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Where 
maximum prices 
are imposed, there will be 
excess demand
: rationing may be necessary, and 
black marketeers may seek to operate. Where 
minimum prices 
are imposed, producers will make 
excess 
supply
. 

 
The way in which firms are structured in an industry and the way they compete with each other are 
often described using terms perfect competition, imperfect competition, monopoly, oligopoly or 
monopolistic competition.
CHAPTER ROUNDUP 
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CHAPTER 4
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MICROECONOMIC FACTORS 
 
119 
 
1
What factors influence demand for a good?
2
What are (a) substitutes and (b) complements? 
3
What factors affect the supply quantity? 
4
What is meant by equilibrium price?
5
A demand curve is drawn on all 
except
which of the following assumptions? 
A 
Incomes do not change. 
B 
Prices of substitutes are fixed. 
C 
Price of the good is constant.
D 
There are no changes in tastes and preferences. 
6
The diagram shown relates to the demand for and supply of Scotch whiskey. The market is initially in 
equilibrium at point X. The government imposes a specific tax on Scotch while, at the same time, the 
price of Irish Whiskey (a substitute for Scotch Whisky) rises. Which point, A, B, C or D, represents the 
new market equilibrium? 
7
A price ceiling set above the equilibrium market price will result in: 
A Market 
failure 
B 
Excess supply over demand 
C Market 
equilibrium 
D 
Excess demand over supply 
8
Which one of the following would normally cause a rightward shift in the demand curve for a product? 
A 
A fall in the price of a substitute product 
B 
A reduction in direct taxation on incomes 
C 
A reduction in price of the product 
D 
An increase in the price of a complementary product 
9
What is an inferior good? 
A 
A good of such poor quality that demand for it is very weak 
B 
A good of lesser quality than a substitute good, so that the price of the substitute is higher 
C 
A good for which the cross elasticity of demand with a substitute product is greater than 1 
D 
A good for which demand will fall as household income rises 
10
In traditional theory, which of the following best describes a firm's short run supply curve: 
A 
Its marginal cost curve where price is less than average variable costs 
B 
Its marginal cost curve where price is greater than average variable costs 
C 
Its average cost curve where price is less than marginal cost 
D 
Its average cost curve where price is greater than marginal cost