economics

1. when is pareto efficiency achieved?
a_ ata level of output that is productively and allocatively efficient
b_ when everyone has equal amounts of goods and services
c_ when social benefits are greater than private benefits
d_ when social marginal benefit is greater than social marginal cost

2 ~the transport authority in a city is considering building an underground railway to reduce traffic
congestion on the roads.
which combination would represent an external cost and an external benefit of the use of this
railway?
a compensation is paid to businesses foreign tourists pay to use the railway
displaced by construction work
b nearby residents suffer there are fewer admissions to
noise from passing trains hospital as air quality improves
c | overtime payments are made to workers productivity increases as employees
to finish building the railway on time arrive at work more punctually
d reduced traffic means there are motorists spend less on fuel
fewer road improvements needed

3 the diagram shows the marginal private benefit (mpb), the marginal private cost (mpc) and the
marginal social cost (msc) of a firm producing chemicals. in a free market, price is at p1.
price
msc
mpc
p, tn oh
ppe mpb
[e) q; q;q; q
fh sse sss quantity
which quantity measures the overproduction of chemicals resulting in the negative production
externality?
a q1,q2 b q:,q3 c q,,q3 d q3,q4

4 the diagram shows the market price and equilibrium quantity of coffee consumed by an
individual, jo.
jo buys x cups of coffee at $2 per cup when she visits her favourite café.
; supply
price
$
2
0 x ¥
quantity
when she is there, the café owner says it is offering unlimited free refills.
how is her consumption most likely to change?
a_ jo’s demand for coffee will increase from x to y where her total utility for coffee is zero.
b_ jo’s demand for coffee will increase from x to y where her marginal utility for coffee is zero.
c_ jo will not drink extra coffee because its marginal utility is less than $2.
d_ jo will not drink extra coffee because her total utility will fall.

¥3 the diagram shows a consumers initial buaget line is gh and a set of indifference curves !iq,,
ic, and ic3 for goods r and s. the original equilibrium for the consumer is point x.
the inflation rate is rising faster than money incomes.
what will be the most likely new equilibrium for the consumer if all real income is spent?
good r
gn
a
ic,
ic,
nss
oo h
good s

6 the diagram shows an individual’s budget lines and indifference curves.
the initial budget line is jl. there is then an increase in the price of good y.
good x %
j %
\ i,
ph
o r stk l
good y
which distance represents the substitution effect of the increase in price of good y?
a lk b sr cc ts d tr

8 the manufacture of some sports equipment is dominated by very large firms but there are also
smaller firms in the industry.
what enables a small firm to exist in such an industry?
a _ high concentration ratio that reduces competition
b high start-up costs that occur in a contestable market
c_ decreasing average cost as a large firm expands
d  arequirement for personalised equipment

9 the marginal cost curve of a firm passes through the lowest point of the firm’s
a average fixed cost curve.
b_average variable cost curve.
c_ marginal revenue curve.
d total cost curve.

10 what would definitely be abnormal profits?
a the extra revenue received from the sale of a farmer’s land to a house-building firm
b_ the extra revenue received by a firm from an unexpectedly large increase in demand
c the total revenue from the sale of a firm’s products in excess of the total variable costs of the
firm
d_ the total revenue in excess of total costs of the firm above the minimum needed to keep the
firm in business in the long run

11 +the diagram shows the long-run average cost curves (lrac) for a tirm.
costs
lrac,
zz,
www
x lrac,
y'
) quantity
which combination of movements correctly describes each type of economy or diseconomy of
scale?
internal internal external
economies diseconomies economies
of scale of scale of scale
a w to y x to w ztow
b w to y y tow ztow
cc x to y w toz w to y
d x to y ¥ to xx w to y

12 the diagram shows the cost and revenue curves for a monopoly market structure.
rice
r mc
p,}----
pig fermen :
| \mr' ar
o q,q, q;
quantity

a monopoly was producing at p,q; but changed its aim and now produces at p2qo.
what would not have caused this change?
a_ it has stock it wants to sell.
b_itis concerned about new entrants.
c_ it wants to benefit from greater economies of scale.
d_ it wants to maximise profits.

13 a government regards fresh fruit and vegetables as merit goods, and subsidises agriculture to
boost their production.
what could be a government failure arising from these subsidies?
a_ cheaper fresh fruit and vegetables
b land clearance reducing wildlife
c_ lower spending on treating dietary illnesses
d_ more jobs picking fruit and vegetables

14 the table shows a firm that has four possible methods of production. each method has a different
cost and causes a different amount of pollution.
the government decides that polluting firms must buy pollution permits that cost $90 each. each
permit allows the firm to emit 1 tonne of pollution. no pollution can be emitted without a permit.
which method of production has least total cost?
cost of production | pollution caused
($ per day) (tonnes per day)
a 320 3
b 380 2
cc 480 1
d 700 0

15 the table shows the average incomes of the richest 20% of households and the poorest 20% of
households in the uk (2015-2016), and the effects of government taxation and benefits on
average income.

average income average income
(£) of (£) of

richest 20% poorest 20%
before taxes and benefits 85000 7000
after direct taxes and cash benefits 68000 13.000
after all taxes (direct and indirect) and all benefits 63000 17000
what can be concluded from the information in the table?
a_ the effects of direct taxation have affected the rich less than the poor.
b- the government's policy achieved income equality across households.
c_ the government redistributed all income taken from the rich to the poor.
d_ the government's policy reduced the income inequality between the poor and the rich.

16 a fashion model is paid $500 000 a year.
if the next best paid job he could get is as a teacher at $100000 a year, what are his transfer
earnings and his economic rent?
transfer earnings economic rent
$ $

a zero 400 000

b 100000 400000

cc 400 000 zero

d 400 000 100000

17 what would be the most likely effect of the imposition of a national maximum wage below the
market equilibrium on the labour market for famous television celebrities?
a areduction in the number of jobs for television celebrities
b_anincrease in other methods of rewarding television celebrities
c greater movement of celebrities between television channels
d_ increased employment of foreign television celebrities

18 which government measure is most likely to encourage faster and more sustainable economic
growth in a country?
a subsidies to firms using recycled materials in production
bs grants for the exploration and exploitation of new oil deposits
c_ increased spending on environmental education in schools
d tougher legislative controls on emissions of air and water pollution

19 which statement about national income accounting is correct when gross domestic product

(gdp) is converted into net national income (nni)?

a_ an allowance for depreciation has to be made, because the nni does not include output that
replaces capital that has been used up.

b_ both gdp and nni have to be calculated by the incomes method, because that is what nni
is measuring.

c_ double counting is not a problem if the conversion uses the output method, but it is when
using the expenditure method.

d_ the value of exports needs to be added, because exports generate income for citizens.

20 real gnp per capita is often used when comparisons of living standards are made between a

developed and a developing country.

what is not a good reason to question the accuracy of this comparison of living standards?

a_ it is not possible to use price indices accurately when computing real figures because
spending patterns are different.

b people in developed countries enjoy very different amounts of leisure time to people in
developing countries.

c_ the extent of the unrecorded economy is very different in the two countries.

d_ the purchasing power parity theory has been used to make comparisons.

21 based on the international labour office definition of unemployment, which individual is most
likely to be classified as unemployed?
a asingle parent who would like to work but cannot afford to pay for child-care facilities
ba teacher who has decided to retire permanently
c  aredundant steel worker who is not actively seeking alternative work
d_ astudent who is desperately seeking any weekend job to supplement his income

22 what is most likely to lead to an increase in labour productivity?
a_ encouraging women to enter the workforce
b_ increasing automation
c_ raising the retirement age
d_ reducing the division of labour

23 which components of the quantity theory of money are considered constant and which are
considered variable?
money velocity of . ’
é : price level transactions
supply circulation
a constant variable constant variable
b constant constant variable constant
cc variable constant variable constant
d variable variable constant variable

24 four students are asked to complete a table showing the aggregate demand equation and the
multiplier formula for a closed economy without a government.
which student is correct?
| | aggregate demand multiplier

1
a cri aula arent dae
marginal propensity to consume
1
b c+il ——_ #7...
marginal propensity to save
1
cc c+i-s a set ets
marginal propensity to consume
1
d c+i-s sree eal epemaneeers arama
marginal propensity to save

25 keynesian and monetarist economists believe different things about the way the economy works.
which combination is correct?
| eymesan [onatarst |
a decreasing ad will always lead to economic growth is achieved
an increase in economic growth using fiscal policy
b increasing ad brings the the economy always tends to
economy out of recession full employment in the long run
cc increasing ad will always lead economic growth is achieved
to increased employment by cutting taxation
d increasing as brings the full employment will always
economy out of recession be achieved in the long run

26 the table shows real gdp and unemployment for an economy.

real gdp ($ billions) 40000 38 000
unemployment (millions) 2 3

what can be concluded from the data?

a  demand-pull inflation is likely to increase.

b_ potential output is likely to increase.

c_ the balance of payments deficit is likely to increase.

d__ the budget deficit is likely to increase.

27 the diagram shows data on various aspects of four countries.
which country is likely to be most developed?
% of population
in rural areas key
— country a
, ------- country b
él —-—-— country c
ee aa somes countty d
ae se %
of ods no
go | se
oe “a
average years life expectancy
gdp per capita
(us$ ppp)

28 what is illustrated by the laffer curve?
a. as income increases, fewer hours will be worked.
b_ as income increases, tax revenue will increase.
c_ as the tax rate increases, tax revenue always increases.
das the tax rate increases, tax revenue will eventually fall.

29 a government decides to increase direct taxation.
which combination would describe the impact of this policy on unemployment, growth and
balance of payments?
| | unemployment balance of payments
a improves improves improves
b improves improves worsens
cc worsens worsens improves
d worsens worsens worsens

30 how will inflation and unemployment most likely be affected by a rise in the rate of income tax if
government expenditure does not change?
[tition | anemptyment |
a falls rises
b falls falls
cc rises rises
d rises falls

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