economics

1. what is a negative consumption externality associated with chewing gum?
a better dental hygiene from chewing gum
b_ costs of the ingredients in chewing gum
c_ discarded chewing gum on pavements
d_ smells from chewing gum factories

2 _ a firm produced its goods at an average cost of $14. it then produces the same output at a lower
average cost by different methods of production. the price remains above the marginal cost.
in which ways is this firm now more efficient?
allocative dynamic
efficiency efficiency
a no no
b no yes
cc yes no
d yes yes

3. in 2008 beijing held the olympic games and built a new stadium and infrastructure. 1.5 million
people lost their homes and were relocated far away from their communities. factories were
closed during the games to reduce air pollution. today, the stadium is a major tourist attraction
and the athletes’ accommodation is used as apartments.

for which group is the likely excess of marginal social benefit over marginal social cost the
greatest?

a_ construction workers who built the site

b factory workers who returned to their jobs after the games

c_ residents who were rehoused far away from beijing

d_ those who live in the former athletes’ accommodation

4 the graph shows the budget line for a household as used in indifference curve analysis.
good y
r
ss
t
ie) good x

what can be concluded about the amount of income that could be spent by the household?
a litis greater at point r than point s.

b_itis greater at point t than point s.

c_ itis greatest at point s.

d_itis the same at points r, s and t.

6 a kinked demand curve is often used when economists attempt to analyse the way in which
oligopolists operate.
what does the kinked demand curve indicate?
a_ oligopolists are unable to achieve profit maximisation.
b_ satisficing is the best objective for firms that operate under conditions of oligopoly.
c_ there are always benefits available for oligopolists if they reduce price, but not if they
increase it.
d_ there is a tendency towards price stability when firms operate under conditions of oligopoly.

7 why might a firm adopt a policy of diversification?
a to achieve cost economies of scale
b_ to agree common prices with rivals
c_ to ensure greater ability to spread investment risks
d to increase productivity of labour

8 what would be likely to help a small firm to survive and what might be a threat to its survival?
ee ee
a contestability of the market expensive new technology
b | customers valuing personal service | new government regulations on its business
cc low barriers to entering its industry managerial diseconomies of scale
d selling a homogeneous product new firms entering the market

9 the diagram shows the cost and revenue curves of a profit-maximising monopolist.
revenue
: atc
cost mc
 ppeeeeereee ere
a
m [-~~~-----~ ~~
ar
mr
(e) q
output
what measures the total monopoly profit made by the firm?
a jm b jk c jmx0oq d jkxoq

10 the diagram shows a firm’s short-run total cost curve (tc).
tc
total
cost a |
oo q, q, q:
output

which statement is correct?
a_ average total cost is minimised at output oq>.
b_ average variable cost is minimised at output oq;.
c_ average variable cost is minimised at output oq3.
d_ marginal cost is minimised at output oq,.

11 the diagram shows the demand curve for a firm’s product.
price
o output
which diagram shows the shape of the firm’s total revenue (tr) curve?
a b cc d

12 what identifies the output level required to meet the stated aim of a monopoly firm?
(| ainortim [rece atoutputwnere |
a maximum efficiency marginal cost is at a minimum
b profit maximising marginal cost is equal to average revenue
cc quantity of sales maximising marginal revenue is equal to average cost
d revenue maximising marginal revenue is zero

13 a government implements three economic policies.
1 lower income tax
2 higher indirect taxation on alcohol to reduce consumption
3. higher spending on infrastructure
which policies represent forms of government macro economic policy?
a 1and3 b 2and3 c 2only d = 3only

14 when there are positive externalities in consumption, what can be concluded about the output of
the market?
a output must be above the allocative efficient level.
b output must be at the allocative efficient level.
c output must be below the allocative efficient level.
d output can be above or below the allocative efficient level.

15 the gini coefficient of a country is 0.40. the poorest income earners in this country pay no
income tax.
the government increases the tax rate on the highest income earners, which results in a more
even distribution of income.
what could be concluded from this?
a_ the gini coefficient falls and the income tax system becomes more progressive.
b_ the gini coefficient falls and the income tax system becomes more regressive.
c_ the gini coefficient rises and the income tax system becomes more progressive.
d_ the gini coefficient rises and the income tax system becomes more regressive.

16 what is meant by economic rent?
a any amount above the minimum earnings required to keep labour in its current job
b_ the marginal physical product of labour multiplied by marginal revenue
c_ the minimum amount required to keep labour in its current job
d the regular payment to a property owner in exchange for the use of a building

17 a firm operates under perfect competition in both product and factor markets with labour as the
only variable factor input.
in the diagram, the line jk shows the relationship between the marginal physical product of
labour and the hours worked.
10 d
marginal physical
product of labour 8---------
(units) 1
6 canard
k
0
0 1 2 3 4 5
thousand hours
when the marginal revenue of the product is $1.60, the firm uses 3000 hours of labour.
what is the hourly wage?
a $0.40 b $2.40 c $5.60 d $6.40

18 a government attempts to stimulate growth by cutting its main interest rate.
what might reduce the effectiveness of this?
a _ if investors’ expectations are rising
b _ if more borrowing is taking place
cif savings are falling
d_ if the marginal propensity to consume is falling

19 the diagram shows the relative position of two countries x and y on a kuznets curve.
inequality
xx
y
e income per head

what does the diagram indicate?
a country x collects more income tax than country y.
b country x has a higher national income than country y.
c country y has less income inequality than country x.
d_ country y is less economically developed than country x.

20 the measure of economic welfare (mew) is often regarded as a better measure of economic
welfare than gross domestic product (gdp) per head.
what is additionally included in the calculation for mew?
a the cost of paid work
b_ the cost of producing armaments
c_ the estimated cost of damage to the environment
d_ the negative impact on the shadow economy

21 which statement about national income accounting is correct?

a_ depreciation does not need to be subtracted from gdp figures because it has already been
taken into account by firms.

b_ gdp greatly overstates the true value of output because some of the profit it includes is
supernormal profit.

c_ gdp is a better measure of living standards than gnp because net property income from
abroad is not available for citizens.

d_ gnp per capita ignores many important factors that affect citizens’ living standards.

22 the chart provides information about employment rates, as a percentage of total employment, in
the primary, secondary and tertiary sector of four countries.
what is most likely to represent the most economically developed country?
60
% of total 50
employment
40
30 key
rimary sector
- [_] primary
| secondary sector
= | tertiary sector
0
a b cc d
country

23 a government is committed to increasing real gdp using only fiscal and monetary policies.
which combination of measures is likely to be the most effective in achieving this aim?
p| etpotey monet pote |
a increase in the budget deficit central bank buys back government bonds
b | increased government spending on roads increased short term rate of interest
cc reduce income taxes central bank sells more government bonds
d reduce wealth taxes increase commercial banks’ cash deposit ratio

24 what describes the multiplier process, as it operates within a closed economy with no government
sector?
a changes in national income determine the level of investment.
b_ the level of consumption depends on the level of national income.
c_ the levels of consumption and investment together determine the level of national income.
d_ when investment changes, there will be a greater change in equilibrium national income.

25 in an economy with no government sector:
c = consumption
| = investment
x = exports
m = imports
y = national income.
if c = 40 + 0.5y, | = 80, x = 100 and m = 100, what will be the equilibrium level of y?
a 60 b 240 c 280 d 640

26 which policy does a central bank undertake to pursue quantitative easing?
a purchase long-term government debt from the public
b_ purchase short-term government debt from the public
c _ sell long-term government debt to the public
d sell short-term government debt to the public

27 what would be an increase in leakages or withdrawals from the circular flow of income?
a increase in government spending on anti-smoking campaigns
b increase in spending on imports of luxury cars
c_ increase in spending on transfer payments
d increase in wages paid to government employees

28 which statement would both keynesian and monetarist schools of thought accept?

a_ high inflation and high unemployment are undesirable in a properly-functioning economy.

b_ increased government spending on investment projects will always crowd out private
investment.

c_ the best way for an economy to get out of a recession is for the government to increase its
expenditure.

d_ the most effective way to reduce inflation is for the government to exercise tight control over
the money supply.

29 in country x the marginal rate of income tax imposed on the highest earners was 83% which
increased to 98% if income was received from interest or dividends. the highest marginal rate
was then reduced to 40%. despite this reduction, the tax revenue raised from the highest earners
increased substantially.

which theoretical concept illustrates this relationship between tax rates and tax revenue?
a the j curve

b_ the laffer curve

c_ the marshall-lerner condition

d the phillips curve

30 a government is increasing the role of market forces in its economy. however, it imposed
temporary maximum price controls.
why might a government, committed to reducing central planning, introduce price controls?
a __toincrease allocative efficiency
b to increase the incentive for producers to raise supply
c_ to reduce consumer demand
d_ to reduce expectations of inflation

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