Answer all questions

Questions 1 to 20 are multiple-choice type questions and you should answer all of them. Only ONE answer is correct and you should write either A, B, C, D or E as appropriate to the question number in your answer book.

Each question is worth 2 marks and section A is worth 40% of the total marks for the paper. This section should take approximately 1 hour to complete.

SECTION A

Answer all questions

1) When the long run average cost of production falls as a company increases output we can say that

A)The company is experiencing economies of scale

B)Normal profits will become supernormal profits

C)Overall the total cost of producing the product is falling

D)Diminishing returns to labour are occurring

E)Diseconomies of scale are causing the average cost to fall

2) If two goods are substitutes for one another then it suggests that

A)One of the products is an inferior good

B)The cross price of elasticity between the goods will be positive

C)One of the goods must be a luxury good

D)The demand for one of the goods is infinitely elastic

E)The cross price elasticity between the goods is zero

3) Which of the following is likely to cause the equilibrium quantity of a product to increase?

A)A shift in the supply curve to the left

B)A fall in the price of a substitute good

C)An increase in tax on the producer

D)A fall in income tax

E)A rise in the cost of raw materials

4) Predatory pricing is a pricing strategy based on

A)Increasing customer loyalty by advertising

B)Charging different prices for the same product in different markets

C)Driving out weaker competition by selling a product at a very low price

D)Fooling customers into thinking they are getting a bargain

E)Charging a high price when the product first enters the market

5) The average income of consumers' increases from 400 per week to 410 and this leads to in an increase in the quantity demanded for mobile phones from 8000 per week to 8160. What is the income elasticity of demand for mobile phones?

A)+0.4

B)+0.8

C)- 1.25

D)+ 0.16

E)+ 1.25

6) An industry which has a few dominant companies who set their output and prices according to what they believe their competitors will do is likely to be

A)A monopoly

B)An oligopoly

C)Perfectly competitive

D)Operating under monopolistic competition

E)None of the above

7) Which of the following is likely to reduce the demand for new laptop computers?

A)A fall in the cost of plastic

B)Lower production taxes

C)A fall in the price of machinery

D)Cheaper energy costs

E)Lower incomes

8) In the short run a perfectly competitive firm should continue to produce an output as long as

A)Marginal cost is constant

B)Total costs are above total revenue

C)Average total cost is set above the price

D)The price of the product is higher than the average variable cost

E)Marginal cost is above the price level

9) If a product has an income elasticity of demand of + 0.1 we can say that it is likely to be

A)A weak substitute for another good

B)An inferior good

C)A normal good which is a necessity

D)A normal good which is a luxury good

E)Quantity demanded is totally unresponsive to changes in income

10) When firms set their prices by adding a profit 'mark-up' to the average cost of producing a good this is known as

A)Contribution pricing

B)Cost plus pricing

C)Price discrimination

D)Market based pricing

E)Marginal pricing

11) If the government wanted to reduce unemployment using supply side policy it could

A)Decrease the money supply

B)Increase unemployment benefits

C)Lower government spending on the infrastructure

D)Improve labour skills through training

E)Raise interest rates

12) Calculate the value of the multiplier where C = 25 + 0.75Y

A)4

B)25

C)0.75

D)0.25

E)25.75

13) A total ban on trade with another country is known as

A)An export restraint

B)A quota

C)A tariff

D)An embargo

E)An admin barrier

14) When the economy is operating well below its full capacity unemployment can be reduced by

A)Using supply side policies to shift the Aggregate Supply curve to the left

B)Raising income tax

C)Using quotas to reduce imports

D)Encouraging people to save and spend less

E)Lowering interest rates

15) When investment in the economy is rising and unemployment is falling it is most likely that the economy is

A)In the recovery phase of the business cycle

B)In a recession

C)Entering the downturn phase

D)At the lowest level of potential output

E)Operating at full economic capacity

16) If the CPI is 160 in July 2019 and 164 in July 2020 then the rate of annual inflation will be

A)0.25%

B)3.33%

C)4%

D)1.67%

E)2.5%

17) The 'output gap' can best be defined as

A)The difference between the level of exports and imports

B)A surplus in the budget

C)The difference between actual and potential output

D)Where production exceeds the level of demand in the economy

E)The level of claimant count unemployment

18) According to the theory of comparative advantage in trade a country should

A)Maintain a trade surplus with other nations

B)Specialise in producing goods which have the lowest opportunity cost

C)Subsidise exports in technical products

D)Introduce tariffs to protect new industries

E)Import goods which are labour intensive in production

19) In a floating exchange rate system a rise in exports is likely to do which of the following?

A)Increase withdrawals from the circular flow of income

B)Cause the exchange rate to depreciate

C)Decrease injections into the circular flow of income

D)Cause the exchange rate to appreciate

E)Increase the level of unemployment

20) Which of the following is most closely associated with supply side policy?

A)Increasing the money supply

B)Reducing income tax

C)Building new hospitals

D)Lowering interest rates

E)Improving labour market flexibility

SECTION B

1.(a) Using supply and demand curve diagrams, show how the equilibrium price and quantity are affected by an increase in tax on suppliers.

(b) What other factors might be responsible for a rise in the equilibrium price of a product?

2.(a) Why does the marginal physical product of labour diminish in the short run as the number of workers increases beyond a certain point?

(b) Using diagrams to help with your answer, explain the difference between the short run and the long run in the analysis of a firm's production decisions.

3. (a) Draw a diagram of the circular flow of income showing the relationship between national income(Y), domestic consumption (Cd), injections (J) and withdrawals (W).

(b) In the following examples write the correct response in your answer book indicating in each case whether each represents an injection into the circular flow of income or a withdrawal from it and whether this shows an increase or a decrease.

(i)Other countries buy less British goods

(ii)The Government spends more on transport and education

(iii) People decide to consume a higher proportion of their income

(c) Calculate the value of the multiplier where an increase in investment from 60bn to 75bn results in an increase in national income from 750bn to 795bn.

4.(a) How are UK exchange rates likely to be affected by an increase in UK interest rates compared with other countries?

(b) If the exchange rate for the pound falls what are the likely effects on exports, imports and AD?

SECTION C

1. (a)Using the concept of price elasticity of demand explain why companies set different prices for the same product in different markets.

(b) Apart from price elasticity of demand examine the other factors which influence a company when setting a price.

2.(a) To what extent could it be argued that Microsoft is a monopoly? Justify your answer.

(b) Under which form of market structure are you most likely to find significant amounts of advertising taking place? Explain why this might be the case.

3.(a) Explain the idea of comparative advantage in international trade.

(b) Examine the means by which countries are able to restrict trade and assess the arguments used to justify these measures.

4. (a) Explain the difference between demand-pull inflation and cost-push inflation.

(b) Examine the policies which the government might use to reduce inflation in the economy. What are the likely consequences of these policies on economic growth?

IFY Economics for Business - Formula Sheet

Elasticity

Price Elasticity of DemandPED = %DQd

%DP

Price Elasticity of SupplyPES = %DQs

%DP

Cross Price Elasticity of DemandCPED = %DQa

%DPb

Income Elasticity of DemandIED = %DQd

%DY

Costs, Output and Revenue

Total CostTC = FC + VC

Total RevenueTR = P x Q

Average Total CostATC = TC

Q

Average Variable CostAVC = VC

Q

Average Fixed CostAFC =FC

Q

Marginal CostMC = DTC

DQ

Marginal Product of LabourMPL = DTPL

DQL

Macroeconomics

AD = C + I + G + (X - M)

MPC = C/Y

Multiplier K = 1/(1 - mpc) or Y/J

Inflation = Pt - P(t-1)/P(t-1) x 100%

Duration

This assignment is expected to take 3 hours for completion.

Feedback arrangements

Feedback and marks will be available on Blackboard in due course - typically 3 weeks from the submission deadline.Please note that all marks are subject to moderation by the Board of Examiners.

Good Academic Conduct and Academic Misconduct

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Assessment Criteria

1. Analyse how the market mechanism allocates resources for the production of goods and services within an economy.
2. Evaluate the consequences of the market mechanism and explain the effects of government intervention.
3. Assess the opportunities, benefits and constraints that arise from trading with other countries.
4. Deploy techniques of economic analysis within a problem-solving context.