CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS: COURSEBOOK ANSWERS
Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded
may be different.
Coursebook answers
Chapter 7
Economics in context
Learners’ answers might include:
• Passenger car market in China; price of cars, consumers’ income, range of models available
• Carbon permits in the EU; price of permits, number required by heaviest polluters, number of permits
available on open market, change in GDP
• Interest rates in Australia; interest rate, effect of interest rate on consumer spending, effect of interest
rate on investment by firms, effect on savings
• Foreign exchange market for ringgits; demand for ringgits from firms investing in Malaysia, demand
for $ from Malaysian firms exporting to the US
• Global sugar market; supply of sugar cane from producers, demand from processors and food
industry, health concerns over excessive consumption of sugar.
Activities
Activity 7.1
Learners’ answers might include:
1 a Demand will depend on price of meals and income available to spend on meals.
b As a, but demand is most likely to be determined at household level.
c onsumers need to research the market to find the best deal due to the high price relative to
C
other products.
d he transport used is likely to depend on a person’s age, where a person lives and the price of
T
alternative means of transport.
2 Effective demand is demand that is supported by the means to pay. This makes price more important
when purchasing most goods and services. Notional demand is more likely to include a range of non-
price factors.
Activity 7.2
1 a 5500 PCs
b $1930
c Price is the only factor that determines the demand for PCs.
2 I f the price of PCs is $1200, then 5000 PCs will be demanded. Total expenditure/revenue is shown in
Figure 7.3 by the area of the four squares closest to the origin: 0 to 1200 on the y axis and 0 to 5000 on
the x axis. Total expenditure/revenue is $6m (1200 × 5000).
1 Cambridge International AS & A Level Economics - Bamford & Grant © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS: COURSEBOOK ANSWERS
Activity 7.3
1 2500 PCs; $870.
2 Price is the only factor that determines the supply of PCs.
3 A diagram shows the various combinations of price and the quantity that producers are willing to
supply. It can be used to estimate the quantity that a firm or the market will supply at any price in
the range covered. A disadvantage is that any information that a supplier draws from the diagram is
entirely dependent on the accuracy of the original information that has been collected.
Think like an economist
Learners’ discussion might include:
1
The use of machinery to harvest coffee beans may not be an ethical solution because it will be likely to
cause unemployment among coffee pickers who may have no other job prospects. The production and
use of these machines will increase greenhouse gas emissions compared to when the coffee beans were
harvested by hand.
2
There is too much supply in the market. Established producers may have increased their coffee bushes
and new producers may have entered the market in a bid to benefit from high prices. Another reason
could be that there has been an exceptional harvest.
Exam-style questions: Multiple choice
1
B A and C refer to supply. D refers to a market demand curve and not an individual’s demand curve.
2
D See answer to Q1 above.
3
A B and D refer to demand and not to supply. C refers to a market supply curve and not to an
individual’s supply curve.
4
C See answer to Q3 above.
5
C B is incorrect because a fall in price will lead to an increase and not a fall in the quantity
demanded. D refers to demand and not quantity demanded. It therefore relates to a shift of the
demand curve. A is incorrect because the quantity demanded changes at a different rate to a
change in price.
6
D Iced tea and cola can be assumed to be substitutes. An increase in the price of one of them
will lead to an increase in demand for the substitute. This is shown by a shift to the right of the
demand curve for the substitute product.
7
C A and D will be likely to shift the demand curve for Range Rover Evoques to the right, not to the
left. B will result in a movement down the demand curve and not a shift of the demand curve.
8
C B and D will cause a shift to the right of the supply curve. A leads to a movement up the supply
curve. An increase in the wages of production workers increases costs and a shift to the left of the
market supply curve.
9
C This is the correct option as a subsidy leads to a shift to the right of the market supply curve.
10
C Imposing an indirect tax has the opposite effect to a subsidy. This means that the market supply
curve will shift to the left.
2 Cambridge International AS & A Level Economics - Bamford & Grant © Cambridge University Press 2021
