economics

1 agovernment department provides milk at no charge to very low income families.
which term best describes the milk?
a free good
b _ inferior good
c private good
d public good

2 which statement is a normative statement?
a_ china has never had a balance of payments surplus.
b_ higher interest rates might reduce investment.
c_ perfect competition is allocatively efficient.
d welfare payments should be increased.

3. what do economists regard as the reward for taking risks and organising production?
a enterprise
b interest
c wages
d profit

4 the british pound is the national currency of the uk. in brixton in south london it is possible to
get a distinctively marked currency called the brixton pound from special cash machines. this
can be spent with 150 local shopkeepers. similar schemes are found in towns in the us, italy and
france.

should brixton pounds be considered money?

a no, because it is not possible to have two currencies in a country
b_no, because they are not generally acceptable outside of brixton
c_ yes, because some shopkeepers are willing to accept them
dyes, because they fulfil all the functions of money

5 when stating the law of demand for a good, economists use the phrase ‘all other things being
equal’.
what is not one of these ‘all other things’?
a the income of the consumer
b _ the price of other goods
c the price of the good
d_ the tastes of the consumer

6 what will not cause a shift in the market supply curve of a commodity?
a achange in technology
b arise in the price of a factor input
c arise in the price of the commodity
d _ the introduction of a specific tax on the commodity

8 acar manufacturer estimates that the price elasticity of supply of its cars is +2.5.
what will be the impact of a 10% increase in price?
a a2.5% fall in total revenue
ba 25% rise in total revenue
c a 2.5% fall in quantity supplied
d a25% rise in quantity supplied

9 the diagram shows the original demand curve d,; and supply curve s, for diesel cars in
europe. point x is the initial equilibrium.
there is a successful advertising campaign by electric car producers and a new unit tax on
diesel cars.
what will be the new equilibrium?
price 8,
s;
a ss
dos
cc
cp i, ee
o quantity

10 a uk based food company wishes to diversify its product range. to finance this, it has obtained a
$10m loan from a bank to buy land, build and equip a bakery.
what would not be classified by an economist as a factor of production?
a the $10m loan used to finance the project
b the land on which the bakery will be built
c_ the ovens required to bake the bread
d_ the soya used in the making of the bread

11 acountry’s central bank has commissioned a report on the demand for and price of houses.
what might be the most likely combination of reasons for an increase in the price and quantity
demanded of houses?

incomes interest rates age at
bricklayers
a down unchanged up
b down up unchanged
cc unchanged up down
d up down unchanged

12 the diagram shows the outcome when a landowner, who had allowed motorists to park on his
field at no cost, introduces a parking charge of $1.
supply
charge
$1
0 parking spaces

what happens as a result of the change?
a_ the landowner gains a surplus of y + z.
b_ the motorist gains a surplus of x + y.
c_ the ownership of surplus y changes.
d_ there is a total surplus of x + y + z.

13 the table gives information about the market for two models of car.
per week respect to the price of petrol
2000 cc 5000 —0.50
if the prices of the cars remain unchanged, but the price of petrol increases by 100%, what will be
the effect on the number of cars sold per week?
a_ increase by 5000
b nochange
c_ decrease by 5000
d_ decrease by 15000

14 in many countries there are goods that must be provided directly by the government.
what would be the most convincing argument for such provision?
a_ the consumption of these products may be beneficial.
b_ the production of these products may be harmful.
c_ the production of these products have high opportunity costs.
d_ these products are non-rival in consumption and non-excludable.

15 the provision of rail services is switched from the private sector to the public sector.
what is necessarily correct?
a_ the average fare charged for the service will fall.
b_ the profitability of the service will fall.
c_ the rail service’s management will be responsible to different owners.
d_ there will be an increase in the number of workers employed.

16 the diagram represents the original demand curve d, and the original supply curve s, for electric
cars. the government decides to provide a subsidy to electric car manufacturers.
price of
electric s;
cars so
f prior oc
g |---------- 4k
bl eng |
= d,
o xx y
quantity of
electric cars
which area represents the total revenue of the car manufacturer after receiving the subsidy from
the government?
a oery b ofmx c ogny d ohtx

17 a government decides to build additional public sector housing to be rented to people receiving
low incomes.
what is most likely to fall as a result of this increase in public sector housing?
a employment in the construction industry
b land prices in towns and cities
c_ rents of houses in the private sector
d total government spending

18 government spending for a year includes these items.
ee

pensions for elderly people 200
welfare payments to sick people 200
spending on hospitals 150
payment to unemployed workers 100
defence spending 100
teachers’ salaries 50

what is the total of transfer payments by this government in $m?

a 50 b 500 c 750 d 800

19 what would be certain to cause a fall in a country’s cost of living?
a afall in real incomes
b a fall in the inflation rate
c  anegative inflation rate
d areduction in direct tax rates

20 vwvhat is not an aim of protectionism?
a to improve balance of trade
b to increase price of exports
c to protect infant industries
d_ to reduce the volume of imports

21 a country with a ttixed exchange rate experiences a nigher rate of inflation than its trading
partners.
what is the likely effect on the country’s volume of exports and imports?
| expons [impor |
a decrease decrease
b decrease increase
cc increase decrease
d increase increase

22 a sudden rise in the price of imported oil caused the annual rate of inflation in a given period to
be higher than expected.
what might be a likely result of this?
a borrowers would gain.
b_ real wages would rise.
c_ the balance of trade would improve.
d unemployment would fall.

23 what may increase the benefits a country gains from international trade?
a areduction in transportation costs because of a fall in world oil prices
b domestic wage rates increase at a faster rate than output per worker
c_ the domestic labour force becomes more occupationally immobile
d_ trading partners increase tariffs on imported goods

24 the world trade price of cars in country y is us$10000. at this price domestic car producers
supply 100000 cars to the market and domestic consumers purchase 200000 cars. the
government of country y imposes a 10% tariff on imported cars.

under which conditions will this tariff raise the most revenue for the government?
price elasticity price elasticity of
of supply of car
; demand for cars
producers in ‘
in country y
country y
a +0.5 -0.5
b +0.5 -1.5
cc 01.5 -0.5
d 415 -1.5

25 acountry has a balance of trade deficit.
when will this be least likely to be improved as a result of a depreciation of its currency?
a __ ifitis currently operating with a significant amount of unused resources
b _ if the sum of the price elasticities of demand for exports and imports is less than 1
c if in the long term, the price elasticity of demand for exports should increase
d if the country uses a relatively small proportion of imports in their production process

26 which statement about trade protection is correct?
a a tariff results in a greater decrease in demand for an import the lower is its price elasticity of
demand.
b  embargoes are only an effective trade barrier when the demand for imports is price-elastic.
c_ export subsidies to domestic firms will prevent the dumping of foreign products in the
domestic market.
d quotas are less effective than tariffs for raising government revenue.

27 which type of policy would have the most immediate effect in dealing with a deflationary
economic downturn?
a increasing the government’s budget surplus
b increasing borrowing by assisting banks to lend more
c investing in long-term projects to improve transport networks
d switching the burden of taxation from earning to spending

28 which combination identifies a main aim of supply-side policy and a measure used to achieve
this target?
[mani ety messire |
a economic growth deregulation
b full employment increasing the money supply
cc income equality more progressive taxation
d stable prices decreasing interest rates

29 deflation is associated with persistent falling price levels.
which government policy would be most effective to prevent deflation?
a_ imposing maximum price levels on basic foodstuffs
b_ improving consumer confidence by reducing sales taxes
c_ increasing income tax rates and increasing government borrowing
d_ removing economic uncertainty and encouraging business investment

30 the graph shows inflation rates over 10 years for selected emerging economies.
il
inflation %
year on year
6
5
4
y
z
3
2
do wn vy nd nm 1 og mw 1d
sp pad bay gn? eam en? eno eas on
spss lll hs hs
year
government central banks set target minimum inflation rates before readjusting interest rates to
stabilise the economy.
if the minimum inflation rate target set by central banks was 4% per year, at which points would
they allow interest rates to fall?
a wandx b xandy c yandz d zandw

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