# IGCSE Economics Paper-1: Specimen Questions with Answers 36 - 37 of 64

## Question 36

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### Question

MCQ▾

If the minimum guaranteed price of the agricultural produce fixed by the farmer is below the free market equilibrium price then it will result into:

### Choices

Choice (4)
a.Contraction of market supply
b.A surplus of agricultural produce.
c.No change in equilibrium price
d.Entry of new farmers

c.

### Explanation

When the price ceilingsset belowequilibrium pricepriceThis can be shown with the following graph. are the market , the equilibrium point does not change but then there will be excess demand and shortage in supply. Producers will not be willing to produce much at the lower , while consumers will demand more when the goods become cheaper.

• In this graph on the X-axis, we have quantity and on the Y-axis, we have price. The upward sloping curve represents the supply curve and the downward sloping curve represents the demand curve.
• Equilibrium price is and the ceiling price is. Quantity shows the quantity demanded and shows the quantity supplied. The difference between and shows the shortage in supply.

## Question 37

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### Question

MCQ▾

In November of 2010 a policy was framed by the US Central Bank, the Federal Reserve, of quantitative easing. The policy represented an increase in the supply of money but it may create inflationary expectations. So, let us assume that because of this policy, US households begin to expect inflation (price increases) in the housing market. The effect on the housing market will be:

### Choices

Choice (4)
a.A rise in demand causing prices to decrease
b.A rise in demand causing prices to increase
c.A fall in demand causing prices to decrease
d.All of the above

b.

### Explanation

• Inflation is defined by rise in price of goods and services of common use such as house, food, clothing, consumer products, transportation etc. Rate of inflation is measured by the change in average price of the commodities over a period of time. When the money supply in the market increases faster than the GDP, it causes inflation.
• Increase in the supply of money in the market will lead to a rise in the monetary demand. The money available with the consumer increases through loan, which eventually would cause an increase in the prices of the commodities. According to the question, increase in supply of money causes a rise in the demand, which leads to rise in the prices of housing market.