RIMS International School and Junior College Advanced Subsidiary Level ECONOMICS Paper 1(MCQ) Grade AS Additional Materials: MCQ Sheet 9708/01 FIRST TERM EXAM NOV 2010 1H Max Marks - 30 READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, highlighters, glue or correction fluid. Write your name and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet. RS/ECO/9708/01/AS/T1/11/2010 RIMS INTERNATIONAL SCHOOL AND JUNIOR COLLEGE, PUNE Q1) The world price of wheat rose by 15% between two successive months in 2007 and the quantity bought and sold over the same time interlude decreased by 3%. Which of the following alone could explain this? A. There was an increase in supply from new producers and the demand for wheat is sensitive to price (demand is elastic). B. Consumer incomes increased and wheat is a normal good with an income elasticity of 0.2. C. The price of corn increased and corn is a substitute for wheat. D. The price elasticity of demand for wheat is -0.2 and there was a poor wheat harvest in Australia owing to a severe drought and this adversely affected the supply in world markets. Q2) ans What is an advantage of using the market mechanism to allocate ans resources between alternative uses? A. It ensures that resources will be allocated efficiently. C. It minimizes the time required to make decisions. B. It ensures that resources are allocated in accordance with need. D. It gives all consumers an equal voice in deciding how resources should be allocated. Q3) The existence of "externals" or "externalities" weakens the efficiency with which the market system functions because they: A. are a major source of inflation. B. mean that certain essential goods and services do not get produced at all. C. are a major source of employment. D. cause certain goods to be overproduced or under produced. Q4) objective to expand the level of economic activity? A. An increase in taxation B. An increase in interest rates C. An increase in personal savings ans Which one of the following is consistent with a government’s policy D. An increase in public expenditure ans RS/ECO/9708/01/AS/T1/11/2010 2 RIMS INTERNATIONAL SCHOOL AND JUNIOR COLLEGE, PUNE Q5) Which of the supply curves shown in the diagram has unitary price elasticity? A. B B. C C. D D. A Q6) ans If the price of a well known economics textbook rises from £25 to £30 and sales fall from 10,000 copies per year to 9,000, calculating elasticity at the initial price and quantity: A. Elasticity of demand is equal to -1. B. Elasticity of demand is equal to -10. C. Elasticity of demand is equal to -0.5. Q7) ans D. Demand elasticity cannot be calculated from this information. The following statements relate to relevant cost concepts in decision making: (i) Materials can never have an opportunity cost whereas labour can. (ii) The annual depreciation charge is not a relevant cost. (iii) Fixed costs would have a relevant cost element if a decision causes a change in their total expenditure. Which statements are correct? A. (i) and (ii) only. B. (i) and (iii) only. C. (ii) and (iii) only. D. (i), (ii) and (iii). ans Q8) A paper plant creates a chemical waste which it dumps it into a nearby river. If this situation applied to most paper plants in the nation, then you can conclude that: RS/ECO/9708/01/AS/T1/11/2010 3 RIMS INTERNATIONAL SCHOOL AND JUNIOR COLLEGE, PUNE A. the demand for the paper is greater than the supply of paper. B. the supply of paper is greater than the demand for paper. C. the market price of the paper is too low because the supply of the paper fails to incorporate all costs of production. enough money to get pollution-free paper. Q9) You observe that the price of a product has risen by 20% and its sales have risen by 5%. Which one of the following can have caused this: A. Demand is inelastic. B. A technical advance has shifted the supply curve to the right. ans D. the market price of paper is too high because consumers are not able to pay C. Consumer income has risen, this is a normal good, and supply is fairly inelastic. ans D. Consumer income has risen, this is a normal good, and supply is highly elastic. Q10) The term "laissez faire" suggests that: A. land and other natural resources should be privately owned, but capital should be publicly owned. B. land and other natural resources should be publicly owned, but capital equipment should be privately owned. C. government should not interfere with the operation of the economy. full production. ans D. government action is necessary if the economy is to achieve full employment and Q13) Economists say that there has to be some form of rationing whenever: ans A. there is excess demand. B. inflation occurs. C. there are externalities. D. merit goods are produced. Q11) The diagram shows the demand and supply curves for a product. Which area RS/ECO/9708/01/AS/T1/11/2010 4 RIMS INTERNATIONAL SCHOOL AND JUNIOR COLLEGE, PUNE measures the total amount consumers would be willing to pay for the equilibrium level of output? A. OWYZ B. OXYZ C. OVYZ D. XYV ans Q12) Which one of the following is a normative statement? A. The richest 10 per cent of the population has had a bigger percentage increase in incomes over the past 10 years than the poorest 10 per cent. B. Inequality in the distribution of income is a more serious problem than unemployment. ans C. The proportion of people's income paid in taxes is higher under this government than under the previous one. D. Inflation is rising. Q14) If the market price is below the equilibrium price: A. demand will be less than supply. B. quantity demanded will be less than quantity supplied. C. quantity demanded will be greater than quantity supplied. D. quantity demanded will equal quantity supplied. ans Q15) Economists use the term 'Black Markets' for situations where: A. transactions are not recorded in the GDP figures. B. buyers and/or sellers are not paying taxes as they should. C. goods are sold at prices above legal or official prices. D. illegal substances are sold. ans RS/ECO/9708/01/AS/T1/11/2010 5 RIMS INTERNATIONAL SCHOOL AND JUNIOR COLLEGE, PUNE Q16) The government is considering placing a tax on cigarettes to raise revenue to finance health-care benefits. The demand for cigarettes is price inelastic. Which of the following statements is TRUE? lower their price by the amount of the tax and, therefore, the price of cigarettes to consumers will not change. A. No tax revenue can be raised in this way because sellers of cigarettes will just B. This tax will not raise much revenue either in the short term or the long term since demand is price inelastic. C. This is a very good way to raise revenue, both in the short term and in the long term, because there are no substitutes for cigarettes. D. The tax on cigarettes may not raise as much revenue as anticipated in the years to come because the demand for cigarettes is likely to become more elastic over time. ans Q17) In a free market system, rationing occurs when there are increases in: A. Quantity B. Demand C. Price D. Supply ans Q18) Which of the following statements is correct? A. If the current account is in deficit, then the capital account must also be in deficit. B. The overall sum of all the entries in the balance of payments must be positive. C. The overall sum of all the entries in the balance of payments must be zero. ans D. If the current account is in surplus, then the capital account must also be in surplus. Q19) When a production possibilities frontier is bowed outward, as more of one ans good is produced, its opportunity cost A. Increases B. decreases C. remains constant RS/ECO/9708/01/AS/T1/11/2010 6 RIMS INTERNATIONAL SCHOOL AND JUNIOR COLLEGE, PUNE D. cannot be predicted Q20) A point that lies outside the production possibility frontier A. is possible to attain if unemployment decreases B. will never be attained C. shows that no trade off is involved D. is not attainable with the nation’s current resources and technology Q21) ans Which of the following is NOT illustrated by the production possibilities frontier? A. efficiency B. opportunity costs C. equity D. tradeoffs Q22) ans On a production possibilities graph, production is inefficient if ans A. the production point is inside the frontier B. the production point is outside the frontier C. the production point is on the frontier D. the production point is on or inside the frontier Q23) A category 5 hurricane hits Louisiana and causes widespread destruction to the state’s sugarcane crop. The devastation causes the: A. supply curve for sugar to shift to the left, causing the price of sugar to fall B. supply curve for sugar to shift to the left, causing the price of sugar to rise ans C. supply curve for sugar to shift to the right, causing the price of sugar to rise D. supply curve for sugar to shift to the right, causing the price of sugar to fall Q24) Which of the following would change the quantity supplied for a good or service? A. a change in the technology used to produce the good or service B. a change in the price of inputs used to produce the good or service C. a change in expectations about the price of the good or service D. a change in the price of the good or service ans RS/ECO/9708/01/AS/T1/11/2010 7 RIMS INTERNATIONAL SCHOOL AND JUNIOR COLLEGE, PUNE Q25) A circular flow diagram is A. a model that illustrates how government provides services to the public and generates revenue from taxes B. a model that explains how the economy is organized between households and firms ans C. a model that shows the flow of traffic in a large city D. a model that explains how banks circulate money in the economy Q26) If a good is imported into (large) country H from country F, then the imposition of a tariff in country H A. raises the price of the good in both countries ("the "Law of One Price"). B. lowers the price of the good in both countries. C. lowers the price of the good in H and could raise it in F. D. raises the price of the good in H and lowers it in F. Q27) ans Suppose the United States eliminates its tariff on ball bearings. Ball bearing prices in the United States would be expected to A. increase, and the volume of imports into the US to increase B. decrease, and the volume of imports into the US to increase. C. increase, and volume of imports into the US to decrease. D. decrease, and volume of imports into the US to decrease. Q28) The principle benefit of tariff protection goes to ans A. domestic consumers of the good produced. B. foreign consumers of the good produced. C. domestic producers of the good produced. D. foreign producers of the good produced. Q29) ans Tariffs are not usually defended on the ground that they ans A. improve the terms of trade of foreign nations. B. protect jobs and reduce unemployment. C. promote growth and development of young industries. D. prevent over-dependence of a country on only a few industries. RS/ECO/9708/01/AS/T1/11/2010 8 RIMS INTERNATIONAL SCHOOL AND JUNIOR COLLEGE, PUNE Q30) tend to If a large country (U.S.) imposes a tariff on its imported good, this will A. have no effect on terms of trade. B. improve the terms of trade of all countries. C. improve the terms of trade of the United States. D. cause a deterioration of U.S. terms of trade. ans RS/ECO/9708/01/AS/T1/11/2010 9