This diagnostic helps you find which Unit 2 topics to revisit. Each question is tied to one topic, so a wrong answer points you to the study guide you need.
These are original Marlbridge practice questions, not past exam questions. The diagnostic is not calibrated against real exam results and gives no predicted score.
Allow about 30 minutes and work without notes. Write down every answer before opening any answer box. A four-function calculator is enough, all data are fictional, and elasticities from two points use the midpoint method.
Question 1 (multiple choice · 2.1)
Two events affect a town’s market for cinema tickets: (1) the cinema raises its ticket price; (2) a streaming service, a substitute, cuts its fee. Which pair is correct?
- (A) (1) quantity demanded falls; (2) demand decreases
- (B) (1) demand decreases; (2) quantity demanded falls
- (C) (1) demand decreases; (2) demand increases
- (D) (1) quantity demanded falls; (2) demand increases
Answer and explanation
Answer: (A). An own-price change is a movement along D. A cheaper substitute draws buyers away: D shifts left.
- (B) swaps the two. Only determinants other than own price shift the curve.
- (C) treats the own-price change as a shift.
- (D) gets the substitute backwards.
If you missed this: read “The determinants of demand” in the Topic 2.1 study guide.
Question 2 (multiple choice · 2.2)
Potters supply 300 vases a week at $6, 400 at $8, 500 at $10 and 600 at $12. A tax of $2 per vase is then collected from the potters. How many vases are supplied at $10 after the tax?
- (A) 400
- (B) 600
- (C) 500
- (D) 300
Answer and explanation
Answer: (A). The tax adds $2 to the cost of every vase, so supply shifts up (left) by $2. At $10 potters keep $8, so they supply what they used to at $8: 400.
- (B) shifts supply the wrong way, as a subsidy would.
- (C) ignores the tax, a determinant of supply.
- (D) moves two rows, as if the tax were $4.
If you missed this: read Worked example 2 in the Topic 2.2 study guide.
Question 3 (multiple choice · 2.3)
A bakery raises the price of a loaf from $8 to $10. Its daily total revenue from loaves rises from $4,000 to $4,400. Which statement is correct over this price range?
- (A) Demand is inelastic, with |PED| ≈ 0.57.
- (B) Demand is elastic, because quantity demanded fell.
- (C) Demand is unit elastic, because total revenue changed.
- (D) Demand is inelastic, with |PED| ≈ 1.74.
Answer and explanation
Answer: (A). Quantity = TR ÷ P: 4,000 ÷ 8 = 500 loaves and 4,400 ÷ 10 = 440. % change in Q = −60 ÷ 470 × 100 = −12.77%. % change in P = 2 ÷ 9 × 100 = 22.22%. |PED| = 12.77 ÷ 22.22 ≈ 0.57. Price and revenue rose together, which also signals inelastic demand.
- (B) Quantity always falls when price rises; its size decides elasticity.
- (C) With unit elasticity, total revenue does not change.
- (D) divides the price change by the quantity change.
If you missed this: read “Elasticity and total revenue” in the Topic 2.3 study guide.
Question 4 (short answer · 2.3)
A fictional power company raises its price from $0.18 to $0.22 per kWh. In the first month, use falls from 1,050 to 950 million kWh. After three years at $0.22, use is 750 million kWh.
(a) Calculate |PED| for the first month and for the three years. (b) Classify each and find the change in revenue. (c) Explain the difference.
Answer and explanation
(a) % change in P = 0.04 ÷ 0.20 × 100 = 20% in both cases. First month: % change in Q = −100 ÷ 1,000 × 100 = −10%, so |PED| = 0.5. Three years: % change in Q = −300 ÷ 900 × 100 = −33.33%, so |PED| = 1.67.
(b) First month: inelastic; revenue rises from 0.18 × 1,050 = $189 million to 0.22 × 950 = $209 million (+$20 million). Three years: elastic; revenue falls to 0.22 × 750 = $165 million (−$24 million).
(c) Time to adjust: over three years households find substitutes, such as efficient appliances or insulation.
If you missed this: read “What makes demand more or less elastic” in the Topic 2.3 study guide.
Question 5 (multiple choice · 2.4)
When the price of bricks rises from $40 to $60 a pallet, a fictional brickworks with spare kiln space raises the quantity supplied from 300 to 500 pallets a month. Which statement is correct?
- (A) PES = 1.25, so supply is elastic.
- (B) PES = 0.80, so supply is inelastic.
- (C) PES = 1.33, so supply is elastic.
- (D) PES = 10, so supply is elastic.
Answer and explanation
Answer: (A). % change in Qs = 200 ÷ 400 × 100 = 50%. % change in P = 20 ÷ 50 × 100 = 40%. PES = 50 ÷ 40 = 1.25, as you would expect with spare capacity.
- (B) divides the wrong way round.
- (C) uses the starting values (300 and $40) instead of the averages.
- (D) divides the raw changes, 200 ÷ 20.
If you missed this: read “The midpoint method for supply” in the Topic 2.4 study guide.
Question 6 (multiple choice · 2.5)
For good X, the income elasticity of demand is −0.5, and the cross-price elasticity of demand with respect to the price of good Y is +1.2. Incomes rise and, at the same time, the price of Y falls. What happens to the demand for X?
- (A) It decreases: X is inferior and Y is a substitute.
- (B) It is uncertain: higher income raises it, cheaper Y lowers it.
- (C) It increases: X is normal and Y is a complement.
- (D) It does not change: only X’s own price affects it.
Answer and explanation
Answer: (A). Negative YED: X is inferior, so higher income decreases demand. Positive XED: substitutes, so a cheaper Y decreases demand for X.
- (B) drops the minus sign on YED.
- (C) reads both signs backwards.
- (D) Income and other goods’ prices shift demand; only own price moves buyers along it.
If you missed this: read “Income elasticity of demand” in the Topic 2.5 study guide.
Question 7 (multiple choice · 2.6)
A town’s weekly market for river tours has demand Qd = 120 − 4P and supply Qs = 2P − 12, with P in dollars per tour. What is producer surplus at equilibrium?
- (A) $256
- (B) $128
- (C) $512
- (D) $352
Answer and explanation
Answer: (A). 120 − 4P = 2P − 12 gives P = $22 and Q = 32 tours. Supply meets the price axis at $6 (where Qs = 0). PS = ½ × 32 × (22 − 6) = $256.
- (B) is consumer surplus: ½ × 32 × (30 − 22).
- (C) forgets the ½.
- (D) measures from zero, not from the supply intercept.
If you missed this: read Worked example 1 in the Topic 2.6 study guide.
Question 8 (short answer · 2.7)
Wrenfield’s daily frozen-yogurt market is Qd = 300 − 10P and Qs = 5P − 30 (P in dollars per tub), in equilibrium at $22 and 80 tubs. A health report then cuts demand by 45 tubs at every price: Qd = 255 − 10P.
(a) What happens at the old price? (b) Find the new equilibrium and describe the adjustment. (c) Would the price fall be larger or smaller if supply were more elastic?
Answer and explanation
(a) At $22, Qd = 255 − 220 = 35 and Qs = 80: a surplus of 45 tubs.
(b) 255 − 10P = 5P − 30 gives P = $19 and Q = 65 tubs. Sellers cut the price; quantity demanded rises along the new D and quantity supplied falls along S until both equal 65.
(c) Smaller. Elastic supply means sellers cut output sharply as the price falls, so more of the change shows up in quantity.
If you missed this: read “Elasticity decides the size of the change” in the Topic 2.7 study guide.
Question 9 (multiple choice · 2.8)
A competitive market has an equilibrium price of $35 and an equilibrium quantity of 900 units. Which policy would have no effect on the price or quantity?
- (A) A price ceiling of $40
- (B) A price floor of $40
- (C) A price ceiling of $30
- (D) A quota of 700 units
Answer and explanation
Answer: (A). A legal maximum above equilibrium allows the $35 market price, so it does not bind.
- (B) A minimum above equilibrium binds: a surplus.
- (C) A maximum below equilibrium binds: a shortage.
- (D) A quota below 900 binds and raises the price.
If you missed this: read “Summary of the policies” in the Topic 2.8 study guide.
Question 10 (short answer · 2.8)
A city’s weekly iced-tea market is Qd = 135 − 3P and Qs = 2P − 15, with P in dollars per crate and Q in thousand crates. Without intervention the equilibrium is $30 and 45 thousand crates. The government then taxes sellers $10 per crate.
(a) Find the price buyers pay, the price sellers keep and the new quantity. (b) What share of the tax do buyers bear? Explain using elasticity. (c) Calculate tax revenue and deadweight loss.
Answer and explanation
(a) New supply: Qs = 2(P − 10) − 15 = 2P − 35. Then 135 − 3P = 2P − 35 gives buyers’ price $34. Sellers keep 34 − 10 = $24. Q = 135 − 102 = 33 thousand crates.
(b) Buyers pay $4 more: two-fifths of the tax; sellers bear $6. At the start, demand elasticity is 3 × 30 ÷ 45 = 2.0 and supply elasticity 2 × 30 ÷ 45 = 1.33. Supply is less elastic, so sellers bear more.
(c) Revenue = 10 × 33 = $330 thousand. DWL = ½ × 10 × (45 − 33) = $60 thousand.
If you missed this: read “Who bears a tax? Elasticity decides” in the Topic 2.8 study guide.
Question 11 (multiple choice · 2.9)
A small country’s floor-tile market has domestic demand Qd = 90 − 6P and supply Qs = 4P − 10 (P in dollars per box, Q in thousand boxes). It trades at a world price of $5, then adds a $1 tariff per box. Which statement is correct?
- (A) Imports fall from 50 to 40 thousand; revenue is $40 thousand.
- (B) Imports fall from 50 to 40 thousand; revenue is $50 thousand.
- (C) Imports fall from 60 to 54 thousand; revenue is $54 thousand.
- (D) Domestic supply shifts left, so imports rise.
Answer and explanation
Answer: (A). At $5: Qd = 60, Qs = 10, imports = 50. At $6: Qd = 54, Qs = 14, imports = 40. Revenue = $1 × 40 thousand = $40 thousand.
- (B) charges the tariff on free-trade imports, not on those that still arrive.
- (C) treats quantity demanded as imports; imports are the gap Qd − Qs.
- (D) Domestic supply does not shift: producers move up it, and imports fall.
If you missed this: read Worked example 2 in the Topic 2.9 study guide.
Your next step
Count a short answer as wrong if any part was wrong.
| Topic | Question(s) | If you missed it, read |
|---|---|---|
| 2.1 Demand | 1 | Demand |
| 2.2 Supply | 2 | Supply |
| 2.3 Price Elasticity of Demand | 3, 4 | Price elasticity of demand |
| 2.4 Price Elasticity of Supply | 5 | Price elasticity of supply |
| 2.5 Other Elasticities | 6 | Other elasticities |
| 2.6 Equilibrium and Surplus | 7 | Equilibrium and surplus |
| 2.7 Disequilibrium and Changes in Equilibrium | 8 | Changes in equilibrium |
| 2.8 Government Intervention in Markets | 9, 10 | Government intervention |
| 2.9 International Trade and Public Policy | 11 | Trade and public policy |
How to use your result
- Start with the topics you missed. Read the sections named in the answer, then do that topic’s practice questions. One question is a small sample: treat a miss as a signal to check.
- Look for patterns. Questions 1, 2 and 6 test shifts versus movements; 3, 4 and 5 the midpoint method. If you missed two of 7, 10 and 11, revise Topic 2.6 before Topics 2.8 and 2.9.
- All correct? Go on to the mixed unit review, whose longer questions combine topics.
- Retake it after a week of revision.