economics

1. what distinguishes the very long run from the long run?
a the ability to change resource allocation
b the ability to change the state of technology
c_ the absence of government market intervention
d_ the existence of variable factors of production

2 what is least likely to happen if a firm decides to increase automation and division of labour in its
production process?
a anincrease in cost per unit
b_anincrease in productivity
c_anincrease in the firm’s profits
d_anincrease in the number of workers employed

3 r1is1, res2, r3s3 and r4s, are production possibility curves (ppc) for four different countries 1, 2,

3 and 4.

ry

good r

rs

r,

ry

ie) 8, s ss, s,

good s

which statement about the opportunity cost of good r in terms of good s is not correct?
a itis greater at all points on r4s, than on r3s3.
b_itis greater in country 3 than country 2.
c _itis lower in country 2 than country 1.
d_itis the same at each point on r3s3,

4 many governments are concerned that the high sugar content in fizzy drinks might lead to health
problems such as obesity. these governments are also concerned about the lack of public
awareness of the dangers.

what can be concluded from this?

a consumers of fizzy drinks have information failures.
b consumers under-consume fizzy drinks.

c_ fizzy drinks are merit goods.

d_ fizzy drinks are non-excludable.

2% there is a fall in the world price of tea traded on wholesale international markets.
how will this most likely affect the supply curve of a major tea retailer?
a it will cause a contraction along the supply curve.
b it will cause an extension along the supply curve.
c it will cause the supply curve to shift to the left.
d it will cause the supply curve to shift to the right.

6 it was estimated in 2015 that milk had an income elasticity of demand of —0.6.
what can be concluded about milk from this information?
a it accounts for only a small proportion of household expenditure.
b it has very few substitutes.
c household expenditure on milk will decrease if the price of milk increases.
d_itis an inferior good.

7 the diagram shows four supply curves.
. 1 2 3 4
price
4
s quantity

which statement about the price elasticities of the curves is correct?
a curve 1 has constant infinite elasticity.
b curve 2 has elasticity greater than curve 4 over its whole length.
c_ curve 3 has increasing elasticity as price rises.
d curve 4 has decreasing elasticity as price rises.

8 the data shows both short-term and long-term changes in the quantities of a product that are
supplied to a market in response to an increase in its price from $20 to $25 per unit.
quantity supplied at a price of $20 per unit 400 per week
quantity supplied after short-term adjustments 440 per week
when price rises to $25 per unit
quantity supplied after long-term adjustments 560 per week
when price rises to $25 per unit
what are the short-term and long-term price elasticities of supply for the product?
[stetierm [engi
a 0.4 1.6
b 2 8
cc 2.5 0.625
d 8 32

9 in the diagram, d is the demand curve for an agricultural commodity and s, is the initial supply
curve. a good harvest causes the supply curve to shift to sp.
ahaa
price 5
®t tal et
tix
taln ye
ttt ne
1 ras
pt | tp yo |
0
0 1 2 3 4 5 6
quantity
(000 tonnes)
by how much will the demand curve have to shift to leave farm incomes unchanged?
a_ 500 tonnes at all prices
b 1000 tonnes at all prices
c 2000 tonnes at all prices
d 4000 tonnes at all prices

10 a market is in an unstable disequiliorium when it does not return to its equilldrium point trom a
disequilibrium position. the diagram shows a market with two equilibrium points.
at which price is the market in an unstable disequilibrium?
d ss
pace a |ecrmcmsnenrenn mse ne gacenenmaey

b ‘nen ceniennnnemellentavescensoel

[85 sips natn eaneancnr enter ue

d a een

oo ,

quantity

11. in which situation will it be necessary to use an alternative to the price mechanism to allocate a
good between consumers?
a_ supply exceeds the quantity demanded at the initial market price.
b_ the government sets a price ceiling below the equilibrium price.
c_ the product is excludable and rival.
d_ there is a single monopoly producer.

12 the table shows the price rashid is willing to pay for successive bottles of water.
price willing to pay $0.90 | $0.80 | $0.65 | $0.50
if the price is $0.50 and rashid buys four bottles, what is the monetary value of rashid’s
consumer surplus?
a $0.15 b $0.85 c $0.90 d $1.35

13 a mmmarket is in equilibrium at price po. market supply changes trom being inelastic at each price to
become elastic at each price. the market equilibrium price does not change.
what is the effect on consumer surplus and producer surplus?
consumer producer
surplus surplus
a rises falls
b rises unchanged
cc unchanged falls
d unchanged unchanged

14 a government has introduced an effective maximum price on rice.
which combination of changes must cause an existing shortage of rice to increase the most?
a a fall in the maximum price and a less price-elastic supply
b a fall in the maximum price and a more price-elastic supply
c_ arise in the maximum price and a less price-elastic supply
d_ arise in the maximum price and more price-elastic supply

15 the diagram shows the market for a product before and after the introduction of a subsidy.
supply before
subsidy supply after
otis bp sages eagle subsidy
y '
fr ree rsssereceesnrs sore l)
al, mv
p= 6n- == wv
1 1 demand
oo t, t,
quantity
which area represents the total amount paid in subsidies?
a pryx b qruv c qstv d rstu

16 the graph shows the total economic welfare derived by citizens from a government's expenditure
on health and education services.
total economic
welfare health
education
0 20 40 60 80
expenditure ($ billions)
if the government has $60 billion of its budget to allocate between health and education services,
which allocation will give its citizens the highest level of welfare?
health spending education spending
($ billions) ($ billions)
a 0 60
b 20 40
cc 40 20
d 60 0

17 ie table shows the demand and supply schedules for a good before and after the imposition of
a tax.
($) demanded before tax after tax
20 340 440 380
19 340 430 340
18 340 410 290
17 340 380 230
16 340 340 160
15 340 290 80
14 340 230 0
what was the tax and the price change?
ae
($) ($)
a 3 2
b 3 3
cc 4 3
d 4 4

18 which action by a government would not be regarded as a form of privatisation?
a_ the contracting out of the provision of public sector services to private sector firms
b_ the deregulation of public sector industries to allow the entry of private sector firms
c_ the payment of subsidies from the public sector to private sector firms
d_ the sale of shares in a public sector corporation to the private sector

19 the diagram shows changes in aggregate demand and aggregate supply that have resulted in a
move from equilibrium point x to equilibrium point y.
sras, sras,
price level
y¥
x
ad, ad,
(6)
real output
which combination of events could have caused this change?
a higher interest rates and the discovery of new natural resources
b_ increased consumer confidence and reduced raw material prices
c less business confidence and higher indirect taxes
d lower exchange rate and net outward migration

20 what would be likely to decrease inflation in an economy?
a adecrease in consumer saving
b  adecrease in unemployment
c_anincrease in labour productivity
d_anincrease in taxes on imports

21 what is the average weighted price change illustrated by the table below?
percentage of income price change
pore spent on product %
p 10 +8
q 15 +6
r 25 +4
is} 50 -9
a -1.8% b 4.5% c 7.2% d 9.0%

22 the diagram shows greece’s trade position with the eu and russia between 2005 and 2014.
60 k
greek sii ey
trade 50 ene sesreeeeees imports from eu
$bn 40 at eee, --—-= exports to eu
30 eet seg aaa 72 imports from russia
—— exports to russia
20 ors, —_— —=
eo ee” —_ ss
10-7" _ pee eee een,
é ——_——— ~
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
what happened to greek trade balances over this period?
| | balance with the eu balance with russia
a an increased deficit an increased surplus
b an increased surplus a reduced surplus
cc a reduced deficit an increased deficit
d a reduced surplus a reduced deficit

23 the graphs show the changes in the exchange rates of the £ sterling against the us$ and
against the euro. the exchange rate of sterling against the euro is shown by an inverted scale.
sterling against (inverted sterling against
the dollar ($ per £) scale) the euro (€ per £)
1.80 0.55
1.70
0.60
1.60
0.65
1.50
0.70
1.40
1.30 0.75
1 2 3 1 2 3
years years
which statement about the period year 1 to year 3 is correct?
a the &£ appreciated against the $ and the €.
b_ the £ appreciated against the $ and depreciated against the €.
c_ the £ depreciated against the $ and the €.
d_ the £ depreciated against the $ and appreciated against the €.

24 what has happened when a country’s terms of trade are said to have moved in a favourable
direction?
a each unit of imports costs more exports.
b- more foreign currency enters the country to pay for exports.
c_ the monetary value of exports and imports is equalised.
d_ the ratio of the index of export prices to the index of import prices increases.

29 vwvnhat is the least likely outcome for participating countries of a move towards treer trade?
a agreater product choice
b amore equal distribution of income
c greater international specialisation
d higher standards of living

26 the diagram shows that the imposition of a tariff raises a product's world price from $10 to $14.
domestic supply
price
d
$
14 oes ees
8 rr (ies ee oe domestic
| t demand
an
0 20 30 70 100
quantity (millions)
what was the change in domestic producers’ income as a result of the tariff?
a_ it rose by $120 million.
b_ it rose by $160 million.
c_ it rose by $220 million.
d_ it rose by $280 million.

27 what is a disadvantage when a quota replaces a tariff to reduce imports?
a itis harder to anticipate its impact.
b_itis less effective at raising revenue for the government.
c_itis less effective when imports are necessities.
d_ it prevents any involvement of market forces.

28 all other things being equal, what will be the likely effects on the us budget deficit and the supply
of us government bonds if the us government increases its expenditure?
us budget deficit supply er us
government bonds
a decrease decrease
b decrease increase
cc increase decrease
d increase increase

29 acountry at the beginning of a given period seeks to improve the current account of its balance
of payments by devaluing its currency. the effect of this policy in the following two years is shown
in the diagram.

current account
surplus
current =
balance a
18 24
deficit months
which statement is likely to explain this performance?
a inthe short run, the price elasticity of demand for exports and imports was very low.
b_ the domestic inflation rate fell after 12 months before having the desired result.
c_ the elasticity of demand for imports diminished after 12 months.
d_ the policy was ineffective and other factors must have led to an improvement in the current
account.

30 suppose a country has a rate of inflation well below its target rate, high unemployment and a

large balance of payments deficit.

what would an economic advisor to the government be most likely to recommend?

a along-run supply side policy, aimed at improving the country’s efficiency, so improving both
the unemployment and the balance of payments positions

ba revaluation of its currency, because that would lead to reduced unemployment and an
improved balance of payments

c_ arise in interest rates, because it would lead to an improved balance of payments and help
achieve the inflation target

da rise in levels of direct taxation, because that would improve unemployment and move
inflation in the direction of a target level

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