economics

1 in cost-benefit analysis the term net social benefit refers to
a private benefit plus social benefit.
b social benefit minus private benefit.
c social benefit minus private cost.
d social benefit minus social cost.

2 a government school is built by private builders in a residential neighbourhood. the builders
ignore the effects of noise and disturbance.
why does a free market fail to take into account these external costs of building the school?
a_ education is a public good which benefits society.
b_ few people who live near the school object to the building.
c_ the government believes schools should be built privately.
d_ these costs are not paid for by the builders.

3 in all market structures, what must firms equate to ensure allocative efficiency?
a average cost and average revenue
b_ average cost and marginal revenue
c_ marginal cost and average revenue
d_ marginal cost and marginal revenue

4 inthe diagram a consumer’s budget line shifts from jk to gh.
j
quantity of g
good y
oo k h
quantity of good x

which statement must be correct?
a there has been an increase in the consumer’s money income.
b_ there has been a decrease in the consumer's real income.
c_ good y has become relatively more expensive.
d_ the price of good x has increased.

6 agovernment imposes a 910 tax on eacn unit produced of a product.
how will this affect the firm?
a_ its average cost will rise by less than $10.
b its marginal cost will remain unchanged.
c_ its minimum average cost output will be lower.
d_ its minimum average cost output will be unchanged.

7 according to oligopoly theory, what is not likely to characterise the behaviour of firms in the
industry?
a matching any price cuts made by their rivals
b_ matching any price rises made by their rivals
c selling a range of similar but differentiated products
d the ability to earn supernormal profit

8 the diagram shows the cost and revenue curves of a monopolist whose only cost of production is
a fixed cost.
what will be the monopolist’s profit maximising price?
costs \
/revenue
.
c oe
a 1 | atc
o mr ar
output

9 company r manufactures steel. company s produces ships. company t operates oil tankers.
company v operates cruise liners.
which statement is correct?
a_ if r takes over s, this is an example of forwards vertical integration.
b_ifs takes over v, this is an example of backwards vertical integration.
c_ if t takes over s, this is an example of diversification.
d_ if v takes over s, this is an example of horizontal integration.

10 a monopolist chooses an output that maximises profits and makes normal profits.
what must be correct at the output chosen?
a average cost equals average revenue.
b_ average revenue equals marginal revenue.
c_ marginal cost is at a minimum.
d_ the monopolist is allocatively efficient.

11 a firm operates in an imperfectly competitive market. the prices of its products are determined by
the maximum price each consumer is willing to pay.
what describes this pricing method?
a_ kinked demand curve
b limit pricing
c price discrimination
d price leadership

12 what is an argument for government policy which allows companies to take over other
companies?
a it allows firms to borrow from the banking system.
b_ it encourages companies to act to promote productive efficiency.
c_ it ensures wage rates will rise.
d_ it provides income and employment for investment bankers.

13 a government imposes a maximum price for electricity.
which statement justifying this measure might be considered valid on economic grounds?
a it will encourage electricity suppliers to invest in additional capacity.
b it will increase the incentive for consumers to conserve energy.
c it will prevent the monopolistic exploitation of consumers.
d_ it will prevent the rationing of electricity through power cuts.

14 the diagram shows the change in a market when a government places a production quota oq;
on the quantity of a good that has previously traded at quantity oq.
price s
p| d
[e) q, q .
quantity
which welfare loss results from the government's policy?
a w+v b wt+x c x+z d y+z

15 which policy by a government would increase the negative externalities that result from cigarette
smoking?
a abanon cigarette advertising
b- aban on cigarette smoking in public places
cabanon substitutes for cigarettes
d  abanon the sale of cigarettes
a a es a a a a a

16 a teacher currently earns 930000 but would be willing to continue to do the job provided she
earned at least $25000. she prefers to stay in her teaching job than change to her next best
alternative employment as an accountant where she could earn $40 000.

which statement is correct?

a her economic rent as a teacher is $5000.

b_ her economic rent as an accountant is $10 000.

c_ her transfer earnings as a teacher are $30 000.

d_ her transfer earnings as an accountant are $15 000.

17 what will increase the power of a trade union, allowing it to increase wages without reducing the
employment of its members in a particular industry?
a the economy is experiencing a fall in the price of capital.
b_ the economy is experiencing rising employment.
c_ the price elasticity of demand for the industry’s goods is equal to 1.
d_ the price elasticity of demand for the industry's goods is greater than 1.

18 the table shows the number of workers employed by four firms in the same industry, the average
number of hours worked each day and the total output each firm produces each day.
which firm’s workers have the highest productivity?

average number
number of of hours worked total output per
workers day (units)
per day
a 4 8 320
b 5 7 420
cc 6 7 462
d 7 9 630

19 which stage of the business (trade) cycle is most likely to be characterised by an increasing
negative output gap?
a boom
b_ recession
c_ recovery
d_ trough

20 which characteristics are typical features of the least developed countries?
mere
of industry earnings over time
a primary stable stable
b primary unstable unstable
cc secondary stable rising
d secondary unstable falling

21 what is central to economic growth but not necessarily to economic development?
a anexpansion of the range of economic choices available to individuals
b_anincrease in gross domestic product
c the eradication of absolute poverty
d_ the satisfaction of basic needs amongst the whole population

22 what would be the essential element in listing countries in order of their standards of living during
a particular year?
a adeduction for profits transmitted abroad from the figures for gross national product
b_ allowance for different rates of population growth
c an adjustment for the inflation rates of different countries
d_ the use of purchasing power parity exchange rates

23 a government wished to increase demand in an economy in an attempt to reduce unemployment.
which policy is most likely to achieve this?
a_ establishing greater health and safety rules for manufacturers
b_ increasing income tax
c increasing the rate of interest
d_ subsidising the building of new houses

24 what would be an increase in leakages or withdrawals from the circular flow of income?
a increase in government spending on anti-smoking campaigns
b increase in spending on imports of luxury cars
c_ increase in spending on transfer payments
d increase in wages paid to government employees

25 what is used to measure the deflationary gap?
a the increase in injections needed to reach full employment
b_ the public sector borrowing requirement
c the rate of deflation
d the rate of unemployment

26 the following data describes an economy’s consumption function.
($m) ($m)
100 90
140 122
180 154
220 186
what can be deduced about the value of the marginal propensity to consume in this economy?
a_ lt increases as income increases.
b_ it decreases as income increases.
c_ itis 0.90.
d itis 0.80.

2/ in whicn circumstance will there be an immediate increase in the domestic money supply?
a aconsumer takes advantage of an overdraft facility to buy a car.
b  aconsumer uses a reserve of cash to buy a car.
c aconsumer uses a reserve of euros to buy a car abroad.
d aconsumer uses their current bank account balance to buy a car.

28 the turning point on the kuznets curve for income inequality has been estimated to be in the
region of us $10 500.
for a country that has a gdp per capita of $8000, which is most likely?
a areduction in gdp per capita will have no effect on income inequality.
ba reduction in gdp per capita will increase income inequality.
c_ anincrease in gdp per capita will have no effect on income inequality.
d_ anincrease in gdp per capita will increase income inequality.

29 vvhicn macroeconomic policy alms are most likely to complement one another?
a high growth and low inflation
b high growth and low unemployment
c low inflation and low unemployment
d_ low unemployment and a balance of trade surplus

30 all else remaining unchanged, what would result in an outflow of capital funds from a country?
a afallin the country’s rate of inflation
b= anexpected appreciation of the country’s exchange rate
c_anincrease in foreign interest rates
d_anincrease in foreign prices

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