economics

1 when can an economy be said to be economically inefficient?
a_ when itis possible to make some people better off without making other people worse off
b_ when the distribution of income is socially unacceptable
c_ when the government sector is growing at the expense of the private sector
d_ when wage rates rise faster than production

2 the diagram shows cost and benefit curves for a good in a free market.
. mpc
cost, benefit
($)
msc
pypenstakgesssseee 3
| emma
pigpancomny a: an
| a. 1 msb
(|) | smpb
oo q, qq, q,
quantity
which combination is correct?
social optimal
a acti) uiput level of output
a p,q, p3q3
b p2q2 p3q3
cc p2q2 p4qy
d p3q3 p4q4

3 a food processing firm discharges waste water into the lake next to its factory.
what would reduce the difference between the private cost and the social cost of the firm’s
actions?
a local residents are given the right to buy the firm’s food at a discount.
b_ the government subsidises the food processing firm.
c_ the lake is bought by the food processing firm.
d_ the waste water flows from the lake into the sea.

4 the diagram shows attainable indifference curves, i, and ip, for good x and good y.
which point represents the highest level of satisfaction currently attainable?
good y
e cc
b
d
a l,
1,
(e)

good x

5 the table shows the substitution effect and income effect for a giffen good and an inferior good
as the price of the good changes.
which combination is correct?
fyoeétaood ‘eeachanae demand change from | demand change from
yp 9 p 9 substitution effect income effect
a giffen fall positive negative
b giffen rise positive positive
cc inferior fall negative negative
d inferior rise negative negative

6 aconsumer demands two goods, x and y. the indifference curve diagram shows the effect of a
change in the price of one of these goods on the consumer’s equilibrium.
good y |
"
0 good x
which demand curve is consistent with the diagram?
a b
price of price of
oa — nn.
se) quantity fe) quantity
of good y of good y
cc d
price of price of
good x nn. good x
e) quantity ie) quantity
of good x of good x

8 the diagram shows short-run (srac) and long-run (lrac) cost curves for a firm.
price,
cost srac,
srac.
srac, 3 lrac
(6)
a output
which statement is correct?
a when each of the three srac curves is u-shaped it shows the existence of economies of
scale.
b when the lrac curve is upward-sloping beyond output oq it shows the existence of
diseconomies of scale.
c when the minimum point of srac2 is below that of srac, it shows the existence of the law
of variable proportions.
d when the minimum point of srac2 is below that of srac; it shows the existence of
economies of scale.

10 in the long run, what is a feature of monopolistic competition, but not of perfect competition?
a asmall number of buyers
b product differentiation
c the existence of abnormal profits
d_ the existence of barriers to entry

11 a small european airline currently produces at point x on its long-run average cost curve. it
wants a bigger share of the european airline market and proposes to merge with another small
european airline. the newly merged firm would produce at point y on the long-run average cost
curve, as shown.

lrac
costs
x
¥:
o output
why might the newly merged firm be able to produce at point y?
a the new airline can negotiate discounts when buying fuel.
b_ the new airline has many layers of management.
c_ the new airline is unable to hire enough pilots.
d_ the workforce of the new airline lacks morale and is demotivated.

12 atirm sells its product to consumers in two separate markets, m and n.
under which conditions will a policy of price discrimination between the two markets be most
profitable for the firm?
price elasticity price elasticity geographical
of demand in of demand in distance between
market m market n markets m and n
a le 12 large
b 4.2 1.2 small
c 1.8 1.2 large
d 1.8 1.2 small

13 acommunity relies on a private company to supply electricity using a coal-fired power station.
the power station causes air pollution which imposes an external cost shown in the diagram.
msc
costs,
revenue mpc
w/'*
zy |
e | mpb = msb
. electricity output

the government decides to impose a tax on the electricity company to correct market failure.
what represents the tax?
a wx b wy cc xy d yz

14 some workers in a low-paid job decide to work longer hours to increase their disposable income.
however, this decision reduces state-provided benefits, leaving them no better off.
what does this describe?
a debt trap
b _ liquidity trap
c poverty trap
d unemployment trap

15 which policy is likely to be the least effective means of producing a more equal distribution of
income amongst households?
a the imposition of minimum wage levels below the levels produced by the market
b _ the introduction of progressive personal income taxes
c_ the payment of child benefits to low income households
d_ the removal of sales taxes on food consumed by lower income households

16 the table shows the main characteristics of employment in two occupations.
j eesttion xt eccpation¥
average annual wage $100 000 $60 000
number of weeks annual leave 5 weeks 10 weeks
average length of working week 48 hours 44 hours
job security low high
length of training course to obtain job qualification 1 year 2 years
what can definitely be deduced from the table?
a_ those employed in occupation y attach greater importance to job security.
b_ those employed in occupation x attach less importance to leisure activities.
c_ there will be more competition for places on training courses to enter occupation x than
occupation y.
d occupation y has more non-pecuniary advantages than occupation x.

17 the table shows a firm that has four possible methods of production to make its desired output.
each method has a different cost and causes a different amount of pollution.
the government rules that polluting firms must buy pollution permits that cost $90 each. each
permit allows the firm to emit 1 tonne of pollution. no pollution can be emitted without a permit.
which method of production has least total cost?
cost of production | pollution caused
($ per day) (tonnes per day)
a 320 3
b 380 2
cc 480 1
d 700 0

18 howcan gdp at market prices be calculated if gdp at factor cost is known?
a add taxes, add subsidies
badd taxes, subtract subsidies
c subtract taxes, add subsidies
d subtract taxes, subtract subsidies

19 which characteristics of the population, the size of the informal economy and the rate of inflation
would mean that gross domestic product (gdp) is likely to be relatively accurate as a
comparison of the standard of living over time?

: size of informal rate of
population , :
economy inflation
a rising large rising
b rising small stable
cc stable large rising
d stable small stable

20 ihe table gives the percentage of employment in the primary, secondary and tertiary sectors in
four countries.
which country is most likely to be a developed country?
primary secondary tertiary
sector % sector % sector %
a 15 40 45
b 30 40 30
cc 35 45 20
d 45 35 20

21 the diagram shows unemployed persons (in millions) for the years 2000 to 2016 for the
european union.
26
unemployment 94
(millions) 22
20
18
16
14
12
107 tata toto eee ow ww eee
shh hls sss sss ss sks
year
during which period was the highest rate of increase in unemployment experienced?
a 2006 to 2008
b 2008 to 2010
c 2010 to 2012
d 2012 to 2014

22 a large coal mine is forced to close because of falling demand for coal as consumers switch to
less-polluting fuels. the government organises retraining courses and recruitment events for the
coal mine workers.

which type of unemployment is the government trying to reduce?
a cyclical

b_ seasonal

c _ structural

d_ technological

23 economists have proposed that the best policy to promote development is ‘trade not aid’.
what is implied by this proposal?
a developing countries should become self-sufficient.
b_ developing countries should be given greater access to markets in developed countries.
c_ developing countries should use foreign aid to invest in their export industries.
d_ developing countries should use trade barriers to promote import substitution.

24 the table shows the values of selected macroeconomic variables over a period.
ma
($m) ($m)
investment 200 220
saving 180 190
exports 100 110
imports 120 140
government expenditure 150 160
taxation 150 160
equilibrium national income 1800 2000
what is the value of the multiplier?
a 2 b 4 c 5 d 10

25 what is most likely to increase if an economy enters a negative output gap?
a business confidence
b_ economic growth rate
c _ inflation rate
d unemployment rate

26 under which conditions will a keynesian expansionary fiscal policy be most likely to take an
economy out of a recession without too much inflation?
demand wage aggregate

for money flexibility supply curve
a interest elastic high price elastic
b interest inelastic high price inelastic
cc interest elastic low price elastic
d interest inelastic low price inelastic

27 what would cause an increase in the transactions demand for money?
a _afallin the price of bonds
b_anincrease in nominal national income
c_anincrease in the rate of interest
d_anincrease in unemployment
a

28 what may lead to a reduction in bank lending in a country?
a_anincrease in commercial banks’ balances with the central bank
b_anincrease in the liquidity ratios operated by the country’s commercial banks
c_anincrease in the monetary base of the country
d_anincrease in the volume of liquid assets held by the country’s commercial banks

29 eee gives details of the inflation and unemployment rates for different countries in 2008 and
inflation rate unemployment rate
country (% per annum) (% of workforce)
canada 2.38 2.89 6.15 7.47
france 3.16 2.29 7.81 9.68
germany 2.75 2.48 7.60 5.98
japan 1.37 —0.28 3.99 4.55
which country or countries experienced a trade-off between their inflation and unemployment
rates?
a canada and germany
b canada only
c_ france and japan
d_ france only

30 the government decides to raise the rate of value added tax (general sales tax).
what does this suggest is the government's main macroeconomic objective?
a to reduce the budget deficit
b__ to reduce the inequality of income distribution
c_ to reduce the level of unemployment
d_ to reduce the rate of inflation

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