economics

1. which statement is the most valid reason for government intervention in a free market economy?
a consumers are well informed, making it difficult for producers to make profits.
b_ health and education are not available in sufficient quantities.
c_ producers are motivated only by profit.
d_ there are many competitive firms and not enough sole suppliers.

2 what would not be considered a barter transaction?

a acar repairer undertaking the annual service on a plumber’s van in return for the plumber
fitting a new sink in the car repairer’s kitchen

b  aconsumer negotiating with a shopkeeper and buying a pair of trousers at us$10 rather
than the asking price of us$30

c agraduate student exchanging a set of textbooks for a radio with a student about to start the
course

da train company allowing a phone company to advertise on its trains in return for the right to
advertise on the phone company’s website

3. a factory introduces an automated production line to take advantage of division of labour.
what is most likely to increase?
a average cost of production
b_ job satisfaction of workers
c range of skills of each worker
d_ worker productivity

4 which statement is normative?

a aminimum wage is the correct government policy to increase the incomes of the lowest paid
workers.

b  aminimum wage is the lowest amount that employers can legally pay their workers.

c_ in pakistan, a minimum wage of 15000 pakistani rupees per month was set on
1 june 2016.

d_ setting the minimum wage rate above the equilibrium will result in an excess supply of
workers.

5 in the diagram, d is the demand curve for an agricultural commodity and s, is the initial supply
curve. a good harvest causes the supply curve to shift to sp.
ahaa
price 5
®t tal et
tix
taln ye
ttt ne
1 ras
pt | tp yo |
0
0 1 2 3 4 5 6
quantity
(000 tonnes)
by how much will the demand curve have to shift to leave farm incomes unchanged?
a_ 500 tonnes at all prices
b 1000 tonnes at all prices
c 2000 tonnes at all prices
d 4000 tonnes at all prices

6 a manufacturer progressively reduces the price of nis product.
the table shows the outcome of this policy.
($) 000s ($)
10 750
9 750
8 750
what is the price elasticity of demand for the product?
a perfectly inelastic
b relatively inelastic
c perfectly elastic
d unitary

7 the diagram shows a consumer's demand curve for a product.
; 30
price
($)  25->---s
0 5 10 15
quantity

how does consumer surplus change as the price of the product rises?
a it falls at a constant rate (%) with each $5 rise.

b it falls by a constant amount with each $5 rise.

c_ it falls by a decreasing amount with each $5 rise.

dit falls by an increasing amount with each $5 rise.

8 following the introduction of a 10% increase in charges for car parking in a city centre, the
demand for bus journeys per day into the city rose from 800 to 1000.
what was the cross elasticity of demand for bus journeys with respect to car parking charges?
a -0.4 b +0.4 cc 42.0 d +2.5

9 aneconomy is suffering from a housing shortage. the demand for housing continues to rise as
real incomes increase and more construction firms enter the market to build more houses.
which diagram represents this situation?

a b
' ae s : $2 s,
price of price of
houses houses
d; d; d,
oo quantity oo quantity
of houses of houses
cc d
s, s,s,
price of price of
houses houses
d, bs d, d,
o quantity oo quantity
of houses of houses

10 a good has a price elasticity of supply of 2.0. the current quantity supplied is 300 units per week
at a market price of $20 per unit. the firm raises the price to $25 per unit.
what will the new quantity supplied be per week?
a 150 units
b 375 units
c 400 units
d 450 units

11 what is a major function of the price mechanism?
a providing incentive for government intervention to reduce income inequality
b_ removing shortages by creating incentives for market prices to fall
c removing surpluses by creating incentives for market prices to rise
d _ signalling changes in market conditions to producers and consumers

12 the diagram shows the supply curve of a product.
ss
20
price ($)
15
10
5
0
quantity
the government imposes a specific indirect tax of $5 on the product.
how will the price elasticity of supply of the product change?
a __ from elastic (>1) to inelastic (<1)
b _ from inelastic (<1) to elastic (>1)
c from inelastic (<1) to unitary (=1)
d_ from unitary (=1) to elastic (>1)

13 in the market for a good the quantity supplied (qs) and the quantity demanded (qp) are given by
qs = p — 30 and qp = 240 — 2p where p = price in dollars.
a change in the tax on the good makes qs = p — 36.
how will the change affect equilibrium price?
a itwill fall by $2.
b it will fall by $6.
cit will rise by $2.
dit will rise by $6.

14 privatisation can be achieved by the sale of shares to the general public (public offers, po) or by
the direct sale to a private company (private sales, ps). the diagram shows privatisation
transactions and revenue for the european union between 1981 and 2012.

= 90000 key 200
a 80000 [= revenues from ps 180 c
ft 70000 ia revenues from po 160 %
= 60000 —— transactions i 140 b
= a 120 ©
3 50000 | =
@ 40000 a
® | oy l | 80
5 30000 | | 60
® 20000 ' 1 j h 40
10000 wee l | 20
fe) eer — et (| 0
ctamtnordmdotamynmnordbdovtamytmooradaddbokn
adddadddadadwdamnamwamdamammwdaodmoodoogodoc0c0cccortts
fe oc cra aaa aaa
year
what can be concluded from the diagram?
a_ any increase in the number of privatisations resulted in an increase in privatisation revenue.
b_ the average revenue per privatisation was highest in 2000.
c_ the main revenue from privatisation changed from public offers to private sales.
d the number of privatisations and revenue raised peaked in the same year.

15 the diagram shows the market demand and supply curves for rice.
4 ss
price
($)
10 errs
en
[e) q, q, q;
quantity

what would happen if a government imposed a maximum price of $10?

a the government would need to supply q; to q3.

b_ the quantity sold would be q,.

c_ the quantity sold would be qo.

d_ the quantity sold would increase from q: to q3.

16 a government decides to replace a private company with its own company to collect household
waste.
why could such action be justified?
a because waste collection is a public good.
b_ costs of waste collection are bound to be lower if paid out of local taxes.
c_ private companies are always less efficient than government companies.
d_ private companies might put profits before customer needs.

17 which measure would not be part of a government subsidy to protect domestic producers from
competition?
a import quotas
b _ interest-free loans provided by the government
c_ reductions in profits (business) taxes
d transfer payments

18 acountry’s railways are currently run by private firms. it has been suggested that the government
should nationalise the railways.
what might be a reason for this?
a __tocontrol prices of railway services
b__ to encourage competition in railway services
c to increase the profit incentive
d to provide jobs for local people

19 what is likely to cause a decrease in aggregate demand?
a anappreciation in the exchange rate
b animprovement in consumer confidence
c_anincrease in government expenditure
d_anincrease in the money supply

20 acountry maintains its foreign exchange rate against the united states dollar, within a narrow but
changing band.
what is this type of exchange rate?
a fixed
b floating
c managed float
d_trade-weighted

21, which components are included in the financial account of the balance of payments?
[mae [amar [amr
item investment and dividends
a v v x key
b v x x v = included
cc x v v x = not included
d x x v

22 which argument is an importer most likely to use to gain the support of consumers for free
trade?
a more imports allow the government to raise revenue from tariffs.
b_- more imports improve the country’s terms of trade.
c more imports increase competition in the domestic economy.
d more imports raise total employment in the domestic economy.

23 according to us consumer prices index (cpi) statistics, an identical good that cost $100 in 1913
would cost $2359.60 in 2013.
what was the approximate cumulative rate of inflation over the period?
a 23% b 230% c 2300% d 23000%

24 the diagram shows an economy at full employment equilibrium.
lras
general
price
level
p ae ee eee ee ee ee
| ad
0 yee
real output
which short-run measures should the government take to maintain the economy’s current
equilibrium if there is an unexpected balance of trade surplus?
a __ higher government spending on education financed by an equal rise in direct taxation
b higher direct taxation with government spending unchanged to create a budget surplus
c higher spending on infrastructure financed by a budget deficit
d lower interest rates to promote investment spending in the private sector

25 why does the value of a country’s terms of trade have no monetary units?
a_ it cannot be calculated accurately enough.
b_ it includes more than one currency.
c_itis a ratio of two index numbers.
d_ it measures change over time.

26 the statements that follow relate to possible gains from an increase in free trade.
which gain is least certain to result in the short run?
a areduction in costs of production
b_ arise in the number of jobs
c awider choice of goods available to consumers
d_anincrease in the level of competition

27 in an economy with an interest rate of 4% per annum, the rate of inflation falls from 5% to 3% per
annum.
what will be a benefit of this fall?
a menu costs will fall to zero.
b_ people on fixed incomes will be better off in real terms.
c_ savers will gain in real terms.
d_ the purchasing power of the currency will rise.

28 which combination correctly classifies an expansionary fiscal measure and its impact on a
budget deficit?
(| ieealpaioy [bop oat |
a increased quantitative easing unchanged
b increased welfare spending increased
cc lower income tax reduced
d lower interest rates unchanged

29 in 2018 the united states (us) government introduced tariffs on a wide range of imports from
china.
which type of policy was the us government adopting?
a expenditure-reducing
b_ expenditure-switching
c monetary
d supply-side

30 during the great depression the us government believed that deflation was caused by a
collapse in the prices of stock and other assets, reducing the levels of wealth and confidence.
the diagrams show two approaches to counter deflation.

diagram y diagram z
price price
level as level
eve 1 leve as,
bye
. 1 as,
xn, pe
| nad, | | nad,
[e) ya y, e) y, y
real gdp real gdp
given this belief, which policy should the us government have used, in an attempt to remove the
deflation and which diagram represents the intended outcome of the policy?
a decrease interest rates diagram y
b reduce corporation tax diagram z
cc increase interest rates diagram z
d reduce corporation tax diagram y

Solve 9708_s20_qp_12