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WorksheetsEconomics revision term 1
Total questions: 25
Worksheet time: 17mins
Economics is concerned with the study of
how governments should allocate resources.
how to make more effective use of resources through reducing wants.
allocating scarce resources to satisfy unlimited wants.
how new wants and resources are produced.
1. The opportunity cost to society of constructing a new motorway would be
the financial cost of the road.
other goods and services which the labour employed constructing the road could produce.
the other goods and services that could be produced if the motorway were not built.
the loss of farmland used in order to build the road.
Which one of the following is a normative economic statement?
Free health care should be provided to all citizens at the point of consumption.
A reduction in government spending on the Health Service will result in some hospital closures.
Additional funding for the Health Service could be provided by switching expenditure from other government programmes.
A reduction in free health care facilities will have most impact on lower income groups.
If the supply curve of a commodity is positively sloped, a rise in the price of the commodity results in
an expansion in the quantity supplied.
a rightward shift in the supply curve.
a contraction in the quantity supplied.
a leftward shift in the supply curve.
In a typical demand schedule, quantity demanded
varies directly with price.
varies proportionately with price.
is determined by the quantity offered for sale.
varies inversely with price.
Given a rise in real income, the demand curve for a normal good will, other things being equal,
shift to the right, hence raising price.
shift to the right, only if price rises by less than real income.
shift to the left, hence lowering price.
shift to the right, causing an outward shift in the supply curve.
Income elasticity of demand for a commodity measures the responsiveness of
income to changes in quantity demanded.
price to changes in income.
income to changes in price.
quantity demanded to changes in income.
The relationship in the diagram above illustrates that the two goods X and Y are
inferior goods.
complementary goods.
normal goods.
substitute goods.
In a market economy, an increase in the price of a good will
always lead to more resources being devoted to the production of the good.
always be accompanied by a fall in the output of the good.
provide information which will influence the production and consumption decisions of economic agents.
make it less likely that new firms will enter the industry.
Which one of the following statements referring to the price mechanism is correct?
High prices ration scarce goods.
Firms are unable to influence demand for their goods.
High prices are always associated with high profits.
Producers and consumers always take account of externalities.
The table shows the price and quantity for two goods X and Y.
The cross elasticity of demand for X and Y when the price of X falls from £10 to £9 is
+4
+2
-2
-4
The rightward shift of the supply curve from S1 to S2 in the above diagram could be caused by
an increase in the demand for the good.
the creation of a monopoly by the firms in the industry supplying the good.
a reduction in the rate of Value Added Tax (VAT) applied to the good.
an increase in the cost of the raw materials used in the production of the good.
An industry’s short run supply curve is more likely to be elastic if
the industry uses scarce factor inputs.
its firms are operating below their full capacity.
its firms hold low levels of stock.
there are many substitutes for its output.
Which of the following is an example of government intervention to correct a market failure?
An increase in teachers’ salaries.
An increase in the rate of VAT on all goods and services.
The taxation of goods with negative externalities.
The taxation of public goods.
An economy has achieved productive efficiency if
it is self-sufficient in all products.
it has eliminated all negative externalities.
cost equals price in all its industries.
it is unable to produce more of one good without producing less of another.
State health care is classed as a merit good because if provision were left to market forces
it would be under-consumed.
its supply would be at too low a price.
it would be impossible to avoid having free riders.
demand would exceed supply at the market price.
Government intervention in the economy to correct a market distortion may fail because
governments can only supply public goods.
the opportunity cost of government intervention is zero.
the laws of supply and demand do not apply to governments.
of incomplete information relating to all the costs of intervention.
In the diagram, AP is a maximum price imposed by a government.
In the circumstances shown in the diagram, the maximum price will
have no effect on price or quantity.
cause excess supply.
cause excess demand.
increase both price and quantity.
A pure public good (or service) is one which
is provided by the State for all consumers.
is provided free of charge for all consumers.
is non-rival and non-excludable.
is heavily subsidised by the government.
Government warnings on cigarette packets are an attempt to discourage the consumption of
merit goods.
inferior goods.
public goods.
demerit goods.
All other things being equal, if strawberries and cream are complementary goods, a fall in the price of strawberries will
shift the demand curve for strawberries to the right.
cause a movement along the demand curve for cream.
cause a fall in the price of cream.
shift the demand curve for cream to the right.
A policy of increasing subsidies for inner-city public transport is most likely to cause a fall in
negative externalities.
government borrowing.
the demand for bus and train drivers.
the level of local taxation.
Market failure results in a misallocation of resources. This may be partially corrected by the government
providing public goods.
restricting the manufacture of goods that produce positive externalities.
subsidising all loss-making firms.
placing a tax on merit goods.
Which one of the following can the market mechanism not achieve in a market economy?
signalling changes in consumer tastes.
causing supply to respond to changes in demand.
eliminating excess supply and demand.
ensuring a fair distribution of all types of good.
The World Health Organisation said that a 10% increase in cigarette prices worldwide would reduce consumption by 4% in high-income countries and by 8% in low-income countries. The above statement suggests that
smokers in high-income countries are twice as addicted as those in low-income countries.
demand for cigarettes is price elastic in both low-income and high-income countries.
income elasticity of demand for cigarettes is higher in low-income than in high-income countries.
price elasticity of demand for cigarettes is negative in both high-income and low-income countries.
