Economics Semester 1 Examination

SECTION A

Answer all Questions

Use the Answer Sheet provided to select the most correct alternative.

1.     Which of the following would be an example of the term capital to an economist?

A        land purchased for resale at a higher price

B        fixed deposits in a financial institution

C        a rare postage stamp purchased by a collector

D        a computer purchased by a travel agency

2.     If the cross price elasticity of demand for a product is negative, the products are :

A        complementary goods

B        substitute goods

C        inferior goods

D        superior goods

3.     Commodity A has a close substitute. Assuming a decrease in supply for A, which of the following changes is likely to occur in the market for the substitute?

A        demand will decrease and price will increase

B         demand will increase and price will increase

C        demand will increase and supply will increase

D        supply will increase and price will increase

4.     If a firm's average revenue and marginal revenue are the same, demand is :

A        price elastic

B        price inelastic

C        unit price elastic

D        perfectly elastic

Use the following diagram to answer Question 5 and 6.

Production Possibilities Curve

0 50 100 130 150

GOOD B

5.     Using pp2, the opportunity cost of the first 50 units of good B is :

A        0 units of good A

B         20 units of good A

C         100 units of good A

D        120 units of good A

6.     A movement from pp1 to pp2 would be caused by :

A        inflation

B        unemployment

C       full employment

D       economic growth

7.     The merger of two taxi companies is an example of :

A        conglomeration

B         restrictive trade practices

C        horizontal integration

D        vertical integration

8.     Cream is a relatively elastic product. Without any interference in the        market, the equilibrium price of cream would be $1 per carton. The         government has proposed that a sales tax of $0.50 per carton be placed on cream. Which of the following statements is correct?

A        the effect of the sales tax will raise the equilibrium price of cream

by $0.50

B         the effect of the sales tax will be to create a shortage of cream

C         the effect of the sales tax will raise the equilibrium price of cream

by less than $0.50

D         the effect of the sales tax will raise the equilibrium price of cream

by more than $0.50

9.     The effect of introducing a subsidy on the production of a product would be to :

A        Increase supply and increase demand

B         decrease supply and increase demand

C        increase supply and increase quantity demanded

D        decrease supply and increase quantity demanded

10.   The major difference between the market structures of oligopoly and monopolistic competition is :

A        the existence of differentiated products

B        the existence of homogeneous products

C       the shape of the demand curve of the firm

D       the degree of market concentration

Use the following information to answer Questions 11-12.

11.   The firm will choose to produce at which level of output in the short run?

A       0

B       2

C       4

D       6

12.   When the firm expands output and sales from 5 to 6 units, the price elasticity of demand is :

A        unit elastic

B        elastic

C        inelastic

D        perfectly elastic

Use the following information to answer Question 13 and 14.

The following table which shows quantities of coal and computers produced by countries A and B using the same quantity of resources.

13.   Country A has an absolute advantage in:

A        coal

B        computers

C         coal and computers

D        neither coal nor computers

14.   Which country has a comparative advantage in the production of computers?

A         Country A

B          Country B

C          Both Country A and Country B

D         Neither Country A  and Country B

15.   Which of the following is not a characteristic of a perfectly competitive market?

A        the industry demand curve is always perfectly elastic

B         P = MC is the short run equilibrium position for the firm

C         P = ATC is the long-run equilibrium position for the firm

D        standardised product

16.   Consumer sovereignty means that consumers :

A        determine what goods and services are produced

B         are not influenced by advertising

C         have perfect knowledge of the market

D        are influenced by non-price competition

17.   The basic economic problem would not exist if :

A        wants were unlimited

B         resources were unlimited

C         more money was in circulation

D        resources were limited

18.   The close down position of a firm in the short run is where :

A        total revenue equals total variable costs

B        total revenue equals total costs

C        price equals average total cost

D        price equals marginal cost below AVC

19.   External economies of scale often occur when :

A        pollution and congestion increase the firm's costs of production

B         a wholesaler is used to market the firm's product

C        employees have incentives to work harder

D        improvements are made to infrastructure

20.   The Law of Diminishing Returns is based on the assumption that :

A        marginal product does not change

B         total physical product falls

C        total physical product does not change

D        one factor of production remains fixed

SECTION B

Written Answers

Questions 21 and 22 are worth 10 marks each.

Answer all parts to each Question

Clearly number each Question

Answer both Questions in the same writing booklet.

21.     a)     Distinguish between internal and external economies of scale. (5 marks)

b)     What are some factors which affect the price elasticity of demand for a particular product?  (5 marks)

SECTION C

Written Answer

Question 23 is worth 20 marks.

Answer all parts to the question.

Start this question in a SEPARATE writing booklet.

23.     a) What are the main characteristics of a firm operating under conditions of perfect competition?  (5 marks)

b) Using diagrams, compare the short run equilibrium position of a typical firm operating under conditions of perfect competition and earning a supernormal profit with the long run equilibrium position.  (10 marks)

c) With the aid of a diagram, illustrate and explain the short run supply curve for Perfect Competition.  (5 marks)

8.     The market for a particular product will tend to become more concentrated when:

A        demand for the product rises

B         non price competition is removed

C         existing firms leave the industry

D         economic profits exist in the short run and there are low barriers to entry

9.     If improved methods of production result in a fall in the price of product A, which in turn causes the demand for product B to increase, then :

A        products A and B are substitutes

B         products A and B are complements

C        the demand for product A is price inelastic

D        the demand for product B is price inelastic

10.   A firm will not produce in the short run unless the price it receives is greater than its :

A        marginal cost

B        marginal revenue

C        average fixed costs

D        average variable costs

11.   Which of the following is a characteristic of monopolistic competition?

A        a small number of sellers

B         a small number of buyers

C        a homogeneous product

D        easy entry into the industry