Download microeconomics 1 test

HM Treasury
MICROECONOMICS 1 TEST
NAME__________________________________________
For each question/statement, circle the best answer on the enclosed sheet. You have 20 minutes.
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1
Which of the following statements is not concerned with microeconomics?
(a) imposition of higher tobacco taxes will reduce smoking
(b) an increase in a worker’s income will induce her to spend more on luxury goods
(c) high interest rates will discourage a firm from investing in new machinery
(d) high interest rates will depress aggregate investment in the economy.
2
Which of the following would not be considered a statement of ‘positive economics’?
(a) Increasing the petrol tax by 20p will raise the price of petrol by 16p
(b) Increasing the petrol tax by 16p will raise the price of petrol by 20p
(c) Imposing a minimum wage will lead to more unemployment
(d) The world distribution of income is unjust
3
The production possibility frontier shows
(a) the level of output society must produce to satisfy its unlimited demands
(b) maximum amount of a good that can be produced given the output of other goods
(c) different combinations of output when society's resources are not fully employed
(d) minimum amount of output that can be produced using all resources
4
Times series data
(a) are used very infrequently in micro-economics
(b) measure different variables for different countries at a moment in time
(c) measure a given variable for different countries at a moment in time
(d) measure a variable at different points in time
5
Suppose estate agents report that ‘houses are in short supply’. This suggests
(a) current house-prices are too high to equate demand and supply
(b) current house-prices are too low to equate demand and supply
(c) house-prices are ‘just right’, but people are irrational
(d) none of the above
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6
Suppose the government sets a ‘price ceiling’ lower than the market-clearing
price. Relative to the market-clearing price, at the capped price
(a) quantity supplied and quantity demanded are both higher
(b) quantity supplied and quantity demanded are both lower
(c) quantity supplied is higher and quantity demanded is lower
(d) quantity supplied is lower and quantity demanded is higher
7
Which of the following events will increase the demand (i.e. shift the demand
curve) for home computers?
(a) a fall in the price of computers
(b) improvements in the production technology for computers
(c) a rise in the price of computer games
(d) none of the above
8
An increase in the price of a good will
(a) increase the quantity demanded of that good
(b) lower the demand for its complements
(c) raise the demand for its substitutes
(d) both (b) and (c)
9
An inferior good is one for which
(a) demand falls as consumers become richer
(b) demand rises as consumers become richer
(c) tastes have changed, or that is no longer in fashion
(d) none of the above
10
The quantity traded and equilibrium price of a good both rise over time. In this
market
(a) supply has fallen
(b) demand has fallen
(c) demand has risen
(d) supply has risen
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11
When a good generates an externality in the market,
(a) society’s scarce resources are allocated efficiently
(b) someone other than the buyer and seller of that good are affected
(c) the good’s price reflects the externality
(d) government intervention seldom improves the market performance.
12
Market failure refers to the fact that
(a) free market economies sometimes fail to remove poverty
(b) free markets sometimes fail to achieve an equitable allocation of goods
(c) free markets sometimes fail to achieve an efficient allocation of goods
(d) none of the above
13
Monopoly power results in an inefficient outcome primarily because:
(a) the monopolist does not try to lower costs
(b) the monopolist produces a low quantity to keep the price high
(c) the monopolist can charge any price it wants
(d) none of the above
14
Individuals have no incentive to voluntarily pay for national defence because
(a) people do not wish to be protected under national defence
(b) the protection enjoyed by each individual does not reduce the protection enjoyed
by others
(c) it is impossible to exclude individuals from enjoying protection under national
defence
(d) both (b) and (c)
15
Privatization of an industry might improve efficiency because
(a) public sector performance incentives are often poor
(b) public sector production decisions might be guided by special interest groups
(c) public sector often faces a soft budget constraint
(d) all of the above
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