AS MCQ PRACTICE OCT 23-13

What is most likely to increase when a factory introduces an automated production line to take advantage of division of labor?

• Average cost of production

• Job satisfaction of workers

• Range of skills of each worker

• Worker productivity

Answer explanation

Worker productivity is most likely to increase when a factory introduces an automated production line to take advantage of division of labor.

How would an economist classify a product that consumers do not use enough of due to imperfect information about the product?

• Demerit good

• Free good

• Merit good

• Public good

Answer explanation

An economist would classify a product that consumers do not use enough of due to imperfect information as a Merit good, which is a product that is under-consumed when left to the market forces.

Which statement is not correct regarding the opportunity costs in the production of rings and bracelets by Luke and Zoe?

• Luke has a larger opportunity cost than Zoe for making bracelets

• The opportunity cost of producing rings is constant for both Luke and Zoe

• Zoe should specialize in making rings

• Zoe’s opportunity cost for each bracelet is 2 rings

Answer explanation

Zoe should specialize in making rings because her opportunity cost for each bracelet is 2 rings, making it more efficient for her to focus on ring production.

What is an example of a free good?

• a government sponsoring a free vaccination programme for its citizens

• a hospital providing free treatment to the poor

• a school providing free education to outstanding students

• anything that provides free utility but is not scarce

Answer explanation

The correct choice is anything that provides free utility but is not scarce, as free goods are those that are abundant and do not require payment.

The diagram shows the market for computers in Pakistan. Which areas represent consumer surplus and consumer expenditure?

• Consumer surplus: WXY, Consumer expenditure: OXY

• Consumer surplus: WXY, Consumer expenditure: OXYZ

• Consumer surplus: WYO, Consumer expenditure: OXYZ

• Consumer surplus: WYO, Consumer expenditure: OYZ

Answer explanation

Consumer surplus is the area WXY, which is the triangle above the price line and below the demand curve. Consumer expenditure is the area OXYZ, which represents the total amount spent by consumers on computers.

The supply curve for a firm is a horizontal straight line. What can be concluded from this statement?

• Quantity supplied is infinite at the given price.

• Quantity supplied is infinite below the given price.

• Quantity supplied remains constant at all prices.

• Quantity supplied is perfectly inelastic.

Answer explanation

Quantity supplied remains constant at all prices.

When the incomes of consumers of good X fall by 5%, which conditions will cause the demand curve for good X to shift furthest to the right?

• Inferior good, income elasticity of demand for good X = -0.8

• Inferior good, income elasticity of demand for good X = -1.2

• Normal good, income elasticity of demand for good X = +0.9

• Normal good, income elasticity of demand for good X = +1.5

Answer explanation

The correct choice is 'Inferior good, income elasticity of demand for good X = -1.2' because a more negative income elasticity of demand for an inferior good indicates a stronger shift in demand when incomes fall.

If good P and good Q are substitutes and there is a decrease in supply of good P due to a shortage of materials, what will happen to the demand for good P and good Q?

• A

• B

• C

• D

Answer explanation

If good P and good Q are substitutes, a decrease in supply of good P will lead to an increase in demand for good Q (substitute goods). Therefore, the demand for good P will increase, and the demand for good Q will also increase.

Considering the policy to reduce the use of fossil fuels, which leads to oil companies reducing the level of investment in new reserves, what will be the long-run effect on the oil market?

• A

• B

• C

• D

Answer explanation

Reduced investment in new reserves will lead to decreased oil supply in the long run, potentially causing an increase in oil prices due to scarcity, as seen in choice C.

What is the price elasticity of demand for a product if a 50% price reduction leads to a 30% increase in quantity demanded?

• A) -0.6

• B) 0.6

• C) -1.5

• D) 1.5

Answer explanation

Price elasticity of demand = (% Change in Quantity Demanded) / (% Change in Price) = (30% / -50%) = -0.6. Therefore, the correct answer is A) -0.6.