economics

1. which statement best defines productive efficiency?
a _itis not possible to increase profits by changing the level of production.
blt is not possible to make anyone better off without others becoming worse off.
c_itis not possible to produce the level of output at a lower unit cost.
d_itis not possible to produce outside the production possibility curve.

2 medical researchers indicated that drinking too many sugary drinks is bad for health.
government intervention to impose a tax on the sale of sugary drinks might help solve which
market failures?

negative negative over-
externalities of externalities of consumption of
consumption production demerit goods
a no yes yes
b yes yes no
cc yes no yes
d yes no no

3 a government uses a cost-benefit analysis approach to infrastructure projects. it is considering
building a new railway to link a city centre to its airport. it estimates the following.
private costs 8
social costs 1.7
private benefits 0.5
external benefits 1.8
what should the government decide and why?
(| aesson—[eson
a do not proceed total costs exceed external benefits
b do not proceed total costs exceed total benefits
cc proceed private costs exceed private benefits
d proceed social benefits exceed social costs

4 a consumer currently consumes 10 units of good x and 10 units of good y at point z on an
indifference curve.
the consumer’s marginal utilities from consuming both good x and good y are positive.
which combination of good x and good y could be on the same indifference curve as point z?
units of units of
good x good y
a 9 11
b 10 11
cc 11 10
d 12 12

5 the diagram shows two indifference curves and two budget lines for goods x and y. the
consumer's initial equilibrium is point r.
good y
y,
y,
ss
ic,
ss"
o xx x,
good x
there is a shift in the budget line from y;x; to y2x2 and the new equilibrium for the consumer is
point s.
what can definitely be concluded about good x?
a itis a giffen good.
b_itis an inferior good.
c_itis anormal good.
d_itis a public good.

6 what are the correct formulae for calculating average cost (ac) and average revenue (ar)?
[ [ae [an
ic tr
a} mc mr | key
mc = marginal cost
b al pxq
p mr = marginal revenue
tc tr p = price
cc q. q q = quantity
tc -_ tc = total cost
d q pp tr = total revenue

8 a firm maximises its profits by maximising its total revenue.
what does this imply?
a_ average fixed cost is zero.
b_ average revenue is equal to average cost.
c_ marginal cost is zero.
d_ marginal revenue is greater than marginal cost.

9 what will happen to an industry's supply curve if firms leave the industry?
a it will shift to the left at any given price.
b it will shift to the right at any given price.
c_ there will be a downward movement along the supply curve.
d_ there will be an upward movement along the supply curve.

10 which characteristic of a market is a reason for a firm to remain small?
a the minimum efficient scale is high.
b_ the potential for x-inefficiency is high.
c_ there are significant economies of scale.
d_ there is limited access to financial capital.

11. what is an example of the principal—agent problem?
a the disincentive effect for entrepreneurs of high government tax rates
b the existence of a trade union to put forward workers’ views to managers
c the lack of consumer knowledge of the quality of firms’ products
d_ the separation of the owners of a firm from the firm’s managers

12 the diagram shows a firm in imperfect competition.
§ mr ar=d mc 4c
o rs t u
quantity
it changes its objective from profit maximisation to revenue maximisation.
what effect will this have on the firm’s output?
a decreases from t tor
b_ decreases from u to t
c_ increases from s to t
d_ increases from s to u

13 which statement explains why a government decides to increase the highest rates of tax on
personal income?
a it expects total tax revenue to be unaffected by the policy change.
blt is concerned about the possibility of emigration by some high earning individuals.
c_ it regards equity considerations as being more important than efficiency ones.
d_ it wishes to switch the emphasis of its tax system from direct to indirect taxation.

14 in certain countries benefits are provided to individuals on low income. as their income rises the
benefits are reduced and income tax has to be paid.
what can result from this?
a price stabilisation
b poverty trap
c_ replacement ratio
d unemployment trap

15 an economy requires large inputs of steel for its building programmes. after political pressure, the
government imposes a minimum price on imported foreign steel.
when would this intervention lead to economic inefficiency?
a when it encourages domestic steel producers to achieve economies of scale
b_ when it prevents dumping of low-grade steel
c_ when it protects jobs of highly productive steel workers
d_ when it reduces competition for steel workers

16 what happens to economic rent and transfer earnings if the supply of labour becomes perfectly
inelastic?
a economic rent decreases; transfer earnings increase
b_ economic rent decreases; transfer earnings stay the same
c_ economic rent increases; transfer earnings decrease
d_ economic rent stays the same; transfer earnings decrease

17 the diagram shows the effect of the introduction of a minimum wage (wy) in the labour market.
wage rate
s,
wy [-----------xv----------- += ----
w, |-----------------
d,
(0) gi,
quantity of labour
when would such a minimum wage be least beneficial to workers who are currently employed?
a _ if demand for the product increases
b _ if the elasticity of demand for the workers were high
c if the elasticity of supply for the workers were high
d _ if the productivity of the workers were to increase

18 which statement about economic growth is not correct?

a_ economic growth creates costs as well as benefits.

b_ long-term economic growth is measured by calculating the percentage increase in gdp for
one year.

c_ short-term economic growth can be represented by a shift from a point within a production
possibility curve to a point on the curve.

d_ sustainable economic growth is growth that does not reduce the resources available to
future generations.

19 why is real gdp per head thought to be an imperfect measure of welfare in developed
economies?
a __ frequent government manipulation and misuse of data
b_ no account is taken of inflation
c_ the restricted scope of the data’s content and coverage
d_ the shadow economy is greater than the official economy

20 what changes are most likely to reduce the level of income inequality in an economy?
a additional government regulation of product and factor markets
b_ increased progressive direct taxation and decreased indirect taxation
c_ increased trade union power and reduced labour market flexibility
d_ reduced welfare benefits and increased rate of interest

21 the table gives labour market statistics for malaysia for january to march 2019.
number
of people
employed 15m
unemployed 0.5m
not available for work 7™m
population of working age 23m
what is the size of malaysia’s labour force?
a 15m b 15.5m c 22m d = 22.5m

22 what would encourage industrial expansion in a region of high unemployment?
a_arationing system for building development in that region
b_anincrease in taxes on investment
c  arequirement that only local labour may be employed
d_ anend to nationally negotiated wage rates

23 an island economy has a small manufacturing base, limited mineral resources and limited
agricultural land.
which development is most likely to lead to sustainable growth?
a _ building larger fishing boats to allow fishermen to enjoy economies of scale
b_ clearing rainforest to create agricultural land for the production of much needed foodstuffs
c training farmers and agricultural workers in new production methods to increase crop yields
d using its domestic mineral resources to give a rapid increase to manufacturing output

24 the information in the table is taken from a country’s national income accounts.

wages 8000
salaries 7000
unemployment benefit 1000
government pensions 1000
rent 3000
interest 2000

what is the value of national income in millions of dollars?

a 17000 b 19000 c 20000 d 21000

29 in aclosed economy with no government sector the marginal propensity to consume is 0.6 ait all
levels of income. there is an increase in private sector investment of $100 million.
what will be the increase in national income?
a $60 million b $100million c $166million d $250 million

26 according to liquidity preference theory, which money balances are responsive to a change in the
interest rate?
[| atv tances | le baances
a no yes
b no no
cc yes yes
d yes no

27 the bank cash deposit ratio changed from 5% to 10%.
what will be the result?
a bank deposits will fall by 10%.
b_ banks deposits will rise by 5%.
c_ the credit multiplier will fall by 50%.
d_ the credit multiplier will increase by 5%.

28 in adeveloping economy, which policy is most likely to increase the rate of economic growth but
restrict economic development?
a_anincrease in the provision of healthcare facilities
b_anincrease in the school leaving age
c  aremoval of health and safety regulations
d_ the promotion of export-led growth

29 which policy is most likely to conflict with a government's aim of price stability in the short run?
a increasing spending on education and health
b _ increasing the basic rate of income tax
c limiting wage increases in the public sector
d preventing mergers of large companies

30 what is most likely to be an appropriate government action to reduce both a balance of payments
current account surplus and the rate of inflation?
a decrease the rate of interest
b_ devalue the currency
c_ increase direct taxes
d_ remove tariffs on imports

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