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- 1. Multiple Choice
Which statement is the most valid reason for government intervention in a free market economy?
Consumers are well informed, making it difficult for producers to make profits.
Health and education are not available in sufficient quantities.
sufficient quantities. C P
There are many competitive firms and not enough sole suppliers.
- 2. Multiple Choice
What would not be considered a barter transaction?
a car repairer undertaking the annual service on a plumber’s van in return for the plumber fitting a new sink in the car repairer’s kitchen
a consumer negotiating with a shopkeeper and buying a pair of trousers at US$10 rather than the asking price of US$30
a graduate student exchanging a set of textbooks for a radio with a student about to start the course
a train company allowing a phone company to advertise on its trains in return for the right to advertise on the phone company’s website
- 3. Multiple Choice
A factory introduces an automated production line to take advantage of division of labour. What is most likely to increase?
average cost of production
job satisfaction of workers
range of skills of each worker
worker productivity
- 4. Multiple Choice
Which statement is normative?
A minimum wage is the correct government policy to increase the incomes of the lowest paid workers.
A minimum wage is the lowest amount that employers can legally pay their workers.
In Pakistan, a minimum wage of 15 000 Pakistani Rupees per month was set on 1 June 2016.
Setting the minimum wage rate above the equilibrium will result in an excess supply of workers.
- 5. Multiple Choice
In the diagram, D is the demand curve for an agricultural commodity and S1 is the initial supply curve. A good harvest causes the supply curve to shift to S2.
By how much will the demand curve have to shift to leave farm incomes unchanged?
500 tonnes at all prices
1000 tonnes at all prices
2000 tonnes at all prices
4000 tonnes at all prices
- 6. Multiple Choice
A manufacturer progressively reduces the price of his product. The table shows the outcome of this policy.
What is the price elasticity of demand for the product?
perfectly inelastic
relatively inelastic
perfectly elastic
unitary
- 7. Multiple Choice
The diagram shows a consumer’s demand curve for a product.
How does consumer surplus change as the price of the product rises?
It falls at a constant rate (%) with each $5 rise.
It falls by a constant amount with each $5 rise.
It falls by a decreasing amount with each $5 rise.
It falls by an increasing amount with each $5 rise.
- 8. Multiple Choice
Following the introduction of a 10% increase in charges for car parking in a city centre, the demand for bus journeys per day into the city rose from 800 to 1000.
What was the cross elasticity of demand for bus journeys with respect to car parking charges?
–0.4
+0.4
+2.0
+2.5
- 9. Multiple Choice
An economy is suffering from a housing shortage. The demand for housing continues to rise as real incomes increase and more construction firms enter the market to build more houses.
Which diagram represents this situation?
A
B
C
D
- 10. Multiple Choice
A good has a price elasticity of supply of 2.0. The current quantity supplied is 300 units per week at a market price of $20 per unit. The firm raises the price to $25 per unit.
What will the new quantity supplied be per week?
150 units
375 units
400 units
450 units
- 11. Multiple Choice
What is a major function of the price mechanism?
providing incentive for government intervention to reduce income inequality
removing shortages by creating incentives for market prices to fall
removing surpluses by creating incentives for market prices to rise
signalling changes in market conditions to producers and consumers
- 12. Multiple Choice
The diagram shows the supply curve of a product.
The government imposes a specific indirect tax of $5 on the product.
How will the price elasticity of supply of the product change?
from elastic (>1) to inelastic (<1)
from inelastic (<1) to elastic (>1)
from inelastic (<1) to unitary (=1)
from unitary (=1) to elastic (>1)
- 13. Multiple Choice
In the market for a good the quantity supplied (QS) and the quantity demanded (QD) are given by QS = P – 30 and QD = 240 – 2P where P = price in dollars.
A change in the tax on the good makes QS = P – 36.
How will the change affect equilibrium price?
It will fall by $2.
It will fall by $6.
It will rise by $2.
It will rise by $6.
- 14. Multiple Choice
The diagram shows the market demand and supply curves for rice.
What would happen if a government imposed a maximum price of $10?
The government would need to supply Q1 to Q3.
The quantity sold would be Q1.
The quantity sold would be Q2
The quantity sold would increase from Q2 to Q3.
- 15. Multiple Choice
What is likely to cause a decrease in aggregate demand?
an appreciation in the exchange rate
an improvement in consumer confidence
an increase in government expenditure
an increase in the money supply
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