NEC preparation 13

What would an economist regard as an example of the factor of production capital?

• an individual’s purchase of stocks and shares

• borrowing by a firm to pay for electricity

• the building by a firm of a new factory

• total savings by individuals in a country

The diagram shows a production possibility curve (PPC).

Why is the curve usually drawn like this?

• International free trade exists.

• Opportunity cost changes.

• Resources are unlimited in supply

• Some resources will be unemployed.

Which situation indicates a mixed economy?

• Economic activity is controlled entirely by the private sector.

• Individual choices are unaffected by government actions.

• Services are provided by both private and public sectors.

• The government carries out all planning and decision making.

What causes market failure?

• government provision of services

• social costs equal private costs

• the existence of external benefits

• the existence of perfect competition

What is the most important factor that affects how much a family saves?

• the income of the family

• the level of taxation

• the rate of inflation

• the reliability of banks

Why is the energy supply industry dominated by very large firms in many economies?

• Government controls prevent the exploitation of consumers.

• High fixed capital costs exist.

• Labour-intensive production techniques are used.

• Non-price advertising increases competition.

The diagram shows the fixed costs, variable costs and total costs of a firm.

Which distance represents the firm’s fixed costs?

• WX

• WY

• XY

• XZ

An entrepreneur buys a workshop for $200 000 to make plastic boxes. In the first year of operation he spends $70 000 on materials, employs ten production workers paid by the amount produced (piece rate) at a total cost of $80 000 and buys two delivery vehicles for $10 000 each.

What are his total variable costs?

• $100 000

• $150 000

• $220 000

• $370 000

Which statement about interest rate changes is accurate?

• A fall in interest rates will always increase inflation.

• A rise in interest rates may increase cost-push inflation.

• A rise in interest rates will raise the level of investment in a country.

• Interest rate changes have no impact on the level of production.

A country is experiencing a period of full employment.

What is most likely to lead to an increase in demand-pull inflation?

• an increase in government spending

• an increase in imports

• an increase in income tax rates

• an increase in sales tax