economics

1. what is an example of the use of ceteris paribus?
a the rate of increase in wage rates equals the rate of increase in price levels.
b_ there is a constant rise in both wage rates and price levels.
c wage rates and the price level remain constant at their original levels.
d wage rates rise when the only change is a rise in prices.

2 what is always true of a positive statement?
a_litis based on statistical data.
b it is possible to test its validity.
c itis the only basis for economic policy.
d it overrides any normative statement.

3 the diagram shows a production possibility curve for an economy that is producing at point p.
150
good y p
100
50
0
0 50 100 150
good x
which quantity of y is given up to produce the quantity of x shown?
a 40 b 50 cc 100 d 110

4 what is an accurate statement about different types of goods?
a free goods are offered for sale at a loss-making price.
b_ merit goods generate more consumer surplus than producer surplus.
c_ private goods can be consumed with no opportunity cost.
d_ public goods can be used by additional consumers with no extra production cost.

5 why does an individual’s demand curve generally slope downwards to the right?
a_ the additional satisfaction an individual gets from consuming most goods decreases as
consumption increases.
b_ the additional satisfaction an individual gets from consumption decreases as income rises.
c_ the individual has finite income which is used to attempt to satisfy many wants.
d_ for most goods the price charged by producers falls as the quantity purchased increases.

6 ethiopia is africa’s largest producer of coffee. s,; and d, are the original supply and demand
curves for ethiopian coffee. d2 is a new demand curve.
s,
price of
coffee
pyprenenanntgennnnngy
- .
i d,
ie) q, q,
quantity of coffee
what would have caused the change shown in the diagram?
a _afall in incomes worldwide
bs afall in the cost of producing ethiopian coffee
c_ arise in output from ethiopian coffee harvests
d arise in the price of coffee produced in kenya

7 the diagram shows the relationship between total expenditure and price for three products, 1, 2
and 3.
1
2
price
3
o
total expenditure
which curves represent the products with price elastic and unitary price elastic demand?
[ease [ote
a 1 2
b 2 3
cc 3 1
d 3 2

8 a firm has a perfectly elastic supply curve at the market price of $10.
which statement about the firm is correct?
a atany price above $10 quantity supplied is zero.
b_ at any price below $10 quantity supplied is infinite.
c_ at price $10 the firm will supply any quantity.
d_ at price $10 the firm will break even.

10 in a free market in disequilibrium, which combination of price and quantity will lead to a fall in
price and a contraction in output to reach equilibrium?
ss
py pocwwers th geeee ere reeemeeuay
price 1 i
on !
p, | -------- in
ae.
s ® @ @
quantity
a p,q, b p,q; cc pq, d p3q3

11. a change in market conditions causes a reduction in supply. this results in a higher price for the
product, which has a downward-sloping demand curve.
what must be the outcome of this higher price?
a adecrease in the demand for substitutes
b  adecrease in the quantity demanded
c_anincrease in the factors employed in the industry
d_anincrease in producer’s revenue

12 the soap industry consists of several firms. firm x produces a small percentage of total output.
what is likely to cause the supply curve for firm x to shift to the right while the market supply
curve shifts to the left?

a_ firm x has improved technology while other firms have higher input costs.

b_ firm x has to pay a large fine for polluting a river while other firms have a tax reduction.

c_ firm x is involved in a strike while other firms enter the industry.

d_ firm x’s rent and interest charges increase while other firms receive a government subsidy.

13 dy, and s; represent the initial demand and supply curves for a product.
d2 and sz are the equivalent curves after changes in market conditions.
‘ s,
price of
product
d,
! .
d
vv 1 ;
(e) ’
quantity of product
what are resulting changes in consumer and producer surplus?
change in change in
consumer surplus | producer surplus
a from r to p from u toq
b from r+t to p from u toq+r
cc from r+t to p from v toq
d from r to p+s from v toq+r

14 the diagram shows a market subject to a maximum price.
is)
price
p  suenicnloonsierannencaceaveiengiid
maximum price
i ot 4
ie) qa aa
quantity
what will happen if the maximum price is removed?
a there will be allocation by a queuing system.
b_ there will be allocation by government rationing.
c_ there will be allocation by seller’s preference.
d_ there will be allocation by the price system.

15 the diagram illustrates the effect of a government action that shifts s; to so.
s, ss,
price
w mre
2—f"7 y
d
a quantity
what does the area of the rectangle wxyz represent?
a_ the consumer tax burden
b_ the government tax revenue
c_ the government subsidy payment
d_ the producer subsidy income

16 the table shows the demand and supply schedules for a product before and after the
government pays a subsidy of $4 per unit to the producers.
cies quantity quantity quantity
8) demanded supplied before | supplied after
(units) subsidy (units) | subsidy (units)
6 140 60 100
8 120 80 120
10 100 100 140
12 80 120 160
14 60 140 180
what is the total government spending on the subsidy?
a $240 b_ $400 c $480 d $960

17 which government transaction is a transfer payment?
a afee paid for a service supplied by government
b  apayment to a private firm for goods supplied to the government
c_ apension paid to a former government employee
d_ asalary payment to a government tax official

18 following deregulation, state-owned enterprises in an economy are to be privatised.
what is least likely to result?
a_ private companies will put customer needs before profits.
b_ private companies will raise their own share capital.
c_ the level of incentive for the enterprises will rise.
d the number of companies will increase.

19 from the initial position of equilibrium shown, there is an increase in government expenditure on
goods and services and simultaneously a reduction in the overall efficiency in the production of
goods and services.

full employment
price as
level
| 1)
[e)
real output
what best describes the likely impact on the economy?
equilibrium level equilibrium level
of national income of prices
a falls uncertain
b no change no change
cc rises rises
d uncertain rises

20 what does an aggregate demand curve show?
a the level of aggregate demand corresponding to different levels of aggregate supply
b_ the aggregate output demanded corresponding to different average price levels
c_ the equilibrium price level corresponding to different levels of aggregate expenditure
d_ the equilibrium level of income corresponding to different levels of aggregate expenditure

21 the table shows the year-on-year percentage changes for a country’s consumer price index from

2009 to 2015.
2009 18.0
2010 11.7
2011 8.6
2012 46
2013 49
2014 6.1
2015 45

which statement about the price level is correct?

a it fell over the first half of the period.

b_ it was at its highest at the start of the period.

c_ it was at its lowest at the end of the period.

d_ it was at its lowest at the start of the period.

22 an indian multinational company receives profits from its factories based in the uk. it then buys a
us-owned firm based in the uk.
how will these transactions appear in india’s balance of payments?
| | the remittance of profit the purchase of the us-owned firm
a a credit item in the current account a debit item in the financial account
b | acredit item in the financial account a debit item in the current account
cc a debit item in the current account a credit item in the financial account
d a debit item in the financial account a credit item in the current account

23 in the diagram d, and s, are the initial supply and demand curves of the pound sterling (£) on the
foreign exchange markets.
s,
‘ s,
price of
£ (in $)
d
d, |
e quantity of £
what will cause the demand curve to shift to d2 and the supply curve to s2?
a adecrease in the price levels of other countries
b- adepreciation of the pound sterling
c_ areduction in the level of uk import tariffs
d_anincrease in uk interest rates

24 aneconomy'’s terms of trade fell from the base year of 100 to 90.
which changes in the export price index and the import price index would have caused this?

export price import price
index change index change

a 0 -10

b 0 +10

cc -10 0

d -10 +10

25 kenya produces some of the finest teas much of which it exports. its climate is not so suited to
producing olives but the olives can be sold for a higher price per sack.
what would definitely happen if a kenyan company used some of the land where tea is grown to
plant olive trees?
a the company would have a comparative advantage in trade.
b the company’s revenue would increase.
c_ there would be a decrease in the credit side of the trade in goods and services.
d_ there would be an opportunity cost from lost tea production.

26 the diagram shows that the imposition of a tariff raises a good’s world price from $10 to $14.
domestic supply
price
$ d
1 eee fan
8 ff es domestic
' demand
so | |
0 20 30 70 100
quantity (millions)

what was the effect on total expenditure on the good?
a it fell by $20 million
bit fell by $160 million
c_ it rose by $220 million
d_ it rose by $560 million

27 which government measure would reduce protectionism?
a anincrease in product safety standards
b_anincrease in subsidies to domestic firms
c_anincrease in the level of import quotas
d_anincrease in the rate of import duties

28 vvnat is a deflationary fiscal measure ?
a reducing interest rates
b_ reducing the money supply
c increasing taxes
d increasing government expenditure

29 policies to correct a balance of payments deficit fall into two categories: expenditure-dampening
policies and expenditure-switching policies.
which pair of policies are classified correctly?
| expenditure-dampening policy expenditure-switching policy
a an increase in the rate devaluation of
of income tax the currency
b an increase in the rate the imposition of
of value added tax import quotas
cc devaluation of an increase in the rate
the currency of value added tax
d the imposition of an increase in the
import quotas rate of income tax

30 the us federal reserve has a stable price (2% inflation) target and a full employment (5 to 5.2%

unemployment) target.
the diagram shows the inflation rate and unemployment rate that existed between 2007 and
2014.

10 fl

i 2 neon key
8 | al some unemployment rate (%)
i ny consumer prices
6 a _< % increase on a year earlier
te ui employment rate

af

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do ys a)
d> oo? eg" as” gn qa gn
shs hs sl

what can be concluded about the performance of federal reserve economic policy, 2007 to
2014?
a thecontinuing deflation meant failure in the inflation target.
b_ the inflation target was achieved less frequently than the employment target.
c_ the least successful period for economic policy was experienced in 2007.
d_ the nearest to complete policy success was achieved in 2008.

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