Economics paper 1

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.

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

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

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.

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

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

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.

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

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

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