DEDICATED TO THOSE WHO INTERESTED IN TEACHING AND GRASPING BASIC AND INTERMEDIATE ECONOMICS....
Monday, April 22, 2013
.28..objective.
Question 1
Which of the following is not an argument for protectionism?
a) To protect infant industries
b) To increase the level of imports
c) To protect strategic industries
d) To improve the balance of payments
Question 2
A demand switching policy to improve the trade position could involve:
a) Higher interest rates
b) Higher income tax
c) Tariffs
d) Reduced government spending
Question 3
Free trade is based on the principle of:
a) Comparative advantage
b) Comparative scale
c) Economies of advantage
d) Production possibility advantage
Question 4
If a country can produce 10 of product A or 4 of product B the opportunity costof 1B is:
a) 0.4A
b) 2.5A
c) 10A
d) 1B
Question 5
Tariffs:
a) Decrease the domestic price of a product
b) Increase government earnings from tax
c) Increase the quantity of imports
d) Decrease domestic production
Question 6
The terms of trade measure:
a) The income of one country compared to another
b) The GDP of one country compared toanother
c) The quantity of exports of one country compared to another
d) Export prices compared to import prices
Question 7
In a floating exchange rate system:
a) The government intervenes to influence the exchange rate
b) The exchange rate should adjust to equate the supply and demand of the currency
c) The Balance of Payments should always be in surplus
d) The Balance of payments will always equal the government budget
Question 8
The balance of payments equals:
a) The difference between household spending and income
b) The difference between government spending and income
c) A measure of the economic transactions between UK residents and the rest of the world.
d) The difference between inflation andunemployment
Question 9
If there was a balance of payments deficit then in a floating exchange rate system:
a) The external value of the currency would tend to fall
b) The external value of the currency would tend to rise
c) The injections from trade are greater than the withdrawals
d) Aggregate demand is increasing
Question 10
To prevent the external value of the currency from falling, the government might:
a) Reduce interest rates
b) Sell its own currency
c) Buy its own currency with foreign reserves
d) Increase its own spending.
27.objective.
Question 1
Demand-pull inflation may be caused by:
a) An increase in costs
b) A reduction in interest rate
c) A reduction in government spending
d) An outward shift in aggregate supply
Question 2
Inflation:
a) Reduces the cost of living
b) Reduces the standard of living
c) Reduces the price of products
d) Reduces the purchasing power of a pound
Question 3
An increase in injections into the economy may lead to:
a) An outward shift of aggregate demand and demand-pull inflation
b) An outward shift of aggregate demand and cost push inflation
c) An outward shift of aggregate supplyand demand-pull inflation
d) An outward shift of aggregate supply and cost push inflation
Question 4
An increase in aggregate demand is more likely to lead to demand-pull inflation if:
a) Aggregate supply is perfectly elastic
b) Aggregate supply is perfectly inelastic
c) Aggregate supply is unit elastic
d) Aggregate supply is relatively elastic
Question 5
An increase in costs will:
a) Shift aggregate demand
b) Shift aggregate supply
c) Reduce the natural rate of unemployment
d) Increase the productivity of employees
Question 6
The effects of inflation on the price competitiveness of a country's products may be offset by:
a) An appreciation of the currency
b) A revaluation of the currency
c) A depreciation of the currency
d) Lower inflation abroad
Question 7
Menu costs in relation to inflation refer to:
a) Costs of finding better rates of return
b) Costs of altering price lists
c) Costs of money increasing its value
d) Costs of revaluing the currency
Question 8
In the short run unemployment may fallbelow the natural rate of unemployment if:
a) Nominal wages have risen less than inflation
b) Nominal wages have risen at the same rate as inflation
c) Nominal wages have risen more thaninflation
d) Nominal wages have risen less than unemployment
Question 9
According to the Phillips curve unemployment will return to the natural rate when:
a) Nominal wages are equal to expected wages
b) Real wages are back at equilibrium level
c) Nominal wages are growing faster than inflation
d) Inflation is higher than the growth ofnominal wages
Question 10
The Phillips curve shows the relationship between inflation and what?
a) The balance of trade
b) The rate of growth in an economy
c) The rate of price increases
d) Unemployment.
..26.objective.
Question 1
The precautionary demand for money is:
a) An idle balance
b) An active balance
c) Directly related to interest rates
d) Inversely related to income
Question 2
The liquidity trap occurs when the demand for money:
a) Is perfectly interest elastic
b) Is perfectly interest inelastic
c) Means that an increase in money supply leads to a fall in the interest rate
d) Means that an increase in the money supply leads to an increase in the interest rate
Question 3
A fall in interest rates is likely to:
a) Increase aggregate demand
b) Increase savings
c) Decrease consumption
d) Decrease exports
Question 4
According to the quantity theory of money an increase in the money supply is most likely to lead to inflation if:
a) The velocity of circulation decreases
b) The number of transactions decreases
c) There is deflation
d) The velocity of circulation and the number of transactions is constant
Question 5
A reduction in the money supply is likely to:
a) Reduce the interest rate
b) Increase the interest rate
c) Increase inflation
d) Decrease deflation
Question 6
To reduce the supply of money the government could:
a) Reduce interest rates
b) Buy back government bonds
c) Sell government bonds
d) Encourage banks to lend
Question 7
The speculative demand for money occurs when:
a) Individuals hold money just in case an emergency happens
b) Individuals hold money to buy things
c) Individuals hold money rather than other assets because they are worried about the price of the other assets falling
d) Individuals hold money to shop
Question 8
An outward shift in the demand for money, other things being equal should lead to:
a) A lower interest rate but the same quantity of money
b) A higher interest rate but the same quantity of money
c) A higher quantity of money but lowerinterest rates
d) A higher quantity of money but the same interest rate
Question 9
The interest rate in India is determined by:
a) The government
b) The electorate
c) The Monetary Policy Committee
d) R B I
Question 10
Open Market Operations occur when the government:
a) Reduces spending
b) Buys and sells bonds and securities
c) Increases taxation
d) Increases the exchange rate.
.25..objective.
Question 1
If people are made unemployed because of a fall in aggregate demand this is known as:
a) Frictional unemployment
b) Seasonal unemployment
c) Cyclical unemployment
d) Structural unemployment
Question 2
Supply-side policies are most appropriate to cure:
a) Involuntary unemployment
b) Cyclical unemployment
c) Voluntary unemployment
d) A fall in aggregate demand
Question 3
The natural rate of unemployment is likely to fall if:
a) Unemployment benefits increase
b) Income tax increases
c) More training is available for the unemployed
d) Geographical immobility increases
Question 4
If the real wage is above the equilibrium level in the labour market:
a) The quantity demanded of labour is higher than the quantity supplied
b) The quantity demanded of labour equals the quantity supplied
c) The quantity demanded of labour is lower than the quantity supplied
d) The real wage will automatically rise in the short run to bring about equilibrium
Question 5
If there is cyclical unemployment in the economy the government might:
a) Increase interest rates
b) Encourage savings
c) Cut taxes
d) Reduce government spending
Question 6
Occupational immobility of labour occurs if:
a) People lack information
b) People do not want to work
c) People do not have the right skills to accept a new job
d) People cannot afford to move location
Question 7
Which of the following is not a supply-side measure?
a) Increased training
b) Providing more information
c) Helping individuals to move location to find work
d) Increasing spending on existing industries
Question 8
Reducing involuntary unemployment:
a) Helps the economy move on to the Production Possibility Frontier
b) Helps shift the economy's ProductionPossibility Frontier outwards
c) Helps the economy move along its Production Possibility Frontier
d) Helps the economy move inside the Production Possibility Frontier
Question 9
Less demand in the economy may increase unemployment; this may lead to less spending which may reduce demand further. This process is called:
a) The upward accelerator
b) The downward multiplier
c) The upward PPF
d) The downward mpc
Question 10
To reduce cyclical unemployment the government might:
a) Increase the budget surplus
b) Increase the balance of payments deficit
c) Increase the budget deficit
d) Reduce government expenditure
24.objective
Question 1
A reflationary (expansionist) fiscal policy could include:
a) Lower interest rates
b) Increased lending by the banks
c) An increase in corporation tax
d) An increase in discretionary government spending
Question 2
If the economy grows the government's budget position should automatically:
a) Worsen
b) Improve
c) Stay the same
d) Decrease with inflation
Question 3
Fiscal drag occurs when:
a) Tax bands do not increase with inflation
b) Tax rates move inversely with inflation
c) Government spending falls to reduce aggregate demand
d) Tax bands increase with inflation
Question 4
If the marginal rate of tax is 40% and consumers' income increase from Rs.10,000 to Rs.12,000:
a) The amount of tax paid will increase by Rs.4,800
b) The amount of tax paid will increase by Rs.4,000
c) The amount of tax paid will increase by Rs.800
d) The total tax paid will be Rs.4,800
Question 5
Imagine there is no tax on income up to Rs.10000; after that, there is a tax of 50%. What is the average tax rate on anincome of Rs.20000?
a) Rs.5000
b) 20%
c) 25%
d) Rs.10,000
Question 6
The marginal rate of tax paid is:
a) The total tax paid / total income
b) Total income / total tax paid
c) Change in the tax paid / change in income
d) Change in income / change in tax paid
Question 7
In a regressive tax system:
a) The amount of tax paid increases with income
b) The average rate of tax decreases with more income
c) The average rate of tax falls as income increases
d) The average rate of tax is constant asincome increases
Question 8
The Public Sector Net Cash Requirement(PSNCR) is:
a) A measure of the government's tradeposition
b) A measure of the government's budget position
c) A measure of the government'stotal debt
d) A measure of the government's monetary stance
Question 9
A government might use tax to:
a) Discourage consumption of goods with positive externalities
b) Discourage consumption of public goods
c) Discourage consumption of merit goods
d) Discourage consumption of goods with negative externalities
Question 10
A budget deficit is likely to:
a) Boost aggregate demand
b) Lead to less import spending
c) Lead to falling prices
d) Leads to more unemployment.
.23.objective.
Question 1
An increase in investment is most likely to be caused by:
a) Lower interest rates
b) Lower national income
c) A decrease in the marginal propensity to consume
d) An increase in withdrawals
Question 2
An outward shift in the Marginal Efficiency of Capital should:
a) Decrease consumption
b) Increase aggregate demand
c) Reduce aggregate supply
d) Slow economic growth
Question 3
An increase in interest rates:
a) Is likely to reduce savings
b) Is likely to reduce the external value of the currency
c) Leads to a shift in the MEC schedule
d) Leads to a movement along the MEC schedule
Question 4
The accelerator assumes:
a) The marginal propensity to consumeis constant
b) The economy is at full employment
c) There is a constant relationship between net investment and the rate ofchange of output
d) The multiplier is constant
Question 5
Investment depends mainly on:
a) Past levels of income
b) Future expected profits
c) Present national income levels
d) Historic data
Question 6
A profit maximizing firm will invest up tothe level of investment where:
a) The cost of borrowing equals the marginal efficiency of capital
b) The cost of borrowing is greater than the marginal efficiency of capital
c) The cost of borrowing is less than themarginal efficiency of capital
d) The cost of borrowing equals the marginal propensity to consume
Question 7
Investment is:
a) An injection that increases aggregatedemand
b) A withdrawal that increases aggregate demand
c) An injection that decreases aggregatedemand
d) A withdrawal that decreases aggregate demand
Question 8
Investment is an unstable element of aggregate demand because is dependsheavily on:
a) Government policy
b) Expectations
c) National income
d) Historic trends
Question 9
If an increase in investment leads to a bigger increase in national income this is called the:
a) Accelerator
b) Aggregate demand
c) Monetarism
d) Multiplier
Question 10
The difference between gross investment and net investment is:
a) Depreciation
b) Acceleration
c) Deceleration
d) Capital investment
.22.objective.
Question 1
If the marginal propensity to consume domestic products is 0.9 the size of the multiplier is:
a) 10
b) 1
c) 9
d) 0.1
Question 2
An increase in the marginal propensity to consume will:
a) Increase the size of the multiplier
b) Increase the marginal propensity to save
c) Decrease national income
d) Reduce injections into the economy
Question 3
If the Keynesian consumption function is C = 10 + 0.8 Yd then when disposable income is Rs.1000, what is total consumption?
a) 0.8
b) 800
c) 810
d) 0.81
Question 4
If the Keynesian consumption function is C = 10 + 0.8 Yd then when disposable income is Rs.1000, what is the marginal propensity to consume?
a) 0.8
b) 800
c) 810
d) 0.81
Question 5
If the Keynesian consumption function is C = 10 + 0.8 Yd then when disposable income is Rs.1000, what is the average propensity to consume?
a) 0.8
b) 800
c) 810
d) 0.81
Question 6
As income increases:
a) The average propensity to consume gets nearer in value to the marginal propensity to consume
b) The average propensity to consume diverges in value from the marginal propensity to consume
c) The average propensity to consume falls
d) The average propensity to consume always approaches 0
Question 7
An increase in consumption at any given level of income is likely to lead to:
a) Higher aggregate demand
b) An increase in exports
c) A fall in taxation revenue
d) A decrease in import spending
Question 8
Lower interest rates are likely to:
a) Decrease consumption
b) Increase cost of borrowing
c) Encourage saving
d) Increase borrowing and spending
Question 9
Friedman's theory of consumption focuses on:
a) Past income
b) Current income
c) Disposable income
d) Permanent income
Question 10
The marginal propensity to consume is equal to:
a) Total spending / total consumption
b) Total consumption / total income
c) Change in consumption / change in income
d) Change in consumption / change in savings.
.21.objective.
Question 1
A shift in aggregate supply is likely to:
a) Reduce the general price level and reduce national income
b) Reduce the general price level and increase national income
c) Increase the general price level and reduce national income
d) Increase the general price level and increase national income
Question 2
Aggregate demand will increase if:
a) Consumption falls
b) Investment falls
c) Exports fall
d) Imports fall
Question 3
An increase in aggregate demand will have most effect on prices if:
a) Aggregate supply is price inelastic
b) Aggregate supply is price elastic
c) Aggregate supply has a unitary price elasticity
d) Aggregate demand is price inelastic
Question 4
Which of the following would increase aggregate demand?
a) Increased saving
b) Increasing import spending
c) Increased taxation revenue
d) Increased investment
Question 5
Which of the following would decrease aggregate demand?
a) Increased consumption
b) Increasing export revenue
c) Increased taxation revenue
d) Increased investment
Question 6
Improved training of employees would:
a) Shift aggregate supply to the right
b) Shift aggregate supply to the left
c) Shift aggregate demand to the right
d) Shift aggregate demand to the left
Question 7
Increased unemployment benefits and less incentive to work would:
a) Shift aggregate supply to the right
b) Shift aggregate supply to the left
c) Shift aggregate demand to the right
d) Shift aggregate demand to the left
Question 8
Increased levels of consumption:
a) Shift aggregate supply to the right
b) Shift aggregate supply to the left
c) Shift aggregate demand to the right
d) Shift aggregate demand to the left
Question 9
Increased levels of spending on imports:
a) Shift aggregate supply to the right
b) Shift aggregate supply to the left
c) Shift aggregate demand to the right
d) Shift aggregate demand to the left
Question 10
If aggregate supply is totally inelastic an increase in aggregate demand will:
a) Increase price but not output
b) Increase output but not price
c) Increase output and price
d) Decrease output and price
.20..objective
Question 1
Economic growth can be measured by:
a) The CPI
b) The CBI
c) GDP
d) MPC
Question 2
In a boom:
a) Unemployment is likely to fall
b) Prices are likely to fall
c) Demand is likely to fall
d) Imports are likely to fall
Question 3
In a recession, GDP:
a) Grows negatively
b) Grows slowly
c) Grows by 0%
d) Grows rapidly
Question 4
The economic cycle is measured by
a) CPT
b) RPI
c) GDP
d) MEC
Question 5
A government is most likely to use a reflationary policy
a) In a recession
b) In a boom
c) When there is fast GDP growth
d) When prices are increasing fast
Question 6
Potential growth measures:
a) The growth of the fastest economy in the world
b) The fastest growth an economy has ever achieved
c) The present rate of growth of an economy
d) The rate of growth that could be achieved if resources were fully employed
Question 7
Economic growth can be seen by an outward shift of:
a) The Production Possibility Frontier
b) The Gross Domestic Barrier
c) The Marginal Consumption Frontier
d) The Minimum Efficient Scale
Question 8
The socially optimal rate of growth is:
a) Zero
b) Negative
c) Where the marginal social benefit = the marginal social cost
d) Total social costs are minimized
Question 9
To anticipate what the economy is going to do next the government will look at:
a) Lagging indicators
b) Flashing indicators
c) Coincidental indicators
d) Leading indicators
Question 10
The output gap is
a) The difference between this year's and last year's output
b) The difference between this year's and next year's output
c) The difference between actual and potential output
d) The difference between actual and expected outputs
.19.objective.
Question 1
Gross National Product equals:
a) Net National Product adjusted for inflation
b) Gross Domestic Product adjusted for inflation
c) Gross Domestic Product plus net property income from abroad
d) Net National Product plus net property income from abroad
Question 2
Net National Product equals:
a) Gross National Product adjusted for inflation
b) Gross Domestic Product adjusted for inflation
c) Gross Domestic Product plus net property income from abroad
d) Gross National Product minus depreciation
Question 3
The standard of living is often measured by:
a) Real GDP per capita
b) Real GDP
c) Real GDP * population
d) Real GDP plus depreciation
Question 4
In a recession:
a) Unemployment is likely to be low
b) Prices are likely to increase
c) Growth is negative
d) Growth is slow
Question 5
In a boom:
a) Surpluses are likely to occur
b) Prices are likely to fall
c) Supply will increase immediately to match demand
d) Shortages may occur
Question 6
GDP is likely to increase with:
a) An increase in consumer spending
b) An increase in taxation rates
c) A decrease in government spending
d) A fall in investment
Question 7
To adjust GDP from market prices to factor cost:
a) Add indirect taxes
b) Subtract subsidies
c) Deduct indirect taxes and deduct subsidies
d) Deduct indirect taxes and add subsidies
Question 8
To adjust from Gross National Product to Net National Product:
a) Deduct depreciation
b) Deduct indirect taxes
c) Deduct subsidies
d) Add inflation
Question 9
The Gini coefficient measures
a) Income inequality
b) Inflation
c) Unemployment
d) Economic growth
Question 10
A higher GDP per capita may not mean that the quality of life has really improved because:
a) It measures wealth not income
b) It measures Gross Domestic Product
c) It does not measure the quality of theitems produced
d) It is only measured every five years
.18..objective.
Question 1
Injections:
a) Decrease aggregate demand
b) Always equal savings
c) Always equal national income
d) Include investment and export spending
Question 2
An increase in national income is:
a) Likely to increase exports
b) Likely to decrease savings
c) Likely to decrease investment
d) Likely to increase spending on imports
Question 3
An increase in national income is likely to:
a) Decrease tax receipts
b) Worsen the trade position
c) Automatically cause an increase in government spending
d) Cause an increase in injections into the economy
Question 4
A significant increase in the governmentbudget deficit is likely to:
a) Reduce injections into the economy
b) Reduce national income
c) Move the economy away from full employment
d) Boost aggregate demand
Question 5
If injections are greater than withdrawals:
a) National income will increase
b) National income will decrease
c) National income will stay in equilibrium
d) Prices will fall
Question 6
Injections:
a) Are assumed to be exogeneous (independent of national income)
b) Are assumed to be a function of national income
c) Decrease aggregate demand
d) Decrease the investment into an economy
Question 7
For equilibrium in an open four sector economy:
a) Actual injections = actual withdrawals
b) Planned injections = planned withdrawals
c) Savings = investment
d) Government spending = tax revenue
Question 8
A reflationary policy could include:
a) decreasing injections
b) increasing taxation rates
c) increasing interest rates
d) increasing government spending
Question 9
A reflationary (expansionist) policy:
a) Increases aggregate supply
b) Increases aggregate demand
c) Decreases the price level
d) Increases full employment
Question 10
Which of the following is an injection into the economy?
a) Investment
b) Savings
c) Taxation
d) Import spending
.17..objective.
Question 1
Which of the following is a macroeconomic issue?
a) The price of houses in Oxford
b) The wage rate for plumbers in London
c) Your decision to work or stay at home
d) The level of unemployment in the UK
Question 2
What is meant by an objective?
a) A policy
b) A way of reaching a target
c) A target
d) A strategy
Question 3
Which of the following is not involved with fiscal policy?
a) Income tax
b) National insurance
c) VAT
d) Interest rates
Question 4
Which does the government not control directly?
a) Spending on health
b) Spending on defence
c) Firms' investment decisions
d) Spending on education
Question 5
Which of the following is not a macroeconomic issue?
a) Unemployment
b) Inflation
c) The wages paid to footballers
d) Economic growth
Question 6
Which of the following can the government not use directly to control the economy?
a) Pay rates within the private sector
b) Pay rates in the public sector
c) Investment in education
d) Benefits available for the unemployed and sick
Question 7
Which of the following is a policy instrument as opposed to a government objective?
a) Lower interest rates
b) A bettertrade position
c) Faster economic growth
d) Lower unemployment
Question 8
Which of the following is a possible government objective as opposed to a policy?
a) Lower interest rates
b) Lower taxation rates
c) Lower government spending
d) Lower inflation
Question 9
Which of the following is not likely to be a government objective?
a) Increasing employment
b) Increasing economic growth
c) Increasing government spending
d) Increasing the level of exports
Question 10
"Reducing inflation is a more important objective than economic growth" is an example of:
a) Normative economics
b) Positive economics
c) Objective economics
d) Reality economics
.16..objective.
Question 1
An increase in the wage rate:
a) Will usually lead to more people employed
b) Will decrease total earnings if the demand for labour is wage elastic
c) Is illegal in a free market
d) Will cause a shift in the demand for labour
Question 2
The Marginal Revenue Product is likely to be wage inelastic if:
a) Labour costs are a high percentage of total costs
b) Demand for the final product is price inelastic
c) It is relatively easy to substitute capital for labour
d) There are many substitutes for the final product
Question 3
A fall in demand for labour is likely to lead to:
a) A lower equilibrium wage and lower quantity of labour employed
b) A lower equilibrium wage and higherquantity of labour employed
c) A higher equilibrium wage and higher quantity of labour employed
d) A higher equilibrium wage and lowerquantity of labour employed
Question 4
A decrease in the supply of labour is likely to lead to:
a) A lower equilibrium wage and lower quantity of labour employed
b) A lower equilibrium wage and higherquantity of labour employed
c) A higher equilibrium wage and higher quantity of labour employed
d) A higher equilibrium wage and lowerquantity of labour employed
Question 5
The Marginal Revenue Product is:
a) Upward sloping due to the law of demand
b) Upward sloping due to the law of marginal utility
c) Downward sloping due to the law of diminishing returns
d) Downward sloping due to the law of supply
Question 6
A monopsony occurs if there is:
a) A major employer of labour
b) A highly unionised workforce
c) A major provider of employees
d) A single seller in a market
Question 7
A profit maximizing firm will employ labour up to the point where:
a) Marginal revenue = marginal product
b) Marginal cost = marginal product
c) Marginal revenue product = average cost of labour
d) Marginal revenue product = marginalcost of labour
Question 8
In a perfectly competitive labour marketfirms are wage takers and the marginal cost of labour equals:
a) The average cost of labour
b) The marginal product
c) The marginal revenue
d) The total cost of labour
Question 9
If employees cannot accept a job because of the costs of moving this is known as:
a) Occupational immobility
b) Cyclical unemployment
c) Structural immobility
d) Geographical immobility
Question 10
If the minimum wage is set above the equilibrium wage rate, then other things unchanged:
a) There will be equilibrium in the labour market
b) There will excess demand in the labour market
c) There will be excess supply in the labour market
d) More people will be employed
.15.objective.
Question 1
To maximize sales revenue a firm should produce where:
a) Marginal cost is zero
b) Marginal revenue is maximized
c) Marginal revenue is zero
d) Marginal revenue equals marginal cost
Question 2
To maximize growth without making a loss a firm should produce the highest output where:
a) Average revenue equals marginal cost
b) Average revenue equals average cost
c) Marginal revenue equals marginal cost
d) Average cost equals marginal cost
Question 3
If one car company takes over another car company this is an example of which type of integration?
a) Vertical
b) Horizontal
c) Conglomerate
d) Literal
Question 4
If a car company takes over a clothes business this is an example of which type of integration?
a) Vertical
b) Horizontal
c) Conglomerate
d) Literal
Question 5
Acquisition and merger are examples of:
a) Internal growth
b) External growth
c) Organic growth
d) Underlying growth
Question 6
If firms join together to set prices and quantities this is known as what?
a) Interaction
b) Conglomerate
c) Collusion
d) Integration
Question 7
In the Ansoff matrix a strategy focusing on new products and new markets is known as:
a) New product development
b) Diversification
c) Market development
d) Market penetration
Question 8
Satisficing occurs when
a) Profits are maximized
b) Profit are minimized
c) A business meets the different needs of stakeholders and makes a satisfactory level of profits
d) Only normal profits are made
Question 9
If a business becomes too big through mergers and takeovers it can experience cost problems due to
a) Economies of scale
b) Diseconomies of scale
c) The minimum efficient of scale
d) Synergy
Question 10
An example of backward vertical integration is:
a) A supermarket buying a farm
b) A supermarket buying another supermarket
c) A supermarket buying an insurance company
d) A supermarket buying a car rental business
..14.objective.
Question 1
Barriers to entry:
a) Do exist in monopoly
b) Cannot exist in oligopoly
c) Doexist in monopolistic competition
d) Do not exist in perfect competition
Question 2
Which best describes price discrimination?
a) Charging different prices for differentproducts
b) Charging the same prices for different products
c) Charging the same prices for the same products
d) Charging different prices for the same products
Question 3
For a firm operating in two markets andprice discriminating when profit maximizing
a) Marginal revenue in A = Price B
b) Marginal revenue in A = Price A
c) Marginal revenue in A = Marginal revenue B
d) Marginal revenue in A = Average cost in A
Question 4
If the price elasticity of demand for a product in market A is -0.2 and in market B is -3 a price discriminator will charge:
a) The higher price in market A
b) The higher price in market B
c) The same price in both markets
d) Cannot tell which price will be higher
Question 5
In perfect price discrimination:
a) Consumer surplus is maximized
b) Produce surplus is zero
c) Community surplus is maximized
d) Consumer surplus is zero
Question 6
A benefit to consumers of price discrimination is that:
a) Some products are produced that would not otherwise be produced
b) Producer surplus increases
c) Consumer surplus decreases
d) Firms' profits increase
Question 7
In perfect price discrimination:
a) The demand curve is the marginal cost curve
b) The average revenue equals the average cost
c) The marginal cost is the average cost curve
d) The demand curve is the marginal revenue
Question 8
When price discriminating abnormal profits are made if:
a) Average revenue is greater than average variable cost
b) Average revenue is greater than average cost
c) Average revenue is greater than marginal revenue
d) Average revenue is greater than average fixed cost
Question 9
Barriers to entry:
a) Enable abnormal profits to be made in the long run
b) Enable losses to be made in the long run
c) Enable abnormal profits to be made in the short run only
d) Occur in perfect competition
Question 10
Barriers to entry do not include
a) Patents held by established firms
b) Internal economies of scale experienced by established firms
c) High mobility of resources
d) High investment costs to enter an industry
.13..objective.
Question 1
In monopolistic competition:
a) Firms face a perfectly elastic demand curve
b) All products are homogeneous
c) Firms make normal profits in the longrun
d) There are barriers to entry to prevententry
Question 2
In monopolistic competition:
a) Demand is perfectly elastic
b) Products are homogeneous
c) Marginal revenue = price
d) The marginal revenue is below the demand curve and diverges
Question 3
In monopolistic competition firms profitmaximize where:
a) Marginal revenue = Average revenue
b) Marginal revenue = Marginal cost
c) Marginal revenue = Average cost
d) Marginal revenue = Total cost
Question 4
Which of the following is not one of the four Ps in marketing?
a) Product
b) Price
c) Place
d) Presence
Question 5
Effective branding will tend to make:
a) Demand more price inelastic
b) Supply more price inelastic
c) Demand more income elastic
d) Supply more income elastic
Question 6
In monopolistic competition if firms are making abnormal profit other firms will enter and:
a) The marginal cost will shift outwards
b) The demand curve will shift inwards
c) The average cost will shift downwards
d) The average variable cost will increase
Question 7
In Porter's five forces model conditions are more favourable for firms within an industry if:
a) Buyer power is high
b) Supplier power is high
c) Entry threat is low
d) Substitute threat is high
Question 8
If a firm takes over a competitor then, according to Porter's 5 forces model:
a) Buyer power is higher
b) Supplier power is higher
c) Substitute threat is higher
d) Rivalry is lower
Question 9
In marketing "USP" stands for:
a) Unique Selling Proposition
b) Underlying Sales Pitch
c) Unit Sales Point
d) Under Sales Procedure
Question 10
In monopolistic competition:
a) There are few sellers
b) There are few buyers
c) There is one seller
d) There are many sellers
..12..objective.
Question 1
If a few firms dominate an industry the market is known as:
a) Monopolistic competition
b) Competitively monopolistic
c) Duopoly
d) Oligopoly
Question 2
In a cartel member firms may be given afixed amount to produce. This amount is called a:
a) Limit
b) Factor
c) Quota
d) Quotient
Question 3
In the Kinked Demand Curve theory it is assumed that:
a) An increase in price by the firm is not followed by others
b) An increase in price by the firm is followed by others
c) A decrease in price by the firm is not followed by others
d) Firms collude to fix the price
Question 4
The Kinked Demand Curve theory assumes:
a) Firms cooperate
b) Firms act as part of a cartel
c) Firms are competitive with each other
d) Firms are not profit maximizers
Question 5
In Game Theory:
a) Firms are always assumed to act independently
b) Firms are always assumed to cooperate with each other
c) Firms always collude as part of a cartel
d) Firms consider the actions of others before deciding what to do
Question 6
In the Kinked Demand Curve theory:
a) The marginal revenue curve is perfectly horizontal
b) Demand is always price inelastic
c) Demand is always price elastic
d) Non price competition is likely
Question 7
In oligopoly
a) The largest four firms are likely to have a small market share
b) The price is likely to equal marginal revenue
c) Firms will continue to produce in the long run if price is less than average cost
d) Firms may collude or compete depending on their assumptions about their competitors
Question 8
A model of Game Theory of oligopoly is known as the:
a) Prisoner's Dilemma
b) Monopoly Cell
c) Jailhouse Sentence
d) Jury Box
Question 9
In cartels:
a) Each individual firm profit maximizes
b) There may be an incentive to cheat
c) The industry as a whole is loss making
d) There is no need to police agreements
Question 10
In a cartel:
a) Firms compete against each other
b) Price wars are common
c) Firms use price to win market share from competitors
d) Firms collude
.11.objective.
Question 1
X inefficiency occurs when:
a) The price is greater than the marginal cost
b) The price is greater than the average cost
c) Costs are higher than they could be due to a lack of competitive pressure
d) There are external costs
Question 2
The marginal revenue curve in monopoly:
a) Equals the demand curve
b) Is parallel with the demand curve
c) Lies below and converges with the demand curve
d) Lies below and diverges from the demand curve
Question 3
In monopoly when abnormal profits are made:
a) The price set is greater than the average cost
b) The price is less than the marginalcost
c) The average revenue equals the marginal cost
d) Revenue equals total cost
Question 4
In monopoly in long run equilibrium:
a) The firm is productively efficient
b) The firm is allocatively inefficient
c) The firm produces where marginal cost is less than marginal revenue
d) The firm produces at the socially optimal level
Question 5
A monopolist faces
a) An upward sloping demand curve
b) A perfectly elastic demand curve
c) A downward sloping demand curve
d) A demand curve with a positive price elasticity of demand
Question 6
In a monopoly which of the following is not true?
a) Products are differentiated
b) There is freedom of entry and exit into the industry in the long run
c) The firm is a price maker
d) There is one main seller
Question 7
In monopoly which of the following is true?
a) There are many buyers and sellers
b) There is one main buyer
c) There is one main seller
d) The actions of one firm do not affect the market price and quantity
Question 8
According to Schumpeter:
a) Monopolies are inefficient
b) Monopoly profits act as an incentive for innovation
c) Monopolies are allocatively efficient
d) Monopolies are productively efficient
Question 9
A welfare loss occurs in monopoly where:
a) The price is greater than the marginal cost
b) The price is greater than the marginal benefit
c) The price is greater than the average revenue
d) The price is greater than the marginal revenue
Question 10
In the UK the Competition Commission
a) Bans monopolies
b) Fines all monopolies
c) Prevents firms acquiring more than 25% of the market
d) Has the right to investigate monopolies and will assess each one on its own merits
.10..objective.
Question 1
Firms in perfect competition face a:
a) Perfectly elastic demand curve
b) Perfectly inelastic demand curve
c) Perfectly elastic supply curve
d) Perfectly inelastic supply curve
Question 2
In perfect competition:
a) The price equals the marginal revenue
b) The price equals the average variable cost
c) The fixed cost equals the variable costs
d) The price equals the total costs
Question 3
A profit maximizing firm in perfect competition produces where:
a) Total revenue is maximized
b) Marginal revenue equals zero
c) Marginal revenue equals marginal cost
d) Marginal revenue equals average cost
Question 4
In perfect competition:
a) The products firms offer are very similar
b) Products are heavily differentiated
c) A few firms dominate the market
d) Consumers have limited information
Question 5
In the long run in perfect competition:
a) The price equals the total revenue
b) Firms are allocatively inefficient
c) Firms are productively efficient
d) The price equals total cost
Question 6
In perfect competition:
a) Short run abnormal profits are competed away by firms leaving the industry
b) Short run abnormal profits are competed away by firms entering the industry
c) Short run abnormal profits are competed away by the government
d) Short run abnormal profits are competed away by greater advertising
Question 7
In perfect competition:
a) A few firms dominate the industry
b) Firms are price makers
c) There are many buyers but few sellers
d) There are many buyers and sellers
Question 8
In the short run firms in perfect competition will still produce provided:
a) The price covers average variable cost
b) The price covers variable cost
c) The price covers average fixed cost
d) The price covers fixed costs
Question 9
In the long run equilibrium in perfect competition:
a) Price = average cost = marginal cost
b) Price = average cost = total cost
c) Price = marginal revenue = total cost
d) Total revenue = total variable cost
Question 10
For a perfectly competitive firm:
a) Total revenue is a straight line
b) Price is greater than marginal revenue
c) Price equals total revenue
d) Price equals total cost
..9..objective.
Question 1
If the marginal revenue is less than the marginal cost then to profit maximize a firm should:
a) Reduce output
b) Increase output
c) Leave output where it is
d) Increase costs
Question 2
If the price is less than the average costs but higher than the average variable costs:
a) The firm is making a loss and will shutdown in the short term
b) The firm is making a profit
c) The firm is making a loss but will continue to produce in the short term
d) The firm is making a loss and is making a negative contribution to fixedcosts
Question 3
If firms earn normal profits:
a) They will aim to leave the industry
b) Other firms will join the industry
c) The total revenue equals total costs
d) No profit is made in accounting terms
Question 4
In the long term a firm will produce provided the revenue covers:
a) Fixed costs
b) Variable costs
c) Total costs
d) Sales
Question 5
In the short term a firm will produce provided the revenue:
a) Covers fixed costs
b) Covers variable costs
c) Covers total costs
d) Covers sales
Question 6
The profit per sale is a measure of:
a) Cash flow
b) Profitability
c) Feasibility
d) Liquidity
..8..objective.
Question 1
Which one of the following statements is true?
a) If the marginal cost is greater than the average cost the average cost falls
b) If the marginal cost is greater than the average cost the average cost increases
c) If the marginal cost is positive total costs are maximized
d) If the marginal cost is negative total costs increase at a decreasing rate if output increases
Question 2
According to the law of diminishing returns:
a) The marginal product eventually fallsas more units of a variable factor are added to a fixed factor
b) Marginal utility falls as more units of aproduct are consumed
c) The total product falls as more units of a variable factor are added to a fixed factor
d) The marginal product eventually increases as more units of a variable factor are added to a fixed factor
Question 3
The law of diminishing returns assumes:
a) There are no fixed factors of production
b) There are no variable factors of production
c) Utility is maximized when marginal product falls
d) Some factors of production are fixed
Question 4
When internal economies of scale occur:
a) Total costs fall
b) Marginal costs increase
c) Average costs fall
d) Revenue falls
Question 5
The first level of output at which the long run average costs are minimized iscalled:
a) The Minimum Efficient Scale
b) The Minimum External Scale
c) The Maximum External Scale
d) The Maximum Effective Scale
Question 6
The average variable cost curve:
a) Is derived from the average fixed costs
b) Converges with the average cost as output increases
c) Equals the total costs divided by the output
d) Equals revenue minus profits
Question 7
If marginal cost is positive and falling:
a) Total cost is falling
b) Total cost is increasing at a falling rate
c) Total cost is falling at a falling rate
d) Total cost is increasing at an increasing rate
...7...objective.
Question 1
If the price in a market is fixed by the government below equilibrium:
a) There is excess equilibrium
b) There is excess supply
c) There is excess demand
d) There is equilibrium
Question 2
If the price in a market is fixed by the government above equilibrium:
a) There is excess equilibrium
b) There is excess supply
c) There is excess demand
d) There is equilibrium
Question 3
Merit goods are:
a) Not provided in the free market economy
b) Under provided in the free market economy
c) Over provided in the free market economy
d) Provided free
Question 4
Agricultural prices tend to be unstable because:
a) Supply is price elastic
b) Demand is price elastic
c) Supply is stable
d) Demand and supply are price inelastic
Question 5
When supply increases in an agricultural market farmer's earnings might fall because:
a) Supply is price elastic
b) Demand is price inelastic
c) The government buys up all the excess production
d) All output must be sold at a maximum price
Question 6
Which of the following is the government most likely to subsidize?
a) Negative externalities
b) Positive externalities
c) Monopolies
d) Oligopolies
Question 7
With a positive externality:
a) There is under-consumption in the free market
b) There is over consumption in the free market
c) The government may tax to decreaseproduction
d) Society could be made off if less was produced
Question 8
A public good:
a) Is provided by the government
b) Is free
c) Has the properties of being non-excludable and non-diminishable
d) Has external costs
Question 9
Nationalization occurs when:
a) The government sells assets to a the private sector
b) The government bans a product
c) The government takes ownership of a business
d) The government taxes a product to araise its price
Question 10
If a maximum price is set above equilibrium there will be:
a) A price fall
b) A price increase
c) Excess supply
d) Excess demand
..6...objective.
Question 1
Which best describes consumer surplus?
a) The price consumers are willing to pay for a unit
b) The cost of providing a unit
c) The profits made by a firm
d) The difference the price a consumer pays for an item and the price he/she is willing to pay
Question 2
In the free market the price mechanism:
a) Acts as a signal to producers
b) Can provide an incentive to reallocate resources
c) Acts as a rationing device
d) Is set by the governmentf
Question 3
Community surplus equals:
a) Producer surplus minus consumer surplus
b) Profits plus utility
c) Total utility minus plus profit
d) Consumer surplus plus producer surplus
Question 4
Monopoly power:
a) Is likely to increase consumer surplus
b) Is likely to increase community surplus
c) Is likely to lead to higher producer surplus
d) Is likely to lead to lower prices and lower output
Question 5
A negative production externality means
a) The social marginal cost is greater than the private marginal cost
b) The social marginal benefit is greater than the private marginal cost
c) The social marginal cost is greater than the private marginal benefit
d) The social marginal cost is less than the private marginal cost
Question 6
A positive externality occurs when:
a) The social marginal cost is greater than the private marginal cost
b) The social marginal benefit is greater than the private marginal benefit
c) The social marginal cost is greater than the private marginal benefit
d) The social marginal cost is less than the private marginal cost
Question 7
A merit good
a) Is a public good
b) Involves a negative externality
c) Is overprovided in the free market
d) Is under provided in the free market
Question 8
A demerit good
a) Is a public good
b) Involves a positive externality
c) Is overprovided in the free market
d) Is under provided in the free market
Question 9
A public good will probably:
a) Be underprovided in the free market
b) Be overprovided in the free market
c) Not be provided in the free market
d) Has no opportunity cost
Question 10
Asymmetric information occurs when
a) Information is free
b) Buyers and sellers have access to different information
c) Community surplus is maximized
d) Community surplus is minimized
.5.objective
Question 1
If demand increases in a market this willusually lead to:
a) A higher equilibrium price and output
b) A lower equilibrium price and higher output
c) A lower equilibrium price and output
d) A higher equilibrium price and lower output
Question 2
An increase in income will:
a) Lead to a movement along the demand curve
b) Shift the supply curve
c) Shift the demand curve
d) Lead to an extension of demand
Question 3
A reduction in the costs of production will:
a) Lead to a movement along the supply curve
b) Shift the demand curve
c) Shift the supply curve
d) Lead to an extension of supply
Question 4
A shift in supply will have a bigger effecton price than output if demand is:
a) Income elastic
b) Income inelastic
c) Price elastic
d) Price inelastic
Question 5
Assuming a downward sloping demand curve and upward sloping supply curve, a higher equilibrium pricemay be caused by:
a) A fall in demand
b) An increase in supply
c) Improvements in production technology
d) An increase in demand
Question 6
If the price was fixed below the equilibrium price there would be:
a) Excess supply
b) Excess demand
c) Equilibrium
d) Downward pressure on prices
Question 7
A movement along the demand curve may be caused by:
a) A change in income
b) A change in the number of buyers
c) A change in advertising
d) A shift in supply
Question 8
A subsidy paid to producers:
a) Shifts the supply curve
b) Shifts the demand curve
c) Leads to a contraction in supply
d) Leads to an extension of supply
Question 9
A movement along the supply curve may be caused by:
a) A change in technology
b) A change in the number of producers
c) A shift in demand
d) A change in costs
Question 10
The price mechanism cannot:
a) Act as a signal
b) Act as an incentive
c) Act as a rationing device
d) Shift the demand curve
Question 1
Which best describes a supply curve?
a) The quantity consumers would like to buy in an ideal world
b) The quantity producers are willing and able to sell at each and every price all other things unchanged
c) The quantity producers are willing and able to sell at each and every income all other things unchanged
d) The quantity producers are willing and able to sell at each and every point in time all other things unchanged
Question 2
If a 4% increase in price leads to a increase in the quantity supplied of 8%:
a) Supply is price elastic
b) Supply is income elastic
c) Price elasticity of demand is -2
d) Price elasticity of supply is -2
Question 3
Supply is likely to be more price elastic:
a) In the short run rather than the long run
b) If factors of production are relatively immobile between industries
c) If there are very few producers
d) If it is easy to expand output
Question 4
A supply curve that starts at the origin has:
a) A price elasticity of supply greater than one
b) A price elasticity of supply equal to one
c) A price elasticity of supply less than one
d) A positive price elasticity of supply
Question 5
A contraction in supply occurs when:
a) Demand shifts outwards
b) The supply curve shifts inwards
c) The quantity supplied falls when the price falls
d) The supply curve shifts outwards
Question 6
An increase in the costs of production will:
a) Shift demand outwards
b) Shift demand inwards
c) Shift supply outwards so more is supplied at each and every price, all other things unchanged
d) Shift supply inwards
Question 7
An increase in price, all other things unchanged, leads to:
a) A shift in supply outwards
b) A shift in supply inwards
c) A contraction of supply
d) An extension of supply
Question 8
An increase in productivity should:
a) Lead to a contraction of supply
b) Lead to an expansion of supply
c) Lead to a shift in supply outwards (i.e. more supplied at each and every price)
d) Lead to an inward shift in supply
Question 9
An increase in price from 25 pence to 30 pence leads to an increase in the quantity supplied from 40 units to 44 units. The price elasticity of supply is:
a) + 2
b) + 0.5
c) - 2
d) - 0.5
Question 10
The price elasticity of supply is +4. The price increases by 15%. Sales were originally 200 units. What will they be now?
a) 80 units
b) 320 units
c) 60 units
d) 120 units
.3...objective.
Question 1
Which best describes a demand curve?
a) The quantity consumers would like to buy in an ideal world
b) The quantity consumers are willing to sell
c) The quantity consumers are willing and able to buy at each and every income all other things unchanged
d) The quantity consumers are willing and able to buy at each and every priceall other things unchanged
Question 2
A fall in price:
a) Will cause an inward shift of demand
b) Will cause an outward shift of supply
c) Leads to a movement along a demand curve
d) Leads to a higher level of production
Question 3
Demand for a normal product may shift outwards if:
a) Price decreases
b) The price of a substitute rises
c) The price of a complement rises
d) Income falls
Question 4
According to the law of diminishing marginal utility:
a) Utility is at a maximum with the first unit
b) Increasing units of consumption increase the marginal utility
c) Marginal product will fall as more units are consumed
d) Total utility will rise at a falling rate asmore units are consumed
Question 5
If marginal utility is zero:
a) Total utility is zero
b) An additional unit of consumption will decrease total utility
c) An additional unit of consumption will increase total utility
d) Total utility is maximized
Question 6
A decrease in income should:
a) Shift demand for an inferior product inwards
b) Shift demand for an inferior product outwards
c) Shift supply for an inferior product outwards
d) Shift supply for an inferior product inwards
Question 7
An increase in the price of a complement for product A would:
a) Shift demand for product A outwards
b) Shift demand for product A inwards
c) Shift supply for product A outwards
d) Shift supply for product A inwards
Question 8
An increase in price, all other things unchanged, leads to:
a) Shift demand outwards
b) Shift demand inwards
c) A contraction of demand
d) An extension of demand
Question 9
If a product is a Veblen good:
a) Demand is inversely related to income
b) Demand is inversely related to price
c) Demand is directly related to price
d) Demand is inversely related to the price of substitutes
Question 10
If a product is an inferior good:
a) Demand is inversely related to income
b) Demand is inversely related to price
c) Demand is directly related to price
d) Demand is directly related to the price of substitutes
.2.objective.
Question 1
If an economy is productively efficient:
a) Everyone is wealthy
b) Resources are unemployed
c) More of one product can only be produced if less of another product is produced
d) The distribution of income is equal
Question 2
Economic growth can be shown by:
a) An inward shift of the production possibility frontier
b) A movement along the production possibility frontier
c) An outward shift of the production possibility frontier
d) A decision by the government to produce inside the production possibility frontier
Question 3
As resources are shifted from one industry to another this can be shown by:
a) An inward shift of the production possibility frontier
b) A movement along the production possibility frontier
c) An outward shift of the production possibility frontier
d) The pivoting of the production possibility frontier
Question 4
In a free market the combination of products produced will be determined by:
a) Market forces of supply and demand
b) The government
c) The law
d) The public sector
Question 5
If an economy moves from producing 10 units of A and 4 units of B to producing 7 As and 5Bs, the opportunity cost of the 5 th B is:
a) 7As
b) 10As
c) 3As
d) 1A
Question 6
An economy may operate outside the Production Possibility Frontier if:
a) It is not utilizing its resources fully
b) It is being productively efficient
c) It is a mixed economy
d) It is trading with other economies
Question 7
The resources in the economy do not include:
a) Demand
b) Land
c) Labour
d) Capital
Question 8
The resources in an economy are:
a) Constantly increasing
b) Fixed at any moment
c) Constantly decreasing
d) Able to be transferred easily betweenindustries
Question 9
Any combination of products inside the production possibility frontier is:
a) Allocatively inefficient
b) X inefficient
c) Consumer inefficient
d) Productively inefficient
Question 10
An outward shift of the production possibility frontier may be caused by:
a) An increase in demand
b) More government spending
c) Better training of employees
d) Productive inefficiency
.o.b.j.e.c.t.i.v.e.
Question 1
The resources in an economy:
a) Are always fixed
b) Can never decrease
c) Always increase over time
d) Are limited at any moment in time
Question 2
Human wants are:
a) Always fixed
b) Limited
c) Unlimited
d) Likely to decrease over time
Question 3
The sacrifice involved when you choose a particular course of action is called the:
a) Alternative
b) Opportunity cost
c) Consumer cost
d) Producer cost
Question 4
Which one of the following is not one of the basic economic questions?
a) What to produce
b) Who to produce for
c) How to produce
d) How to minimize economic growth
Question 5
The basic economic problems will not be solved by:
a) Market forces
b) Government intervention
c) A mixture of government intervention and the free market
d) The creation of unlimited resources
Question 6
The free market involves:
a) The free provision of products
b) The subsidising of products by the government
c) Market forces of supply and demand
d) All trade via barter
Question 7
A mixed economy:
a) Allocates resources via supply but not demand
b) Allocates resources via demand but not supply
c) Allocates resources via supply and demand
d) Allocates resources via market forces and government intervention
Question 8
Which of the following is NOT likely to be true in a command economy?
a) Businesses may pursue social objectives
b) The profits of a business belong to the government
c) Resources are allocated by government directives
d) Market forces determine what is produced and who receives the products
Question 9
The public sector includes:
a) Investors owning companies
b) Government ownership of assets
c) Market forces of supply and demand
d) Private enterprise
Question 10
Which of the following is a normative statement in economics?
a) More spending by the government reduces poverty
b) Higher taxes lead to less desire to work
c) The UK economy is growing fast relative to other European Union members
d) The government should concentrate on reducing unemployment.
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