AS Economics: Microeconomics Revision Test (2)

The opportunity cost to society of building ten new town by-passes would be
1. The financial cost of the roads
2. The other goods and services that the capital equipment constructing the roads could have produced
3. The other goods and services that would be produced if the motorway were not built
4. The loss of farmland and natural habitat given up in order to build the road
Which one of the following is a positive economic statement?
1. The exchange rate is affected by the level of interest rates
2. The British fishing industry should be given a special subsidy to cover their financial losses due to the loss of fish stocks in the north sea
3. Firefighters deserve higher pay than nurses
4. The government should increase the rate of excise duty applied to cigarettes
If an economy is operating at full capacity, the most likely effect of an increase in the output of capital goods is that the output of consumer goods will
1. Increase in the short run but fall in the long run
2. Decrease in the short run but fall in the long run
3. Increase in the short run but rise in the long run
4. Decrease in the short run but rise in the long run
The diagram shows an economy with a production possibility boundary producing heart operations and other health treatments. The economy is able to expand output from the combination shown by point A to the combination shown by point C if
1. There is an increase in the productivity of all resources available to provide health treatments
2. Wage costs increase in the National Health Service
3. Technological improvements in heart operations only reduce the cost of such procedures
4. There is a reduction in the number of people employed in the NHS
The diagram below shows the domestic demand and supply for a commodity and also the world supply both before and after the introduction of an import tariff. The shaded area in the diagram labelled by the letter M represents
1. The volume of imports before the introduction of the tariff
2. The value of imports before the introduction of the tariff
3. The volume of imports after the introduction of the tariff
4. The value of government tax revenue after the introduction of the tariff
The diagram shows the production possibility frontier for two countries (the UK and Italy) producing two goods, freezers and dishwashers. From the information provided it can be deduced that
1. The UK has a comparative advantage in producing freezers and Italy has a comparative advantage in producing dishwashers
2. The UK has a comparative advantage in producing dishwashers and Italy has a comparative advantage in producing freezers
3. The UK has an absolute advantage in both goods
4. There is no comparative advantage for either country in the production of the two goods shown
The change in the supply curve shown in the diagram might have been caused by
1. An increase in consumers' real incomes
2. A successful advertising campaign for the product
3. A fall in the costs of raw materials and components
4. The exit of some suppliers from the market
If, when income changes, the quantity demanded of a commodity remains the same, its income elasticity of demand is equal to
1. Infinity
2. Zero
3. +1
4. -1
The diagram above shows the effect of an increase in market supply for a commodity. The shaded area in the diagram represents
1. The increase in producer surplus following a fall in market price
2. The increase in total costs following a fall in market price
3. The increase in consumer surplus following a fall in market price
4. The increase in government tax revenue following a fall in market price
If, when the price of product S rises by 20%, the demand for product W falls by 4% and the demand for product T rises by 5%, then we can say that
1. W is a substitute for S and T is a complement to S
2. W is a substitute for S and T is a substitute to S
3. W is a complement for S and T is an inferior good
4. W is a complement for S and T is a substitute to S
The diagram shows a market where the government has introduced a statutory maximum price of Pmin. As a result of the minimum price, the output that will be supplied onto the market will be
1. A
2. B
3. C
4. D
The diagram shows a market in equilibrium at price P1 and output Q1. Which area, A, B, C or D shows the level of producer surplus in the market at this price and output?
1. A
2. B
3. C
4. D
The data provides information on world demand for and supply of coffee over three years from 1999-2001. From the data provided one might predict that
1. World coffee prices would have fallen because of an excess of demand over supply
2. World coffee prices would have risen because of an excess of demand over supply
3. World coffee prices would have fallen because of an excess of supply over demand
4. World coffee prices would have remained more or less constant with demand rising in line with supply
The effect of a government imposing a minimum price for cereals above the free market equilibrium price will result in
1. No change in equilibrium price
2. A fall in the quantity of cereals produced
3. An increase in the demand for cereals
4. Over-production of wheat because of the incentive of higher prices
If the supply curve of a commodity is positively sloped, a fall in the price of the commodity brought about by an inward shift of demand results in
1. A contraction in quantity supplied
2. A decrease in supply at all price levels
3. A rise in producer surplus
4. An increase in consumer surplus
The change in the market demand for lamb shown in the diagram above might have been caused by
1. A fall in consumers' incomes (assuming lamb is a normal good)
2. A rise in the price of beef (a substitute for lamb)
3. A successful advertising campaign for chicken (a substitute for lamb)
4. An increase in the number of farmers supplying lamb to the market
"Pepper prices are soaring, thanks to poor rains in the major producing nations of India and Indonesia, industry experts have warned. The price of the spice is being further supported by growing consumption in India." Source: The Independent, 6 December 2002

Which one of the following best explains the reasons behind the changing price of pepper outlined in the passage above
1. The market demand for pepper has shifted inwards and the market supply of pepper has shifted inwards
2. The market demand for pepper has shifted outwards and the market supply of pepper has shifted outwards
3. The market demand for pepper has shifted outwards and the market supply of pepper has shifted inwards
4. The market demand for pepper has remained the same and the market supply of pepper has shifted inwards
The diagram above shows the effect of a government subsidy to producers of cereals. Following thre subsidy, the total amount that the government will pay to producers as part of the subsidy arrangement is equal to area

From the information contained in this paragraph we can conclude that
1. GDA
2. GFB
3. DABF
4. ECBF
The diagram shows the effect of a government subsidy on producers, as a result of the subsidy the total level of consumer surplus increases by
1. GEC
2. DABF
3. DECA
4. ECBF
A producer estimates that the price elasticity of supply for his product is +1.5. As a result of an increase in market price from £30 to £45 following an outward shift of the producer's demand curve, we could expect the producer to expand supply by
1. 50%
2. 70%
3. 75%
4. 100%
The government wishes to increase welfare by introducing policies that create external benefits as well as internal ones. It should
1. raise the price of unleaded fuel
2. increase the highest rates of income tax
3. increase the school - leaving age
4. invest more in funding training for the long-term unemployed
A government believes that consumers derive greater benefit from a good than consumers themselves perceive. To which category does the good belong?
1. Merit good
2. Collective good
3. Superior good
4. Public good
Which one of the following statements referring to a market economy is correct?
1. Monopolists never take account of consumer preferences they just charge the maximum price a consumer is willing to pay
2. Prices in markets do not always reflect externalities
3. Efficiency is always indicated by high producer profits
4. Large firms are always more efficient than smaller firms
Which one of the following is an example of a financial economy of scale
1. Volume car producers can use high productivity and expensive unit of capital equipment
2. National supermarket chains can employ specialist managers to reduce inefficiency and raise productivity
3. A company quotes on the stock market can raise extra funds more cheaply than an owner-run business
4. A multinational company can afford to spend huge sums on advertising and marketing
An economy is productively efficient when
1. It only produces private goods
2. All externalities are eliminated
3. All firms benefit from economies of scale
4. The economy is operating on its production possibility frontier

AS Economics: Microeconomics Revision Test (2)

Economics Multiple-choice Quiz