economics

1 utility theory is based on the assumption of the ‘rational consumer’.
what is necessary to act as a ‘rational consumer’?
aawase te choice is
addictive independent
complete ;
, é behaviour of other
information
consumers
a no yes yes
b yes no no
cc yes yes no
d yes no yes

2 the price of good s is $6 and the price of good t is $8. a consumer's marginal utility for each
good is shown.
of good s of good t
1 36 32
2 24 22
3 18 20
4 9 18
5 0 9
if this consumer wants to maximise total utility, which combination of goods would they consume?
good s good t
a 1 1
b 2 1
cc 3 4
d 5 5

3 the diagram shows the effect of a price change on an individual consumer’s equilibrium, moving
from e, to eo.
good y
f
e,
saominnn
ein
eit an lo
!
o g h
good x
what can be deduced from the diagram about the price change, the substitution effect and the
income effect?
rice change sobeiiaven income effect
p 9 effect
a price of x falls positive positive
b price of x falls positive negative
cc price of y rises negative positive
d price of y rises negative negative

4 what is likely to help create dynamic efficiency?
a_ entry barriers are reduced to increase competition in the market.
b_ firms are legally bound to produce where price equals marginal cost.
c_ taxes on profits are raised to encourage firms to produce where price equals average cost.
d_ taxes on retained profits are reduced to encourage investment in new technology.

5 at which level of output is sales maximisation achieved consistent with earning normal profit?
mc
cost or
price ac
$
\> an
i ar
o a bc d
quantity

6 what is achieved in monopolistic competition in the long run?
| ae [a
efficiency profit
a no no
b no yes
cc yes no
d yes yes

7 the world’s largest pharmaceutical companies developed and distributed an effective vaccine to
combat a dangerous virus.
what can be associated with this vaccine programme?
a_ demerit good and negative production externality
b_ imperfect competition and positive consumption externality
c perfect competition and negative consumption externality
d public good and negative production externality

8 a landlord owns a house which is rented to tenants. the tenants are required to pay the
electricity and water bills. the landlord is required to decorate and repair damage to the house
and its gardens.

what is not an example of the principal-agent problem?

a the tenants forget to switch off a tap when filling a bath and water overflows, damaging the
floor.

b_ the tenants have a party and their guests cause damage to the interior of the house.

c_ the tenants leave the lights and the tv on when they go out for an evening meal.

d_ the tenants park their car in the garden, damaging the grass and the surrounding hedge.

9 the result of a cost-benefit analysis of a proposed government road-building project is that there
will be a positive net social benefit of $50 million.
why might the government not proceed with the project?
a the project would not be profitable for a private firm.
b_ the project would cause negative externalities.
c_ there is limited capital available for government projects.
d_ there would be more who lost than gained.

10 if the marginal cost of a good is lower than its price, allocative efficiency has not been achieved.
what is likely to remedy this situation?
production of price of
the good the good
a decrease decrease
b decrease increase
cc increase decrease
d increase increase

11 the diagram shows an industry’s demand for and supply of labour.
wage
rate is}
i _,
[e) x ¥ zz
number
of workers

initially, the labour market is in equilibrium. the government introduces a minimum wage of ow.
what will be the effect on the level of employment in the industry?
a adecrease equal to xy
b  adecrease equal to xz
c_ anincrease equal to xy
d_anincrease equal to yz

12 the diagram shows the supply curve of labour for two separate markets, x and y.
x
wage
rate
y
oo quantity of labour

what explains the difference in the gradients of the labour supply curves?
a market x has a higher marginal revenue product per worker than y.
b- market x has a higher percentage of its labour belonging to a trade union than y.
c_ market x has higher labour costs as a percentage of total costs than x.
d_ market x has more specific skills and training requirements than y.

13 the table shows the main characteristics of employment in two occupations.
pf ereraton x [eceaton |
average annual wage $100 000 $60 000
number of weeks of annual leave 5 weeks 10 weeks
average length of working week 48 hours 44 hours
job security low high
length of training course to obtain job qualification 1 year 2 years
what can definitely be deduced from the table?
a_ those employed in occupation y attach greater importance to job security.
b_ those employed in occupation x attach less importance to leisure activities.
c_ there will be more competition for places on training courses to enter occupation x than
occupation y.
d occupation y has more non-pecuniary advantages than occupation x.

14 which changes in direct and indirect tax are likely to increase the inequality in the distribution of
income in a developed economy?
[| atecttotes [rest tnes
a fall fall
b fall rise
cc rise fall
d rise remain constant

15 a government wishes to reduce the use of cars in cities.
which policy should be used?
a adecrease in parking charges
b lowering tax on petrol (gasoline)
c restricting cycling
d__ subsidising public transport

16 inacountry, the top 20% of earners pay 45% in income tax and 25% on sales taxes, and receive
5% in cash benefits.
what is the percentage of disposable income for this group?
a 30% b 55% c 60% d 80%

17. which combination of circumstances is most likely to lead to an increase in a country’s budget
deficit?
| total gdp unemployment
spending
a decreases rises decreases
b decreases rises no change
cc increases falls increases
d increases falls no change

18 which statement applies to a central bank and to a commercial bank?
central commercial

bank bank
a | issues bank notes yes yes
b | lender of the last resort yes yes
c_ | maximises profit no yes
d | receives deposits directly no yes

from the government

19 what is most likely to be the biggest contribution to sustainable economic growth in a developed
economy?
a amovement of people from rural to urban areas
b_anincrease in technical training
c_anincrease in the size of the population
d rising consumer credit levels

20 which policy is likely to increase unemployment?
a_anincrease in retraining facilities
b_asignificant increase in indirect taxes
c_ the imposition of selective import controls
d_anincrease in the public sector deficit

21 what does the accelerator principle state?
a consumption is a function of the rate of change of income.
b_ income is a function of the rate of change of investment.
c investment is a function of the rate of change of income.
d_ investment is a function of the rate of interest.

22 which government aim is least likely to be achieved using macroeconomic monetary policy
measures?
a low unemployment level
bmore equal income distribution
c stable exchange rate
d steady price level

23 a government adopts an expansionary fiscal policy to increase the economic growth rate.
which other main macroeconomic aims is this policy most likely to help?
full stable current account
employment price level surplus
a v jv x
b x v v
cc x x v
d v x x

24 country x decides to devalue its currency to eliminate a balance of payments deficit.
why might devaluation have a positive effect on its macroeconomy?
a_ competitive pricing of exports may create employment potential in country x.
b_ foreign importers may depreciate their own currencies and reduce any advantage gained by
country x.
c inelastic demand for imported raw materials may lead to cost inflation in country x.
d loss of import duties by country x may reduce government backing for trade promotion.

25 which cause of economic growth would involve the least cost for present and future generations
of a country’s population?
a increased exploitation of a country’s mineral resources
b investment financed by borrowing from abroad
c_ investment financed by high rates of domestic savings
d technological innovations in production processes

26 which additional components may be included when measuring economic development that are
not included in measures of economic growth?
ehahges ti level of real income
the distribution poverty per capita
of gdp
a no no yes
b no yes no
cc yes yes no
d yes yes yes

27 which curve is shown in the diagram?
income
inequality /
o . *
income per capita
a kuznets curve
b laffer curve
c_ lorenz curve
d_ phillips curve

28 which indicator is least likely to be used when measuring the comparative economic
development of an economy?
a mean years of schooling
b_ average life expectancy at birth
c level of real gnp per head
d size of population

29 what is an example of an expenditure-switching policy?
a_anincrease in income tax rates
b_anincrease in interest rates
c_anincrease in tariff rates
d_anincrease in the supply of money

30 labour from low-income countries often migrates to high-income countries and finds jobs.
how would such a movement of labour be likely to affect the economic growth and the pressure
on wage rises in the high-income country?
4 pressure on
economic growth :
wage rises
a decrease decrease
b decrease increase
cc increase decrease
d increase increase

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