Unit 1 - Past Paper Questions

Question 1

the main economic objective of firms in a market economy is most likely to be the

Answer 1

maximisation of profits

Question 2

the price elasticity of supply for most goods is

Answer 2

positive

Question 3

what leads to a greater productivity in an industry is

Answer 3

an increase in capital investment in the industry

Question 4

an example of intervention

Answer 4

public goods
not provided
-government provision

Question 5

the existence of scarcity resources in an economy implies that individuals

Answer 5

must make choices

Question 6

and increase in uk income leads to and increase in demand for holidays abroad and a decrease in demand for holidays in the uk. which one is the inferior and the normal good?

Answer 6

the inferior good is the uk holidays

the normal good is the holidays abroad

Question 7

derived demand

Answer 7

can be described as a relationship between the demand for air travel and the demand for pilots

Question 8

i the absence of government intervention in this market, a misallocation of resources is likely to occur, because..

Answer 8

because there is under-cunsumption of the good

Question 9

when money is used as a medium of exchange..

Answer 9

trade is likely to increase

Question 10

a firm increases the size of it business. as a result, its average cost fall because of better utilisation of its factory and the lower cost of buying advertising place. the firm therefore, …

Answer 10

experience grater technical and marketing economies of scale

Question 11

when social benefits of some private gods exceed the private benefits, then..

Answer 11

… is happening market failure

Question 12

a misallocation of resources is most likely to occur in monopoly ..

Answer 12

…in higher price are share that under competitive conditions

Question 13

when no account is takes of positive externalities in consumption, thus, ..

Answer 13

market failure arises

Question 14

an example of immobility of factor of production is..

Answer 14

…when workers unwillingness to change jobs

Question 15

a product has a price elasticity of demand of -0.5. if the price of this product increases by 10%, then the total revenue..

Answer 15

rise by less than 10%

Question 16

an inferior good always has

Answer 16

negative income elasticity of demand

Question 17

a government wishing to reduce firms’ carbon emissions through the use of pollution permits my fail to achieve such a reduction because

Answer 17

permits issued to firms to do not impose strict enough limits on their carbon emissions

Question 18

the central purpose of economic activity is

Answer 18

the satisfaction of needs and wants

Question 19

to calculate the percentage change in the quantity supplied of a good following a change in its price, the price elasticity of supply should be …

Answer 19

… multiplied by the percentage change in price

Question 20

an economy in which average incomes have fallen by 5% has also seen the demand for holidays overseas fall by 20%. it can be concluded from this that the income elasticity of demand for holidays overseas is

Answer 20

+4.0

Question 21

a monopoly market will be less economically efficient than a competitive market if, under monopoly …

Answer 21

prices are higher and output is lower

Question 22

an economy is always productively efficient if it

Answer 22

can produce more of one good only by producing less of another

Question 23

the equilibrium price in a market is..

Answer 23

is the balance of excess demand and excess supply

Question 24

fish in the ocean is..

Answer 24

a factor of production know as land

Question 25

a hight cost of administering government policy is

Answer 25

the result of a government failure

Question 26

composite demand:

Answer 26

is use for two or more proposes | the demand for bricks increases for use in both house and factory building

Question 27

positive externalities exist when

Answer 27

private benefits are less than social benefits

Question 28

market failure arises whenever firms

Answer 28

create externalities

Question 29

all other things being equal, supply curves slope upwards from left to right because ..

Answer 29

..higher prices lead to higher profits

Question 30

one reason why uk governments provide education is because

Answer 30

the private benefit form education is less than the social benefit

Question 31

an increase int he price of petrol will often result in consumers economising in their use of fuel by reducing the number of journeys they make in their cars. this..

Answer 31

.. illustrates the operation of the rationing function of the price mechanism

Question 32

a firms will always reduce its unit cost of production as it expands its output if it

Answer 32

benefits from specialisation

Question 33

market failure results in a misallocation of resources. in some cases, this can be corrected by the government..

Answer 33

providing public goods

Question 34

land owned or rented by firms is ..

Answer 34

factor of production

Question 35

the existence of diseconomies of scale at low levels of output is..

Answer 35

likely to discourage the growth of a firm

Question 36

the income elasticity of demand for bus travels is -1.5. this means that ..

Answer 36

bus travel is an inferior good

Question 37

when the government overproduced a merit good..

Answer 37

is an example of government failure

Question 38

the free market equilibrium price of a merit good is £50 per unit, at present, the government does not intervene in the market for this good. the government is most likely to correct the market failure associated with this good if...

Answer 38

subsidies the free market price

Question 39

a firm is productively efficient when

Answer 39

it is operating at the lower point on its average cost curve

Question 40

the granting of a patent to a pharmaceutical company for newly developed drug is..

Answer 40

most like to be a source of monopoly power

Question 41

if there is a negative externality of demand between two goods, this means that the two goods are

Answer 41

complementary to each other

Question 42

a shift to the right of the supply curve for a product can be caused by

Answer 42

the entry of new firms into the industry

Question 43

in a free market, the rationing function of the price mechanism means that

Answer 43

when there is a shortage of a product, the price will rise and deter some consumers from buying the product

Question 44

merit goods are likely to be under provided in a free market economy because their

Answer 44

social benefits exceed their private benefits

Question 45

at current levels of output, the marginal social cost of making a good is grater that its MPC. also, the MSB of the good is grater than its MPB. as a result, there will probably be

Answer 45

a misallocation of resources

Question 46

when the introduction of pollution permits to limit negatives externalities happens

Answer 46

this is an appropriate form of government intervention for the problem identified

Question 47

a manufacture of rubber tyres for motor vehicles invents and sells a new tyre. the new tyres cut petrol consumption by 25% on cars fitted with them

Answer 47

the demand for crude oil to produce petrol will fall because the emend for oil is derived from the demand for petrol

Question 48

the price elasticity of supply of wheat is

Answer 48

les elastic in the long run than in the short tun

Question 49

a free good

Answer 49

has zero opportunity cost

Question 50

where there is a partial market failure...

Answer 50

a market exists but there is a misallocation of resources

Question 51

what is a positive statement

Answer 51

is one which can be tested against facts

Question 52

a market is initially in equilibrium. the government then intervenes in the market creating exceeds supply at the initial equilibrium price. the most likely intervention that most been carried out by the government si

Answer 52

a subsidy on production

Question 53

a product has a price elasticity of supply of +1.5. if ts price falls from £10 to £8 its supply will

Answer 53

decrease by 30%

Question 54

government intervention in a market economy is most likely to lead to an increase in economic welfare if

Answer 54

the market mechanism fails to take account of externalities

Question 55

what does means that someone enjoying the towers in a public park

Answer 55

the economist be most likely to classify as a consumption activity

Question 56

improving the information available to consumers is a way to..

Answer 56

reduce market failure

Question 57

a merit good, such as healthcare, is

Answer 57

excludable with positive externalities in consumption

Question 58

a market in which a number of firms are competing is gradually taken over by a monopolist. unless there re economies of scale, this is likely to lead to lower

Answer 58

output

Question 59

a company wishes to increase labour productivity. all other things being equal, this is most likely to be achieved if the company...

Answer 59

invest in more capital equipment

Question 60

the main role of prices in a market economy is to

Answer 60

allocate scare resouces

Question 61

the consequences of subsidies is...

Answer 61

leads to an increase in the output sold of a good

Question 62

a free good has the characteristic of

Answer 62

it has no opportunity cost in supply

Question 63

one reason why the free market fails to achieve an optional allocation of scare resources is because

Answer 63

there is underproduction of goods with positive externalities

Question 64

all things being equal, the most likely thing to discourage the growth of a firms is

Answer 64

diseconomies of scale at low levels of output

Question 65

a government imposes an indirect tax on a product. the price of the product is likely to rise by the full amount of the tax if the price elasticity of...

Answer 65

.. supply is perfectly elastic