AQA 2019

A monopolistically competitive firm’s demand curve is

• also the market demand curve.

• inelastic throughout its length.

• the firm’s average revenue curve.

• the same as its marginal revenue curve.

The table below contains selected data on a country’s macroeconomic performance over a 20 year period. All other things being equal, which one of the following, A, B, C or D, can be inferred from the above data?

• The natural rate of unemployment is falling

• The price level is increasing more slowly

• The volume of exports is increasing

• There is an inverse relationship between unemployment and inflation

Which one of the following is most likely to result in complete market failure?

• Negative externalities in production and consumption

• Non-excludability and no enforceable property rights

• The existence of demerit goods in some markets

• The government setting maximum prices for excludable and rival goods

The diagram below shows the aggregate demand (AD) curve, the long-run aggregate supply (LRAS) curve, and two short-run aggregate supply (SRAS1 and SRAS2) curves for an economy. The economy’s initial equilibrium is at E1. The most likely explanation for the move of the economy from its initial equilibrium at E1 to a new short-run equilibrium at E2 is a decrease in the

• level of tariffs on imports

• productivity of capital.

• rate of wage inflation.

• value of government subsidies to farmers.

Which one of the following policies is most likely to improve the supply side of the economy? A policy which

• increases the budget surplus.

• reduces the natural rate of unemployment.

• shifts resources from capital to labour intensive industries.

• shifts the burden of tax from indirect to direct taxation.

The diagram below shows the market demand (D) curve and two supply (S1 and S2) curves for a brand of soft drink. The drink is a demerit good because of its high sugar content. The government imposes an indirect tax on each can sold that cuts consumption by 100 000 cans per week. If the price elasticity of demand for the drink is –2.0, the price must have increased by

• 5p

• 10p

• 15p

• 20p

The hypothesis of diminishing marginal utility

• assumes that at least one factor of production is fixed in the short run.

• can be used to help explain why a demand curve is downward sloping.

• explains why firms try to maximise profit.

• states that total utility must fall as consumption increases.

A rational, utility maximising consumer is considering the purchase of a used car. Her final choice is between two cars which are identical in all respects except for the differences shown below. Based on the above information, which one of the following is the most likely explanation for the customer’s purchase of Car 2? She

• has £10 000 of savings available to buy herself a used car

• has a positive income elasticity of demand for used cars.

• has a price inelastic demand curve for used cars

• wants to reduce the risks from asymmetric information.

All other things being equal, if the velocity of circulation is constant, the quantity theory of money based on Fisher’s equation of exchange, MV=PQ, predicts that an x% increase in the money supply will always cause an x%

• decrease in the rate of interest.

• increase in nominal national income.

• increase in real national income.

• increase in the rate of economic growth.

The diagram below shows the aggregate demand (AD) curve, the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve for an economy. The economy’s initial equilibrium is at E1. The government wants to achieve economic growth without conflicting with its long-run objective of price stability. All other things being equal, which one of the following policy combinations is most likely to enable the economy to achieve a new long-run equilibrium at E2?

• A reduction in interest rates and increased government borrowing.

• A reduction in the budget deficit and the rate of growth of the money supply.

• Increased government expenditure on apprenticeships and transport infrastructure funded through borrowing.

• Increased government expenditure on welfare funded through higher indirect taxes.