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© The Chartered Institute of Management Accountants 2001
Foundation Level
Economics for Business
3aFECB 
21 May 2001Day 1 – morningINSTRUCTIONS TO CANDIDATESRead this page before you look at the questionsYou are allowed TWO hours to answer this question paper.Answer the ONE question in section A (this has 26 sub-questions).Answer THREE questions ONLY from section B.Write your examination number in the boxes provided on the front of the answer book.Write FECB on the line marked "Subject" on the front of the answer book.Write your examination number on the special answer sheet for section A which is on page 3 ofthis question paper booklet.Detach the sheet from the booklet and insert it into your answer book before you hand this in.Do NOT write your name or your student registration number anywhere on your answer book.Tick the appropriate boxes on the front of the answer book to indicate which questions you haveanswered.
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FECBMay 20012 
SECTION A — 52 MARKSANSWER
ALL
TWENTY-SIX SUB-QUESTIONS – 2 MARKS EACH
Question One1.1
Governments could raise labour productivity by all of the following EXCEPT which ONE?
A
Providing tax relief for Research and Development expenditure by companies.
B
Increasing expenditure on education and training.
C
Reducing discrimination in employment practices.
D
Reducing social security payments.
1.2
Diseconomies of scale occur in a business when
A
minimum efficient scale is reached.
B
short-run variable costs begin to rise.
C
x-inefficiency exists.
D
long-run average costs begin to rise.
1.3
If the demand for a good increases, which ONE of the following will occur?
A
Price rises and the quantity sold falls.
B
Price falls and the quantity sold rises.
C
Price and quantity sold both rise.
D
Price and quantity sold both fall.
1.4
The economic problem of
WHAT 
to produce is concerned with
A
which goods and services and how much of each are to be produced.
B
which goods will meet individual and social needs.
C
which goods will maximise the rate of growth of welfare over time.
D
which combination of resources should be used in production.Each of the sub-questions numbered from
1.1
to
1.26
inclusive, given below, has only ONE correctanswer.
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May 2001FECB 3 
1.5
Which ONE of the following will produce the largest
fluctuations 
in a market price?
A
Large shifts in supply with price elastic demand.
B
Large shifts in supply with price inelastic demand.
C
Large shifts in supply with perfectly price elastic demand.
D
Small shifts in supply with price inelastic demand.
1.6
Which ONE of the following is NOT a potential source of market failure?
A
External costs.
B
External benefits.
C
An unequal income distribution.
D
The existence of monopolies.
1.7
The kinked demand curve model of oligopoly is designed to explain
A
price leadership.
B
price rigidity.
C
collusion between producers.
D
price competition.
1.8
Under monopolistic competition, excess profits are eliminated in the long run because of
A
the lack of barriers to entry.
B
the effects of product differentiation.
C
the existence of excess capacity.
D
the downward sloping demand curve for the product.
1.9
The economic welfare case for governments increasing taxes on petrol to raise its realprice is that
A
oil is a scarce resource.
B
it would reduce the imports of oil.
C
there is a large demand for petrol.
D
petrol consumption involves external social costs.
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