economics

1 what is a necessary condition required to achieve pareto efficiency?
a_ when itis not possible for some people to become better off without others becoming worse
off
b_ when it is possible to produce greater output with the same quantity of inputs
c_ when resources have spare capacity
d_ when resources can be re-allocated and total consumer satisfaction can be increased

2  whatis an example of a negative externality?
a_ the non-provision of public goods by the market
b _ indirect taxation that fails to internalise the external cost
c monopoly power leading to reduced output and a higher price
d_ the production of a good that has a harmful effect on a third party

3 a government deregulates several industries with the aim to increase allocative and productive
efficiency.
which change makes it less likely that the government will meet its aim?
a_anincrease in the availability of cheap loans to start new businesses
b_anincrease in merger and takeover activity in the industries
c_anincrease in information about prices for consumers available on the internet
d_ areduction in fixed costs in the deregulated industries

4 a rational consumer maximises satisfaction by buying three units of good x and four units of
good y which are the same dollar price.
what does this indicate?
a marginal utility per dollar spent is equal for both goods.
b_ the total utility of 3x is equal to the total utility of 4y.
c the consumer should buy one more unit of good x to maximise utility.
d_ good y has greater marginal utility than good x.

6 firm x, which currently specialises in producing cars, takes over firm y, which owns a number of
car retail outlets.
how may this be described?
a horizontal integration
b the formation of a cartel
c vertical integration backwards
d vertical integration forwards

7 in large cities there are streets where many sellers of similar hot foods compete for sales.
which type of market structure does this represent?
a monopoly
b- monopolistic competition
c oligopoly
d perfect competition

8 a firm always operates with economies of scale in the long run.
what is the shape of its long-run average cost curve?
a itis horizontal.
b itis ‘u’ shaped.
c_ it slopes downwards.
d_ it slopes upwards.

9 a multinational firm seeks to minimise costs and maximise profits.
what would least assist the multinational to achieve these objectives?
a_ achieving a near monopoly status to control outputs and prices
b locating the firm’s home base in a country with a low level of corporation tax
c_ operating as a member of a cartel with production quotas
downing subsidiary firms in different countries to achieve economies of scale

10 what is the most likely combination of income elasticity of demand and price elasticity of demand
that explains why a firm can make higher profits in specialised luxury product markets?
income elasticity price elasticity
of demand of demand
a high high
b high low
c low high
d low low

11 the diagram shows a firm’s cost and revenue curves.
cost,
revenue mc
ac
ar
mr
o output
the firm embarks on a single successful $100 million advertising campaign.
how will this affect its costs and revenue curves?
[| wreue | areine [moone | ageune |
a shifts to right shifts to right shifts up unchanged
b shifts to right shifts to right unchanged shifts up
cc unchanged unchanged shifts up unchanged
d unchanged unchanged unchanged shifts up

12 in which circumstances are a firm's objectives most likely to differ from profit maximisation?
a_ when a firm finances new investment largely by retained profits
b_ where firms are companies with very active shareholders
c_ where investment banks make takeovers easy to implement
d_ when a firm has many shareholders and is managed by employees

13 which combination of policies is most likely to reduce the inequality of the income distribution?
[eee [ee | oa
of benefit
a decrease decrease decrease
b decrease increase increase
cc increase decrease increase
d increase increase decrease

14 to tackle pollution, some governments set standards, such as production limits, while others use
tradeable pollution permits.
what is a correct comparison of the two approaches?
a_ standards give more incentive for continued pollution reduction.
b standards make greater use of the market mechanism.
c_ tradeable pollution permits are simpler to devise and administer.
d_ tradeable pollution permits provide a more equitable treatment of firms.

15 the diagram shows an economy’s lorenz curve (vw).
ae — i
cumulative as\,
% of income it
a ®
ye
ok
0 100
cumulative %
of population
the area of y is three times bigger than the area of x.
what is the value of the economy’s gini coefficient?
a i b + c 3 d ¢

16 what will not shift the demand curve for labour to the right?
a_ improvement in marginal productivity of labour
b increase in demand for the product
c increase in the price of the product
d increase in the wage rate

17 the diagram shows an individual’s supply of labour curve.
ss
(510) eileen aaa
hourly wage ($) w -
bo isfy ecco
zz '
40
y
20 '
0 i
40
number of hours
per week
he is offered a job which would require him to work a standard 40-hour week.
which area measures the amount he would need to get him to accept this job offer?
a wtz b xty c xty-z d wtx+zty

18 the aggregate demand in country x is calculated by the equation ad = c +i + (x—m).
four students are asked to fill in the two gaps in the following sentence describing the economy
of country x.
‘country x is ......1...... economy ......2...... a government.’
which student is correct?
ee
a a closed with
b a closed without
cc an open with
d an open without

19 the diagram shows the kuznets curve.
income
inequality
q
r
p
ss
o at
per capita income

which statement is correct with respect to the description of an economy and the corresponding
letter on the kuznets curve?
a pisamarket economy.
b_  qis a developed economy.
c_ risa developing economy.
d_ sis an economy with a gini coefficient = 0.

20 when measuring the value of total output of a country, economists use the concept of value
added.
what could explain this?
a_ they want to avoid double counting.
b_ they want to avoid the impact of inflation.
c_ they want to find the value of the hidden economy.
d_ they want to include indirect taxes and subsidies.

21 a government uses personal disposable income per head as a measure of the standard of living.
what does this measure not take into account?
a_ changes in the average price level
b the level of direct taxation
c the level of national income
d the size of the population

22 which policy would be most likely to increase employment?
a decreasing duties on imports
b_ decreasing unemployment benefits
c_ increasing income tax
d increasing interest rates

23 low income countries that approached the imf for loan assistance were usually required to
introduce structural adjustment programmes (saps) which involve policies to promote a
free-market economy.

which action would have been included in a sap?

a deregulation of agricultural markets

b_ extension of food subsidies

c nationalisation of water supply

d restrictions and regulations on the flow of international capital

24 in aclosed economy with no government there is an initial equilibrium level of national income of
$500 billion. the economy’s households always spend a constant fraction of every $1 of income
they receive. when investment spending increases by $20 billion the economy moves to a new
equilibrium level of national income of $600 billion.
what is the marginal propensity to consume of the economy’s households?
a 0.20 b 0.80 c 0.83 d 1.00
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25 the keynesian theory states that the demand for money (m*°) is influenced by the personal level
of income (l,) and by the rate of interest (l2) so that
m* = li (y) + la (r)
what do l; and l2 represent in the aggregate demand for money function?
ee
a precautionary motive transactions motive
b speculative motive transactions and
precautionary motives
cc transactions and speculative motive
precautionary motives
d transactions motive precautionary motive

26 what are the assumptions made by keynesians in relation to wages and investment?
[wees investment |
a flexible interest rates elastic
b flexible interest rates inelastic
cc not flexible interest rates elastic
d not flexible interest rates inelastic

27 what are the characteristics of most developing economies?
sr ne
debt to gdp propensity to save
a high high
b high low
cc low high
d low low

28 money given by the us government to certain african countries to fight aids/hiv requires their
governments to purchase expensive drugs from the us rather than cheaper products from south
africa, india or brazil.

what is this an example of?
a bilateral aid

b_ debt relief

c_ multilateral aid

d tied aid

29 why do economists draw a distinction between economic development and economic growth?

a because a country’s stage of economic development depends on its level of output rather
than its growth rate

b_ because it is the allocation rather than the overall level of a country’s resources which
determines its economic well-being

c because of the concern about quality of life rather than quantity of output

d because the prime determinant of economic development is investment rather than
consumption

30 in an economy operating below full employment, which combination of changes will definitely
result in an increase in national income?
a a fallin the rate of taxation together with a rise in the saving rate
b_ arise in government expenditure together with a fall in the propensity to import
c_ arise in investment expenditure together with a rise in the rate of taxation
d_ arise in the propensity to save together with a rise in exports

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