economics

1. over time the average total cost curve of a firm is lowered.
which form of efficiency does this represent?
a allocative
b- dynamic
c_ pareto
d productive

2 the diagram shows the private and social marginal costs and benefits curves for the antibiotics
market. the market equilibrium is at point x.
cost mpc = msc
benefit
x/ |
ol (eianetanee >) |
~ msb
' | smpb
o qq,
output
why does market failure occur?
a_ there is overconsumption and overpricing.
b_ there is overproduction and under-pricing.
c_ there is underconsumption and under-pricing.
d_ there is underproduction and overpricing.

3. the table shows the results of a cost-benefit analysis of the construction of a new airport.
private cost 400
private benefit 440
social cost 450
social benefit 480
what is the total value, in us$ million, of all the externalities created by construction of the new
airport?
a 30 b 40 cc 50 d 90

4 a utility-maximising consumer has a fixed income and can choose between good x and good y.
the diagram shows her budget line and different consumption combinations (f, g, h, j, k and l)
of products x and y.

f
good g
y
n
k
e) good x

which consumption combinations are currently available to her?
a f,g,handl
b f,g,j,andl
c g,jandl only
d g,h,jandl

2  kkatlonal consumer kromesn spent yu rupees buying herb x and spice y. both cost 10 rupees per
gram.
grams total utility total utility
purchased herb x spice y
2 15 12
3 30 25
4 45 35
5 55 42
how much of each should he buy?
see
(grams) (grams)
a 2 3
b 3 5
cc 4 5
d 5 4

6 inthe diagram, tc is a firm’s short-run total cost curve.
tc
costs f |
pee | |
oa q, q,
output
which statement is correct?
a_ average total cost is minimised at output oq3.
b_ average variable cost is minimised at output oq2.
c_ average variable cost is minimised at output oq3.
d_ marginal cost is minimised at output oq;.

8 when output increases in the short run, which statement is correct?

a_ average fixed cost first falls and then, beyond some point, rises.

b_ average variable cost increases as soon as the law of diminishing marginal returns begins to
operate.

c_ the minimum point of the average total cost curve occurs at a greater level of output than the
minimum point of the average variable cost curve.

d when marginal cost reaches its minimum point, average variable cost must be greater than
average fixed cost.

9 the diagram shows a competitive industry facing constant marginal and average costs. in
equilibrium its output is oqc¢ and its price is opc. a series of horizontal mergers generate
economies of scale and create a monopoly in the industry. the new equilibrium output is oqm
and price is op.

price \
lo te
py gg mc, = ac,
) ld mcy, = acy
i \mry d, = ar,,
s quy qe
quantity
which area represents the producer surplus after these mergers?
a w b w+x c w+x-z d x

10 a firm that controlled over 50% of the market successfully merges with its main competitor to
form one large company.
what is the most likely reason why, from the firm’s point of view, the merger will fail?
a a fall in consumer surplus
b_ cost of funding the merger
c_ economies of scale
d_ market dominance

11 the diagram shows a monopolist’s cost and revenue curves.
cost, mc
revenue
atc
p,
p, 7. l>
/ | ar
oo q\ q
mr
output
the monopolist changes its price from p,; to p2 and its output from q; to qo.
which change in objective is indicated by the move from p, to p2?
a profit maximisation to sales revenue maximisation
b _ profit maximisation to sales maximisation subject to earning a normal profit
c sales revenue maximisation to profit maximisation
d sales revenue maximisation to sales maximisation subject to earning a normal profit

12 the diagram shows the demand curve for a firm’s product.
price \
d

o quantity

which diagram depicts the shape of the firm’s corresponding total revenue (tr) curve?

a b cc d
tr i
price price price price

tr tr

oo quantity oo quantity o quantity o quantity

13 a government is attempting to achieve allocative efficiency in a nationalised industry.
price
$
wh
x \
ly iw ac
z mc
ar
q quantity
what will the government do?
a it will set price at w and make sub normal profit.
b it will set price at x and the firm will make supernormal profits.
c_ it will set price at y and make normal profits.
d it will set price at z and make a loss.

14 the diagram shows a sign beside a busy road.
this road was recently
cleared of 17 bags of litter.
clearing litter puts lives at risk.
what is this an example of?
a _ free good
b government regulation
c_ merit good
d nudge theory

15 recent research has shown that consumption of some foods might be harmful. a government
committee considers how to intervene in the markets.
which intervention is most likely to reduce consumption of these foods without reducing income
equality?
a aminimum price for the harmful foods
b_asubsidy for substitute foods
canad valorem tax on the harmful foods
dan indirect tax on the harmful foods

16 in which circumstances is a poverty trap least likely to operate?
a a female worker is paid less than a male worker for doing the same job.
b a worker is paid the minimum wage and refuses a higher paid job because net income is
lower after tax.
c aworker refuses higher paid work as it means more expensive travel and childcare costs.
d anunemployed worker refuses a job because earnings are less than unemployment benefit.

17 what would be most likely to cause the demand for labour in an industry to be inelastic?
a_ labour costs are a small percentage of total cost.
b_ the demand for the final product has a price elasticity of demand that is greater than one.
c_ the workforce belongs to a strong trade union.
d_ there is a large pool of readily available labour.

18 which influence is least likely to promote sustainable economic growth in a developing
economy?
a high saving rates
b involvement in free trade
c protected property rights
d rapid population growth

19 governments are interested in providing statistics on the standard of living. they measure the
value of material goods and services.
non-material characteristics that affect the standard of living cannot easily be measured.
what is an example of a non-material characteristic?
a the failure to include unpaid work in the home
b_ the freedom to make informed economic choices
c the proportion of gnp used for weapons of war
d_ the removal of taxes from all forms of consumer expenditure

20 the diagram shows lorenz curves for a developed economy.
cumulative py, i
% of income a :
an k
0 100
cumulative %
of households
which combination of supply-side policies would shift the lorenz curve from x to y?
top rate of ; national
‘ education ee
income tax minimum wage
a increase free increase
b increase students pay abolish
cc reduce free abolish
d reduce students pay increase

21 two members of the hernandez family have recently become unemployed. mariana has lost her
job at the local factory, which has closed because of competition from cheaper imports. alfonso
has lost his job as a shop assistant because the sales have dropped during a recession.

how would an economist classify these job losses?
ee
a frictional unemployment seasonal unemployment
b regional unemployment frictional unemployment
cc structural unemployment cyclical unemployment
d | technological unemployment structural unemployment

22 which combination of fiscal, monetary and supply-side policies is most likely to reduce
unemployment?
| | fiscal policy monetary policy supply-side policy
a increasing increasing increasing flexibility
taxation interest rate in the labour market
b increasing decreasing the increasing education
government expenditure money supply and training
cc decreasing decreasing increasing flexibility
taxation interest rate in the labour market
d decreasing increasing the increasing education
government expenditure money supply and training

23 vvhicn policy combination will reduce the level of national income by the greatest amount?
a decrease direct taxation and increase interest rates
b_ decrease direct taxation and increase quantitative easing
c_ increase direct taxation and increase interest rates
d increase direct taxation and increase quantitative easing

24 in aciosed economy, the marginal propensity to save is 0.1 and the marginal propensity to pay
taxes is also 0.1. these values are constant and do not vary with the level of income.
what will be the increase in national income if there is an injection of $100 million into the circular
flow?
a $1000 million
b $500 million
c $100 million
d $80 million

25 which combination is consistent with liquidity preference theory?
| esncar® | sre [att
for money interest rates changes in income
a speculative yes no
b speculative no yes
cc transactions no no
d transactions yes no

26 what is assumed by keynesians?
a anincrease in supply always creates an equal increase in demand.
b government intervention is required to manage the economy.
c_ prices always adjust so that markets clear.
d_ the economy always has full employment.

27 which row correctly identifies injections into a country’s circular flow of income?
[rear [sear [sa
(s > 1) (t>g) (x > m)
a no no no
b no no yes
cc yes no no
d yes yes yes

28 which policy by developed economies would be most beneficial for developing economies?
a abanon resource exploration by mining companies in developing economies
b restrictions on investment by global firms in developing economies
c_ the removal of restrictions on emigration of skilled labour from developing economies
d the withdrawal of agricultural subsidies in developed economies

29 the natural rate of unemployment in an economy is 5%.
what will happen if a government persists in trying to achieve a target rate of unemployment of
3% by expansionary monetary policy?
a anaccelerating rate of inflation
b_adiminishing rate of inflation
c_ ahigh but constant rate of inflation
d  anegative rate of inflation

30 what is a reflationary fiscal measure?
a increasing government spending
b_ increasing taxes
c increasing the money supply
d reducing interest rates

Solve 9708_m21_qp_32