economics

1. the generation of electricity causes external costs.
who bears these external costs?
a the distributors who sell the electricity
b _ the electricity company that produces the electricity
c_ the government that subsidises the production of electricity
d_ the people living in the area where the electricity is generated

2 what must equal marginal cost when a profit-maximising firm produces at its allocatively efficient
output?
a average revenue
b_ average total cost
c total revenue
d total cost

3 what might reduce dynamic efficiency in an economy?
a government expenditure on enterprise education
b reinvestment of profits
c_ rising shareholder dividends
d the increase in innovation

4 in many countries, health authorities are concerned about the harmful effects of smoking
cigarettes.
governments have imposed high sales taxes on cigarettes and have conducted anti-smoking
campaigns.
why might the quantity of cigarettes demanded remain high?
a_ better knowledge of health hazards is changing behaviour.
b_ cigarette smoking will be replaced by cheaper alternatives.
c consumer behaviour is irrational due to addiction.
d_ the income effect of a price rise makes consumers worse off.

5 what does a budget line show?
a the behaviour of a utility-maximising consumer
b _ the difference between an individual's consumption and saving
c_ the monetary value of the disposable income of a consumer
d the maximum combinations of two products that a consumer can buy with a given level of
income

6 when the price of a good falls, the overall effect on the quantity demanded can be separated into
income and substitution effects.
which statement describes a giffen good?
a_ the income effect is irrelevant for a giffen good.
b_ the income effect works in the same direction as the substitution effect.
c_ the income effect works against the substitution effect and is of a greater magnitude.
d_ the income effect works against the substitution effect but is of a smaller magnitude.

6 arock band is due to play at a concert hall. in order to create a good atmosphere, the bands aim
is to sell all the tickets. ticket prices are set at the highest price that ensures all tickets will be
sold.

what is the motivation for this price strategy?
a profit maximisation

b_ revenue maximisation

c sales maximisation

d -satisficing

9 what would be most likely to allow the survival of small firms in an economy?
a anincrease in the cost of borrowing from commercial banks
b_anincrease in personal services as a share of gdp
c_anincrease in the rate of change of information technology
d_anincrease in the ratio of capital to labour employed in an economy

10 what is a condition for operating a successful cartel’?
a alarge number of firms in the industry
b shaving a differentiated product
c low barriers of entry to the industry
d - strictly enforced production quotas

11. in 2012, an australian airline company separated its international and domestic operations into
separate companies. the company had been facing increasing competition from much larger
competitors in international markets but had relatively little competition in domestic markets that
had a higher price elasticity of demand.

which row shows the reasons that would support this separation?
diseconomies of scale ' the level of

: : markets can easily oa

in the combined competition and

be separated by ; ee
company before the : price elasticity in
. this company .

separation domestic markets
a no yes yes
b yes no yes
cc yes yes no
d yes yes yes

12 the diagram shows a firm’s marginal and average cost curves.
the firm enters a collusive agreement with other firms in the industry. it is agreed that each firm
will charge a common price, op, and will restrict the level of its output to a production quota set
by the industry cartel.
the firm is allocated a production quota, oq.
price
mc ac
pp g h
le
jy] psereeseeremmieasee ty j
(2) q
quantity
the firm decides to cheat in order to maximise its profits.
what is its short-run increase in profits?
a pgkl
b phjl
c phjl minus pgnm
d pgkl minus lknm

13 to reduce road congestion caused by parked cars, a local government introduced a system of
tradable parking permits. households were given a permit allowing them to park one car at the
roadside. households with more than one car could buy extra permits from households with no
cars.

what is the most likely reason for this policy to fail?

a fines for drivers parking in the area without a permit will internalise the externality.

b_ the local government has a monopoly over the issue of parking permits.

c_ those suffering from too many parked cars are compensated by the households owning
extra cars.

d too many households own cars so the market in permits is very small.

14 what is not an example of the application of ‘nudge’ theory?

a acchain of coffee shops offers its customers a larger coffee if they bring their own reusable
cup.

ba government imposes an indirect tax on the purchase of sugary snacks, to try to reduce
childhood obesity.

c a government introduces an opt-out system for organ donation, to try to increase the number
of organs donated.

da restaurant chain introduces smaller-sized main courses on its menu, to try to reduce the
volume of food wastage.

15 a government wishes to redistribute income from richer citizens to poorer citizens.
which policy is it least likely to use?
a increase direct taxes
b increase indirect taxes
c_ increase subsidies
d increase transfer payments

16 what represents the transfer earnings of the factor enterprise?
a excess profit
b normal profit
c return on capital
d start-up costs

17 the diagram shows the demand for and supply of labour in the construction industry. the labour
market is initially in equilibrium when the wage is w,.
a trade union wishes to increase the wage but does not wish to decrease employment. the union
asks for wage w>. the employers offer wage w3.
supply of labour
wage
wis fennel set e
w, “e h
fos
demand for labour
6) q,
quantity of labour

what would be the best policy to enable the trade union to achieve both its aims?
a accept w; and a new equilibrium f
b_ continue to ask for w2 and a new equilibrium g
c_ keep w, with a new equilibrium h
d_ increase marginal revenue productivity and a new equilibrium e

18 many governments adopt sustainable economic growth as a macroeconomic policy aim.
what is meant by sustainable economic growth?
a __ increasing the current productive potential of the economy as fast as possible
b _ increasing the current productive potential of the economy by using only low-cost resources
c_ increasing the current productive potential of the economy without reducing future productive
potential
d increasing the future productive potential of the economy as fast as possible

19 what would cause estimates of the money value of the measure of economic welfare for a
country to be greater than the value of gross national product?
a negative externalities, such as pollution
b property income received from abroad
c_ regrettable necessities
d_ the value of non-marketed activities and leisure

20 the data provides information on indicators of the standard of living in four countries in 2019,
each with a population below 10 million.
; gross national expected skilled labour
countr pean g-4 income per capita ears of (% of labour
y at birth (years) p p years! e
($) schooling force)
croatia 78.3 23061 15.0 91.5
norway 82.3 68 059 18.1 84.3
united arab emirates tt.8 66912 13.6 52.8
qatar 80.1 110489 12.2 43.9
based (overall) on these indicators, which country is most likely to have had the highest hdi
ranking?
a croatia
b norway
c_ united arab emirates
d qatar

21 ~vwhat might help improve economic growth in developing couniries over the next five years?
a_anincrease in income tax
b_anincrease in the birth rate
c_anincrease in the budget surplus
d_anincrease in training

22 an economist once said ‘if you pay people not to work and tax them when they do, don’t be
surprised if you get unemployment’.
what is this an example of?
a cyclical unemployment
b _ frictional unemployment
c _ structural unemployment
d_ voluntary unemployment

23 what is the least likely consequence of a significant rise in unemployment during an economic
recession?
a _afall in aggregate demand
ba fall in expenditure on welfare
c sa fall in revenues from income tax
da fall in the rate of economic growth

24 in which context relevant to growth in the money supply is the term total currency flow used?
a_ the money flow between central banks and commercial banks
b_ the money flow between central banks and governments
c_ the money flow between domestic residents and foreign residents
d_ the money flow between the general public and the financial sector

25 what does not change the level of withdrawals from the circular flow of income?
a__ households having more of their income taken in tax following a rise in the rate of income tax
b_ households spending more on imported cars following a currency appreciation
c households taking money from their savings to spend on a celebration
d households transferring money from an account in one bank to a different bank

26 which approach is consistent with the keynesian school of economic thought?
a balanced budgets should be a key policy aim.
b inflation is caused by excessive money supply growth.
c unemployment can still persist in the long run.
d wages are flexible downwards in the short run.

27 what could be used to offset a leakage from the circular flow of income?
a areduction in domestic consumption
b- areduction in government expenditure
c_anincrease in the rate of interest
d_anincrease in investment

28 in some countries, life expectancy has fallen but the birth rate remains high.
which effect will this have?
a fewer schools and other resources for young people will be needed.
b- more facilities will be needed for older people.
c_ there will be an ageing population.
d_ the working population will tend to become a smaller percentage of the total population.

29 ihe governments cnief economist says that increasing the top rate of income tax trom 40% to
45% is likely to reduce tax revenue by 2%.
which economic concept might explain this prediction?
a kuznets curve
b_ laffer curve
c_ lorenz curve
d phillips curve

30 which combination of policies is most likely to reduce the rate of inflation?
government f direct taxation
interest rates
spending on households
a decrease decrease increase
b decrease increase increase
cc increase decrease increase
d increase increase decrease

Solve 9708_s22_qp_31