IGCSE Economics Paper-1: Specimen Questions with Answers 38 - 39 of 64

Question 38

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Question

MCQ▾

When a developed country levies a tariff on imports

Choices

Choice (4)
a.The domestic price rises by less than the tariff.
b.The world price falls.
c.Demanders of the good on the domestic market are hurt.
d.All a. , b. and c. are correct

Answer

d.

Explanation

  • An import quota is a trade restriction that limits the quantity of goods that can be imported; it is imposed by the home country. A large country’s economic welfare may increase if it imposes a tariff because a large nation can force the nation exporting the product to pay a substantial amount of the tariff, its terms of trade may improve after the tariff is imposed.
  • Because of the size, tariff of large nation not only decreases the quantity demanded of the product but may also reduce the world price of the good. When a small country, an export tariff will cause a decrease in the domestic price of the export and no change in the world price of the export.

Question 39

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Question

MCQ▾

Bajra is an inferior commodity. A rise in the income of the consumer will lead to:

Choices

Choice (4)
a.A fall in demand and rise in quantity sold.
b.A fall in demand and quantity sold.
c.A rise in demand and fall in quantity sold.
d.A rise in demand and the quantity sold.

Answer

b.

Explanation

  • An inferior commodity refers to a commodity whose demand falls when income of an individual rises. This is observed when a commodity has substitutes with high prices that see an increase in demand as incomes and the economy grows.
  • Inferior goods are the opposite of normal goods. They are anything a consumer would demand less of if they have a higher level of real income. The individuals who fall into a lower socio-economic class purchase these goods.
  • Inferior goods have a negative income elasticity, while normal goods have a positive income elasticity.
  • Inferior good is characterized by its affordability, rather than its quality. They are generally of lower quality. Examples: Bajra, Jowar, coffee of a local brand at a super market, etc.

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