economics

1. some multinational oil companies extracting oil in developing countries are now required to repair
the damage they do to the environment.
which best describes the total costs incurred by the oil companies in such circumstances?
a external costs
b private costs plus external costs
c social costs plus external costs
d social costs plus private costs

2 in an economy, no one can be made better off without making someone else worse off.
what does not necessarily follow from this?
a_ the conditions for allocative efficiency have been met.
b_ the conditions for productive efficiency have been met.
c_ the distribution of income is socially acceptable.
d_ the economy is operating at a point on its production possibility curve.

3 a government decided to approve a road building scheme because it was socially beneficial. in
making its decision it calculated private costs at $800m, private benefits at $800m and external
costs at $150m.

what must have been true about the external benefits of the scheme?
a external benefits equalled private benefits.

b_ external benefits exceeded external costs.

c_ external benefits exceeded $200m.

d_ there were no external benefits.

4 what is it called when a consumer’s marginal utility is greater than the price paid for the good?
a a giffen good
b_aninferior good
c consumer surplus
d producer surplus

5 aconsumer has $3 to spend each day on chocolate bars or toffee bars, which all cost $1 each.

the table below shows the units of additional satisfaction she gets from consuming each bar.
16 13 10
14 12 9

what should she buy to maximise her total utility?

a 1 chocolate bar and 2 toffee bars

b  2chocolate bars and 1 toffee bar

c 3chocolate bars

d3 toffee bars

6 the curve jk in the diagram is a consumers initial budget line.
g
good y
j
o h k
good x
which combination could cause the budget line to shift to gh?
| | aa a an *
money income
a increase increase
b decrease decrease
cc increase decrease
d decrease increase

7 the diagram shows a consumer's indifference curves (ic) for goods f and g together with the
consumer's budget lines.
good f
wz
ic,
nae
0 good g
what could explain the movement from x to z on the diagram?
a _afallin the price of g when g is an inferior good
b sa fall in the price of g when f is a giffen good
c a fall in the price of g when g is a normal good
d sa fall in the price of g when g is a giffen good

8 a firm has the choice between five levels of output. the table shows the total cost and total
revenue of producing at each output level. the firm could sell whatever output it produces.
total revenue
ae | a | ($) ($)
1000 8000 10000
2000 12000 18000
3000 19000 24000
4000 23000 28000
5000 25000 25000
the firm decides to produce 4000 units.
what is the firm’s aim?
a to maximise profit
b_ to maximise sales
c_ to maximise revenue
d_ to minimise average costs

9 in which type of market structure are commercial banks usually found?
a perfect competition, because they all link their interest rates to that of the central bank
b_ perfect competition, because they offer identical products and services
c monopolistic competition, because a competitive market prevents them making excess
profits
d_ oligopoly, because they are affected by the actions of other banks

10 what is a condition for operating a successful cartel?
a alarge number of firms in the industry
beach firm has a differentiated product
c low barriers of entry to the industry
d - strictly enforced production quotas

11. which assumption is essential for a market to be contestable?
a_ the market is supplied by a large number of firms.
b_ firms are free to enter and leave the market.
c_ firms cannot earn abnormal profits in the short run.
d_ firms produce differentiated goods.

12 what is generally associated with the principal-agent problem?
a directors prefer company growth to greater shareholder dividends.
b managers ignore workers’ concerns about safety in the workplace.
c_ shareholders determine the price of products.
d workers go on strike against managers’ reorganisation plans.

13 the table shows the output of chairs at a factory when different numbers of workers are
employed.
frumberofwenes | 0 | 1 | 2 [a fa | s |
when will diminishing marginal returns to labour set in?
a when the second worker is employed.
b when the third worker is employed.
c when the fourth worker is employed.
d_ when the fifth worker is employed.

14 the chart gives information about the average daily wage rate for all industries in india.
280
rupees 270
per day 260
250
240
230
220
210
200
2011 2012 2013 2014
what could have caused this trend in wage rates?
a _anincrease in capital-intensive production
b_anincrease in the number of industrial workers
c_anincrease in the number of people unemployed
d_anincrease in the productivity of labour

15 acountry has a negative income tax regime.
the curve nt in the diagram shows the country’s initial tax schedule.
is nt
tax
nt,
[e)
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 less equal
b strengthen more equal
cc weaken less equal
d weaken more equal

16 there is a fixed supply of skilled workers in an industry. firms can no longer find enough workers
to meet their demand for labour.
what could be a solution to the problem?
a_ allow wage rates to fall as the market demands.
b introduce work-sharing and reduce working hours.
c make offices more attractive by adding air-conditioning.
d_ provide more training courses for new recruits.

17 a government is worried about the increasing monopsony power of employers in the wage
bargaining process.
which policy combination is most likely to improve the wages and employment prospects of
workers?
trade union immigration national
powers controls minimum wage

a strengthen relax cut

b strengthen strengthen raise

cc weaken relax cut

d weaken strengthen raise

18 what is not a source of market failure?
a imperfect information
b income inequality
c monopoly
d_non-excludability

19 a government regards fresh fruit and vegetables as merit goods, and subsidises agriculture to
boost their production.
what could be a government failure arising from these subsidies?
a cheaper fresh fruit and vegetables
bland clearance reducing wildlife
c_ lower spending on treating dietary illnesses
d_ more jobs picking fruit and vegetables

20 which type of unemployment is associated with a deficiency in aggregate demand?
a cyclical
b _ frictional
c _ structural
d voluntary

21 in the diagram, op is the equilibrium level of income and oq the full employment level of income
in a closed economy.
expenditure
iv
'y one,
it c+l
+ r cc
45° !
[e) p q
income
what is the deflationary gap?
a pq b rv cc tv d uv

22 what represents an injection into a country’s circular flow of income?
a corporate taxes
b_ interest payments on government bonds
c_ the payment of dividends to foreign shareholders
d_ the repayment of bank loans

23 what will be the most likely consequence of an increase in the dependency ratio?
a adecrease in gdp per head
b  adecrease in labour productivity
c_anincrease in the labour force
d_anincrease in unemployment

24 which statement is correct?
a economic development is necessary for economic growth.
b_ economic growth and economic development are directly proportional.
c_ economic growth enables economic development.
d_ economic growth is always sustainable.

25 the diagram shows a production possibility curve ppc,. 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 |___ ppc,
goods —
ppc, se
7b.
‘2c
an ra %
xd %
(e)
consumer
goods

26 it has been estimated by the united nations that the total external debt of developing countries
has been increasing by about $425 billion each year.
what is least likely to have contributed to this?
a disincentives for foreign direct investment through political instability
b_ increased government subsidies for the development of tourism industries
c_ withdrawal of multinational companies due to delays in the award of government contracts
d_ worsening of the terms of trade with partners in developed economies

27 the following are four conditions sometimes attached to imf loans to developing countries.
which condition would conflict with the ‘infant industry’ argument?
a the need to allow free trade
b_ the need to control inflation
c_ the need to have a contractionary fiscal policy
d_ the need to privatise government enterprises

28 in which exchange rate regime would the central bank of a country be best able to pursue an
independent monetary policy to control the rate of inflation?
a_afreely floating exchange rate system
b asystem where the country’s currency has a targeted value in relation to the us$
c  asystem where the central bank buys and sells foreign currency at a fixed rate
d_ where the country participates in a monetary union with other countries

29 what is measured on the vertical axis of the phillips curve?
a_ the rate of change of real wages
b_ the rate of change of take-home pay
c the rate of inflation
d the rate of interest

30 workers in poor countries are often less productive than workers using the same technology in
rich countries.
what would be most likely to remedy this situation?
a_anincrease in the saving ratio in poor countries
b_ increased freedom of migration from poor countries to rich countries
c_ increased investment in education in poor countries
d_ the removal of trade barriers imposed by rich countries on imports from poor countries

Solve 9708_w19_qp_31