1 In an economy, no one can be made better off without making someone else worse off. What does not necessarily follow from this?

A The distribution of income is socially acceptable.B The conditions of allocative efficiency have been met.C The economy is operating at a point on its production possibility frontier.D The conditions for productive efficiency have been met.

2 What is the opportunity cost to society of employing workers who would otherwise have no alternative employment?A the wages they are paidB the social security payments they would otherwise receiveC the value of the goods and services they produceD zero

3 Other things being equal, which of the following would result in an increased demand by private motorists for petrol (gasoline)?

A an increase in the price of second-carsB an increase in road toll chargesC a reduction in price of steelD a reduction in bus fares

4 Which of the following might explain a simultaneous increase in both price and quantity trade in the market for a normal good?

A the removal of an effective maximum price on the goodB the technological progress in the production of the goodC the imposition of a tax on the goodD the granting of a subsidy to producers of the good

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

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 stock1 if demand is to be met?

A OQ1 B Q1Q3 C Q1Q2 D Q2Q3

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

S1

S1

S2

S2

P1

O

Dquantity

price

Q3Q2Q1

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

Which of the following would cause the demand curve to shift to the left?

A a reduction in car taxB a reduction in petrol pricesC a reduction in public transport pricesD the introduction of tolls on motorways

7 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.

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) seller(s)A X Y and ZB Y and Z XC X ZD Z X

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 complementary goodsB cross-elasticity of demandC an externalityD joint production

OD

Number of car journeys

cost of a car journey

10 128642

Dz

Dy

4

2

1

O

Dx

Quantity

Price ($000) 3

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

Which area represents the reduction in consumer surplus?A u + vB u + xC u + x + yD 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.

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 VUTB PWTVC VRSTD URST

11 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 the amount of X it will produceB the extent to which resources are being fully utilisedC the opportunity cost of X in terms of YD the country’s preference for present as compared to future consumption

12 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 Effect on quantity soldA increase increase

x y

w

u

O

D quantity

price

v

S2

S1

SR

U

P

W

O

DNumber of journeys / week

fare

T

V

B increase uncertainC uncertain increaseD uncertain uncertain

13 The table shows demand and supply schedules for red peppers. The equilibrium price is initially 15 cents per kg

price per kg cents

amount demanded kg (thousands)

amount supplied kg (thousands)

30 11 2225 12 1920 13 1715 15 1510 17 135 20 11

The government pays a subsidy of 10 cents per kg to producers. What will be the new equilibrium price charged to consumers?

A 20 cents B 15 cents C 10 cents D 5 cents

14 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 an increase in consumption of $110 in year 2B an increase in consumption of $10 in year 2C consumption of $100 in year 1D consumption of $110 in year 1

15 The diagram shows an individual’s 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.

Which area measures the maximum fee the individual would be willing to pay for annual membership?

A X B X + Y + Z C Y + Z D Z

ZP

Y

O DNumber of visits (per year)

charge

X

½ P