economics

1. the diagram shows the private and social marginal costs and benefits of a demerit good.
what is the socially optimal level of output?
msc
cost
benefit mpc
_ mpb
i ff) | smsb
(e) a bc d
output

2 why are public goods an example of market failure?
a_ producers undervalue the benefits of a public good.
b_ public goods have high fixed costs of production.
c_ the non-excludability of a public good leads to the free rider problem.
d when a public good is consumed by one person, it is not available to others.

3. agovernment plans to build a new railway line. one proposed route will pass close to residential
areas causing increased noise levels. an alternative shorter route will pass through a nature
reserve causing environmental damage but saves travel time for rail users.

in using cost-benefit analysis, which combination shows what should be included as private cost
(pc) and what should be included as external costs (ec)?
the cost of building the increased
the railway line noise levels
a ec pc
b ec ec
cc pc ec
d pc pc

4 what is held constant when deriving an individual consumer’s downward-sloping demand curve
for a product?
a marginal utility
b_ the consumer's income
c the price of the product
d _ total utility

29 ‘ihe diagram shows an individuals total utility curve as different quantities of a good are
consumed.
at which level of consumption does the individual’s marginal utility become zero?
total
utility
(e) a b cc d
units consumed

6 the diagrams show changes in a consumer's budget line (bl) for two goods.
the government increases the price of both goods by imposing a sales tax of 25%.
which diagram shows the effect of this tax?
a b
good y good y
in
0 good x good x
cc d
good y good y
o good x 0 good x

7 a consumer demands two goods, x and y. the consumer's initial equilibrium is at r and final
equilibrium at t. the indifference curve diagram shows the effect of a fall in the price of good x
and the resulting income and substitution effects.

id y
goo m
m"
__ ss t
hd l,
an i,
@) n n” n’
good x
what can be concluded from the diagram about the nature of good x and the nature of its
relationship with good y?
relationship between
| nature of good x good x and good y
a inferior complements
b inferior substitutes
cc normal complements
d normal substitutes

8 a perfectly competitive firm is producing a level of output where average cost is lower than

marginal cost.
what are the effects on these costs if output increases by one unit?
[average cost [maria cost

a falls falls

b falls rises

cc rises falls

d rises rises

9 what is most likely to pose a threat to the survival of small local bread producers?
a_anincrease in the cost per minute of television advertising
b_ aswitch in consumer preferences to cheaper mass-produced bread
c_ diseconomies of scale in the process of bread production
d increased congestion on road networks

10 firms in a market advertise their products with different brand names. some make more profit
than others in the short run but all make normal profit in the long run.
which market structure is this?
a perfect competition
b monopolistic competition
c oligopoly
d monopoly

11 the diagram shows the marginal cost (mc), marginal revenue (mr), average revenue (ar) and
average total cost (atc) curves of a profit-maximising firm in an oligopolistic market.
cost
and price
pp mc
atc
g lz
ie \we
o
by quantity
what is the reason why the oligopolist would not want to increase their price above p?
a demand is relatively elastic, meaning the firm would see a reduction in total revenue.
b demand is relatively elastic, meaning the firm would see an increase in total revenue.
c demand is relatively inelastic, meaning the firm would see a reduction in total revenue.
d demand is relatively inelastic, meaning the firm would see an increase in total revenue.

12 the diagram shows the cost and revenue curves for a firm in an imperfectly competitive market.
what is the revenue maximising output of the firm?
price mc ac
$
| (i \e
o ab cc d
quantity

13 governments introduce different policies to achieve a more efficient use of energy.
which policy is least likely to achieve this objective?
a _alimit to the amount by which energy prices can increase
b_anincrease in the tax on energy usage
c_ energy pricing policies that reflect the full social costs of energy use
d subsidies to suppliers of products designed to save energy

14 a report in the uk suggests that means-tested benefits (benefits that are paid depending on
income) should be introduced for benefit payments to the elderly and that any money saved
should be used to pay means-tested benefits to young adults. this is because some elderly
people now have high levels of real income.

which outcome is most likely?

a equality amongst young adults will decrease.
b equality amongst the elderly will decrease.

c _intergenerational equality will increase.

d_ there will be an increase in transfer payments.

15 what is defined as ‘the payment made to a factor of production over and above that necessary to
keep the factor in its present use’?
a economic rent
b_ normal profit
c_ opportunity cost
d transfer earnings

16 as the number of workers employed by a firm increases, the marginal product of labour
decreases but remains positive.
what happens to the firm’s total output?
a it stops increasing.
b_itincreases at a constant rate.
c_itincreases at a falling rate.
d_ it increases at a rising rate.

17 what will cause the supply curve of labour in a particular industry to shift to the left?
a _afall in demand for the industry's product
b  agreater use of machinery in the production of the industry’s output
c_ arise in wages paid in similar occupations in other industries
d  aweakening of trade union influence in the industry

18 what does an output gap show?
a the difference between actual output and long-run potential output
b _ the difference between actual output and output when labour is fully employed
c_ the difference between the maximum output in a boom and the minimum output in a
recession
d_ the difference between the minimum output in a boom and the maximum output in a
recession

19 gnp per head in a country has increased by 10% over the past 5 years.
what is not a valid reason to doubt whether average living standards have also risen by the
same amount?
a the distribution of income may have changed considerably over the period.
b_ the general price level is likely to have changed over the period.
c_ the size of the population may have changed over the period.
d_ the workforce may have produced greater output by working for more hours per week.

20 the human development index is a measure of economic development.
what is included in this index?
ee sa gni per capita life expectancy mean years
p ; at $ppp at birth of schooling
population

a v x v v

b v v x x

cc v x v v

d x v v v

21 what would increase structural unemployment in the manufacturing sector of the us?
a_ asian exporters of manufactured goods to the us experience a fall in labour costs per unit of
output.
b_ tariffs on asian manufacturing imports increase.
c_ the percentage of us manufacturing employees belonging to a trade union falls.
d_ the us dollar's real effective exchange rate against the asian currencies falls.

22 governments have a range of policy options available to them to reduce unemployment.
which statement is correct?
a agovernment cannot reduce seasonal unemployment.
b changing interest rates is the best way a government can reduce the natural rate of
unemployment.
c_ changing the exchange rate will not reduce demand-deficient unemployment.
d_ supply-side policies can be used by a government to reduce frictional unemployment.

23 what is not considered to be an injection into the circular flow of income of an economy?
a arise in exports of financial services
b firms investing in new production techniques
c_ increased government spending on health services
d spending on hotels and entertainment by tourists visiting another country

24 the table shows the nominal gdp growth rate and annual inflation rate in four countries, w, x, y
and z.
ee
growth rate (%) rate (%)
ww 2.1 1.9
xx -1.6 8.9
¥ 4.1 5.8
z -2.0 16.4
what can be concluded from the table?
a wexperienced the highest rate of real economic growth.
b  xand z experienced deflation.
cy experienced the greatest rise in the standard of living.
d z experienced the greatest growth in public debt.

25 what identifies net injections into a country’s circular flow of income?
pies [xem | e<t
a yes no no
b yes no yes
cc no yes no
d no yes yes

26 in a closed economy with no government there is an equilibrium level of national income of
$1000 billion. the households always spend 80% of the income they receive.
if full employment occurs when national income is $1200 billion, by how much must aggregate
demand initially change to close the economy's deflationary gap?
a -$200 billion b  -$40 billion c  +$40 billion d_ +$200 billion

27 according to keynesians, the demand for money is negatively correlated with the interest rate.
which motive for holding money best accounts for this relationship?
a _ income motive
b precautionary motive
c speculative motive
d_transactionary motive

28 the diagram shows aggregate demand (ad) and aggregate supply (as).
there is a change from ad, to ad2 and from as, to aso.
as, as,
price
level
vn. sad,
sg k
o y,y0y3y,
national income
as a result, the equilibrium level of national income changes from:
a y, to y3. b y; to y4. cc yo to y3. d y> to y4.

29 the table gives an economy’s unemployment rate and inflation rate for a five-year period.
ce al inflation rate %
2010 7.6 2.6
2011 6.2 1.6
2012 5.8 1.8
2013 5.9 2.0
2014 5.8 2.0
which change between consecutive years was in agreement with the phillips curve analysis?
a 2010-2011
b 2011-2012
c 2012-2013
d 2013-2014

30 the consumer prices index (cpi) fell by 3% in a year. unemployment was regarded as
unacceptably high.
which combination of policies would a government be most likely to adopt in such circumstances?
a anappreciation of the currency, together with an increase in the rate of interest
b_ increased government expenditure on education, together with an increase in taxes to pay

for it

c increased indirect taxes, together with a depreciation in the exchange rate
d_ reduced income taxes, together with a cut in the rate of interest

Solve 9708_w21_qp_32