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Economics Question Paper

Economics

Course:Economics And Finance (Economics)

Exam Year:2012

1 Which of the following will result from the imposition of a 9 per cent sales tax on
household fuel, the demand for which has an absolute price elasticity of demand equal
to 1.5?
A A rise in the price of fuel by 10.5 per cent.
B A rise in the price of fuel by 9 per cent.
C A rise in the price of fuel by 12 per cent.
D A rise in the price of fuel by less than 9 per cent.
[1½]
2 A minimum price is set for Good X at £10 which happens to coincide with the free
market price. An increase in the demand for Good X keeping the minimum price
fixed at £10 will lead to:
A no change in price and a shortage.
B a rise in price and quantity sold.
C a rise in price and a shortage.
D a rise in price and a surplus.
[1½]
3 Which of the following statements about short run costs of production is incorrect?
A Marginal cost is equal to average variable cost when average variable cost is at
a minimum.
B Average fixed cost always falls as output rises.
C Marginal cost cannot exceed average total cost.
D Average total cost exceeds average variable cost by an amount that declines
with increasing output.
[1½]
4 Which of the following is NOT a feature of an industry characterised by monopolistic
competition?
A There are many firms.
B Firms sell differentiated products.
C In the long run monopolistic powers enable firms to make excess profits.
D A firm can raise its price without losing all its customers.
[1½]
CT7 S2012–3 PLEASE TURN OVER
5 A profit maximising monopolist with positive marginal costs and a downward sloping
demand curve will be able to make most profit if the demand curve is:
A price inelastic.
B price elastic.
C of unit price elasticity.
D of infinite price elasticity.
[1½]
6 The following data is for a perfectly competitive firm producing Good X in the short
run:
Number of Number of Total Output of
machines men Good X
5 7 100
5 8 140
5 9 170
5 10 190
Which one of the following statements is correct?
A The marginal physical product of the 8th man is lower than the marginal
physical product of the 10th man.
B The marginal physical product of the 8th man is higher than the marginal
physical product of the 9th man.
C The marginal physical product of the 9th man is lower than that of the 10th
man.
D The marginal physical product of the 10th man is negative.
[1½]
7 In the long run, a firm operating under conditions of monopolistic competition will
produce at an output at which:
A average total cost equals average revenue.
B average total cost is less than average revenue.
C average total cost is at a minimum.
D marginal cost is equal to average total cost.
[1½]
CT7 S2012–4
8 Which one of the following is TRUE?
A The long run average total cost curve is derived by joining all the minimum
points of the short run average total cost curves.
B The minimum efficient scale is the point at which long run average costs must
begin to fall.
C In the long run a firm cannot alter its fixed costs of production.
D If a firm trebles all its inputs and its output doubles then this is indicative of
diseconomies of scale.
[1½]
9 Total costs of production for a firm producing 100 units of output are $5,000 and
fixed costs are $2,000. If output is increased by 1 unit in the short run, the total costs
of production are $5,030. Which one of the following statements is TRUE with
respect to the extra unit of output?
A The marginal cost of production is less than the average fixed cost of
production.
B The average cost of production is rising.
C The average fixed cost of production is rising.
D The average cost of production exceeds the marginal cost of production.
[1½]
10 The idea that an oligopolistic firm faces a kinked demand curve is based upon the
assumption that:
A a firm’s competitors match both its price increases and price decreases.
B one firm in the industry sets the price for all other firms.
C a firm’s competitors match its price decreases but ignore its price increases.
D prices can either rise or fall; it depends on what happens to a firm’s
competitors’ prices.
[1½]
CT7 S2012–5 PLEASE TURN OVER
11 First degree price discrimination refers to the situation where:
A a firm charges customers different prices according to how much they
purchase.
B consumers are grouped into independent markets and a separate price is
charged in each market.
C a firm charges each customer the maximum price he/she is prepared to pay.
D different firms charge different prices for the same product.
[1½]
12 The profit payoffs to Firm X from various strategies 1 to 4 and the presumed
responses of the other firm in a duopoly industry is given below:
Other Firm’s Response
A B C D
1 90 15 90 100
Strategy of 2 40 70 -20 -80
Firm X 3 25 50 120 130
4 10 40 70 60
Which one of the following represents the maximin strategy of Firm X?
A Strategy 1
B Strategy 2
C Strategy 3
D Strategy 4
[1½]
CT7 S2012–6
13 Given the following labour hours to produce 1 unit of Goods X and Y, which of the
statements below is TRUE?
Country Good X Good Y
A 10 5
B 5 20
A Country A has a comparative advantage and an absolute advantage in
producing Good Y.
B Country B has a comparative advantage in producing Good X and an absolute
advantage in producing Good Y.
C Country A has a comparative advantage in producing Good Y and an absolute
advantage in producing Good X.
D Country B has a comparative advantage in producing Good Y and an absolute
advantage in producing Good X.
[1½]
14 In an open economy with no taxation, the marginal propensity to save is 0.25 and the
level of income is €800m. What is the likely level of consumption expenditure
resulting from a rise in government expenditure of €100 million?
A €700 million
B €800 million
C €900 million
D €1000 million
[1½]
15 The accelerator principle states that:
A investment is increased when interest rates fall.
B an increase in consumer demand leads to a more than proportionate increase in
the level of investment.
C an increase in investment will lead to a more than proportionate increase in
output.
D the rate of change of investment affects the rate of change of output.
[1½]
CT7 S2012–7 PLEASE TURN OVER
16 If a country has a negative net income from abroad then:
A Gross Domestic Product is greater than Gross National Income.
B Gross Domestic Product is less than Gross National Income.
C Gross Domestic Product is the same as Gross National Income.
D We cannot say whether Gross Domestic Product differs from Gross National
Income from this information.
[1½]
17 If the money supply decreases due to a contractionary open market operation by the
central bank then the price of treasury bills will:
A fall as the short term interest rate rises.
B fall as the short term interest rate falls.
C rise as the short term interest rate rises.
D rise as the short term interest rate falls.
[1½]
18 Which of the following will increase the size of the multiplier?
A An increase in Government expenditure.
B A decrease in the marginal propensity to save.
C An increase in the marginal propensity to save.
D An increase in autonomous investment.
[1½]
19 In a closed economy with no government sector if the amount people plan to save
exceeds the amount they plan to invest then there will be:
A a rise in national income.
B an unplanned rise in stocks.
C inflationary pressures.
D a rise in the amount people plan to invest.
[1½]
CT7 S2012–8
20 According to Keynesian analysis, the adoption of an expansionary fiscal policy will
result in:
A an increase in aggregate demand and a reduction in real output and
unemployment.
B an increase in aggregate demand, real output and unemployment.
C an increase in aggregate demand and real output and a reduction in
unemployment.
D a reduction in aggregate demand and real output and an increase in
unemployment.
[1½]
21 Which of the following is best suited to reducing the level of structural
unemployment?
A Lowering the rate of interest.
B Raising the rate of unemployment benefit.
C Higher voluntary redundancy payments for workers in declining industries.
D More government funds for retraining of the unemployed.
[1½]
22 According to Keynesian analysis, the adoption of a policy to reduce the government’s
budget deficit will involve:
A an increase in aggregate demand and a reduction in real output.
B an increase in aggregate demand and an increase in real output.
C a reduction in aggregate demand and a reduction in real output.
D a reduction in aggregate demand and an increase in real output.
[1½]
23 The quantity theory of money in its simplest form assumes that the:
A velocity of circulation and nominal output are both fixed.
B ratio of the velocity of circulation to the price level is fixed.
C ratio of the money supply to the velocity of circulation is fixed.
D velocity of circulation and real output are both fixed.
[1½]
CT7 S2012–9 PLEASE TURN OVER
24 Country A exports Good X and imports Good Y from Country B. The price of Good
X rises by 20 per cent and the price of Good Y falls by 40 per cent. Which of the
following statements is correct about Country A’s terms of trade?
A It has improved by 100 per cent.
B It has improved by 60 per cent.
C It has deteriorated by 100 per cent.
D It has deteriorated by 60 per cent.
[1½]
25 Which of the following would NOT be included in the current account of a country’s
balance of payments?
A Migrant remittances
B Interest, profits and dividends paid to the rest of the world.
C Exports of services
D The purchase of foreign shares by a domestic pension fund.
[1½]
26 The law of comparative advantage states that countries should specialise in producing
and exporting the goods that they produce at a lower:
A marginal cost than other countries.
B labour cost than other countries.
C absolute cost than other countries.
D opportunity cost than other countries.
[1½]
27 A manufacturer of Good X can sell all of Good X produced at the market price of ¥50
per unit.
When the firm is operating efficiently, the total cost of production per day is as follows:
Output per day Total Cost (¥)
0 50
1 60
2 78
3 105
4 140
5 185
6 264
(i) Construct a table which gives marginal cost and average total cost at each
level of output. [2]
(ii) State the level of output at which profit will be maximised. [1]
(iii) State the level of maximum profit at the profit maximising output. [1]
[Total 4]
CT7 S2012–10
28 Outline the major factors which explain the shape of a firm's average cost curve in the
short and the long run. [4]
29 Read both parts (i) and (ii) before answering the question.
(i) Draw a diagram for a profit maximising monopoly making excess profits
using the following labels: AC1 for the average cost curve, MC1 for the
marginal cost curve, MR1 for the marginal revenue line, AR1 for the average
revenue line. Show on the average revenue line a point A at which profits will
be maximised and the corresponding profit maximising price (P1) and output
(Q1). [2]
(ii) Show on the average revenue line a point N at which only normal profits will
be made and the corresponding price (P2) and output (Q2).
[2]
[Total 4]
30 Outline with the use of a diagram why essentials, such as water, have such low prices,
whilst luxuries, such as diamonds, have relatively high prices. [4]
31 The market demand curve (Qd) and supply curve (Qs) of Good X are given by the
following equations:
Qd = 120 - 2P
Qs = 2P
where P is the price in pounds.
(i) Calculate the market equilibrium price and quantity. [2]
(ii) Calculate the market equilibrium price and quantity if a sales tax of £10 per
unit is imposed on Good X. [2]
(iii) Calculate the total tax revenue raised by the sales tax. [1]
[Total 5]
32 Explain four methods by which a country can reduce its trade deficit without resorting
to the use of quotas and tariffs. [4]
CT7 S2012–11 PLEASE TURN OVER
33 The following data refers to a simple closed economy.
Money Supply = 200
Price Index = 10
Real Output (i.e. Real Income) = 100 units
Bank multiplier = 20%
Use the equation of exchange to determine the following with the above figures as
your starting point in each of your calculations:
(i) the numerical value of the velocity of circulation. [1]
(ii) the value of the price index if the money supply were to increase to 300. [1]
(iii) the likely change in the money supply if there is an initial increase in bank
deposits of 15. [1]
[Total 3]
34 (i) Draw a diagram representing equilibrium in the money market showing both
the real money supply (MS1) and real money demand (MD1) at an interest
rate r1 that clears the money market. [2]
(ii) Explain and show on your diagram how a reduction in the real money supply
to MS2 would affect the market rate of interest in the short run. [2]
[Total 4]
35 (i) Explain what is meant by economic growth. [1]
(ii) Discuss THREE factors which influence a developed country’s economic
growth. [3]
[Total 4]
CT7 S2012–12
36 The following data relates to a closed economy with no government sector:
Planned Planned
Income level Consumption Investment
Y C I
80 64 22
100 78 22
120 92 22
140 106 22
where:
• C = 8 + 0.7Y.
• planned consumption is the amount of consumption expenditure households plan
to undertake.
• planned investment is the amount of investment firms plan to carry out.
• planned savings is the amount that households plan to save.
(i) Determine the equilibrium level of national income. [1]
(ii) If the national income were £140 million calculate the rise or fall in unplanned
stocks. [1]
(iii) Determine the level of planned savings that will yield a level of income at
which there will be no rise or fall in unplanned stocks. [1]
(iv) Calculate the amount by which planned savings exceed planned investment at
an income level of £120 million. [1]
(v) Determine the increase in the level of national income if planned investment
rose from £22 million to £28 million. [1]
[Total 5]
37 Discuss the main advantages and disadvantages of both fixed and floating exchange
rates. [10]
38 Discuss the merits and problems of alternative measures that the government might
adopt to alleviate the various categories of unemployment. [10]
END OF PAPER

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