economics

1 a project has a social cost of $100 million, a private cost of $40 million and an external benefit of
$20 million. its net social value is zero.
what can be concluded about the project?
a external cost is greater than external benefit.
b_ private cost is greater than external cost.
c_ private cost is greater than private benefit.
d_ social cost is greater than social benefit.

2 the diagram shows the cost and revenue curves for a firm.
at which price does allocative efficiency occur?
price
mc

ac
a
by [uns
0 seer ee eee ae

ar

(6)
quantity

3 a government is considering improving the rail links in its country. it also has to choose one of
four high-speed routes.
the benefits and costs of each route are shown below.
which route should be chosen?
private benefits | external benefits private costs external costs
$bn $bn $bn $bn

a 14 20 0.4 0.1

b 16 22 1.6 0.4

cc 18 12 0.2 1

d 20 18 2 4

4 the table shows the total utility gained by a consumer as they consume more apples.

0 0
1 10
2 18
3 24
4 28
5 30
6 30

at which level of consumption would the marginal utility be zero?

a 1 b 4 cc 5 d 6

5 in the indifference curve diagram point m is the consumer’s initial equilibrium, jk and jl are
budget lines and mn is the substitution effect of a fall in the price of good x.
if good x is a giffen good, which point will be the consumer’s new equilibrium point after the fall
in the price of good x?
good y
j
a
—— be
ns d
: ss
oo k (is
good x

6 selina has an income of $100 and buys food and drink. the price of a unit of food is $2 while the
price of a unit of drink is $1.
which combination of spending would suggest that selina wants to save some of her income?
| | food (units) | drink (units)
a 20 50
b 30 40
cc 40 20
d 50 10

8 the goal of firm x is to make a minimum acceptable level of profit.
what does this describe?
a profit maximisation
b _ profit satisficing
c_ revenue maximisation
d sales maximisation

9 a monopoly firm makes only normal profit in the long run.
what is most likely to explain this?
a_ the firm has decreasing long-run average costs.
b_ the firm is a public company with numerous shareholders.
c_ the firm is owned by a small number of financial institutions.
d_ the market in this industry is highly contestable.

10 the diagram shows the average fixed cost (afc), average variable cost (avc) and average total
cost (atc) curves faced by three firms x, y and z. dx, dy and dz are the three respective
demand curves. all three firms seek to make a profit.

atc
i d,
price, atc
cost aec avc
dy d,
avc
dx eee dy
d, afc
a quantity
which statement is not correct?
a_ firm x will choose not to produce at all.
b_ firm y is likely to operate in the long run but not in the short run.
c_ firm y is likely to operate in the short run but not in the long run.
d_ firm z will operate in both the short run and the long run.

11. when a firm increases all its inputs fourfold, its output increases threefold.
what does this illustrate?
a decreasing marginal costs
b_ decreasing returns to scale
c_ economies of scale
d _ the law of diminishing returns

12 what represents the transfer earnings of the factor enterprise?
a excess profit
b normal profit
c_ return on capital
d - start-up costs

13 acountry has a negative income tax.
the curve nt in the diagram shows the country’s initial tax schedule.
* nt,
tax
nt
o
income
a change in the tax rate causes the schedule to shift to nt,.
how will this affect work incentives and the after-tax distribution of income?
work distribution
incentives of income
a strengthen more equal
b strengthen less equal
cc weaken less equal
d weaken more equal

14 in which labour market diagram is the economic rent of workers greatest?
a b
wage wage ss.
w* . ss, w* * mrp,
mrp,
a l* labour & ly labour
c d
s,
wage wage ss,
w wr
mrp, mrp,
a l* labour a l* labour

15 which statement about government intervention is correct?
a_ government failure may result from policies that have unintended side effects.
b governments cannot identify the existence of inefficiency.
c inefficient government policies mean that the market system will be better at resource
allocation.
d_ market failure means that government action will necessarily improve the situation.

16 the government introduces a minimum wage above the equilibrium market wage rate.
how will this affect low-paid workers according to marginal revenue product (mrp) theory?
a_ all those initially in employment will receive the new guaranteed minimum wage.
b_ fewer of those not already in employment will enter the labour force.
c_ there will be an increase in the number of low-paid workers in employment.
d some low-paid workers will lose their job.

17 the diagram shows the market for a good that creates a negative externality in production and no
positive externalities. the current level of consumption is oq;.
s,
price no tat s,
nf ty
s,=msc=mpc+mec
py paneeens aap enemas s,=mpc
pi egg me
; d=mpb=msb
e) ga &@ @
quantity
the government decides to tax producers of the good.
which size of tax on producers would result in a socially efficient allocation of resources?
a vw b vx cc vy d vvz

18 the diagram shows a production possibility frontier, ppf;. the economy is initially at point x.
if the economy achieves actual economic growth but not potential growth, what would the final
position be?

capital |___ ppf,
goods ~
ppf, oe
s_d
he
vb %
“a \
o
consumer
goods

19 the information in the table is taken from a country’s national income accounts.
fs rton

consumer expenditure 250
investment expenditure 100
government expenditure 150
exports 100
imports 150
taxes 80
subsidies 40

what is the value of national income at factor cost in $ million?

a 410

b 450

cc 500

d 550

20 which source of income is not included in measuring real gdp’?
a pension paid to retired people
b profits made by firms
c rent paid to landlords
d_ wages paid to nurses

21 which adjustments to real gnp per head might make it a more reliable indicator when comparing
standards of living in different countries?
a adjustments to allow for differences in the level of government spending in different countries
b_ adjustments to allow for differences in the rates of inflation in different countries
c adjustments to allow for differences in the size of the hidden economy in different countries
d adjustments to allow for differences in the value of exports from different countries

22 what does the kuznets curve represent?
a_ changes in income inequality over time
b_ changes in the human development index over time
c_ changes in the multidimensional poverty index over time
d the inverse of a lorenz curve

23 in an open economy with a government sector, the marginal propensity to import is 0.3, the
marginal propensity to tax is 0.3 and the marginal propensity to save is 0.2.
what is the value of the multiplier?
a 1.25 b 2 c 25 d5

24 the information in the table is taken from a country’s national income accounts.
ft srt

national income 600
consumer spending 400
investment spending 80
government spending on goods and services 100
exports 140

what is the value of imports in $ million?

a 100 b 120 cc 140 d 240

25 the central bank of a country creates cash to purchase government bonds from the commercial
banks.
what is this called?
a liquidity preference
b quantitative easing
c supply-side policy
d_ the transmissions mechanism

26 which row shows characteristics of a fast-growing emerging economy?
[aren oom | a
a falling falling rising
b falling rising falling
cc rising falling rising
d rising rising falling

27 which policy is likely to increase unemployment?
a _anincrease in retraining facilities
b_asignificant increase in indirect taxes
c_ the imposition of selective import controls
d_anincrease in the public sector deficit

28 a government in a developed economy wishes to reduce cyclical unemployment.
which policy is likely to be most effective?
a decrease government expenditure and increase income tax
b_ decrease its budget deficit
c_ increase government expenditure and decrease income tax
d increase its budget surplus

29 an economy adopis an expansionary monetary policy to boost employment. a result of this policy
is that the consumer price index rises at an accelerating rate.
which curve could represent this?
a kuznets curve
b_ laffer curve
c_ lorenz curve
d phillips curve

30 in country x the government aims to protect jobs.
which policy is most likely to succeed?
a decrease restrictions on immigrant labour
b_ decrease subsidies to domestic producers
c_ increase general tariffs on imports
d remove quotas on imports

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