Econ past paper practice 2

What will increase the producer surplus of farmers that grow carrots?

• a decrease in the demand for carrots

• a decrease in the price of carrot seed

• a decrease in the price of cabbage

• a decrease in the subsidy on carrots

Why does an individual’s demand curve generally slope downwards to the right?

• The additional satisfaction an individual gets from consuming most goods decreases as consumption increases.

• The additional satisfaction an individual gets from consumption decreases as income rises.

• The individual has finite income which is used to attempt to satisfy many wants.

• For most goods the price charged by producers falls as the quantity purchased increases.

What is price elasticity of supply?

• the change in the quantity supplied when a price changes

• the change in the quantity supplied when demand changes

• the comparison of the proportionate change in supply to the proportionate change in demand

• the comparison of the proportionate change in supply to the proportionate change in price

What is necessary for consumer surplus to be zero?

• Demand is perfectly elastic.

• Demand is perfectly inelastic.

• Supply is perfectly elastic.

• Supply is perfectly inelastic.

When will the price mechanism not function as a system for allocating goods?

• when the government bans advertising

• when the government maintains an effective maximum price

• when there is a limited supply of the good

• when there is a powerful company able to set the market price

What can be concluded about a good with a positive cross-price elasticity of demand?

• Its price will be sensitive to changes in prices of close substitutes.

• Its price will be sensitive to changes in quantity demanded of close substitutes.

• The quantity demanded for this good will be sensitive to changes in prices of close substitutes.

• The quantity demanded for this good will be sensitive to changes in quantity demanded of close substitutes.

What is an example of a transfer payment?

• government spending on hospitals

• government spending on motorways

• minimum wage

• welfare benefits

Why might a country’s government impose a tax on fuel exports?

• to encourage domestic refineries to increase production

• to improve the country’s trade balance

• to reduce fuel prices for domestic consumers

• to reduce the government’s budget surplus

What leads to a fall in a country’s terms of trade?

• a fall in the price of exports relative to the price of imports

• a fall in the price of imports relative to the price of exports

• a fall in the quantity of exports relative to the quantity of imports

• a fall in the quantity of imports relative to the quantity of exports

What would be the best policy to increase the value of a currency?

• Impose tariffs on imported goods with price-inelastic demand.

• Increase interest rates.

• Reduce income tax.

• Sell the currency on the foreign exchange markets.