4A project has a social cost of $100 milion, a private cost of $40 million and an external benefit of ‘$20 milion. Its net social value is zero. What can be concluded about the project? \ ‘A External cost is greater than external benefit. B Private cost is greater than external cost. © Private cost is greater than private benefit. D Social cost is greater than social benefit. 2. The diagram shows the cost and revenue curves for a firm. At which price does allocative efficiency occur? price com> ° quantity 3 Agovernment is considering improving the rail links in its country. It also has to choose one of four high-speed routes. The benefits and costs of each route are shown below. Which route should be chosen? private benefits | extemal benefits | private costs | external costs ‘$bn $bn $bn ‘$bn A 14 20 04 0.4 B 16 22 16 04 c 18 12 0.2 1 D 20 18 2 4‘4 total utuny, 0 10 24 30 [n the indifference curve diagram point M Is the consumer's initial equilibrlum, JK and JL are budget lines and MN is the substiinen effect of a fall in the price of good X, 1 good X is a Gitfen goo 4, which point will be the consumer's new equilibrium point after the fait in the price of good x?Selina has an income of $100 and buys food and drink, The price of a unit of food ig $2 while the price of a unit of drink is $1. | Which combination of spending would suggest that Selina wants to save some of her income? food (units) | _ drink (units) \ A 20 50 : B 30 40 c 40 20 = ° 50. 10 7 The diagram shows a profit-maximising monopolist. “cost, revenue mc AC C4 on ° = 2 > a output ‘The goal of firm X is to make a minimum acceptable level of profit, What does this describe? A profit maximisation B profit satisficing © revenue maximisation ° Sales maximisation10 "1 ‘A monopoly firm makes only normal profit in the long run. What is most likely to explain this? ‘The firm has decreasing long-run average costs. The firm is a public company with numerous shareholders. ‘The firm is owned by a small number of financial institutions A B c D__ The market in this industry is highly contestable. ‘The diagram shows the average fixed cost (AFC), average variable cost (AVC) and average total cost (ATC) curves faced by three firms X, Y and Z. Dx, Dy and Dz are the three respective demand curves. All three firms seek to make a profit. ATC quantity Which statement is not correct? Firm X will choose not to produce at all. Firm Y is likely to operate in ee Tong run but not in the short run. Firm Y is likely to operate in the short run but oti in the long run. Firm Z will operate in both the shor run and the ong run. I A B c D When a firm increases all its inputs fourfold, its output increases threefold. | What does this illustrate? decreasing marginal costs decreasing retums to scale the law of diminishing retums A B C economies of scale Dsents : ? enterprise” the transfer earnings of the factor 412 What repre: A. excess profit B_ normal profit jf ¢ return on capital D start-up costs 13 A country has a negati sak ednedyle. the diagram shows the country’s initia The curve N re NT, tax NT income A change in the tax rate causes the schedule to shift to NT}. How will this affect work incentives and the after-tax distribution of income? work distribution incentives ' | — ofincome A | strengthen more equal \ B | strengthen less equal c Weaken less equal D weaken more equal14 15 16 In which labour market diagram is the economic rent of workers greatost? A B wage w , S. { MRP, ip Labour c D SL wage wage \ w w MRP, 0 LU" labour . Which statement about government intervention js correct? A Government failure may result from policies that have unintended side effects. B Governments cannot identify the existence of inefficiency. © Inefficient government policies mean that the market system will i better at resource allocation. | D_ Market failure means that government action will necessarily improve the situation. ‘The government introduces a minimum wage above the equilibrium market wage rate. How will this affect low-paid workers according to marginal revenue product (MRP) theory? A Allthose itially in employment will receive the new guaranteed minimum wage. Fewer of those not already in employment will enter the labour force. There will-be an increase in the number of low-paid workers in employment. v,Ooo0 ‘Some low-paid workers will lose their job./, ative exte / at creates 2 neg ye 47 The diagram shows te mart for 2900s at tates 2 TR J ernality in production and ng srrent level of COM! positive extemaities. The Cur / Ld D=MPB=MSB AA @ Q, quantity ‘The goverment decides to tax producers of the good. Which size of tax on producers would result in a ‘Socially efficient allocation of resources? A Ww B vx cw D vz18 Whatis an example of a negative extemality? A Lower profit due to increased competition from new firms entering the markt. B Reduced government funding for a museum. © The increase in noise levels from aircraft due to the expansion of a large city airport. D ‘The increase in production costs due to an increase in the cost of importing raw materials. 49 The diagram shows a firm operating in monopolistic competition. At which point is the firm allocatively efficient? revenue mc ac costs A B QL AR io D output 20 The amount of training undertaken in a mixed economy is not socially optimal. What could explain this? A. Experienced educators are a scarce resource. B_ Ina mixed economy training is a public good. © The individual's benefit from training is less than the benefit to society. D Training is a large variable cost for firms. 21 Four bus companies control more than two-thirds of the market in a country. Critics claim that these companies fix prices on some routes to maximise revenue whilst loweri prices on other routes to stop.smaller competitors entering the market. ‘Which anti-competitive practices are these companies accused of? A. collusion and limit pricing B collusion and price leadership © limit pricing and price discrimination D price leadership and x-inefficiencynes steeper. 22° One diagram tre siope of @ consumers budget line bec Wal can defintely be concluded from ths? : The consumer's income has fallen ay The consumer's income has risen The price has decreased for the product on the horizontal axis. The price has increased for the product on the horizontal axis. a 23 The diagram shows two indiflerence curves and two budget lines for goods X and Y. good ¥ Y IC IC, ° x % good x me Consumer's intial postion is at pomt F. The consumer's preferred final position becomes What does the movement trom F to G represent? A the income effect of a price fall for X B the price effect of a price change for X the substitution effect of a price fall for X D the substitution effect of a price rise for X24 Which feature of aligopo! shown? v0om > 25 The tabie provides data on the number and value of mergers in Europe and North America Price discrimination price [> Price leadership by the dominant firm interdependence between firms collusion between firms. between 2014 and 2017. r & 'Y is being assumed when the demand curve for an individual firm is as. ‘ quantity Europe North America a {| __number value (euro) number value (US dollar) 2014 | 17000 980 billion 14000 2289 billion 2015 15500 1161 billion 14500 2533 billion 2016 18100 1003 billion 15100 1858 billion 2017 18000 980 billion 18500 1822 billion What can be deduced from the table? A B The average value of a merger in Europe was higher in 2017 than 2014. i ‘The difference in the number of mer; and 2016, gers in Europe and North America was the same in 201. ‘The value of mergers each year in US dollars was always lower in Europe. ‘The number of mergefs each year was always higher in Europe.26 a7 28 29 bags to households that householders cay fill with clothes they no ‘ YY 9 Charities distribute plastic st oe lect them ar longer want. The charities then co ane 100905 smote thanking the householder for the don 's approach? i ‘What best describes this charity's A. game theory monopoly behaviour B © _non-price competition Drudge theory What could prevent a market failure? A. barriers to entry B building regulations © growth of firms D persuasive advertising : When will a society have achieved an equitable distribution of income? A when all individuals have equal job opportunities B_ when all workers are paid the same wages © when the incomes within the society are equally distributed D_ when the society believes that the distribution of income is fair ‘The addition to revenue which results from employing one additional unit of a factor of Production, while the quantities of all other factors of production remain constant’, What does this define? : A marginal factor cost B_ marginal revenue marginal revenue product D the law of diminishing returnsThe alternative to work is to many hours of wooo on leisure time. The diagram shows a worker's decision of how Teal wage rate supply of labour hours of labour Wat happens between Y and Z? A Extra leisure is preferred to work. B) Extra work is preferred to leisure. "The job now requires more specific skills, D The price elasticity of supply for the final product has become more inelastic.