ECONOMICS 7136 PAPER 1 AND 2 BUNDLE
2026 PRACTICE TEST QUESTIONS WITH
EXEMPLAR ANSWERS
◉ What happens when a price ceiling is set below the equilibrium
price? Answer: It creates a shortage because quantity demanded
exceeds quantity supplied.
◉ What is a price floor? Answer: A legal minimum on the price of a
good or service.
◉ What occurs when a price floor is set above the equilibrium price?
Answer: It creates a surplus because quantity supplied exceeds
quantity demanded.
◉ What is tax incidence? Answer: The way the burden of a tax is
shared among market participants.
◉ What is the effect of a binding price ceiling of $90 in the hotel
room market? Answer: The market price falls to $90, creating a
shortage of 30 rooms.
, ◉ What is the effect of a non-binding price ceiling of $120 in the
hotel room market? Answer: The ceiling has no effect as it is above
the equilibrium price.
◉ What is the effect of a non-binding price floor of $90 in the hotel
room market? Answer: The floor has no effect as it is below the
equilibrium price.
◉ What is the effect of a binding price floor of $120 in the hotel
room market? Answer: The price rises to $120, creating a surplus of
60 rooms.
◉ How does a tax on buyers affect the demand curve? Answer: It
shifts the demand curve down by the amount of the tax.
◉ What is the new equilibrium quantity when a $1.50 tax is imposed
on buyers? Answer: The new equilibrium quantity is 450 pizzas.
◉ What do buyers pay and sellers receive after a $1.50 tax on
buyers? Answer: Buyers pay $11.00 and sellers receive $9.50.
◉ What is the outcome of imposing a tax on sellers? Answer: It
raises sellers' costs and shifts the supply curve up by the amount of
the tax.
2026 PRACTICE TEST QUESTIONS WITH
EXEMPLAR ANSWERS
◉ What happens when a price ceiling is set below the equilibrium
price? Answer: It creates a shortage because quantity demanded
exceeds quantity supplied.
◉ What is a price floor? Answer: A legal minimum on the price of a
good or service.
◉ What occurs when a price floor is set above the equilibrium price?
Answer: It creates a surplus because quantity supplied exceeds
quantity demanded.
◉ What is tax incidence? Answer: The way the burden of a tax is
shared among market participants.
◉ What is the effect of a binding price ceiling of $90 in the hotel
room market? Answer: The market price falls to $90, creating a
shortage of 30 rooms.
, ◉ What is the effect of a non-binding price ceiling of $120 in the
hotel room market? Answer: The ceiling has no effect as it is above
the equilibrium price.
◉ What is the effect of a non-binding price floor of $90 in the hotel
room market? Answer: The floor has no effect as it is below the
equilibrium price.
◉ What is the effect of a binding price floor of $120 in the hotel
room market? Answer: The price rises to $120, creating a surplus of
60 rooms.
◉ How does a tax on buyers affect the demand curve? Answer: It
shifts the demand curve down by the amount of the tax.
◉ What is the new equilibrium quantity when a $1.50 tax is imposed
on buyers? Answer: The new equilibrium quantity is 450 pizzas.
◉ What do buyers pay and sellers receive after a $1.50 tax on
buyers? Answer: Buyers pay $11.00 and sellers receive $9.50.
◉ What is the outcome of imposing a tax on sellers? Answer: It
raises sellers' costs and shifts the supply curve up by the amount of
the tax.
