Sample paper

This is an example of the format of multiple choice questions.

PART A

This section is worth 30 marks

Answer all the questions in Part A on the answer sheet provided, using pencil only:

Question 1

Which of the following statements is true?

(a) A profit maximising monopolist will always set price and output at a level where demand
is price elastic. X

(b) A profit maximising monopolist always produces where Average Revenue equals Average
Cost

(c) A profit maximising monopolist will, in long run equilibrium, always use a scale of plant
that minimises long run Average Costs.

(d) A profit maximising monopolist will always produce where marginal cost is greater than
price.

Question 2

Assume two rival car rental companies (Ace Rentals and Bob’s Rentals) are considering
whether to discount their rates as a method of increasing market share.

The following pay-off matrix gives the expected monthly profits (in $’000) of each company
(Ace, Bob’s) under alternate strategies:

BOB’S

Discount Do Not Discount

Discount (12, 10) (24, 6)

ACE
Do Not Discount (8, 20) (16, 14)
(a) The Nash equilibrium is for neither firm to discount.

(b) The Nash equilibrium is for both firms to discount X

(c) The Nash equilibrium is for Ace to discount and Bob’s to not discount.

(d) The Nash equilibrium is for Bob’s to discount and Ace to not discount.

Question 3

Which of the following has the “non excludability” characteristic that defines a pure public
good?

(a) A local council car park

(b) Suburban street lighting X

(c) A toll road

(d) School education

Question 4

A monopolist estimates that at the current price being charged for the product, marginal
revenue is less than marginal cost, and price elasticity of demand is –1.4. To increase profit
the monopolist should:

(a) Increase price and sell less X

(b) Increase price and sell more

(c) Decrease price and sell less

(d) Decrease price and sell more

Question 5

Use the following figure to answer the question.

5
j
Amanda’s cake production per day

4 k

l q
3

2 m
p

1 n

r
2 4 6 8 10 12 14 16 18 20
Amanda’s pie production per day

Amanda’s maximum production of pies per day is represented by point:

(a) J.
(b) l.
(c) n.
(d) r X

Sample Essay Exam Question

a) Draw and use a competitive market demand and supply diagram to explain how

economic efficiency is determined in economics and explain why economists

emphasise efficiency as an important goal of economic policy (4 marks)

b) Use the same diagram as above to show how the imposition of a per unit tax imposed

on the supplier will lead to a decrease in efficiency. Explain how this loss of

efficiency is measured. (4 marks)

 c) Why might the loss in consumer and producer surplus experienced by participants in

the market for a good which is taxed overstate the loss in welfare that results from the

tax? (2 marks)

d) Use a diagram to explain how the deadweight loss of a per unit tax varies with the

elasticity of demand and supply. (5 marks)

ADVICE ON ANSWERING QUESTIONS

Take a few minutes to plan your answer before you start to write it.
• Answer the questions in the part (a) (b) or (c) they are asked.
• Use the marks beside the section to guide you as to how much to write in each section.
• Do not write an introduction but start by defining the important terms.
• Look for key words like “explain” “show how”. When you are asked to explain you
should be saying things like “this causes this to happen” and “this results in the following
“or “as a result of this then such and such happens.
• Write in sentences NOT in point form
• Draw clearly labeled diagrams - they do not have to have titles.
• Talk about the diagram where you draw the diagram (where possible).. This means that
your diagram should not be so big that it takes up the whole page and the marker has to
turn back over the page to compare it with the text.
• Do not answer one part by saying “I have already shown this in the previous part”.
Try to keep your paper neat and easy to read.
Do not write in margins but plan your answer so that it is complete.

You may be asked to solve and or use equations to answer a question.

Read pages 350 and 379 of the Text