economics

1. what is most likely to improve the allocative efficiency of a market?
a ahigher market concentration ratio
b_ collusion between firms in the market
c entry of new firms into the market
d_ mergers of firms in the market

2 the diagram shows a market in which there are negative externalities of production and positive
externalities of consumption.
cost, msc
benefit h
be |
if mpc
t
l ij msb
mpb
o
a, o quantity
what is the marginal external cost at the free market equilibrium level of output?
a eg bef c fg d hi

3 what could be included in a cost-benefit analysis of a project to build a road bridge connecting an
island community to the mainland?
a fall in f ' a reduction in an increase in
an increase in ; ;
employment for ae travel time for incomes for the
‘ carbon emissions ‘
ferry services work community

a yes no no yes
b yes yes no no
cc yes yes yes yes
d no no yes yes

4 the table shows the levels of total and average utility at different levels of a consumer’s weekly
consumption of a product.
per week utility utility

1 4 4.0

2 9 4.5

3 15 5.0

4 20 5.0

5 24 48

6 27 45
after which level of weekly consumption does the diminishing marginal utility first occur?
a 3 b 4 cc 5 d 6

5 which statement about a budget line in consumer behaviour theory is correct?
a _ltillustrates consumer preference between two goods.
b it illustrates combinations of two goods that consumers are able to purchase with a given
income.
c_itillustrates the least cost combination of goods that yield the same level of utility.
d_itillustrates the income effect of a price change.

6 when the price of a good increases, which statement is correct according to the analysis that

uses budget lines and indifference curves?

a_ the income and substitution effects of the price increase will work in opposite directions in
the case of a giffen good.

b_ the income effect of the price increase will result in reduced consumption for all goods.

c the new equilibrium position will be where the new budget line meets the original
indifference curve.

d_ the price rise will be represented by a parallel shift inwards of the original budget line.

7 the diagram shows a firm in an imperfectly competitive market.
which level of output would maximise total revenue?
ar
price $
mr mc
1 ac
aia
(e) ab cc d
output

8 the diagram shows short-run average cost curves (srac) and the long-run average cost curve
(lrac) for a firm.
cost
srac,
srac.
srac, 3_-lrac
[e)
a output
which statement is correct?
a when each of the three srac curves is u-shaped it shows the existence of economies of
scale.
b when the lrac curve is upward-sloping beyond output oq it shows the existence of
diseconomies of scale.
c when the minimum point of srac2 is below that of srac, it shows the existence of the law
of variable proportions.
d when the minimum point of srac2 is below that of srac3; it shows the existence of
economies of scale.

9 the diagram shows a decrease in demand for the product of a profit maximising monopolist.
cost,
revenue
i h
j
k l ng mc =atc
| nw? \mr! d? = ar? nd" = ar’
(6)
e f output
which area shows the change in the monopolist’s supernormal profit as a consequence of this
decrease in demand?
a ihgk b jmlk c ihglmj d ihfemj

10 the table shows the estimated costs for operating a new factory at the end of its first year.
building the factory 20
raw materials including fuel 5
machinery and delivery vehicles 4
wages for workers 1
assuming the short run is one year, what are the total variable costs?
a $1m b $6m c $10m d $30m

11 a manufacturing company merged with two companies. one of these was company x that
produced a substitute product. the other was company y that supplied its raw materials.
which combination shows the types of merger that the manufacturing company has undertaken?
merger with merger with
company x company y
a horizontal horizontal
b horizontal vertical
cc vertical horizontal
d vertical vertical

12 which phrase best describes the market structure illustrated by the diagram if the firm produces
at output q,?
| wn
:
mc
ar
o qy
quantity
a amonopolistic firm in short-run equilibrium
b= amonopoly making supernormal profits
can oligopoly engaged in a price war
d  anon-profit maximising state monopoly

13 the government wants to regulate the consumption of a demerit good in order to increase
society's net welfare.
in which situation will society’s net welfare increase?
a the fall in the marginal social benefit is greater than the fall in the marginal social cost.
b_ the fall in the marginal external cost is greater than the fall in the marginal external benefit.
c_ the fall in the total social benefit is greater than the fall in the total social cost.
d the fall in the total social cost is greater than the fall in the total social benefit.

15 which policy is likely to be the least effective means of producing a more equal distribution of
income amongst households?
a_ the imposition of minimum wage levels below the levels produced by the market
b _ the introduction of progressive personal income taxes
c_ the payment of benefits to low income households
d_ the removal of sales taxes on food consumed by lower income households

16 which supply curve (s) indicates that eventually an individual will choose to spend more time on
leisure rather than continue working for increased wages?
a b
wage 8 wage
is)
a hours worked o hours worked
cc d
ss
wage s wage
a hours worked o hours worked

17 when is a trade union less likely to gain a large pay rise for its workers?
a _ lt represents a large proportion of the workforce in the company.
blt represents a workforce that has an elastic demand for its labour.
c_ it represents a workforce that is increasing its labour productivity.
d_ it represents a workforce that works for a highly profitable monopoly firm.

18 which statement does not support the view that extraction of mineral resources by a foreign

company will make it more difficult for a developing economy to achieve future economic growth?

a exports of these mineral resources will result in an appreciation of the exchange rate.

b_ reduced tax rates aimed at encouraging the foreign company to invest in the country will
increase inflation.

c_ the foreign company will raise the skill levels of the local population through training
schemes.

d_ the foreign company will send profits back to its own country.

19 growth rates can be calculated using changes in the value of gdp from year to year.
why is real gdp considered to be a better indicator than nominal gdp for this calculation?
a real gdp adjusts for price changes by using a base year.
b_ real gdp ignores the effects of fluctuations in exchange rates on purchasing power.
c_ real gdp includes changes in the size of the population.
d real gdp measures gdp at factor cost rather than market prices.

20 why is disaster relief money sent by non-governmental organisations to a south american
country not classified as official foreign aid?
a _ it does not finance a long-term investment programme.
b_ it does not incur payment of interest.
c_itis not supplied by a government.
d_ only countries in asia and africa are classified as developing.

21 what is a cause of seasonal unemployment?
a ageneral decrease in the demand for goods and services
ballack of necessary skills in the workforce
c atemporary change in the pattern of consumers’ expenditure
d anunwillingness of workers to move to other parts of the country where there is work

22 a firm initially employs 50 workers, each working 40 hours a week, and produces a total output
of 18000 units. it then employs an additional 10 workers, again each working 40 hours, and total
output rises to 19 200 units.

which effect does this rise in employment have on labour productivity per hour?
a decreases it by 1 unit

b_ decreases it by 40 units

c increases it by 120 units

d increases it by 1200 units

23 according to keynesian theory, when will an increase in the money supply leave the level of
output unchanged?
a when there is a liquidity trap
b_ when the money supply increase was not anticipated
c_ when there is a floating exchange rate
d_ when there is an immediate adjustment to expectations about future price levels

24 aneconomy is experiencing a negative output gap.
what is most likely to happen to the inflation rate and unemployment in this economy?
[atone [enemptxment|
a decreases decreases
b decreases increases
cc increases decreases
d increases increases

25 what do monetarists believe?
a economies are naturally unstable.
b_ policy makers should follow set rules targeting the money supply.
c_ the aggregate supply curve has a slight slope.
d wage movements are ‘sticky’ downwards.

26 which combination of changes over time in an economy would definitely represent increased
economic growth per capita?

average total gini
: total output ‘ -

price level population coefficient
a falls rises falls rises
b falls rises no change falls
cc rises falls falls rises
d rises rises rises rises

27 under which circumstances will the future burden of the national debt on a country increase the
most?
increase in the change in gdp price of
budget deficit 9 government bonds
a +2% of gdp +4% decreasing
b +2% of gdp +4% increasing
cc +4% of gdp +2% decreasing
d +4% of gdp +2% increasing

28 country x has a low rate of inflation and a stable currency and unemployed resources. it attracts
$25 billion of direct foreign investment.
what is most likely to be a positive benefit of the inflow of this foreign direct investment for
country x?
a aggregate demand will be boosted through the investment multiplier.
b_ country x will have to use its foreign reserves to eliminate any trade deficit.
c_ the balance of payments will be affected with the outflow of profits to foreigners.
d_ the rate of inflation will increase if country x tries to increase capacity.

29 acountry with an income tax rate x decides to increase its tax rate.

the diagram shows tax revenue will fall.

tax

revenue

ie) x
tax rate

why would this happen?
a_ fewer goods will be produced.
b_ people will work fewer hours to maintain incomes.
c_ prices will rise.
d_ there will be an increase in tax avoidance.

30 what are the labels on the axes of a phillips curve diagram?
[| verteat ens | poizorta ans |
a inflation rate unemployment level
b inflation rate unemployment rate
cc price level unemployment level
d price level unemployment rate

Solve 9708_w22_qp_31