economics

1. what is a function of money?
a_ toact as a medium of exchange
b to be divisible into small units
c to enable bartering to take place
d_ to maintain its value when inflation is high

2  inaplanned economy, what will determine the allocation of scarce resources?
a amixture of private and central decision making
b the decisions of central government
c_ the forces of demand and supply
d_ the revenue generated from direct and indirect taxes

3. akey concept in classifying goods is whether a good is rival or non-rival.
which good is rival in consumption?
a anice cream
b - street lighting
c_ aradio broadcast
d the internet

4 what is a normative statement?
a a firm receiving a government subsidy will increase the supply of a good.
b_ negative externalities are the most serious market failure.
c_ arise in incomes will lead to a rise in demand for normal goods.
d_ arise in the additional rate of income tax will decrease the incentive to work.

5 the diagram shows an economy’s production possibility curve (ppc). the economy has moved

from x to y.

capital p y

goods en

[e) r is)
consumer goods

what can be deduced from the diagram?
a current living standards have fallen.
b_ the economy has become more efficient.
c_ there has been a rise in unemployment.
d_ there has been an opportunity cost of or consumer goods.

6 anindirect tax is imposed on a product, causing total expenditure by consumers to increase.
which row identifies this situation?

rice pice

p elasticity
a decreases elastic

b decreases inelastic
cc increases elastic

d increases inelastic

7 the price elasticity of the supply of yoghurt is +1.5.
if the demand for yoghurt rises and price rises by 20%, how much more will be supplied to the
market?
a 0.3% b 3.0% c 13.3% d 30%

8 the diagram shows the market demand for and supply of a good.
‘ d, s
price 1
w,
lsp] intelalatatelaietatatataiatataiaie? so. ctalaalaiaiataiataiataaiaiaient
p, i nc
d,
s,
se quantity
which statement is not valid?
a_ at price op;, uv represents the market surplus.
b_ at price ops, p3x represents the quantity that consumers are able and willing to buy.
c if price were to fall from op, to op3, the extra quantity demanded would be equal to the extra
quantity supplied.
d_ price op, is the market equilibrium price.

9 the diagram shows two linear supply curves labelled s; and sz, where szis a 45° line.
s,
price
oo quantity
which statement about the price elasticity of supply is correct?
a_ the price elasticity of supply is different at every point along both s; and so.
b_ the price elasticity of supply of s, is elastic and s2is unit elastic.
c_ the price elasticity of supply of s; is inelastic and sz is unit elastic.
d_ the price elasticity of supply is unit elastic at every point along both s, and sp.

10 a country has health care provided by the free market. this is replaced by the government
provision of sg free health care.
d sy
price $ ss

| an

oo quantity
what is the change in consumer surplus?
a from 1 to (1 + 2)
b from 1to(1+2+3+ 4)
c_ from (1+ 2)to(1+2 +3)
d from (1 + 2) to(2+3+4+5)

11. what is an example of a product in joint demand with a smartphone?
a analternative brand of smartphone
b- apersonal computer (pc)
c headphones that can be used with a smartphone
d_ the metals used in the manufacture of a smartphone

12 a product has a high price elasticity of supply.
what might explain this?
a_ it has a high opportunity cost.
b_ it has a non-perishable nature.
c_ itis classed as an inferior good.
d_itis classed as a luxury good.

13 what is likely to affect the position of the demand curve for tickets to pop concerts but not the
position of the supply curve?
a achange in incomes of potential customers
b= achange in price of tickets to the concerts
c  achange in rents charged by venue owners
d- achange in seating capacity of concert venues

14 the table shows lee’s and yim’s price elasticity of demand for restaurant meals and cinema
tickets.
ee]
cinema tickets -0.7 0.3
there is a rise in the price of both products.
what can definitely be concluded after these price changes?
a_ restaurant owners will receive more income.
b_ lee will spend more money on both products.
c_ yim will spend more money on both products.
d cinema owners will receive less income.

15 a government tixes a maximum price for a product in order to increase its consumption.
what would be the likely outcome of such a policy?
a consumption will fall if the maximum price is above the current equilibrium price.
b consumption will rise if the maximum price is below the current equilibrium price.
c_ production will fall if the maximum price is above the current equilibrium price.
d production will fall if the maximum price is below the current equilibrium price.

16 the diagram shows demand and supply curves for a good. s, is the original supply curve, so is
supply after a tax is added.
s,
1g)poo===o==g ot
price ! ss,
($)
b-fonnnnnnnomediengey
gp i
, id
0 ; '
0 20 28
quantity
how much tax revenue is earned by the government?
a $40 b $160 c $200 d $320

17. what is a transfer payment?
a the advertising expenditure of a firm
b the allowance given by a parent to their child while at school
c the rent paid to a land owner by a tenant farmer
d_ the wage paid to a worker in the government service

18 what best illustrates the process of privatisation?
a asingle private shareholder acquires complete control of an organisation
b_ the purchase of government bonds by private sector commercial organisations
c_ the purchase of shares in a private company
d the transfer of public sector assets to the private sector

19 what defines a progressive tax?
a _ low-income earners pay the same proportion of income in taxes as high-income earners.
b_ low-income earners pay a lower proportion of income in taxes than high-income earners.
c_ low-income earners pay less in taxes than high-income earners.
d_ low-income earners pay more in taxes than high-income earners.

20 an increase in what will shift the aggregate demand curve in an economy to the right?
a budget deficit
b consumer savings
c general price level
d interest rate

21 which effect of inflation is described as redistributive?
a_ the improvement in the terms of trade
b the deterioration in the balance of trade
c_ the inconvenience of frequently changing prices
d_ the loss of purchasing power for people on fixed incomes

22 in which situation will a country’s terms of trade improve?
a its total value of imports rises less than its total value of exports.
b its volume of imports rises less than its volume of exports.
c_ the prices of its imports rise by less than the prices of its exports.
d_ the value of its external payments rises by less than the value of its external receipts.

23 country x joins a customs union with country y and will remove the tariff on its imports of good m
from country y.
under which conditions will trade creation in country x be the largest?
existing size of price elasticity
country x’s tariff on of demand for
imports of good m good m in country x
a large -0.8
b large -1.4
cc small 0.8
d small -1.4

24 what is likely to happen if there is a fall in the international value of a country’s currency?
a arise in the foreign currency price of its exports
b_ arise in the volume of its exports
c a fall in the domestic currency price of its imports
da fall in the domestic price level

25 from the same quantity of factors of production, country x and country y each produce the
following units of output.
¥ 40 10
which statement is correct?
a country x has absolute advantage in the production of both goods.
b country x has comparative advantage in the production of sugar.
c_ country y has absolute advantage in the production of textiles.
d country y has comparative advantage in the production of sugar.

26 following a 10% depreciation in the $ value of the £ sterling, a uk exporter leaves the $ price of
the goods it sells in the us market unchanged.
other things being equal, what will be the effect on the revenue measured in sterling obtained by
the manufacturer from its sales in the us?
a it will increase.
b it will decrease.
cit will be unchanged.
d it will depend on the elasticity of demand for the manufacturer’s good in the us.

27 the diagram shows the effect of introducing a tariff on a product.
price : domestic supply
p, os world supply plus tariff
p, re ae world supply
domestic demand
ie) quantity

what determines the producer surplus that the tariff generates for domestic producers?
a the price elasticities of domestic supply and demand
b | the tariff rate and the price elasticities of both domestic demand and supply
c the tariff rate and the price elasticity of domestic demand
d the tariff rate and the price elasticity of domestic supply

28 which government policy is most likely to cause expenditure switching that will benefit a country’s
current account?
a __ increasing import quotas
b increasing income tax allowances
c_ increasing spending on unemployment benefits
d increasing subsidies to domestic firms

29 which type of economic policy is likely to be considered the most effective by a government that
has greater income equality as its primary aim?
a fiscal policy
b _ international trade policy
c monetary policy
d supply side policy

30 the diagram shows four possible aggregate supply curves and an equilibrium point x. a
government employs deflationary fiscal policy in order to reduce the rate of inflation in its
economy. this shifts aggregate demand to ad2.

with which as curve would this policy be most effective?
b
x cc
price d
level
x,
ad,
ad,
oo . .
national income

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