Choose the correct answer for each question.

1. The market demand curve for overseas cruises will NOT shift when there is a

   1.   ?    Rise in consumers real incomes
   2.   ?    Successful advertising campaign
   3.   ?    Fall in the price of a cruise in the brochures
   4.   ?    Increase in the price of land-based package holidays (a substitute for cruises)

2. According to the Law of Supply

   1.   ?    anything that is supplied will be purchased by consumers
   2.   ?    if the price is low, any firm will sell the product
   3.   ?    the higher the price, the lower the quantity supplied
   4.   ?    the higher the price, the larger the quantity supplied.

3. All other factors held constant (ceteris paribus) a decrease in market demand for new cars will lead to

   1.   ?    decreased price and decreased quantity
   2.   ?    increased price and decreased quantity
   3.   ?    increased price and increased quantity
   4.   ?    decreased price and no change in quantity

4. Suppose that an 20% increase in the price of good Y results in an increase in the consumption of good X of 8%. This is an example of

   1.   ?    A shift in supply
   2.   ?    The substitution effect
   3.   ?    The real income effect
   4.   ?    A higher demand for all goods and services in general

5. The demand for fresh bread from a bakery is estimated to have an income elasticity of + 0.3. Following a 15% rise in consumers real incomes (other factors held constant) we predict that demand for fresh bread will

   1.   ?    Rise by 3%
   2.   ?    Rise by 4%
   3.   ?    Rise by 4.5%
   4.   ?    Rise by 15%

6. When the price of one of the products that you buy increases, your purchasing power decreases. Thus you are likely to buy less of all normal goods. This is known as:

   1.   ?    the substitution effect
   2.   ?    the real income effect
   3.   ?    the law of diminishing marginal returns
   4.   ?    the giffen good effect

7. If consumers expect that the price of cocoa will increase in the future, what will happen to equilibrium price and quantity of cocoa now?

   1.   ?    Price will increase; quantity will increase
   2.   ?    Price will increase; quantity will decrease
   3.   ?    Price will decrease; quantity will increase
   4.   ?    Both price and quantity will remain the same

8. Which one of the following would be expected to cause an inward shift in the market demand for UK produced cheese?

   1.   ?    An increase in the price of cheese
   2.   ?    An increase in the price of a complement to cheese
   3.   ?    A rise in income - assuming that cheese is a normal good
   4.   ?    A rise in the price of a substitute for cheese

9. Tom graduates from university with a degree in Economics and his income increases by £10,000 a year. Other things remaining the same, he decreases the quantity of donuts he buys. For Tom, donuts ______________.
   

   1.   ?    and toast have become substitutes
   2.   ?    and tea has become complements
   3.   ?    are an inferior good
   4.   ?    are a normal good

10. Chicken and fish are assumed to be substitutes. If the price of chicken increases, the demand for fish will _________

    1.   ?    not change but there will be a movement along the demand curve for fish
    2.   ?    decrease and the demand curve for fish will shift to the left
    3.   ?    increase and the demand curve for fish wil shift to the right
    4.   ?    increase or decrease, but there will be no change in the demand for chicken