economics

1. what is necessary to achieve pareto efficiency?
a both consumers and producers must be made better off.
b everybody must be made equally better off.
c one person must benefit without anyone else being worse off.
d_ the welfare gains must exceed the welfare losses.

2 a local council is considering building a passenger terminal at a port so that it can benefit the
large cruise ships that dock there. it undertakes a cost-benefit analysis.
what would be included as an external cost in the local council’s cost-benefit analysis?
a the cost of a ticket for a passenger to travel on a cruise ship
b_ the cost of fuel to operate the cruise ships
c_ the costs paid by cruise ships when they dock at the port
d_ the cost to a fishing fleet of relocating to another port

3 the expected marginal private benefits (mpb), marginal social benefits (msb), marginal private
costs (mpc) and marginal social costs (msc) for the building of a new road are shown in the
diagram. the government intervenes so that the socially desirable output is achieved.

msc
price mpc
foi msb
hi) ne
ie) q, q,q, q,
quantity
which combination shows the equilibrium output without government intervention and with
government intervention?
without government with government
intervention intervention
a qu q;
b q3 qe
cc qs qa
d qa q;

4 a rational consumer chooses what quantities of two products y and z to purchase with a given
income.
muy and muz are the additions to total utility that would result if the consumer were to purchase
an additional unit of each product.
py and pz are the current prices of the two products.
which outcome would represent consumer equilibrium?
a when muy = muz
b when muy x py = muz x pz
c when muy x pz = muz x py
d itis not possible to tell from the information available

5 the diagrams show a consumer's indifference curves (ic) and budget lines (bl) for an
inferior good and a normal good.
which diagram shows the effect of a cut in income tax on the consumer’s choice?
a b
normal bl, normal bl,
good good
ic,
» >» .
@ inferior good inferior good
cc d
normal bl, normal bl,
good good
a inferior good o inferior good

6 what is marginal cost?
a the difference between the total cost of producing n units and n— 1 units of output
b_ the difference between the average variable cost of producing n units and n — 1 units of
output
c the difference between the average total cost of producing n units and n— 1 units of output
d_ the average fixed cost of producing one more unit of output

8 the diagram shows the long-run total cost (lrtc) curve of a firm.
lrtc
costs
oo ow x y zz
output
at which output is the long-run average total cost at its minimum?
a ow b ox cc oy d oz

9 which combination of statements about small firms and large firms is correct?
| | small firms large firms
a are more common in face high barriers to exit
manufacturing than in services
b are more numerous do not experience
than large ones diseconomies of scale

cc can do well when each item may arise from internal

produced must be different growth or mergers
d cannot have any monopoly power cannot earn supernormal profits

a

10 why might the long-run equilibrium of a profit-maximising firm in a monopolistically competitive
market differ from its short-run equilibrium?
a_ advertising expenditure is possible.
b_ there are low barriers to entry.
c_ firms experience diminishing returns.
d innovation reduces the monopoly power of firms.

11 the diagram shows the cost and revenue curves of a monopolist.
price mc
ac
p,
os zs
ar
° = tit
quantity
mr
what would be the aim of the firm if it chose to produce at q,p,?
a revenue maximisation
b _ profit maximisation
c_ sales maximisation
d growth maximisation

12 what does the ‘kinked demand curve’ model suggest about the equilibrium price in an oligopoly
market?
a it will be stable because there is little incentive for firms to change prices.
b it will be stable because there is a lot of competition.
c it will change frequently because there is a lot of competition.
d it will change frequently because price is determined by demand and supply.

13 what is the essential feature of nudge theory?
a the aim of satisficing
b_ the establishing of a legal requirement
c the existence of a contestable market
d the idea of persuasion

14 what indicates that a more equal distribution of income has been achieved?
a a faster rate of economic growth
b  ahigher human development index
ca lower gini coefficient
da lower tax/gdp ratio

15. which combination of policies is most likely to reduce the number of low-paid workers caught in
the poverty trap?
individual’s tax-free national minimum
allowance for income tax wage in real terms
a decrease increase
b decrease unchanged
cc increase increase
d increase unchanged

16 the diagram shows the effect of the introduction of a national minimum wage, wy, in an
occupation where workers are employed by a profit-maximising monopsonist.
wage mc,
rate s.
hi las
wu
ui
ww, re
7 mrp, = d,
ie) q,q,q,
employment
what happened to total wages received by the workers in the occupation?
a they decreased from ow2vqz2 to owyuq3.
b_ they decreased from ow2zq, to owyuq3.
c_ they increased from ow,xq, to owmyq).
d_ they increased from ow,xq, to owyuq3.

1/ a dackward-sloping supply curve of labour is one where, beyond a certain point, the supply of
labour
a decreases as the demand for labour rises.
b_ increases as the demand for labour rises.
c_ decreases as wages rise.
d increases as wages rise.

18 the table shows factors that influence living standards.
which country would be most likely to have the lowest human development index (hdi)?
homicide life infant
mean years | (murder) rate mortality rate gni per
f expectancy at 5
of schooling (per 100 000 ; (per 100000 | capita (ppp$)
birth (years) ‘ é
people) live births)
a 13 1 80 4 42500
b 8 25 75 15 14500
cc 8 3 68 12 18000
d 7 5 58 41 8400

19 the table provides data on the gross national income (gni) and the foreign aid expenditure of
selected countries in 2016.
belgium 468.9 2.10
germany 3612.1 23.84
sweden 532.7 5.38
south korea 1403.6 2.10
what can be concluded from the table?
a countries with a higher gni always spend more on foreign aid.
b germany has the world’s highest expenditure on foreign aid.
c_ south korea and belgium spent an equal proportion of gni on foreign aid.
d sweden spent the highest proportion of gni on foreign aid.

20 what would not be classified as structural unemployment?
a acar worker who is replaced by a robot on the production line
b_ acoal miner whose mine closes because of increased use of solar power
c a fruit picker who cannot find work in the winter months
da textile worker whose factory closes as production moves abroad

21 the diagram shows the consumption function of a country.
consumption
expenditure c,
$bn
($ bn) c,
45°
a income ($bn)
what could cause the consumption function to shift upwards from c, to c2?
a_anincrease in interest rates
b_anincrease in direct taxation
c_anincrease in the proportion of income saved by households
d_ the expectation of an increase in the rate of sales taxes

22 the accelerator principle refers to a relationship between investment and
a the level of gdp.
b_ changes in gdp.
c the level of interest rates.
d_ changes in interest rates.

23 what is included in ‘narrow money’?
[| seer [emia [seer] ae
in circulation account deposits at the central bank bills
a v v v x
b v v x x
cc v x x x
d x x v v

24 the diagram shows three levels of the money supply (ms) and three liquidity preference
schedules. the initial money market equilibrium is x. the central bank purchases more
government securities.

which equilibrium shows the initial impact of this purchase?
ms, mss, ms,
rate of é
interest
(%) b
cee ee os
d nlp,
lp,
o ;
quantity of money

29 vwvhat is an important assumption of monetarism?
a fiscal policy is more effective than monetary policy in reducing inflation.
b_ long-term unemployment results from deficient demand.
c_ the interest elasticity of investment spending is low.
d_ the velocity of circulation is stable.

26 according to keynesian theory, how will an increase in autonomous spending affect the value of
equilibrium income?
a_ income will increase by an amount equal to the value of autonomous spending.
b_ income will increase by an amount greater than the value of autonomous spending.
c_ income will increase by an amount smaller than the value of autonomous spending.
d_ income will not increase as a result of autonomous spending.

27 statement 1: a market economy is inherently unstable and the government must play a
stabilising role through monetary policy and fiscal policy.
statement 2: the economy will always return to its equilibrium rate of output and unemployment
and as a result long-run aggregate supply is vertical.
which row correctly attributes these statements to keynesian and monetarist theories?
| | statement 1 statement 2
a keynesian keynesian
b keynesian monetarist
cc monetarist keynesian
d monetarist monetarist

28 the graphs below show percentage changes in money gdp and consumer prices in a country
between 2008 and 2010.
6
% '° %
4
& 2
2008 2009 2010 2008 2009 2010
% change in % change in
money gdp consumer prices
which conclusion may be drawn from the graphs?
a between 2009 and 2010 money gdp fell but consumer prices continued to rise.
b money gdp and consumer prices both continued to rise throughout the period.
c_ inreal terms gdp grew throughout the period.
d when money gdp fell, consumer prices rose.

29 in an economy, the elasticity of demand for imported raw materials is 0.3 and the elasticity of
demand for exports is also 0.3.
following a depreciation of the economy’s currency, what will be the impact on inflation?
change in cost push change in demand
factors will cause pull factors will
inflation to cause inflation to
a decrease decrease
b decrease increase
cc increase decrease
d increase increase

30 which combination of macroeconomic policies will most likely be successful if the aim were to
reduce unemployment and reduce inflation?
a contractionary supply-side policies and higher interest rates
b_ expansionary supply-side policies and reduced indirect taxes
c_ increased direct taxes and reduced indirect taxes
d_ reduced rates of interest and depreciation of exchange rate

Solve 9708_w20_qp_31