economics

1 a rational consumer chooses what quantities of two products y and z to purchase with a given
income.
muy and muz are the additions to total utility that would result if the consumer were to purchase
an additional unit of each product.
py and pz are the current prices of the two products.
which outcome would represent consumer equilibrium?
a when muy = muz
b when muy x py = muz x pz
c_ when muy x pz = muz x py
d itis not possible to tell from the information available

2 which statement about indifference curves is not correct?
a indifference curves are usually convex to the origin of the diagram.
b indifference curves can intersect each other.
c_ the consumer always prefers a higher indifference curve to a lower one.
d_ the slope of the indifference curve represents the marginal rate of substitution.

3 a firm increases its production.
when will this result in allocative efficiency?
a when the cost of producing the last extra unit equals the value the consumers place on it
b_ when the cost of producing the last extra unit is at a minimum
c_ when the total cost of production equals the value that consumers place on the total product
d_ when the total revenue reaches a maximum

4 the table shows a firm’s revenue and costs at different levels of output.
revenue revenue cost total cost
1 125 125 90 140
2 85 105 40 90
3 45 85 45 75
4 25 70 95 80
5 20 60 130 90
what is the firm’s total supernormal profit at the profit-maximising level of output?
a -15 b 10 cc 30 d 120

5 which diagram shows a monopolistically competitive firm in long-run equilibrium?
a b
revenue mc revenue mc
/cost \ ac /cost s ac
an ar on ar
o q, output ie) q, output
cc d
revenue mc revenue mc
/cost ac /cost ac
ny sz
an ar an ar
o q, output o q, output

6 ina perfectly contestable market, entries and exits are cost-free.
in reality, why is this not the case with some firms in contestable markets?
a_ firms cannot recover all fixed costs if they cease operations.
b_ firms in the industry all operate at the equilibrium level of output.
c_ large firms do not have to increase capital to grow.
d_ multinational companies always benefit from economies of scale.

7 which points show where each maximisation objective occurs?
mc
cost or
price
$ ac
j
h k
ar
mr
ie) l
quantity
revenue sales
maximisation maximisation
a j l
b ie k
cc j k
d le h

8 whatis an external economy of scale?
a cheaper costs from purchasing large quantities of inputs
b_ decreased interest rates on borrowed funds
c increased labour productivity
d_ relevant training facilities at a local college

9  agroup of producers enter into an agreement to restrict supply or fix the price of a good.
what does this describe?
a acartel
b  aconglomerate merger
c_ economies of scale
d horizontal integration

10 what is meant by a four-firm concentration ratio of 25%?
a the largest four firms’ market share totals 25%.
b_ the largest four firms have a market share of 25% each.
c_ there are only four firms in the industry.
d_ the largest firm has a 25% market share.

11 a government decides to use price controls to achieve allocative efficiency in a monopoly market.
which price would need to be set to achieve allocative efficiency?
mc
price

ac
a lo i}
b etna eh
c a,
d s

we | d=ar

ie) q @q q

quantity

12 the diagram shows the supply of and the demand for workers in the car manufacturing industry.
a trade union successfully negotiates a wage increase from w, to wo.
ss
wage
rate
wo passes heey
ta d
o le ly ls
quantity of labour

what is the likely impact on the level of employment?
a fall from l; to l,
b fall from l3 to lz
crise from l; to l3
d rise from l2 to l3

13 a firm buys new machinery which increases the marginal productivity of its workforce.
what will be the resulting impact on the market for labour?
a _ashift to the left in the demand curve for labour
b_ashift to the right in the demand curve for labour
ca shift to the left in the supply curve of labour
d_ashift to the right in the supply curve of labour

14 the diagram represents the market for labour.
wage
s;
whssseeereeees s,
d
o n
number of workers
what would be the effect on transfer earnings and economic rent of a change in the supply curve
from s, to s2?
transfer economic
earnings rent
a fall falls
b fall rises
cc rise rises
d rise falls

15 which combination of policies is most likely to increase the number of low-paid workers caught in
the poverty trap?
individual’s proportion of all
tax-free allowance | benefits that are
for income tax means-tested
a decrease increase
b decrease decrease
c increase increase
d increase unchanged

16 a website compares the prices of groceries.
which function of money is illustrated by this?
a medium of exchange
b _ standard of deferred payment
c store of value
dunit of account

17 two statements about the types of unemployment are shown.
1 you will get unemployment if you pay people not to work, and tax them when
they do.
2. aan individual is actively seeking work but due to negative economic growth cannot
find employment.
which row best describes the two types of unemployment in these statements?
pf tt
a cyclical structural
b voluntary frictional
cc structural cyclical
d voluntary involuntary

18 a government decides to cut the rate of interest in order to stimulate aggregate demand and
increase employment.
why might this policy not work in a recession?
a_ business confidence is low.
b it leads to deflation.
c_itleads to an appreciation in the exchange rate.
d_itleads to a decrease in the money supply.

19 households in an economy change their consumption behaviour causing the consumption curve
to shift from c,; to co.
cy
consumption
spending c,
fe) " ‘
disposable income
what has happened to autonomous consumption and the marginal propensity to consume?
autonomous marginal propensity
consumption to consume
a decreased decreased
b decreased increased
cc increased decreased
d increased increased

20 how would decreasing interest rates be most likely to reduce unemployment?
a by decreasing the borrowing costs of business
b__ by decreasing the government's budget deficit
c by increasing the foreign exchange rate of the currency
d by increasing the opportunity cost of spending

21 the diagram shows a curve representing the relationship between a country’s unemployment
rate and its inflation rate.
inflation
rate
[e)
unemployment
rate
why is it likely that this curve only applies in the short run?
a_ any attempt to reduce unemployment will increase inflation.
b increased inflation actually increases unemployment.
c increased inflation leads to expectations of further inflation.
d_ increased inflation reduces real wage rates, which increases the demand for labour.

22 what is the most likely result of a period of negative actual growth?
a anincrease in the surplus of the financial account of the balance of payments
b_anincrease in the deficit of the current account of the balance of payments
c_anincrease in the rate of inflation
d_anincrease in the rate of unemployment

23 an economy experiences falling incomes and rising unemployment. the central bank decides to
reduce the rate of interest to stimulate economic activity.
when would such a policy be most likely to succeed?
a_ when spending by consumers on goods and services is income elastic
b_ when spending by firms on capital goods is interest rate elastic
c_ when the leakage on additional national income is high
d_ when the overseas demand for exports is price inelastic

24 monetary policy does not usually work immediately.
which time lag is likely to be the least concern to a government whose priority is a rapid
domestic impact?
a the time it takes for policymakers to recognise the cause of a problem
b the time it takes for the economy to respond to the introduction of the policy
c the time it takes for the foreign exchange rate to respond to the effect of the policy
d the time it takes to put the chosen policy measure into place

25 the optimum level of population is deemed to be that level at which real output per head is
maximised.
the diagram shows the relationship between population size and output per head in a country for
two different time periods.
a
output i
per fend o output per head year 2
| a ae r
: ! output per head year 1
ie) p, p,
population
which change could not satisfactorily explain the shift from year 1 to year 2?
a population has increased.
b_ state of technology has improved.
c_ stock of capital has increased.
d_ volume of productive resources in use has increased.

26 a government wants to reduce the current account deficit on the balance of payments.
what is an example of an expenditure-reducing policy?
a adevaluation of the currency
basubsidy on domestic production
c sa tariff on imports
d_anincrease in income taxes

27 during a year, a country’s national income in money terms increased by 5%, prices increased by
4% and the total population increased by 2%.
what was the approximate change in real income per head?
a adecrease of 1%
b  adecrease of 2%
c_ anincrease of 1%
d_anincrease of 2%

28 what is most likely to result from foreign direct investment in a developing economy?
a animprovement in the developing economy's trade balance
b_anincrease in the developing economy’s net investment income
c  areduction in the developing economy’s government tax revenue
d_ areduction in wage levels in the developing economy

29 the diagram shows an economy’s lorenz curve (vw).
100 qw
45°”
cumulative % ae
of income we
ra area y
ye
0 100
cumulative % of population
how is the gini coefficient for the economy calculated?
¥ y z. z
a —s bos € & —
y+z z y y+z

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