A2 MCQ PRACTICE MAY-23-32

Economists normally assume that the marginal utility from consuming additional goods is positive and diminishing. What is the effect on total satisfaction of consuming extra units of the good?

• Total satisfaction falls at a decreasing rate.

• Total satisfaction falls at an increasing rate.

• Total satisfaction rises at a decreasing rate.

• Total satisfaction rises at an increasing rate.

Answer explanation

Total satisfaction rises at a decreasing rate.

If the price of X rises to $3, what will be the new budget line?

• b→b1

• b→b2

• b→b3

• b→b4

Answer explanation

If the price of X rises to $3, the new budget line will shift parallel to the original budget line, resulting in b→b3.

Which market structures are contestable?

• Perfect competition: yes, Monopolistic competition: yes, Pure monopoly: no

• Perfect competition: yes, Monopolistic competition: no, Pure monopoly: no

• Perfect competition: no, Monopolistic competition: yes, Pure monopoly: yes

• Perfect competition: no, Monopolistic competition: no, Pure monopoly: yes

Answer explanation

Perfect competition and monopolistic competition are not contestable due to low barriers to entry, while pure monopoly is contestable due to potential threats from new entrants.

• A

• B

• C

• D

Which combination of cost conditions is most likely to act as a barrier to entry to a new firm wanting to join an industry?

• High fixed costs as a proportion of total costs, high output, high level of sunk costs

• High fixed costs as a proportion of total costs, low output, high level of sunk costs

• Low fixed costs as a proportion of total costs, high output, low level of sunk costs

• Low fixed costs as a proportion of total costs, low output, low level of sunk costs

Answer explanation

High fixed costs as a proportion of total costs, low output, high level of sunk costs is most likely to act as a barrier to entry for a new firm due to the significant financial commitment and risk involved.

• A

• B

• C

• D

• A

• B

• C

• D

How is dynamic efficiency represented on a diagram?

• A downward move to the minimum point of a long-run average cost curve

• A downward shift in the long-run average cost curve

• A move from a point inside a production possibility curve to a point on it

• A reduction in marginal revenue so that it equals long-run marginal cost

Answer explanation

Dynamic efficiency is represented by a downward shift in the long-run average cost curve.

What would be included as an external cost in the city council’s cost–benefit analysis for building a passenger terminal?

• The cost of a ticket for a passenger to travel on a cruise ship

• The cost of fuel to operate the cruise ships

• The costs paid by cruise ships when they dock at the port

• The cost to a fishing fleet of relocating to another port

Answer explanation

The cost to a fishing fleet of relocating to another port would be included as an external cost in the city council’s cost–benefit analysis for building a passenger terminal.

What best describes the total costs incurred by the oil companies in circumstances of environmental repair?

• External costs

• Private costs plus external costs

• Social costs plus external costs

• Social costs plus private costs

Answer explanation

The total costs incurred by oil companies in environmental repair include both social costs (costs to society) and private costs (costs to the company).