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C4 Economics for Business

Question 1

All the following would cause a shift to the right of the demand curve for potatoes except which one?

       A       An fall in the price of land
       B       A rise in the price of rice
       C       A fall in incomes
       D       A programme identifying potatoes as causing health problems

Question 2

Which of the following statements best describes the long run equilibrium in a market where there is perfect competition?

       A       Firms will earn supernormal profits because price exceeds average total cost.
       B       There is optimal capacity or technical efficiency in the industry since all firms
                 operate at minimum average total cost.
       C       Marginal revenue equals average revenue.
       D       Price equals marginal cost, but does not equal average cost.

Question 3

Which of the following statements about opportunity cost is incorrect:

       A      Opportunity cost can have a positive or negative value.
       B      Opportunity cost can vary for the same decision for different decision makers.
       C      Opportunity cost is measured as the utility of the next best alternative.
       D      The opportunity cost of all the other alternatives except the first best
                alternative is the same.

Question 4

If a consumer discovers that as a result of a rise in market price from £12 to £15 that the quantity produced extended from 2000 units to 2200 units, the elasticity of supply would be:

       A       2.5 and therefore elastic
       B       2.5 and therefore inelastic
       C       0.4 and therefore elastic
       D       0.4 and therefore inelastic

Question 5

A producer discovers that the cross elasticity of demand between his product and that of a rival was + 0.8. If the objective of running an advertising campaign is to differentiate his product and after the advertising campaign his cross elasticity of demand was + 2.0, then he should: 

        A     Promote his advertising manager because the advertising campaign
                has been successful in differentiating the product.
        B      Promote his advertising manager because after the campaign a price cut 
                of 10% by the rival firm would result in the demand for his product rising by 20%.
       C      Dismiss his advertising manager because the advertising campaign has
                 made the two products more of a substitute.
       D      Dismiss his advertising manager because after the campaign a price cut of
                10% by the rival firm would result in the demand for his product rising by 20%.

Question 6

When the average total cost is at a minimum which of the following apply:

1. Marginal cost will be a minimum.
2. Total cost will be at a minimum.
3. It will be equal to the marginal cost.

      A    1, 2 and 3
      B    1 and 2 only
      C    2 and 3 only
      D    3 only

Question 7

Which of the following is the best description of a normal good:

       A         A product which earns the producer a normal profit
       B         A product which has a downward sloping demand curve
       C         A product which has a positive income elasticity of demand
       D         A product which has an upward sloping supply curve

Question 8

If a production possibility boundary shifts to the right, this could be due to all the following except which one:

       A         A technological improvement in all sectors of the economy 
       B         Acquisition of additional factors through the invasion of another country’s territory 
       C         A reduction in unemployment 
       D.        Immigration

Question 9

In the table below is given data about the total costs of a product:

Unit

Total cost

4

4,500

5

5,000


What is the marginal cost (MC) and average total cost (ATC) of the fifth unit?

      A      MC £250 ATC £1125
      B      MC £500 ATC £900
      C      MC £250 ATC £1000 
      D      MC £500 ATC £1000

Question 10

If the price of cross channel tickets through the tunnel goes up which of the following will happen to the price and demand for cross channel tickets by sea ferry? 

       A       The demand for ferry tickets will shift to the right and their price will rise. More
                 ferry tickets will be sold.
       B       The demand curve for ferry tickets will shift to the right and their price will
                 go up. Fewer ferry tickets will be sold.
      C       The demand curve for ferry tickets will shift to the left and their price will go
                 down. More ferry tickets will be sold.
      D       The demand curve for ferry tickets will shift to the right and their price will
                 go down. More ferry tickets will be sold.


ANSWERS::


1.  B

2.  B

3.  A

4.  D

5.  C

6.  D

7.  C

8.  C

9.  D

 

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