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In an economy, no one can be made better off without making someone else worse off. What does not necessarily follow from this? A B C D The distribution of income is socially acceptable. The conditions of allocative efficiency have been met. The economy is operating at a point on its production possibility frontier. The conditions for productive efficiency have been met.

What is the opportunity cost to society of employing workers who would otherwise have no alternative employment? A the wages they are paid B the social security payments they would otherwise receive C the value of the goods and services they produce D zero Other things being equal, which of the following would result in an increased demand by private motorists for petrol (gasoline)? A B C D an increase in the price of second-cars an increase in road toll charges a reduction in price of steel a reduction in bus fares

Which of the following might explain a simultaneous increase in both price and quantity trade in the market for a normal good? A B C D the removal of an effective maximum price on the good the technological progress in the production of the good the imposition of a tax on the good the granting of a subsidy to producers of the good

In the diagram, S1S1 and DD represent the original supply and demand curves for an agricultural S2 product. price S1

P1 S2 O S1 Q1 Q2 Q3 D quantity

Bad weather then reduces supply to S2S2. The government does not allow the price to rise above OP1. How much of the product will the government have to supply from a buffer stock 1 if demand is to be met? A OQ1 B Q1Q3 C Q1Q2 D Q2Q3

Buffer stock refers to a storage of goods which is used to help stabilise prices.

The demand curve in the diagram shows the relationship between the number of car journeys and the cost of car journey. cost of a car journey

D Number of car journeys Which of the following would cause the demand curve to shift to the left? O A B C D 7 a reduction in car tax a reduction in petrol prices a reduction in public transport prices the introduction of tolls on motorways

An eighteenth century Swiss clockmaker made a total of 12 identical carriage clocks. There are currently three collectors of these clocks, X, Y and Z. The diagram shows their respective demand schedules. 4 Price ($000 3 ) Dy 2 Dx Dz 1 O 2 4 6 8 10 12 Quantity X, Y and Z initially possess 4 clocks each. They come together to trade between themselves. At the market clearing price (or equilibrium price), which of the following is correct? buyer(s) X Y and Z X Z seller(s) Y and Z X Z X

A B C D 8

The output of Firm X depends not only on the quantities of factors of production employed by Firm X. It also depends directly on the level of output of Firm Y. What does this illustrate? A B C D complementary goods cross-elasticity of demand an externality joint production

The diagram shows the effect of the imposition of a tax equal to FG on a commodity.


S1 x w D quantity u v y

O Which area represents the reduction in consumer surplus? A u+v B u+x C u+x+y D x+w 10 The number of passenger journeys per week by train on a certain route is shown by the demand curve DD in the diagram. fare P W V T U D

R S Initially the fare is OP, but it is then reduced by PW. Which area measures the amount spent on these journeys by the extra passengers attracted by the lower fare? A B C D 11 VUT PWTV VRST URST

Number of journeys / week

What can be deduced from a production possibility curve for a country that can produce two goods: X, a consumer good and Y, a capital good? A B C D the amount of X it will produce the extent to which resources are being fully utilised the opportunity cost of X in terms of Y the countrys preference for present as compared to future consumption


A firm improves both the appearance and the quality of its product. To meet the cost of these improvements it puts up the price of the product. What will be the effect on demand and on the quantity sold? Effect on demand increase Effect on quantity sold increase

B C D 13

increase uncertain uncertain

uncertain increase uncertain

The table shows demand and supply schedules for red peppers. The equilibrium price is initially 15 cents per kg price per kg cents 30 25 20 15 10 5 amount demanded kg (thousands) 11 12 13 15 17 20 amount supplied kg (thousands) 22 19 17 15 13 11

The government pays a subsidy of 10 cents per kg to producers. What will be the new equilibrium price charged to consumers? A 14 20 cents B 15 cents C 10 cents D 5 cents

Given a rate of interest of 10% per year, what is the opportunity cost to an individual of saving an additional $100 in year 1? A B C D an increase in consumption of $110 in year 2 an increase in consumption of $10 in year 2 consumption of $100 in year 1 consumption of $110 in year 1


The diagram shows an individuals demand for museum visits. The normal entrance charge per visit is OP. By paying an annual membership fee the individual would be entitled to visit the museum for one half the normal entrance charge. charge

X P Y P Number of visits (per O year) Which area measures the maximum fee the individual would be willing to pay for annual membership? D A X B X+Y+Z C Y+Z D Z Z