economics

1. what is the main aim of cost-benefit analysis?
a to allow firms to maximise their private benefit and minimise the external cost
b_ to equate total social benefit to the total social cost of a project
c to find the correct level of direct tax to internalise the external cost of a project
d _ to find the highest positive difference between total benefit and total cost

2 ~the diagram shows a firm in perfect competition that creates pollution.
msc
revenue, j, mpc
costs
m
p. : k ar =mr
;
ie) q@ qs
output
what represents the external cost?
a jk b jm c kl d mk

3 what is achieved in monopolistic competition in the long run?
| aa [a
efficiency profit
a no no
b no yes
cc yes no
d yes yes

4 the table contains data on the total utility gained by a consumer from eating biscuits and
chocolates in one day.
biscuits / chocolates
1 20 10
2 38 20
3 52 32
4 62 38
5 70 42
6 74 42
7 74 40
what can be concluded from the table?
a the consumer gets diminishing marginal utility after eating the first chocolate.
b the consumer gets negative marginal utility from the seventh chocolate eaten.
c_ the consumer will never eat chocolates if biscuits are available.
d_ the second biscuit eaten gives the same marginal utility as the fourth chocolate eaten.

5 the indifference curve diagram shows the effect of an increase in income on the consumption of
good x and good y.
good y
f
° good x

which types of good x and good y are indicated by the change in consumption from e to f?
aon [gooey |

a inferior inferior

b inferior normal

cc normal inferior

d normal normal

6 a chinese firm has total fixed costs of 1000 yuan. the firm’s average variable cost is 10 yuan
and its average total cost is 15 yuan.
what is the firm’s output?
a 10 units b66 units c 200 units d 5000 units

8 the diagram shows the costs and revenues of a firm that is producing output q, with a price pe.
mc
cost, revenue
ac
py [ooe ge pent
ar
a qe output
mr

what would explain this?
a the firm is deliberately selling below cost to keep out potential entrants.
b_ the firm wants to maximise the volume of sales to gain economies of scale.
c_ the managers’ salaries are related to revenue rather than to profits.
d_ the managers want to have a large team working for them to increase their status.

9 what is necessary for price discrimination to be profitable in different markets?
a_ there must be many buyers.
b_ there must be markets with different price elasticities of demand.
c_ there must be product differentiation.
d_ there must be geographically separate markets.

10 the diagram shows a firm’s short-run average cost curve.
srac
cost j
e output
what explains the shape of the curve?
a the law of diminishing marginal utility
b _ the law of variable proportions
c fixed costs exceeding variable costs
d_ technical diseconomies

11. a firm successfully engages in a policy of predatory pricing.
what will happen to the prices charged by the firm in the short run and in the long run?
prices in the prices in the
short run long run
a rise rise
b rise fall
cc fall rise
d fall fall

12 which is not a reason for the existence of small firms in a market dominated by large
companies?
a small firms can concentrate on providing specialist services.
b small firms enjoy greater economies of scale.
c small firms enter the market with new innovative ideas.
d small firms have good knowledge of local markets.

13 the diagram shows an industry’s supply and demand curves.
. ss
price
ui
i vv
a
oe
d
(0) q
quantity
in the absence of externalities, which area in the diagram measures the net loss in economic
welfare if the government restricts the level of output to oq?
a uty b vt+w cc x d v+wtx

14 in 2007 the united kingdom's government banned cigarette smoking in enclosed public spaces,
such as offices, shops, bars and restaurants.
what is a government failure arising from this ban?
a decreased consumption of cigarettes by smokers
b_ decreased levels of passive cigarette smoking by non-smokers
c increased litter from used cigarettes outside offices and shops
d increased sales of cigarette substitutes like nicotine patches and gum

15 when does a more equal distribution of income occur?
a when a country’s income tax system is made more progressive
b_ when someone is made better off without making someone else worse off
c_ when the best use is made of scarce resources
d_ when there is an increase in the gini coefficient

16 what is likely to improve the occupational mobility of labour?
a adecrease in income tax that increases aggregate demand
b  adecrease in unemployment benefit
c_anincrease in retraining schemes for the unemployed
d- more advertising of employment vacancies in the economy

17 the diagram represents a situation where a trade union has negotiated a wage, ow, for its
members. the level of employment is oq.
real wage
ww x
arp.
(6) q
quantity of labour

what do the trade union members maximise in this situation?
a their economic rent
b their leisure hours
c their level of employment
d their total amount paid in wages

18 what is not included in the human development index?
a _ infant mortality rates
bs gross national income per capita
c life expectancy at birth
d_ mean years of schooling

19 under what circumstances will low wages and low-cost land in a developing country not attract
foreign investment in manufacturing?
a __ if the developing country creates genuine independence for their central banks
b _ if the developing country embarks on a programme of privatisation
c _ if the developing country lacks well-developed infrastructure
d _ if the developing country permits repatriation of profits

20 an individual was temporarily unemployed but found a job quickly.
what type of unemployment is this?
a cyclical unemployment
b _ frictional unemployment
c seasonal unemployment
d © structural unemployment

21 = in 2012 a united nations report calculated the stock of wealth of 20 countries in terms of human,
natural and produced resources. this was measured as the inclusive wealth index (iwi).
the diagram shows the annual percentage (%) change in the iwi between 1990 and 2008 of four
economies. it also shows their 2008 gdp per head ($).
nl “a change in iwi, 1990-2008 (%) key
ead ($) [j human
china | 3404 resources
kenya 722 gz natural
nigeria | 1401 resources
russia | 11704 hj produced
resources
—25 0 25 50 75 ¢ wi
what can be concluded from the diagram?
a a low level of gdp per head meant an inability to build stocks of wealth.
b_ all countries were able to prevent depletion of their natural resources.
c_ the faster the growth in a country’s iwi the higher was its gdp.
d_ there was an increase in human resources in all four countries.

22 what would represent a monetarist anti-inflationary policy?
a_anincrease in indirect taxation
b_ direct foreign exchange rate intervention
c the introduction of maximum prices
d_ the sale of securities on the open market

23 the national income/expenditure diagram shows changes in consumption expenditure (c).
ae = ni
aggregate
expenditure (ae) c
($ bn) e
c,
|
(e) ye ye
national income (ni)
($ bn)
what would cause the consumption function to shift from c, to c2?
a aminimum deposit introduced for credit purchases
b_anincrease in direct taxation
c_anincrease in the rate of interest
d_ the expectation of an increase in indirect taxes

24 according to the accelerator theory, what would cause investment in an economy to be lower
than in the previous year?
a a lower marginal propensity to consume than in the previous year
ba lower marginal propensity to save than in the previous year
c  asmaller fall in national income than occurred in the previous year
d  asmaller rise in national income than occurred in the previous year

25 which correctly identifies net leakages from a country’s circular flow of income?
[mere [eer | oer
s>l t>g x>m
a no no no
b no no yes
cc yes yes no
d yes yes yes

26 acentral bank sells securities on the open market.
what does keynesian theory predict will occur?
a _afall in the price level
bsa fall in unemployment
c arise in the price level
d arise in the rate of interest

27 what would most likely result from a sustained increase in real gdp in an economy?
a adecrease in the government's budget deficit
b  adecrease in output per worker
c_anincrease in a balance of payments surplus
d_anincrease in frictional unemployment

28 ihe table snows combinations of statements associated with keynesian and monetarist scnools
of thought.
which combination is correct?
eernesian rst
a crowding out effect prevents controlling the money supply
private sector investment controls inflation
b fiscal policy is best for wages are flexible
economic growth
c | reducing inflation is more important reducing unemployment is more
than reducing unemployment important that reducing inflation
d wages are sticky downwards controlling aggregate demand
controls inflation

29 the diagram shows an economy in short-run equilibrium with price level p2 and output level yo.
price lras
level
as
e,
p, nr. a 1
p, ————— ee e,
ad,
: “ad,
o ya ye
real output
which combination is most likely to be achieved in the economy at the equilibrium point e2?
[| macosconomie ply sim | _ macroeconomic poeyain
a reduced current account deficit increased international competitiveness
b reduced rate of inflation reduced exchange rate
cc increased level of employment increased per capita income
d increased economic growth reduced environmental degradation

30 a government sets a target for the annual rate of inflation to be no more than 3%.
which circumstances would make it difficult to achieve the target?
a _ if devaluation of the currency leads to a trade surplus
b_ if interest rates are increased to control effective demand
c _ if the government increases its budget surplus
d if wage increases are kept in line with productivity

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