Question 1

Which of the following changes shows a reduction in unemployed resources?

Accepted Answer

W to V

Answer

X to Z

Answer

An outward shift in the PPF

Answer

Y to X

Question 2

The tax for flying (air passenger duty) is increased from £40 to £60 for a flight from the UK to the US.

Accepted Answer

Increase the price of flights

Answer

Decreased tax revenue if PED for flights is inelastic

Answer

Increased consumer surplus for passengers

Answer

Increased producer surplus if the PES of flights is elastic

Question 3

A function of the price mechanism is to

Accepted Answer

Act as a signal to firms when making production decisions

Answer

Encourage government intervention to reduce inequality

Answer

Eliminate surpluses by allowing price to rise

Answer

Eliminate shortages by allowing prices to fall

Question 4

The government introduces a subsidy on electric cars, the most likely effect will be to increase

Accepted Answer

The supply of electric-powered cars

Answer

The demand for petrol-powered cars

Answer

Carbon emissions from non-electric powered cars

Answer

The demand for bus transport

Question 5

If an increase in baking costs leads to a reduction of supply of 40,000 packets at all price levels, what is the new equilibrium price?

Accepted Answer

2.2

Answer

2.3

Answer

2

Answer

2.1

Question 6

Market failure arises in a free market economy when

Accepted Answer

Public goods are under-provided

Answer

Firms exit a market

Answer

Prices fall in response to excess supply

Answer

Government intervention leads to a misallocation of resources

Question 7

There is concern that not enough people are not making sufficient contributions to pensions. A possible explanation for this might be

Accepted Answer

Workers have imperfect information

Answer

Tax incentives for pension contributions have increased

Answer

Pensions are a public good

Answer

There is no opportunity cost of pension contributions

Question 8

Which of the following is true?

Accepted Answer

Z is currently unattainable

Answer

Economic growth is likely to be higher at X than Y

Answer

There is full employment of resources at W

Answer

There is a constant rate of opportunity cost between X and Y

Question 9

The diagram shows the market for sports shoes. Which of the following is true?

Accepted Answer

The area of consumer surplus is greater than the area of producer surplus

Answer

The supply of sports shoes is price inelastic

Answer

PED is constant along the demand curve

Answer

There is an inverse relationship between price and quantity supplied

Question 10

Other things being equal the data in the table suggest that:

Accepted Answer

Demand is more price elastic for fresh vegetables than fresh fruit

Answer

Demand is price inelastic for both fresh fruit and fresh vegetables

Answer

There is a negative income elasticity of demand for fresh fruit and fresh vegetables

Answer

Total revenue has increased for producers of both fresh fruit and fresh vegetables

Question 11

The data in the table suggest that over the period

Accepted Answer

The income elasticity of demand for travel by cars and taxis is positive

Answer

The income elasticity of demand for travel by bicycle is negative

Answer

The price elasticity of demand for rail travel is positive

Answer

The income elasticity of demand for bus and coach travel is equal to 1.0

Question 12

Other things being equal, a minimum price set above the market equilibrium price is likely to cause

Accepted Answer

An excess supply

Answer

No effect in the market

Answer

A fall in price

Answer

An increase in consumption

Question 13

A free market economy fails to allocate resources efficiently to the production of public goods because

Accepted Answer

Providing public goods can result in a free rider problem

Answer

Public goods can only be provided by the private sector

Answer

The prices of public goods may be set at too high a level

Answer

No opportunity cost is involved in the provision of public goods

Question 14

Which of the following is true?

Accepted Answer

An increase in quantity from the free market equilibrium will lead to a net welfare gain

Answer

The free market equilibrium quantity exceeds the social optimum quantity

Answer

At the free market equilibrium quantity, marginal social cost exceeds marginal social benefit

Answer

The area of welfare loss is XTYZ

Question 15

Statement 1: In the March 2010 Budget the Chancellor of the Exchequer announced a tax increase on a packet of cigarettes of 2 per cent above the rate of inflation for each year between 2011 and 2014.

Statement 2: Tax now forms more than 75% of the price of a packet of cigarettes.

Accepted Answer

Both statements are positive

Answer

Both statements are normative. Both statements are factual and can be proved. Neither involves judgement or subjectivity

Answer

Statement 1 is normative and statement 2 is positive

Answer

Statement 1 is positive and statement 2 is normative

Question 16

One function of the price mechanism is to:

Accepted Answer

Eliminate a surplus of a good by allowing the market price to fall

Answer

Maintain price stability

Answer

Encourage businesses to exit a market as the price of the goods produced increases

Answer

Encourage government intervention to set production targets

Question 17

From the information in the table, it can be deduced that milk and cheese:

Accepted Answer

Are normal goods with a price inelastic demand

Answer

Have a positive cross elasticity of demand

Answer

Are inferior goods with a price inelastic demand

Answer

Are inferior goods with a price elastic demand

Question 18

A decrease in demand from D₁to D₂will cause a loss of producer surplus equal to the area:

Accepted Answer

P1XYP2

Answer

P2YZ

Answer

P1XZ

Answer

P1XL

Question 19

The movement from S₁ to S₂ is best described by a tax which is

Accepted Answer

It is an ad valorem tax and its incidence falls mainly on producers

Answer

It is a specific tax and its incidence falls mainly on consumers

Answer

It is an ad valorem tax and its incidence mainly falls on consumers

Answer

It is a specific tax and its incidence falls mainly on producers

Question 20

One disadvantage a sandwich making firm may experience from the division of labour on its production line is an increase in:

Accepted Answer

Staff turnover

Answer

The range of workers’ skills

Answer

Productivity

Answer

Training costs per worker

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