2nd Term

Mock Exam: Paper 1

Name: ________________________ Total Mark: _____/30

Q1. Which is not a factor of production?

A] a farm
B] a farmer
C] a farmer’s bank account
D] a second-hand tractor

Q2. The diagram shows a production possibility curve for cars and furniture.

A recession causes a decrease in production in both cars and furniture. Which movement
would represent this change?
A] X to W
B] X to Y
C] Z to W
D] Z to Y

Q3. In response to an increase in price from $5 per kilo to $6 per kilo a chicken
farmer increased supply from 400 kilos to 500 kilos per week. What is the price elasticity of
supply?
A] 0.8
B] 0.9
C] 1.2
D] 1.25
Q4. A bee-keeper maintains hives of bees to produce honey. The bees can pollinate
neighbours’ fruit trees but also give a painful sting to gardeners. If both of these events
occur, how will costs and benefits be affected?
A] External benefits will fall and social costs will fall.
B] External costs will rise and social benefits will fall.
C] Social costs and social benefits will fall.
D] Social costs and social benefits will rise.

Q5. What is most likely to be used to support a claim for wage increases in an industry?
A] a decrease in the industry’s sales
B] a decrease in the need for specialist training
C] an increase in cheap imports of a rival product
D] an increase in wages in a similar industry

Q6. In South Africa, the number of skilled workers is relatively low. However, average wages
in South Africa are double the average wage in Brazil and Turkey and they are 1.6
times higher than in Malaysia. What may be concluded from this information?
A] Malaysian workers are more skilled than South African workers.
B] Prices in South Africa are double those in Brazil.
C] South Africa’s labour productivity is low.
D] South African trade union bargaining power is strong.

Q7. To achieve horizontal integration, a firm producing tyres could merge with another firm
producing
A] motor cars.
B] rubber.
C] tyre-producing machinery.
D] tyres.
Q8. A monopoly takes over an industry from competitive firms. What is not likely to be true
about a monopoly compared with a competitive firm?
A] A monopoly will earn a higher rate of profit.
B] A monopoly will gain a greater share of the market.
C] A monopoly will offer a wider choice to the consumer.
D] A monopoly will operate on a larger scale of production.

Q9. When is a tax progressive?

A] when some goods have a higher tax than others
B] when the rate of tax increases as income increases
C] when the tax is linked to the rate of inflation
D] when the tax is on incomes rather than on goods or services

Q10. In trying to achieve one of its aims a government may make it difficult to achieve
another aim. What is an example of this conflict?
A] Achieving a more even distribution of income may prevent a rise in the average standard
of living.
B] Achieving an increase in economic growth may prevent full employment.
C] Achieving full employment may prevent stable prices.
D] Achieving stable prices may prevent a current account surplus on the balance of
payments.

Q11. Which policy combination will be the most effective if a government wishes to
increase the level of employment?
A] decrease general taxation and decrease the rate of interest
B] decrease general taxation and increase the rate of interest
C] increase general taxation and decrease the rate of interest
D] increase general taxation and increase the rate of interest
Q12. A newspaper reported that a country’s economy had grown by 3% during the last year.
What must have increased in that year?
A] costs of production
B] gross domestic product
C] unemployment
D] wage levels

Q13. What best describes the problem of scarcity?

A] All consumer wants must be satisfied.
B] All resources are free at the point of use.
C] There are limited resources and unlimited wants.
D] There are unlimited resources and limited wants.

Q14. In a market system who has the most important role in influencing the allocation of
resources?
A] consumers
B] entrepreneurs
C] government officials
D] producers

Q15. What is a function of a stock exchange?

A] It allows company shares to be traded.
B] It enables tourists to purchase foreign currency.
C] It provides a market for firms to sell their products.
D] It sets the rate of interest in an economy.

Q16. What is a direct benefit to a worker of specialisation?

A] the higher output that may lead to higher earnings
B] the higher output that may lead to higher profits
C] the higher output that may lead to lower costs per unit produced
D] the longer training period that is required before starting work
Q17. A trade union succeeds in raising the wages in an industry above the equilibrium wage.
How would the demand and supply of labour change?

Q18. What is most likely to result from an increase in income tax?

A] a fall in consumer spending
B] a fall in government spending
C] a rise in business investment
D] a rise in the level of imports

Q19. Which statement explains why firms in perfect competition are not able to exploit
consumers?
A] The firms can restrict output.
B] The products are differentiated.
C] There are barriers to entry.
D] There is perfect information.

Q20. A company with a chain of restaurants bought another chain of restaurants. How is
this purchase most likely to be classified?
A] conglomerate merger
B] diversification
C] horizontal integration
D] vertical integration
Q21. The table shows some of the costs of running a retail shop in one week.

What are the total fixed costs during this week?

A] $200 B] $240 C] $700 D] $750

Q22. A company’s annual report suggested that it had benefited from some changes. Which
change is an internal economy of scale for this company?
A] an improvement in road and rail facilities that has reduced its distribution costs
B] an increase in the number of local specialist workers that it could recruit
C] the introduction of new training at a local college for which staff have enrolled
D] the reduction in the company’s costs by the purchase of a factory supplying components

Q23. A government believes that consumption of a certain good will be of benefit to society.
Which policy is most likely to encourage producers to increase their output of that good?
A] an increase in the period required for training the industry’s workers
B] an increase in the regulations affecting businesses
C] an increase in the subsidies for that good
D] an increase in the taxation of that good

Q24. Which combination of government policies is most likely to reduce unemployment?

Q25. A group of workers in a firm joins a trade union. What would the union be expected to
do?
A] arrange for labour-saving technology to be introduced
B] discuss safety issues in the workplace with the employer
C] ensure job security by promoting the firm’s products through advertising
D] negotiate new contracts with major buyers of the firm’s products

Q26. What may exist in perfect competition but not in monopoly?

A] barriers to entry
B] economies of scale
C] many sellers
D] product differentiation

Q27. What describes a regressive tax?

A] It is paid by a higher proportion of high income earners.
B] It is paid by a higher proportion of low income earners.
C] It takes a higher proportion from high incomes.
D] It takes a higher proportion from low incomes.

Q28. In 2011 the US Government declared that the country must increase the manufacture
of fuel from crops such as corn that have previously only been used for food. What is likely
to happen in the market for corn?
A] a movement along the demand curve for corn
B] a movement along the supply curve for corn
C] a shift to the left in the demand curve for corn
D] a shift to the left in the supply curve for corn
Q29. When a shoe manufacturer doubles all factors of production output more than
doubles. Which economic concept does this illustrate?
A] diseconomies of scale
B] economies of scale
C] increasing profits
D] opportunity cost

Q30. The diagram shows the fixed costs, variable costs and total costs of a firm.

Which distance represents the firm’s fixed costs?

A] PS
B] QR
C] QS
D] RS