SECTION A Underline the correct answer. 1 mark for each question in - - PDF document

SECTION A Underline the correct answer. 1 mark for each question in this section.

• 1. Which of the following would be an example of the term capital to an economist?

A) Land purchased for resale at a higher price B) Fixed deposits in a financial institution C) A rare postage stamp purchased by a collector D) A computer purchased by a travel agency

• 2. If the cross price elasticity of demand for a product is negative, the products are:

A) complementary goods B) substitute goods C) inferior goods D) superior goods

• 3. Commodity A has a close substitute. Assuming a decrease in supply for A, which of the

following changes is likely to occur in the market for the substitute? A) Demand will decrease and price will increase B) Demand will increase and price will increase C) Demand will increase and supply will increase D) Supply will increase and price will increase

• 4. If a firm's average revenue and marginal revenue are the same, demand is:

A) price elastic B) price inelastic C) unit price elastic D) perfectly elastic

• 5. The merger of two taxi companies is an example of:

A) conglomeration B) restrictive trade practices C) horizontal integration D) vertical integration

• 6. Cream is a relatively elastic product. Without any interference in the market, the

equilibrium price of cream would be $1 per carton. The government has proposed that a sales tax of $0.50 per carton be placed on cream. Which of the following statements is correct? A) The effect of the sales tax will raise the equilibrium price of cream by $0.50 B) The effect of the sales tax will create a shortage of cream C) The effect of the sales tax will raise the equilibrium price of cream by less than $0.50 D) The effect of the sales tax will raise the equilibrium price of cream by more than $0.50

• 7. External economies of scale often occur when:

A) pollution and congestion increase the firm's costs of production B) a wholesaler is used to market the firm's product C) employees have incentives to work harder D) improvements are made to infrastructure

• 8. The effect of introducing a subsidy on the production of a product would be to:

A) increase supply and increase demand B) decrease supply and increase demand C) increase supply and increase quantity demanded D) decrease supply and increase quantity demanded

• 9. The major difference between the market structures of oligopoly and monopolistic

competition is: A) the existence of differentiated products B) the possibility of allocative efficiency C) the shape of the demand curve of the firm D) the degree of market concentration

• 10. One function of the price mechanism is to:

A) encourage government intervention to allocate resources B) avoid price fluctuations C) ration scarce resources by allowing the price to fall when demand for a product rises D) create an incentive to increase the quantity supplied of a product when price rises TOTAL FOR SECTION A = 10 MARKS

SECTION B Use data to support your answers where relevant. You may include diagrams in your answers. 1) Which one of the following statements about private goods is true?

• A. There is non-rivalry in their consumption
• B. There is non-excludability in their consumption
• C. It is possible to exclude people from consuming them
• D. The free rider problem makes it difficult for firms to make a profit

Answer (1) Explanation (2)

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2) One cause of government failure is

• A. asymmetric information in the pension market
• B. the existence of free riders leading to the under provision of public goods
• C. overproduction of goods with external costs
• D. excessive administrative costs in enforcing environmental policies

Answer (1) Explanation (2)

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3) Myanmar’s Government intends to introduce a minimum wage for clothing workers of 450 kyats per hour. The minimum wage rate is set above the average wage in the clothing industry. (You may wish to use a diagram in your answer). The introduction of the minimum wage will be likely to

• A. decrease the supply of labour in the clothing industry
• B. increase the demand for labour in the clothing industry
• C. cause employment in the clothing industry to fall
• D. cause the price of clothing to fall

Answer (1) Explanation (2)

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4) For the tax year ending April 2014, tax revenues exceeded government expenditure in Norway by 319 billion kroner. From this data, it can be deduced that:

• A. there was a net injection from the government sector in the circular flow of income
• B. aggregate demand exceeded aggregate supply
• C. the value of exports was greater than the value of imports
• D. there was a net withdrawal from the government sector in the circular flow of income

Answer (1) Explanation (2)

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5) A hotel offers a buffet breakfast where guests can visit the buffet as many times as they like. 90% of customers visit the buffet two times and only 10% visit three times or more. Which one of the following best explains this behavior?

• A. The free rider problem
• B. Diminishing marginal utility
• C. Excess demand for buffet breakfasts
• D. Consumers need to feel valued

Answer (1) Explanation (2)

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6) The table below shows estimates of the price elasticity of supply and price elasticity of demand for natural gas. Elasticity Natural Gas Price elasticity of supply +0.14 Price elasticity of demand –0.10 From the data, it can be deduced that:

• A. a 10% increase in the price of natural gas would cause a more than 10% increase in the supply
• B. the demand for natural gas is more responsive to changes in price than supply
• C. natural gas is a normal good with income inelastic demand
• D. the demand and supply of natural gas are both price inelastic

Answer (1) Explanation (2)

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7) China plans to introduce a Carbon Emissions Trading Scheme in 2017. The objective of this tradable pollution permit scheme is to reduce carbon emissions by

• A. providing subsidies for firms who manage to reduce their carbon emissions
• B. forcing polluting firms to buy permits from firms that do not need their full allowance
• C. taxing firms that pollute over their allowances
• D. imposing fines on firms that pollute up to their allowances

Answer (1) Explanation (2)

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8) Assume a firm is operating under conditions of perfect competition. The market price is above the firm’s average cost. Which of the following are the most likely long run consequences for this firm?

• A. Its price will fall and it will increase output
• B. Its price will fall and it will decrease output
• C. Its price will rise and it will increase output
• D. It will keep its price and output unchanged

Answer (1) Explanation (2)

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9) Commodities such as oil, copper and iron ore have fallen significantly in price since 2011. These commodities are major costs for manufacturing firms such as BAE (aerospace) and BMW Mini (cars). The most likely consequences for these firms of lower commodity prices are: Output Profits

• A. Rise Rise
• B. Constant Constant
• C. Fall Fall
• D. Constant Fall
• E. Fall Constant

Answer (1) Explanation (2)

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10) A bowl of freshly cooked noodles in a Thai market costs 30 baht before 6pm and 60 baht after 6pm every day. What economic reasoning best explains this price change?

• A. The demand for noodles is more price inelastic after 6pm
• B. The cost of making noodles falls after 6pm
• C. Before 6pm the firms have a high degree of market power
• D. Firms supplying noodles in this market are aiming for allocative efficiency

Answer (1) Explanation (2)

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TOTAL FOR SECTION B = 30 MARKS

SECTION C - Answer all questions

1) Why do governments interfere in the free working of the price mechanism? (2 marks)

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2) Distinguish between internal and external economies of scale. (4 marks)

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3) Using a demand and supply diagram, discuss the effect of a maximum price scheme on the market for a particular product. (4 marks)

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TOTAL FOR SECTION C = 10 MARKS TOTAL FOR PAPER = 50 MARKS ~ END OF PAPER ~