AS MCQ PRACTICE OCT23-13

What will help solve the basic economic problem?

• the control of the market system

• the efficient allocation of scarce resources

• the preservation of a healthy environment

• the elimination of hunger

Answer explanation

The efficient allocation of scarce resources is essential to solving the basic economic problem by ensuring resources are used effectively and efficiently.

Country Z operates with a production possibility curve (PPC). Currently, output is at combination 1. Which movement has zero opportunity cost in terms of the goods produced?

• 1 to 2

• 1 to 3

• 2 to 3

• 3 to 4

Answer explanation

Moving from combination 1 to 3 on the PPC has zero opportunity cost because resources are being reallocated efficiently without sacrificing the production of any goods.

A country's health care is funded by taxation but can be used free of charge by patients. Which type of good is health care in this country?

• demerit good

• free good

• private good

• public good

Answer explanation

Health care in this country is considered a private good because it is funded by taxation but can be used free of charge by patients.

What is least likely to increase as a result of a transition from a planned economy to a free market economy?

• prices of goods and services

• privately owned resources

• provision of merit goods

• structural unemployment

Answer explanation

The provision of merit goods is least likely to increase as a result of a transition from a planned economy to a free market economy because merit goods are typically provided by the government in planned economies.

Which statement correctly describes the area of producer surplus on a demand and supply diagram?

• It is above the supply curve and below the equilibrium price line.

• It is above the supply curve and below the demand curve.

• It is below the demand curve and above the equilibrium price line.

• It is below the supply curve and above the horizontal axis.

Answer explanation

It is above the supply curve and below the equilibrium price line.

The diagram shows a demand curve for pineapples. What happens to the value of price elasticity of demand (PED) when there is a movement from point X to point Y and what describes the value of PED at point Y?

• fall, elastic

• fall, inelastic

• rise, elastic

• unchanged, unitary

Answer explanation

When moving from point X to point Y on the demand curve, the price elasticity of demand (PED) falls and becomes inelastic at point Y.

In a free market, there is a surplus of a good. Which change would cause the market to come to an equilibrium?

• a decrease in demand

• a fall in price

• a government minimum price

• an increase in supply

Answer explanation

In a free market with a surplus of a good, a fall in price would cause the market to come to an equilibrium by increasing demand and reducing the surplus.

Which combination of goods is most likely to be represented by this information?

• A

• B

• C

• D

Answer explanation

The correct choice is C because the information provided suggests a complementary goods relationship where an increase in the price of one good leads to a decrease in the demand for the other good.

• A

• B

• C

• D

Answer explanation

Substitute P=3 into S=10+10P to get S=10+10(3)=40. Therefore, the supply when the price is $3 is 40.

Based on the supply curve diagram, which pricing policy should the owner use to allocate the parking spaces according to the market mechanism?

• Set a fixed price at P1

• Set a fixed price at P4

• Vary prices between P2 and P3

• Vary prices between P1 and P4

Answer explanation

The owner should vary prices between P1 and P4 to allocate parking spaces according to the market mechanism based on the supply curve diagram.