Question 1

Diseconomies of scale occur when

Accepted Answer

average cost rises due to the growth of a firm.

Answer

total cost rises due to the growth of a firm.

Answer

average cost rises due to a firm reducing its output.

Answer

average cost falls due to the growth of a firm.

Question 2

The diagram shows two demand curves for frozen peas.

The diagram shows that, all other things being equal, the shift of the demand curve for frozen peas from D1 to D2 can result from

Accepted Answer

a change in consumer preference for frozen peas.

Answer

an increase in the price of frozen peas.

Answer

a decrease in the price of a substitute for frozen peas.

Answer

an increase in the quantity of frozen peas supplied.

Question 3

A key distinction between merit goods and demerit goods is that

Accepted Answer

the consumption of merit goods usually gives rise to positive externalities and not negative externalities.

Answer

demerit goods are an example of market failure but merit goods are not.

Answer

merit goods have to be provided by the government but demerit goods do not.

Answer

in a free market demerit goods will be under-consumed but merit goods will be over-consumed.

Question 4

A profit-maximising firm with market power is most likely to use that market power to

Accepted Answer

charge higher prices than firms with little market power.

Answer

improve the allocation of resources.

Answer

increase the elasticity of its supply curve.

Answer

charge customers for its negative externalities in production.

Question 5

If demand for a product is unit elastic, for a given percentage increase in price, total revenue will

Accepted Answer

remain unchanged.

Answer

rise by a smaller percentage.

Answer

fall by the same percentage.

Answer

rise by the same percentage.

Question 6

The table shows the production possibilities for a firm producing butter and cheese.

It can be concluded from the table that, as production of butter increases, the opportunity cost of such production, in terms of cheese

Accepted Answer

remains constant.

Answer

falls.

Answer

rises.

Answer

rises and then falls.

Question 7

The diagram shows the market demand and supply curves and the market equilibrium both before and after an indirect tax is applied to a good.

According to the diagram, the revenue the government collects from this tax is

Accepted Answer

£100 000

Answer

£80 000

Answer

£200 000

Answer

£300 000

Question 8

Which one of the following is most likely to make a market more competitive?

Accepted Answer

The removal of legal barriers to entry into the market.

Answer

An increase in the degree of concentration in the market.

Answer

An increase in the cost of equipment used in the production process.

Answer

The development of a successful new product by the largest firm in the market.

Question 9

A supermarket reduces the price of tins of biscuits from £4 to £3 per tin. Subsequently, the sales increase from 200 to 300 tins of biscuits per day.

The price elasticity of demand is

Accepted Answer

–2.0

Answer

–0.25

Answer

–0.50

Answer

–1.0

Question 10

Which one of the following statements about money and specialisation is correct?

Accepted Answer

Money is used as a medium of exchange which aids specialisation.

Answer

Greater specialisation is likely to lead to a reduction in the use of money in a market.

Answer

Money can be used only in markets where there is specialisation in production.

Answer

The use of money benefits workers more than consumers because of specialisation.

Question 11

The table shows the value of income elasticities of demand for three goods, X, Y and Z, over a period of time.

From the data in the table, it may be concluded that an increase in consumer income would lead to

Accepted Answer

a decrease in demand for Good Z only.

Answer

an equal percentage increase in demand for Good X

Answer

an increase in demand for all three goods.

Answer

a more than proportionate increase in demand for Good Y.

Question 12

Which one of the following is the reason why public goods are supplied by the government?

Accepted Answer

Sellers of the good or service are unable to prevent consumers from enjoying its benefits without payment.

Answer

Only governments have the technical knowledge required to produce public goods and services.

Answer

They can only be produced by a monopoly firm to prevent competition from rival suppliers.

Answer

Producers demand a higher price than some members of the public are prepared to pay.

Question 13

Price elasticity of supply in an industry is likely to be elastic when

Accepted Answer

firms are operating below full capacity.

Answer

production involves the use of highly skilled labour.

Answer

there are high barriers to entry into the industry.

Answer

firms have limited stocks of raw materials.

Question 14

Which one of these is a function of the market mechanism?

Accepted Answer

Providing incentives for firms to provide goods to make a profit.

Answer

Eliminating shortages of goods by allowing market prices to fall.

Answer

Maintaining stable prices between different markets.

Answer

Achieving an equitable distribution of scarce resources.

Question 15

The table shows how the total output of a factory changes as the number of workers employed changes.

Referring to the data in the table, what happens to labour productivity as the number of workers increases from 100 to 500? Labour productivity

Accepted Answer

rises at first and then falls.

Answer

remains constant.

Answer

falls over the whole range.

Answer

falls at first and then rises.

Question 16

Which one of the following is a positive economic statement?

Accepted Answer

The distribution of income in the UK is unequal.

Answer

The rich should be taxed more than the poor.

Answer

The pattern of wealth ownership in the UK is unfair.

Answer

There are too many poor people in the UK today.

Question 17

The diagram shows the demand and supply curves for an energy company which sells electricity produced using renewable sources.

Which one of the following will shift the market equilibrium position from X to Y?

Accepted Answer

A government subsidy paid to the company.

Answer

An increase in wages of workers in the electricity sector.

Answer

An environmental tax levied on the company.

Answer

More consumers buying electricity.

Question 18

The basic model of monopoly suggests inefficiency and a misallocation of resources. This could be explained by monopolists

Accepted Answer

charging higher prices than in competitive markets.

Answer

having production facilities of a large size, hence obtaining economies of scale.

Answer

producing goods and services which match people’s needs and preferences.

Answer

using their profits to finance invention and innovation.

Question 19

The table shows the world beer market share (%) by volume for brewing companies.

From the data in the table, what is the eight-firm concentration ratio?

Accepted Answer

64%

Answer

62%

Answer

60%

Answer

57%

Question 20

In the table, all other things being equal, which combination of factors A, B, C or D is most likely to enable a firm in a competitive market to increase its market share?

Accepted Answer

C

Answer

A

Answer

B

Answer

D

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