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) ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ (Total for Question 1 = 3 marks)

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) ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ ........................................................................................................................................................................ (Total for Question 2 = 3 marks)