w23_qp_31 Prep for Mock 1

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.

A budget line (b–b) shows the combinations of two goods, X and Y, that a consumer can obtain within a fixed income of $60 per week, when the price of Y = $1 and X = $2.

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

• b–b₁

• b–b₂

• b–b₃

• b–b₄

Which market structures are contestable?

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

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

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

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

The diagram shows a long-run average cost curve (LRAC), and three short-run average cost curves (SRAC1, SRAC2 and SRAC3) for an individual firm. Each short-run average cost curve represents a fixed factor of production. Between levels of output OL and OM, which statement is not correct?

• A. Average fixed costs are falling.

• B. Economies of scale are being experienced.

• C. The law of diminishing returns is operative.

• D. There are decreasing returns to scale.

Which combination of reactions by rivals results in a kinked demand curve for an oligopolist when a price is changed?

• copying both a price rise and a price fall

• copying a price rise and ignoring a price fall

• ignoring a price rise and copying a price fall

• ignoring both a price rise and a price fall

What is a key condition for effective price discrimination?

• The product cannot be resold to another consumer.

• The product must be price inelastic.

• The profits from one market can be used to subsidise another market.

• There are low barriers to entry into the market.

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

• 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

A city council is considering building a passenger terminal at its port so that the city can benefit from large cruise ships that could then dock there. It undertakes a cost–benefit analysis.

What would be included as an external cost in the city council’s cost–benefit analysis?

• 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

Some multinational oil companies extracting oil in developing countries are now required to repair the damage they do to the environment.

What best describes the total costs incurred by the oil companies in such circumstances?

• external costs

• private costs plus external costs

• social costs plus external costs

• social costs plus private costs