economics

1. economists normally assume that the marginal utility from consuming additional goods is positive
and diminishing.
what is the effect on total satisfaction of consuming extra units of the good?
a total satisfaction falls at a decreasing rate.
b_ total satisfaction falls at an increasing rate.
c_ total satisfaction rises at a decreasing rate.
d total satisfaction rises at an increasing rate.

2 a budget line (b—b) shows the combinations of two goods, x and y, that a consumer can obtain
within a fixed income of $60 per week, when the price of y = $1 and x = $2.
60-42
; in
0) ps
0 10 20 30 45 60
good x

if the price of x rises to $3, what will be the new budget line?
a b-b; b_ b-bz c bbs d bb,

3 which market structures are contestable?
perfect monopolistic lia tmerobel
competition competition p poly
a no no yes
b no yes yes
cc yes no no
d yes yes no

4 the diagram shows a long-run average cost curve (lrac), and three short-run average cost
curves (srac;, srac2 and sracs) for an individual firm. each short-run average cost curve
represents a fixed factor of production.

srac,
costs srac, srac;
lrac
ie) lm output
between levels of output ol and om, which statement is not correct?
a_ average fixed costs are falling.
b_ economies of scale are being experienced.
c_ the law of diminishing returns is operative.
d_ there are decreasing returns to scale.

5 which combination of reactions by rivals results in a kinked demand curve for an oligopolist when
a price is changed?
a copying both a price rise and a price fall
b_ copying a price rise and ignoring a price fall
c_ ignoring a price rise and copying a price fall
d_ ignoring both a price rise and a price fall

6 whatis a key condition for effective price discrimination?
a_ the product cannot be resold to another consumer.
b_ the product must be price inelastic.
c_ the profits from one market can be used to subsidise another market.
d_ there are low barriers to entry into the market.

7 which combination of cost conditions is most likely to act as a barrier to entry to a new firm
wanting to join an industry?
fixed costs as minimum efficient
: : ; level of
a proportion of scale of firms in sunk costs
total costs the industry

a high high output high
b high low output high
c low high output low
d low low output low

8 howis dynamic efficiency represented on a diagram?
a adownward move to the minimum point of a long-run average cost curve
b  adownward shift in the long-run average cost curve
c amove from a point inside a production possibility curve to a point on it
d_ areduction in marginal revenue so that it equals long-run marginal cost

9 acity council is considering building a passenger terminal at its port so that the city can benefit
from large cruise ships that could then dock there. it undertakes a cost-benefit analysis.
what would be included as an external cost in the city council’s cost-benefit analysis?
a the cost of a ticket for a passenger to travel on a cruise ship
b_ the cost of fuel to operate the cruise ships
c_ the costs paid by cruise ships when they dock at the port
d_ the cost to a fishing fleet of relocating to another port

10 some multinational oil companies extracting oil in developing countries are now required to repair
the damage they do to the environment.
what best describes the total costs incurred by the oil companies in such circumstances?
a external costs
b private costs plus external costs
c social costs plus external costs
d social costs plus private costs

11. which statement is not an example of government failure?
a government intervention leading to a less efficient allocation of resources
b government intervention leading to a net loss of economic welfare
c government intervention leading to an increase in consumer surplus
d government intervention leading to social costs exceeding social benefits

12 the diagram shows the demand for and supply of labour.
wage ss.
wipes
x |
4 '
y j '
| d,
@ nn;
quantity
of labour
the government announces a minimum wage of w;.
which area represents the increase in the economic rent of workers who will continue to be
employed at the minimum wage?
a x b y c x+y d x#v¥#z

13 a firm is faced with a shortage of labour. it decides to introduce its own training scheme for
school leavers.
which effect is this most likely to have on the firm?
a adecrease in the number of workers it employs
b  adecrease in the productivity of its workforce
c_anincrease in the geographical mobility of its labour
d_ashift of the supply curve for its labour to the right

14 what is likely to result if a government introduces a new regressive tax?
a_ aggregate demand will increase.
b employment opportunities will increase.
c_ income equality will improve.
d_ tax revenues will increase.

15 which government policy to counter the effects of income inequality is correctly matched with one
of its advantages and one of its disadvantages?
| potey aevantage of potey | tsacvantage of pote |
a food subsidies for the poor targets those in need high administrative costs
b higher national minimum wage encourages skill training higher budget deficit
cc provision of free child care increases employability disincentive to work
d universal monetary benefits saves on bureaucracy reduced labour mobility

16 under which circumstances will a subsidy from the government be most beneficial if there are
externalities from producing good x?
externality caused price elasticity of
by good x demand of good x
a negative <1
b negative >1
cc positive <1
d positive >1

17 what might decrease if a closed economy with a government sector decides to allow
international trade?
a components of aggregate expenditure
b number of injections into the circular flow of income
c number of leakages from the circular flow of income
d_ value of the economy’s multiplier

18 the diagram shows a closed economy in which the full employment level of income is yr.
j
aggregate l ad
demand, k
consumption cc
a |
o m ny,
income
which distance measures the deflationary gap?
a jk b jl c ny- d my-

19 which policy to counter climate change is considered to be regulatory rather than market based?
a the introduction of carbon taxes on pollution
b the operation of tradable pollution permits
c the provision of government subsidies
d the setting of industrial emission standards

20 which cause of economic growth is most likely to ensure that the growth is sustainable?
a deregulation of industrial production that uses mineral resources and fossil fuel
b_ increased government spending on environmental education, financed through taxes on
harmful goods
c increased trade barriers on imports to protect domestic jobs and incomes
d reduced planning regulations to encourage construction in areas of natural beauty

21 in all major towns in a country, a government adopts a policy of opening centres where job
vacancies are advertised.
which type of unemployment is the government aiming to reduce with this policy?
a cyclical
b frictional
c regional
d_ seasonal

22 what is the basic assumption underlying the accelerator theory?
a_ investment depends on the level of business confidence.
b_ investment depends on the level of savings.
c_ investment depends on the rate of change in national income.
d_ investment depends on the rate of change of interest rates.

23 what shows the correct outcome for the policy option?
a | depreciation of the exchange rate | encourages more exports, which also
means greater employment
b higher interest rates attracts hot money inflows, and is an
incentive for more consumer spending
cc decreased government spending more workers will be employed, and
more imports will be bought
d reduction in income taxes increases consumer spending, with
increased demand for exports

24 the laffer curve shows expected tax revenues at different tax rates.
r; een eee
an )
revenue \
0 50 60
tax rate/%

an increase in the tax rate above 50% is expected to decrease tax revenue.
what is the reason for this?
a decreased incentive for emigration
b_ decreased incentive for tax evasion
c increased incentive for people to work
d increased incentive for people to work fewer hours

25 a government wishes to improve the income distribution between the richest and poorest in
society. it introduces means tested benefits for workers on low incomes. to pay for this, income
tax rates for the highest paid will increase.

what is the most significant strength and weakness of this policy approach?
strength weakness
a benefits are only given poor non-workers
to those in need will be no better off
b intergenerational tax avoidance
equity is improved is more likely
c workers will be encouraged to taxation has become
work more hours more regressive
d the policy approach will be wealth distribution will be affected
efficient to operate more than income distribution

26 a shows data on the unemployment and inflation rates for four countries in 2010 and
country (% of workforce) (% per annum)
coy fesr | a

australia 5.2 6.1 2.7 1.6
canada 8.0 6.9 2.2 1.9
japan 5.1 3.6 0.3 25
united states 9.6 6.2 1.7 0.6

which countries had a typical phillips curve?

a australia and japan

b_ australia only

c japan only

d canada and the united states

27 which adjustment is made to gross domestic product (gdp) to calculate a measure of economic
welfare (mew)?
sruironmienal the value of the value of
vane leisure activit unpaid work
benefits y b
a no no yes
b yes no no
cc yes yes no
d yes yes yes

28 purchasing power parity (ppp) allows a comparison of the purchasing power in two countries.
what is a definition of ppp?
a_ the amount of the domestic currency needed to purchase a unit of foreign currency
b_ the quantity of a currency required to purchase the same basket of goods in both countries
c the quantity of goods and services that can be purchased by a person on an average income
d_ the value of expenditure by households on goods and services in a country

29 a lorenz curve measures the income distribution in a country. the further the lorenz curve is
from the line of absolute equality, the greater the level of inequality.
100 4 sees eee ee
cumulative | line 1
percentage line of 1
i bsolut lit
of income absolute equality | line 2
g
ho
0 i
0 100
cumulative percentage
of households
what is the value of the gini coefficient when the lorenz curve is at line 2?
a f+g b f+g c g d h
h f+g+h gt+h f+g+h

Solve 9708_w23_qp_31