economics

1. in an economy no one can be made better off without making someone else worse off.
what can be deduced from this?
a individuals are the best judges of their own well-being.
b individuals can be relied upon to behave rationally.
c_ the distribution of income is socially optimal.
d_ the economy’s resources are allocated efficiently.

2 in 2015, a large mining company said it would reduce the number of staff by 6000 and sell its less
profitable mines in an attempt to become more efficient.
if it is successful, what is most likely to happen to its costs?
| total fixed cost total sanable
cost
a fall fall fall
b fall fall no change
cc fall no change fall
d no change fall fall

3 the production of a firm which operates in an imperfectly competitive market gives rise to
external production costs.
which statement about this firm must be correct?
a external costs exceed external benefits.
b_ private costs exceed social costs.
c_ social costs exceed private costs.
d_ social costs exceed social benefits.

4 inthe uk in 2015 there were two methods of charging for water supply.

1 a fixed charge giving the consumer the right to consume water at zero price per litre
2 aprice per litre of water used

it has been observed that the amount of water consumed is markedly lower when method 2 is

used.

what is implied by this observation?

a_ water in the uk is not a scarce good.

b_ water is a free good of nature and no charge should be levied.

c_ water is a necessity, the use of which should not be restricted by unit prices.

d_ water is subject to the law of diminishing marginal utility.

5 the diagram shows the cost curves for a firm.
price mc
wy
i afc
ie) q, q,
output

what does the firm experience as it increases output from q, to q2?
a decreased average variable cost
b_ diminishing returns
c_ economies of scale
d increased profit

6 firms x and y merge in a horizontal integration.
what must be true about the industry and the stage of production in which x and y operate?
| et
a different different
b different same
cc same different
d same same

7 inthe diagram the curve tc shows the relationship between a firm’s total costs and its level of
output.
tc
total
cost
p |
oo” q
output
at output oq average fixed costs are
a equal to op |
qr
b_ equal to qr.
oq
c_ equal to of
oq
d measured by the slope of the line or.

8 which diagram shows the total revenue function for a firm in perfect competition?
a b
tr
revenue revenue
tr
o output oo output
cc d
tr
revenue | revenue
ie) output ie) output

9 many public utilities can be described as ‘natural’ monopolies.
which statement best describes the situation leading to a ‘natural’ monopoly?
a there are high fixed costs and falling average costs over all outputs demanded.
b_ there are legal restrictions on new entrants.
c_ assingle firm controls the supply of raw materials.
d_ the firm has a patent on an essential process.

10 increased advertising by a firm in an imperfectly competitive industry leads to an increase in
demand for the industry’s product but a fall in the firm’s profits.
what could help to explain this?
a production is subject to diseconomies of scale.
b_ rival firms respond by increasing their advertising outlays.
c_ the demand for the industry’s product is price-inelastic.
d_ the increase in demand for the firm’s output is entirely at the expense of other firms.

11 an industry consists of a dominant firm, which acts as a price leader, and a large number of small
firms.
which statement about the profit-maximising output of the small firms is correct?
a_ average cost is equal to average revenue.
b_ average cost is minimised.
c_ marginal cost is equal to price.
d marginal revenue is zero.

12 there are two firms in an industry. firm x faces a choice. it can either act independently or work
with its rival. if it acts independently its profit could be $900 a week but it could be only $400 a
week depending on what its rival does. if it works with its rival the joint profit of the two firms
together would be $1400, $700 each. it has no knowledge of what the rival’s policy will be.

which concept describes this situation?
a contestable market

b_ kinked demand curve

c principal agent problem

d _prisoner’s dilemma

13 what explains the kinked demand curve model of price rigidity in oligopoly?
a collusion between all firms in the industry in the setting of prices
b_ the assumption that a single firm acts as price leader for all firms in the industry
c the individual firm’s expectations about other firms’ responses to its price changes
d_ the presence of barriers to the entry of new firms into the industry

14 which policy is not designed to correct a market failure?
a government provision of health care
b_ removing import quotas
c price controls on large firms
d regulations to limit smoke pollution

15 a tax system allows people to earn a certain sum of income free of income tax. on income above
this level, tax is levied at a constant rate.
which diagram correctly shows how marginal and average rates of tax vary with income?
a b
rate farainal rate
of tax 9 of tax
marginal
average
average
o income oo income
cc d
rate rate
of tax of tax
marginal
average = marginal
average
o income oo income

16 what is the best example of nudge theory as applied to the prevention of tax evasion?
a employing an extensive administration to ensure detection of evasion
b_ imposing heavy penalties to deter offending behaviour
c providing information to taxpayers about the undesirable effects of tax evasion
d requiring employers to inform the tax authorities of workers’ pay

17 in many countries it has been observed that, when high marginal rates of income tax imposed on
richer groups are reduced, the tax revenue raised increases.
what is an implication of this observation?
a government policy should aim to minimise the income tax.
b_ sales taxes are always superior to income taxes as a means of raising revenue for the
government.
c_ tax policy intended to reduce income tax on the rich may make the poor better off.
d the government should always levy proportional rather than progressive income taxes.

18 the diagram represents the market for labour.
wage
s,
whe-sseeseese= s,
d
ie) n
number of workers
what would be the effect on transfer earnings and economic rent of a change in the supply curve
from s, to s2?
transfer earnings economic rent
a fall falls
b fall rises
cc rise rises
d rise falls

19 how might real gnp per head be adjusted to make it a more reliable indicator when comparing
standards of living in different countries?
a adjustments to allow for differences in population size in different countries
b adjustments to allow for differences in rates of inflation in different countries
c_ adjustments to allow for differences in the relative size of the hidden economy in different
countries
d_ the use of market exchange rates rather than purchasing power parity exchange rates

20 which combination of circumstances is most likely to lead to an increase in a country’s budget
deficit?
discretionary
total gdp unemployment government
spending
a decreases rises decreases
b decreases rises no change
cc increases falls increases
d increases falls no change

21 tocombata rising crime rate, the government decides to recruit additional police officers who are
paid a wage equal to that which they previously earned in the private sector.
as long as their previous jobs remain unfilled, what effect will the recruitment of the additional
police officers have on the national income and on economic welfare?
effect on effect on
national income economic welfare
a increase unchanged
b uncertain decrease
cc unchanged decrease
d unchanged uncertain

22 wvnat could not exist in a closed, mixed economy?
a abalance of trade deficit
ba budget deficit
c_ household debt
d national debt

23 vvnat does the accelerator principle state?
a consumption is a function of the rate of change of income.
b_ income is a function of the rate of change of investment.
c_ investment is a function of the rate of change of income.
d_ investment is a function of the rate of interest.

24 what would not be classified as structural unemployment?
a acar worker who is replaced by a robot on the production line
b-acoal miner whose mine closes because of increased use of solar power
c a fruit picker who cannot find work in the winter months
da textile worker whose factory closes as production moves abroad

25 what represents a leakage from the circular flow of income in an economy?
a abalance of trade surplus
b  agovernment budget surplus
c_ reduction in funds for research and development
d_re-investment of a firm’s profits

26 what will cause a downward shift in the aggregate demand curve of an economy?
a_anincrease in firms’ stocks of raw materials
b adecrease in the export of goods
c adecrease in the propensity to import
d  adecrease in saving

27 which policy is most likely to raise the level of total demand in an economy?
a_anincrease in direct taxation matched by a reduction in indirect taxation
b_arelaxation of import controls
c cuts in public expenditure matched by tax cuts
d_ devaluation of the currency

28 the government cuts taxes and increases its spending in order to create jobs during a recession.
when will a resulting budget deficit be least likely to cause a permanent reduction in
unemployment?

a_ when households expect higher inflation rates in the future

b_ when households spend their extra disposable incomes on domestic products

c_ when the government's extra spending is on new infra-structure projects

d_ when the government's extra spending is on the salaries of public sector workers

29 in 2011, the global money supply, narrowly defined, rose 11% and broadly defined money
increased roughly 8%, as central banks continued efforts to keep interest rates low.
what type of policy does this statement illustrate?
a contractionary fiscal
b_contractionary monetary
c expansionary fiscal
d expansionary monetary

30 which policy measure would be most likely to reduce a developing economy's birth rate and its
household saving ratio?
a_anincrease in student tuition fees
b_arelaxation of immigration controls
c the introduction of a basic state pension
d_ the removal of tariffs on imported foodstuffs

Solve 9708_w17_qp_31