About The price system and the microeconomy in A Level Economics
The price system and the microeconomy is one of the 11 main topics in our A Level Economics (Cambridge (CAIE) 9708) question bank, and about 13% of its real questions come from it. Tayyari Karo has 114 real questions on this topic from 2021 to 2026, from Paper 1, Paper 2, Paper 3, Paper 4; 93 are multiple choice and marked instantly, and the rest are structured questions with a model answer. By difficulty: 68 medium, 31 hard, 15 easy.
Work through the questions below, then open the explanation for each one. Redo the ones you missed a few days later.
Try 8 real questions
These are real past-paper questions. Think of your answer first, then open the explanation.
May/June 2026 · Paper 1 · The price system and the microeconomy
Which statement defines the income elasticity of demand?
- It measures the responsiveness of income to a change in quantity demanded.
- It measures the responsiveness of income to a change in price.
- It measures the responsiveness of quantity demanded to a change in income.
- It measures the responsiveness of quantity demanded to a change in price.
Show answer and explanation
Answer: C. It measures the responsiveness of quantity demanded to a change in income.
YED = % change in quantity demanded / % change in income.
October/November 2025 · Paper 1 · The price system and the microeconomy
Which statement defines market equilibrium?
- when ceteris paribus no longer applies
- when quantity demanded equals quantity supplied
- when quantity demanded is equal to price
- when supply can no longer expand
Show answer and explanation
Answer: B. when quantity demanded equals quantity supplied
Market equilibrium is defined as the price/quantity combination at which quantity demanded equals quantity supplied.
October/November 2024 · Paper 1 · The price system and the microeconomy
Which elasticity would a shortage of skilled workers affect?
- cross elasticity of demand
- income elasticity of demand
- price elasticity of demand
- price elasticity of supply
Show answer and explanation
Answer: D. price elasticity of supply
A shortage of skilled labour limits how quickly firms can expand output in response to a price change, reducing the responsiveness of quantity supplied to price — i.e. price elasticity of supply.
October/November 2023 · Paper 1 · The price system and the microeconomy
The supply, S, of a product is determined by the equation S = 10 + 10P where P is the price of the product in $. What is the product's price elasticity of supply when its price rises from $1 to $2?
- 0.5
- 1.0
- 2.0
- 5.0
Show answer and explanation
Answer: A. 0.5
At P=$1, S=20; at P=$2, S=30. %ΔQ = (30−20)/20 = 50%. %ΔP = (2−1)/1 = 100%. PES = 50%/100% = 0.5.
May/June 2022 · Paper 1 · The price system and the microeconomy
What will increase the producer surplus of farmers that grow carrots?
- a decrease in the demand for carrots
- a decrease in the price of carrot seed
- a decrease in the price of cabbage
- a decrease in the subsidy on carrots
Show answer and explanation
Answer: B. a decrease in the price of carrot seed
A fall in the price of an input (carrot seed) lowers production costs, shifting supply to the right/down, which raises producer surplus at any given market price.
May/June 2021 · Paper 1 · The price system and the microeconomy
What is necessary for demand for a good to be effective?
- The consumer must have the ability to buy the product.
- The consumer must receive consumer surplus.
- The good must be sold in the private sector of the economy.
- There must be a successful advertising campaign.
Show answer and explanation
Answer: A. The consumer must have the ability to buy the product.
Effective demand requires both willingness AND ability to pay — a want backed by purchasing power. Desire alone (without the ability to buy) is not effective demand.
October/November 2025 · Paper 2 · The price system and the microeconomy
EITHER 2(a) With the help of a formula, explain what is meant by price elasticity of demand for a product and consider the importance of time in determining whether demand for the product is likely to be relatively price elastic or relatively price inelastic. [8 marks]
Show model answer
AO1 Knowledge and understanding (max 3): the formula for price elasticity of demand is percentage change in quantity demanded divided by percentage change in price; if the PED value is greater than one, demand is price elastic (percentage change in demand greater than percentage change in price); if PED is between zero and one, demand is price inelastic (percentage change in demand less than percentage change in price). …
The full model answer is in the app.
October/November 2024 · Paper 2 · The price system and the microeconomy
EITHER 2(b) Assess whether the supply of agricultural products is likely to be more price elastic or less price elastic than the supply of manufactured products. [12]
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AO1/AO2 (max 8 marks): knowledge, understanding and analysis of factors affecting price elasticity of supply of agricultural versus manufactured products, including the number of producers, the existence of spare capacity, the ease of storing stocks, the time period, the extent of factor mobility, and the length of the production process — with a clear distinction between the two types of products. …
The full model answer is in the app.
