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Microeconomic Wrong multiple choice questions

Terms in this set (54)

Choice is an important element in the basic economic problem because
A) Wants increase with income.
B) incomes are distributed unequally.
C) high demanc leads to high prices.
D)limited resources have alternate uses.
D
In a buffer-stock scheme
A) an organisation might buy in the open market to maintain a minimum price in the market for a product.
B) governments restrict supplies of a product coming onto an open market in order to lower prices of the product.
C) buffer stocks are kept to sell if the price of the product starts to fall.
D) buffer stocks are sold when there are surpluses in the market.
A
The price mechanism helps to allocate resources efficiently because
A) it results in lower rewards being paid to factors of production when the demand for the output they produce increases.
B) it will lead to the distribution of output amongst individuals on the basis of greatest need.
C) the prices of non-renewable resources will tend to rise as the stock of such resources nears depletion.
D) it will always ensure that competition between firms prevent high profits being earned.
C
Which ones of the following is associated with the missing market?
A A monopoly restricting output
B The production of a negative externality
C A firm deciding to produce a private good
D A government subsidising agricultural production
B
At current levels of output, the marginal social benefit of a good is greater than its marginal private benefit. As a result, there are likely to be
A positive externalities in consumption.
B positive externalities in production.
C negative externalities in consumption.
D negative externalities in production.
A
Government intervention in a market economy can lead to an increase in economic welfare if
A the market mechanism fails to allow for externalities.
B it leads to an increase in the consumption of demerit goods.
C the price elasticity of supply of private goods is high.
D the demand for inferior goods rises as incomes increase.
A
8 The table below indicates the average price of organic turkeys in price index number form.
Year Price index
2004 100
2005 105
2006 120
2007 110
2008 125
Which one of the following can be deduced from the above data?
A The price of organic turkeys rose throughout the whole period 2004 to 2008.
B Compared with 2008, the price of organic turkeys was 20% cheaper in 2004.
C Revenue from the sale of organic turkeys fell in 2007.
D Between 2006 and 2007, the price of organic turkeys fell 10%.
B
A monopoly market will be less economically efficient than a competitive market if, under monopoly,
A the market demand curve is inelastic.
B the main objective of the firm is maximum profit.
C there are both economies of scale and diseconomies of scale.
D prices are higher and output is lower.
D
Don't understand?
21 The table below shows the price and quantity for two goods, X and Y.
Price of X Quantity of X demandedQuantity of Y demanded
£10 20 30
£9 24 42
The cross elasticity of demand for Y with respect to the price of X when the price of X falls from £10 to £9 is
A +4
B +2
C -2
D -4
D
At current levels of output, the marginal social cost of making a good is greater than its marginal private cost. Also, the marginal social benefit of the good is greater than its marginal private benefit. As a result, there will probably be
A a misallocation of resources.
B positive externalities in production.
C negative externalities in consumption.
D economies of scale.
A
In July 2007, smoking in enclosed public places in England became illegal. Such a policy would inevitably lead to government failure if
A the government's tax revenue from cigarette sales fell.
B the economic benefits arising from the ban were outweighed by its costs.
C some people continued to smoke cigarettes in their own homes.
D jobs were lost in the tobacco industry.
B Why?
One reason why the free market fails to achieve an optimal allocation of scarce resources is
because
A public goods are provided free of charge to users.
B positive externalities lead to overproduction of a good.
C there is underproduction of goods with positive externalities.
D individuals' incomes and wealth are not identical.
C Why
Which one of the following is the most likely reason for government intervention in a market to correct a misallocation of resources?
A A low price elasticity of supply of a good
B Immobility of factors of production
C Diseconomies of scale in production of a good
D An excess market demand for a good
B? From June 2015 paper, I thought it was d!
8 The table below shows values of income elasticities of demand for four goods, W, X, Y and Z.
Good Estimate of income elasticity of demand
W +0.52
X +0.61
Y −0.49
Z −0.57
From the table, it may be concluded that
A the demand for all four goods is price inelastic.
B the cross price elasticity of demand between Good X and Good W is positive.
C as incomes rise, the demand for Good Y and Good Z will rise, but by a smaller percentage.
D as incomes fall, only the demand for Good Y and Good Z will rise.
D.
Look at what type of elasticity it is and that will give away this question.
In February 2011, British Gas announced record profits for the second year in a row from supplying gas to UK households. Just months after these record profits, British Gas announced price rises of 18%. The increase in price makes it more likely that British Gas has been exploiting its monopoly power.
From the data given, which one of the following is most likely to be correct?
A The 18% price rise is an example of a barrier to entry into the market.
B British Gas is efficient because it made record profits in the two years leading up to February 2011.
C The gas supplied by British Gas has positive externalities in consumption.
D There is a high degree of concentration in the UK market for gas supplied to
households.
D.
Market concentration is the proportion of sales relative to other firms, therefore as British Gas have monopoly power they are likely to have high concentration.
14 A government subsidy would cause the largest fall in the price of a product if its price elasticity of demand (defined as a positive number) were
A less than 1.
B 1.
C greater than 1. D infinity.
A?
Quite confused about this one, I though if it was elastic it would lead to a greater change.
A firm is productively inefficient if
A it can lower its average cost of production by reducing its output.
B an increase or a decrease in output will lead to a rise in its average cost of production.
C it can increase labour productivity by increasing the amount of capital it employs.
D the price it has to pay for raw materials and components is increasing.
A
No clue
Graph questions may 2012, really need help?
3, 16, 23
A small firm is able to buy any amount of a raw material on world markets at the same price. This means that it faces a perfectly
A elastic demand curve for the raw material.
B inelastic demand curve for the raw material.
C elastic supply curve for the raw material.
D inelastic supply curve for the raw material.
C
Draw a diagram to help
The use of money as a medium of exchange enables an economy to
A operate outside its production possibility boundary.
B increase production of public goods.
C prevent market failure.
D benefit from specialisation and the division of labour.
D
Left to the free market, Good X would not be produced at all. Yet the production and consumption of at least some of Good X increases the welfare of society. The government therefore has an incentive to intervene to ensure its provision. Good X is most likely to be a
A public good.
B free good.
C merit good.
D demerit good.
A
Try to trick you here, yet need to remember as Good X would not be produced at all, it must be a public good.
From the above diagram, it can be concluded that when the price rises from 100 to 120, and the quantity increases from 50 to 70
A the price elasticity of supply of organic apples is +2.
B there will be excess supply of organic apples.
C the price elasticity of demand for organic apples is positive.
D organic apples are a luxury good.
A
An indirect tax on the production of a good will have no effect on price if demand is
A inversely related to price.
B of unitary elasticity.
C perfectly elastic.
D perfectly inelastic.
C
This is also a trick, yet you need to realise an elastic good will lead to a complete fall in demand, therefore it a firm wouldn't drop their prices.
Features of the fundamental economic problem include
A both unlimited resources and many wants.
B both trade-offs and conflicting objectives.
C the provision of goods with no opportunity cost.
D both scarce resources and limited wants.
B
Make sure to read question here, as there are limited resources, not unlimited resources.
One reason why UK governments provide education is because
A the private benefit from education is less than the social benefit.
B education cannot be provided by the free market.
C all education is both a merit good and a public good.
D this ensures that the provision of education is maximised.
A
A monopoly market will be less economically efficient than a competitive market if, under monopoly,
A the market demand curve is inelastic.
B the main objective of the firm is maximum profit.
C there are both economies of scale and diseconomies of scale.
D prices are higher and output is lower.
D
To calculate the percentage change in the quantity supplied of a good following a change in its price, the price elasticity of supply should be
A divided by the percentage change in price.
B divided by the percentage change in quantity.
C multiplied by the percentage change in price.
D multiplied by the percentage change in quantity.
C
At current levels of output, the marginal social cost of making a good is greater than its marginal private cost. Also, the marginal social benefit of the good is greater than its marginal private benefit. As a result, there will probably be
A a misallocation of resources.
B positive externalities in production.
C negative externalities in consumption.
D diseconomies of scale in production.
A
The free market equilibrium price for a merit good is £50 per unit. At present, the government does not intervene in the market for this good. The government is most likely to correct the market failure associated with this merit good if it
A imposes a maximum price of above £50 per unit.
B sets a minimum price of £50 per unit.
C taxes the free market price.
D subsidises the free market price.
D
A firm is productively efficient when
A it is operating at the lowest point on its average cost curve.
B it cannot increase current production even if the demand for its products increases.
C output per worker cannot increase.
D an increase in production will decrease average costs.
A
The cross price elasticity of demand for two products which are close substitutes for each other will be
A high and positive.
B low and positive.
C low and negative.
D high and negative.
A
Which one of the following is most likely to be a reason for government failure?
A The negative externalities that result from the production of some goods and
services
B The difficulties in determining the true social costs and benefits of merit goods
C Missing markets for public goods and merit goods
D Excessive consumption of demerit goods
B
The price elasticity of supply for most goods is
A zero.
B between zero and -1.
C between -1 and minus infinity.
D positive.
D
The UK Government currently subsidises the building of social housing. Social housing is provided to low income households at rents which are lower than the free market rent.
Which one of the following would provide an economic justification for these subsidies?
A The unequal distribution of income and wealth caused by the free market results in an unsatisfactory allocation of resources.
B Subsidising low cost housing reduces inequalities in the distribution of wealth.
C Social housing is a public good because it is both non-rival and non-excludable.
D There is market failure in the housing market because of the existence of missing markets.
A
Which one of the following is most likely to be an example of the immobility of a factor of production? Workers' unwillingness to
A change jobs.
B accept lower wages.
C improve productivity.
D attend training courses.
A
All other things being equal, which one of the following is most likely to reduce cyclical unemployment in the short run?
A A reduction in the budget deficit
B A reduction in the budget surplus
C An increase in the exchange rate
D An increase in interest rates
B
Which one of the following is most likely to be regarded as a supply-side cause of higher economic growth?
A Cheaper consumer credit
B Higher welfare benefits for the unemployed C Increased exports of goods and services
D Lower tax rates on income
D
Which one of the following provides a reason why governments should intervene in a
market economy?
A Small firms are less efficient than large firms due to economies of scale.
B The existence of free riders will result in the overproduction of public goods.
C The social benefits of some private goods exceed the private benefits.
D Private firms are unable to produce merit goods in a free market
C
An indirect tax on the production of a good will have no effect on its market price if
demand is
A inversely related to price.
B unit elastic.
C perfectly elastic.
D perfectly inelastic.
C
Government intervention in a market economy is most likely to lead to an increase in
economic welfare if
A the market mechanism fails to take account of externalities.
B it leads to an increase in the consumption of demerit goods.
C the price elasticity of supply of private goods is high.
D the demand for inferior goods rises as income increases.
A ? Ridiculously confused???
One reason why the free market fails to achieve an optimal allocation of scarce
resources is because
A public goods are provided free of charge to users.
B positive externalities lead to overproduction of a good.
C there is underproduction of goods with positive externalities.
D individuals' incomes and wealth are not identical.
C
A government imposes an indirect tax on a product. The price of the product is likely to
rise by the full amount of the tax if the price elasticity of
A supply is perfectly elastic.
B supply is perfectly inelastic.
C demand is unit elastic.
D demand is perfectly elastic.
A ???
The table below shows the Gini coefficient of income for two countries.

Country Gini coefficient
X 0.4
Y 0.6
From the table it can be inferred that

A the distribution of income is more equal in country X.
B the distribution of wealth is more equal in country Y.
C 40% of the population in country X have more than the
median income.
D 60% of the population in country Y have more than the
mean income.
A
The table below shows details for a weighted price index which contains only

two products, X and Y.
Product Year 1 price (£) Year 2 price (£) Weight
X 10 12 2
Y 20 18 1
If Year 1 is the base year, what is the value of the weighted index in Year 2?

A 100
B 105
C 110
D 120
C
Behavioural economic theory suggests that when consumers are faced with complex
financial decisions, such as choosing between pension schemes, social welfare is
likely to increase if consumers are
A presented with all the options that are available.
B presented with a limited set of pre-selected options.
C provided with as much information as possible about each
available option.
D not given any choice.
B
A firm hires 20 workers at £10 per hour but in order to recruit another worker has to
pay £11 per hour. All workers must now be paid the new wage rate. What is the
marginal cost of the 21
st worker?

A £10
B £11
C £21
D £31
D
The following table shows the real GDP of an economy from 2012 to 2016.

Year 2012 2013 2014 2015 2016
Real GDP
(£bn) 213 215 245 256 271
If the figures were converted to index form with 2013 as the base year, what would
be the value of the index (to the nearest whole number) in 2016?
A 124
B 125
C 126
D 127
C

It is a trick as you need to recognise 2013 is the base year!!!!
The price elasticity of demand for games consoles is -1.2. It can be concluded that
a 10% reduction in their price would lead to a percentage change in demand of
A −8.3%
B −12.0%
C +8.3%
D +12.0%
D
A country has a Human Development Index of 0.91. This country is most likely to

have
A a high dependence on its primary sector.
B a low level of life expectancy.
C rapid population growth.
D relatively low levels of illiteracy.
D
An indirect tax on the production of a good will have no effect on its market price if demand is
A inversely related to price.
B unit elastic.
C perfectly elastic.
D perfectly inelastic.
C
Government intervention in a market economy is most likely to lead to an increase in economic welfare if
A the market mechanism fails to take account of externalities.
B it leads to an increase in the consumption of demerit goods.
C the price elasticity of supply of private goods is high.
D the demand for inferior goods rises as income increases.
A
A market in which a number of firms are competing is gradually taken over by a monopolist. Unless there are economies of scale, this is likely to lead to lower
A costs. B output. C profits. D prices.
B
When a firm increases the price of its product from £50 to £55, the total revenue
generated increases from £10,000 to £11,000. Over this price range, the price
elasticity of demand for the product is
A elastic.
B unit elastic.
C inelastic.
D perfectly inelastic.
D
Which of the following defines a situation where positive externalities of consumption exist?
A Marginal social benefit is greater than marginal private benefit
B Marginal social cost is greater than marginal private cost
C Marginal private benefit is greater than marginal social benefit
D Marginal private cost is greater than marginal social cost
A
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