
consumers are willing to purchase at a higher
price.
A price factor change results in a movement
along the curve. A change in the price of the
8. C
good for which the demand curve is drawn
results in a movement along the curve.
Concept.
9. C
Students can refer to definition in notes.
Concept.
10. B
Students can refer to concept in notes.
Health concerns regarding the consumption
of butter is a change in the tastes. This results
in leftward shift of the demand curve, and a
movement along the supply curve. Since a
smaller quantity demanded is being supplied,
and buttermilk is in joint supply with butter – a
11. B
price factor change for butter is a non-price
factor for buttermilk.

Therefore, movement along the curve for

butter and shift in the supply curve for
buttermilk. The answer then is B.
The question has asked for, in different words,
the area denoting the consumer surplus.

“…what producer’s receive at that output” is

12. A
the market price at market equilibrium. The
question has asked to consider market
equilibrium.
 Then, the difference between what
consumers are willing and able to pay and
actually pay is Area x or the area showing the
consumer surplus.
A price factor change for the cars will cause a
movement along the demand curve for cars.

13. A The price factor change for cars is a non-price

factor change for motorcycles, and since cars
are becoming cheaper, the demand for
motorcycles falls or shifts to the left.
Concept.
14. C
The demand curve shows us different
quantity demanded as the price changes.
A change in the price of fuel for consumers
would be a non-price factor that causes a
15. B
shift of the demand curve of the cars rather
than the supply curve.
A better quality or state of technology results
in the supply curve to shift to the right or
downward.

The findings in research of the pineapple

16. C
would increase the demand for the good –
seen by a rightward shift of the demand curve.

C is the equilibrium point that captures the

changes. Therefore, it is the answer.
Students should compare the areas of
consumer and producer surplus before and
after the price change and will note that the
17. D area above the market price and below the
demand curve (consumer surplus) increases
after the fall in the price.
 The area below the market price and above
the supply curve (producer surplus) is also
larger than it was previously.

Therefore, D is the answer.

Removing sales tax is a supply-side factor; a

reduction in the tax will result in an outward
shift in the supply curve rather than the
demand curve (as seen in the diagram).
18. C
The other options all can result in an outward
shift of houses, which can result in the
demand for the kind of switches mentioned to
go up as more people desire to purchase
houses.
Students should remember that the question
asks for which statement is not valid.
19. C
If price falls from OP1 to OP3, extra quantity
supplied will equal quantity demanded, not
vice versa.
The government provides free healthcare
now, represented by the supply curve Sg.

The new market price is $0. Therefore, the

area above the market price and below the
demand curve includes Area = 1 + 2 + 3 + 4.
Previously is was 1 since at Market Price, P,
20. B the area above the market price and below
the demand curve is area 1.

With the new supply curve, the quantity where

Sg and the demand curve intersect is where
the market is in equilibrium at the $0 price.

Therefore, B is the answer.

 Headphones provide use alongside the use of
a phone.
21. C
Consumers are likely to demand them
alongside each other due to their
complementary use.
Incomes are a non-price factor that impact
the change in the demand curve – a rise in
22. A
incomes can result in the rise in demand for a
normal good.
Consumers continue to purchase more and
more of a good, stopping when consumer
surplus or the difference between what they
are willing to pay and what they actually pay is
zero.
23. C
If consumer surplus exists, consumers have a
positive consumer surplus, or they are willing
to pay more than the market price.
Therefore, C is the answer.
Producer Surplus is the area below the
market price and above the supply curve.

24. B Option B denotes calculating the revenue

(Area OWYZ) and subtracting the area below
the supply curve (Area OYZ). This gives us the
area of the Producer Surplus.
An increase in the demand for Good X, results
in an increase in supply for Good Y. This is
25. B
seen in cases where the good is in joint
supply.
The supply of the seats in a stadium is fixed as
no change can happen. Therefore, the supply
curve will be vertical as the quantity supplied
26. B
cannot change depending on whatever the
price is.
 Given that the tickets sold out very quickly,
this shows that the quantity demanded is
greater than the quantity supplied. This is
seen in Option B.

Therefore, B is the answer.

An increase in demand causes the
equilibrium to go rightward of H, and an
increase in supply results in the equilibrium to
27. A be downward of the equilibrium before we
reach K.

Therefore, A is the answer.

A fall in the price of carrot seed results in the
supply curve to shift outward or to the right as
the producers are now able to supply a
greater quantity at every price.
28. B
The producer surplus will increase then as,
when the market enters equilibrium again a
greater quantity in the market will be
consumed than was previously the case.
Since there is a fixed number of seats in the
stadium, the quantity supplied cannot
change due to a fixed capacity in the stadium.
Therefore, there is a vertical supply curve.

29. C The increase in popularity of the band is seen

by a rightward or an outward shift of the
demand curve.

Option C shows these changes. Therefore, it

is the right answer.
When the market price is greater than the
equilibrium price, it implies there is a greater
30. C
quantity supplied of the good then there is a
quantity demanded. Therefore, when the
 price moves toward the market price and
becomes lower than it was before, the
quantity demanded increases due to the law
of demand. However, the quantity supplied
decreases as at a lower price, producers are
willing to supply less of the good.
The area above the market price but below the
demand curve will change from ABE to A; as
31. A we are assuming that the supply curve shifts
backwards resulting in the price to increase
from P1 to P2.
32. C Concept.
The demand curve shifts to the right as
successful advertising makes the good more
33. C
attractive to consumers who are willing to buy
a greater quantity of the good at every price.
The decrease in consumer incomes results in
a leftward shift in the demand curve. While
the increase in the price of the substitute
34. A good (a non-price factor) results in a rightward
shift in the demand curve for the good –
bringing it back to the same position as
before.
Whether there is a shortage or a surplus due
to the disequilibrium, prices will change in an
35. A
upward or a downward direction as the
market moves back to equilibrium.
A fall in the cost of production – by a fall in the
price of sugar, results in an outward or
36. A rightward shift of the supply curve showing
that at the same prices firms are willing to
supply a greater quantity of the goods.
We do not know whether price will rise or not
as we would have to know the extent to which
37. C the demand curve is shifting to the right to
know (remember an outward or rightward
shift of the supply curve is also taking place).
 When the cost of producing goods goes down,
the quantity of the good supplied and
consumed both goes up (remember there is a
rightward shift in the demand and supply
curves taking place).
38. B Concept.
39. A Concept.
Concept.

40. C Ceteris paribus means that all else apart from

the variable we observe a change in remains
constant.
Concept.
41. D
The supply curve is upward sloping because
of the cost motive and the profit motive.
The subsidy reduces the costs of production –
seen in a rightward shift of the supply curve.

The increase in price of train and bus journeys

42. B (a substitute of car or car travels) increases
the demand of the cars – seen in a rightward
shift of the demand curve.

Therefore, B is the new equilibrium.

Concept.

43. D The demand curve shows the different

quantity demanded values for different price
levels.
A shift to the right of the demand curve shows
an increase in demand.
44. A
Inferior goods are lower quality goods that
consumers demand more of when they are
not well-off. A decrease in consumer incomes
 will increase the demand of the inferior
goods.
The fall in the price of one good results in an
increase in the demand for the other good –
45. A
this is seen in the case of goods that are
complements.
The regulations are a non-price factor
46. D resulting in a leftward shift in the supply
curve.
Assuming the consumer stops buying cans at
the fourth can that they purchase, we can
calculate the Consumer Surplus as follows:

Can 1: $14 – $4 = $10

Can 2: $10 – $4 = $6
Can 3: $6 – $4 = $2

Consumer Surplus, if the consumer

47. A
consumes till Can 3 is $10 + $6 + $2 = $18.

The consumer surplus with the fourth can will

be:

Can 4: $4 – $4 = $0

Therefore, CS = $10 + $6 + $2 + $0. CS is left

unchanged by the purchase of the 4th can.
Change in wage rates are a change in the
costs of production – therefore, a shift in the
supply curve will take place as it is a non-price
factor.
48. D
Change in demand means that the demand
curve is shifting – therefore, the equilibrium
after the shift will take place after a
movement along the same supply curve.
Question mentions a change in the supply of
49. D
the good – oil. The question also mentions
 that the price of the good is falling and the
quantity of oil that is being bought is
increasing.

All relevant changes are visible in the graph of

diagram D.
An increase in the price of a substitute is a
price factor change (for pasta and rice)
meaning a movement along the demand
curve for those two goods.
50. A
However, the change in price of substitutes is
a non-price factor for bread – resulting in an
outward or rightward shift in the demand
curve for bread.
The quantity of Y that is demanded falls as the
price of good X falls – therefore they are
demanded competitively and are substitutes.
51. C
The quantity of good Z demanded increases
as the price of Good X decreases. Therefore, it
can be a complement of good X.
Consumers Surplus is the area above the
market price and below the demand curve.

52. A Producer Surplus is the area below the

market price above the supply curve.
Students should note areas after change in
demand.
Fall in the price of one good results in an
increase in the demand of another good – this
53. A
is the case of changes in demand and supply
of goods that are complements.
Entry of new producers means a larger
number of firms providing a greater quantity
54. B
of the good. Therefore, the supply curve shifts
to the right and there is an increase in supply
 – a downward movement of price or lowering
of price which is seen in the diagram between
1997 and 2001.
Increase in demand for a product that is in
joint supply results in an increase in quantity
supplied for the good in joint supply. Since
quantity supplied of the good in joint supply
55. C
increase, that is a non-price factor change for
good we are considering. Therefore, Option C
is the right answer as it shows an outward
shift of the supply curve.
Increase in demand (rightward shift of the
demand curve) and a fall in supply (leftward
56. C
shift of the supply curve) will lead to the E2
equilibrium being established.
An shift of the supply curve to the right means
an increase in supply. A higher number of
57. B firms means a larger supply of goods in the
market – so market supply will shift to the
right.
58. A Concept.
Miners increasing production in 2011 results
in supply curve to shift to the right (demand
curve does not shift) – new equilibrium is at
Point Q.
59. A
Decrease in demand in 2015 results in the
demand curve to shift to the left (supply curve
does not shift ) – new equilibrium is at Point R.

Therefore, A is the answer.

The increase in the cost of production results
in a leftward shift in the supply curve – away
from the original equilibrium at Point X.
60. A
The trend for consumers to switch from meat
to a vegetable diet will be seen in a reduction
 in demand for meat – a leftward shift of the
demand curve.

The new equilibrium is Point/Option A.

The successful advertising campaign
increases the demand for the cars. A
rightwards shift in the demand curve will be
observed.
The unit tax on the diesel cars raises the cost
61. A
of production and is a supply-side factor. A
leftwards or upwards shift in the supply curve
will be observed.

Therefore, A is the answer.

The consumer surplus at the $0 price was
Areas X + Y. However, after the introduction of
the $1 parking charge, the consumer surplus
62. C becomes Area X, while the Areas Y becomes
the producer surplus. Therefore, the
ownership of Area Y has changed, and C is the
answer.
Concept. Price change results in movement
63. D
along the demand curve.
An increase in the price of a substitute causes
the demand curve for the good to shift to the
right. Increasing the price of the good and the
64. B
quantity of that good traded in the market.
Given that this is the same changes we see in
the table, B is the correct answer.
If the consumer is buying the good despite
having being willing to pay less than they are
being charged, it means they are causing
65. B themselves dissatisfaction. The disutility or
dissatisfaction reduces the area of consumer
surplus.
 Therefore, a reduction in dissatisfaction will
increase the consumer surplus of the
consumer.
The more efficient manufacturing process
results in a rightward shift of the supply curve.

The increase of supply of the leather belts is a

non-price factor change on the demand side
66. C
for the artificial belts. The demand for
artificial belts will shift to the left – reducing
the price.

Therefore, C is the answer.

Rising energy prices are a rise in the costs of
production for the steel producers. Therefore,
67. D
a leftward shift in the supply curve will be
seen, as is shown in diagram D.
The price of Good X fallings means the price
of the substitute good (for Good Y) is
becoming cheaper. Therefore, a leftward shift
68. C
in the demand for Good Y, and a rightward
shift in the demand for Good Z – as it is in joint
demand with Good X.
Students can use given values of $5 and $6 to
find that at the $6 price, Quantity Supplied
(Qs) is greater than the Quantity Demanded
(Qd).
69. B
Therefore, there will be surplus stock left as
the producers will not be able to sell excess
stock at the higher price.
Increase in real incomes means an increase
in the purchasing power. Therefore, since it is
70. D a non-price factor the demand curve will shift
to the right as at every price the consumers
can buy more of the good.
 An increase in the cost of borrowing means
that fewer people will be willing to take out a
71. B
loan to invest in a car as the cost of borrowing
money (interest rates) have gone up.
There is a vertical supply curve for the health
care market meaning there is a fixed quantity
of the healthcare good that can be supplied to
citizens.
72. D
If the government charges a $0 price for
healthcare, there will be a greater quantity
demanded then there is quantity supplied.
So, healthcare goods will have to be supplied
selectively or rationing has to occur.
73. B Concept.
Students should remember that the demand
curve is for ice cream and not vanilla.

Vanilla is an ingredient in the ice cream.

74. C Therefore, changes in its price impact the
costs of production of ice cream. A rise in the
price of vanilla shits the supply curve to the
left by a great extent as a big change in the
price of vanilla has taken place.
Entry or exit of firms takes place in the long
run. After entry of firms (as mentioned in the
questions) there can still be factors such as
75. B
the market having enough space, and brand
loyalty to not result in immediate impacts for
a good.
A leftwards shift of the supply curve increases
price. A leftwards shift of the demand curve
reduces the quantity of the good being traded
76. B in the market.
Since the reduction in supply is greater than
the reduction in demand. There is both a rise
in price and fall in quantity. B is the answer.
 Students can solve the equation by using the
value of $20 to find that at that price quantity
demanded is 200 units while quantity
77. A supplied is 100 units.

Therefore, Qd > Qs, and the market is in

disequilibrium.
The increase in loans increases or gives a
larger number of consumers the ability to buy
a car. Therefore, it is a non-price factor that
results in demand curve to shift to the right.
78. C
The increase in tax raises the cost of
production which shifts the supply curve to
the left.

Therefore, C is the answer.

Subsidies are a supply-side change which
79. C
make a good cheaper rather than expensive.
Since both the demand and supply curves are
upward sloping, producers will continue to
80. A supply at higher prices due to the cost motive,
despite quantity demanded being less than
the quantity supplied at prices above OP.
The producer wants to set the price based on
the price or market mechanism. Therefore, he
will alternate the price between P1 and P4, as
81. D
on any day the demand and supply curves can
intersect on any price between the mentioned
numbers.
Cost of production increases results in a
82. C
leftward shift of the supply curve.
83. D Concept.
Students can calculate the change in
84. C consumer surplus by counting the number of
squares in change for consumer surplus.
85. D Concept.
86. B Concept.
More demand for houses through policy will
87. A
result in an increase in quantity supplied.
The cost of production rises (shifting the
supply curve to the left) and since taxi drivers
will shift the burden of the tax onto
88. A
consumers since taxi driving has many
substitutes, the demand curve will also shift
to the left. Therefore, A is the answer.
As incomes decrease, the purchasing power
or the real incomes fall. In such case, lower
quality or goods of inferior quality (inferior
89. A
goods) will have an increased demand –
demand curve shifts to the right. Therefore, A
is the answer.
A failure for the strawberries to ripen will
result in a reduced availability as they will not
be fit to be eaten. A fall in the price of cream
90. A
(a good that is in joint demand with
strawberries) will result in a rightwards shift of
the demand curve for strawberries.
Incomes increasing leads to the demand of a
normal good to increase. When the price of
product of a good that is in joint demand with
another good increases (price of the
91. C
complement falls) the demand for the good
itself will rise further. Therefore, C is the
answer.

92. D Concept.
Increase in demand for electricity will
increase the quantity supplied of electricity.
Since fertiliser is a by-product of electricity
93. A production – fertiliser is in joint supply with
electricity – the supply curve for fertiliser will
shift to the right reducing the price and
increasing the quantity demanded.
 The difference in Quantity Demanded and
Quantity Supplied at the $35 price is of 60
94. C units – meaning the market will be in
equilibrium after the rightwards shift of the
supply curve.