AS Level Economics chapter 2: The price system and the microeconomy MCQs with answers

By Team Megalecture · Updated 4 Nov 2026

83 exam-style questions on The price system and the microeconomy, each with the answer and a short explanation. Ten of them are below to try. The chapter test draws ten fresh questions each time and is marked the moment you finish, with your score by topic.

83 questions · 5 topics · 10 per test

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What chapter 2 covers

Ten The price system and the microeconomy questions with answers

Try each one, then open the answer. These ten stay the same; the test draws new ones every time.

1. When is a market in equilibrium?

  1. A
    when the demand and supply curves have exactly the same slope
  2. B
    when firms are selling the largest quantity they are able to produce
  3. C
    when quantity demanded equals quantity supplied at the ruling price
  4. D
    when the price equals the average cost of production
Show answer

Answer: C. At equilibrium the plans of buyers and sellers match, so there is no excess demand or supply and no pressure for the price to change. People unwilling or unable to pay the price do not buy even at equilibrium.

2. Consumers' incomes rise by 8%. The quantity demanded of a good falls from 250 to 240 units a week. What is the income elasticity of demand, and what type of good is it?

  1. A
    −2; an inferior good
  2. B
    +0.5; a normal good
  3. C
    −0.5; a necessity
  4. D
    −0.5; an inferior good
Show answer

Answer: D. %ΔQ = −10 ÷ 250 = −4%, so YED = −4 ÷ 8 = −0.5. A negative YED means demand falls as income rises, so the good is inferior. A necessity is a normal good with YED between 0 and 1.

3. For a bus company, the cross elasticity of demand for its journeys with respect to rail fares is +0.8, and the price elasticity of demand for its journeys is −0.5. Rail fares rise by 10%. What change in bus fares would keep the number of bus journeys unchanged, other things being equal?

  1. A
    a rise of 4%
  2. B
    a rise of 8%
  3. C
    a fall of 16%
  4. D
    a rise of 16%
Show answer

Answer: D. Dearer rail travel raises bus demand by 0.8 × 10% = 8% at the old bus fare. To cut quantity demanded by 8% when PED = −0.5 needs a fare rise of 8 ÷ 0.5 = 16%. Multiplying 8% by 0.5 gives the wrong 4%.

4. A firm estimates that the price elasticity of demand for its product is −0.25. What does this mean?

  1. A
    a 1% rise in price reduces the quantity demanded by 4%
  2. B
    a 1% rise in price increases the quantity demanded by 0.25%
  3. C
    a 1% rise in price reduces the quantity demanded by 0.25%
  4. D
    a 0.25% rise in price reduces the quantity demanded by 0.25%
Show answer

Answer: C. PED = %ΔQ ÷ %ΔP, so %ΔQ = −0.25 × 1% = −0.25%. The negative sign shows that price and quantity demanded move in opposite directions, and a value below 1 shows that demand is inelastic.

5. A specific tax is imposed on a good. In which case will consumers bear most of the fall in surplus?

  1. A
    demand is price inelastic and supply is price elastic
  2. B
    demand is price elastic and supply is price inelastic
  3. C
    demand is perfectly price elastic
  4. D
    supply is perfectly price inelastic
Show answer

Answer: A. With inelastic demand and elastic supply, producers can pass most of the tax on as a higher price, so consumer surplus falls much more than producer surplus. With perfectly elastic demand or perfectly inelastic supply, producers bear the whole tax.

6. In markets X and Y, supply falls by the same amount from the same starting price and quantity. Demand is price inelastic in market X and price elastic in market Y. Compared with market Y, what happens in market X?

  1. A
    a smaller rise in price and a smaller fall in quantity
  2. B
    a larger rise in price and a larger fall in quantity
  3. C
    a smaller rise in price and a larger fall in quantity
  4. D
    a larger rise in price and a smaller fall in quantity
Show answer

Answer: D. When demand is inelastic, buyers keep buying despite the higher price, so the fall in supply is absorbed mostly by a rise in price rather than a fall in quantity. The reverse happens when demand is elastic.

7. How is the cross elasticity of demand for good X with respect to the price of good Y calculated?

  1. A
    % change in quantity demanded of Y ÷ % change in price of X
  2. B
    % change in quantity demanded of X ÷ % change in price of Y
  3. C
    % change in price of Y ÷ % change in quantity demanded of X
  4. D
    % change in quantity demanded of X ÷ % change in price of X
Show answer

Answer: B. XED measures how demand for one good responds to a change in the price of another, so the quantity of X goes on top and the price of Y underneath. Using the price of X instead gives the PED of X.

8. Supply of a product increases and, at the same time, demand for it decreases. What must happen to the equilibrium?

  1. A
    price and quantity both fall
  2. B
    quantity rises, but the change in price is uncertain
  3. C
    price falls, but the change in quantity is uncertain
  4. D
    price rises, but the change in quantity is uncertain
Show answer

Answer: C. Both shifts push the price down. The supply increase tends to raise quantity while the demand fall tends to lower it, so the effect on quantity depends on the relative sizes of the shifts.

9. A firm sells 5,000 units a month at $40 each. The price elasticity of demand for its product is −0.4. It raises its price by 15%. What is its new monthly total revenue, other things being equal?

  1. A
    $230,000
  2. B
    $188,000
  3. C
    $143,750
  4. D
    $216,200
Show answer

Answer: D. The new price is $46. Quantity falls by 0.4 × 15% = 6%, to 4,700 units, so revenue = 46 × 4,700 = $216,200 (up from $200,000, as demand is inelastic). Ignoring the fall in sales gives $230,000.

10. A farmer would be willing to sell a tonne of dates for $300 but sells it for $450. What does the $150 difference represent?

  1. A
    consumer surplus
  2. B
    producer surplus
  3. C
    the opportunity cost of the dates
  4. D
    the subsidy per tonne
Show answer

Answer: B. Producer surplus is the amount producers receive above the minimum they would accept. Consumer surplus is the equivalent gain for buyers.

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The price system and the microeconomy: questions students ask

How many The price system and the microeconomy MCQs are there?

83, each with the answer and a short explanation, across 5 topics: Demand and supply curves, Price elasticity, income elasticity and cross elasticity of demand, Price elasticity of supply, The interaction of demand and supply, Consumer and producer surplus. Every chapter test draws ten of them, so you can take it many times.

Is the AS Level Economics chapter 2 test free?

Yes. The test, the answers and the explanations are free and need no sign-up. Sign in only if you want your scores kept across devices.

How is the chapter test marked?

The moment you press Finish: your score, the right answer and an explanation for every question, and the ones you got wrong saved in My mistakes to retry.

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