Company Analysis Results Chapter Example

1. What will encourage a higher degree of division of labour?

1. firms wishing for a greater level of self-sufficiency
2. firms wishing to increase their flexibility in production
3. firms wishing to raise their level of productivity
4. firms wishing to reduce their level of risk

2. The diagram shows a country’s production possibility curve.

What could allow the economy to move from M to N in the long run?

1. an increase in consumer spending
2. an increase in demand for exports
3. an increase in government spending on pensions
4. an increase in investment

3. Which statement about factors of production is correct?

1. All factors of production can earn income for their owner.
2. The factor capital includes human capital, money capital and physical capital.
3. The factor labour involves only physical effort.
4. The natural resources classed as land are in unlimited supply.

4. A website compares the prices of groceries.

Which function of money is illustrated by this?

1. medium of exchange
2. standard of deferred payment
3. store of value
4. unit of account

5. It is expected that the price of gold rings will increase in the future.

Which diagram shows the impact this expectation is likely to have on demand for gold rings in the present?

6. Which combination of changes could leave the position of the demand curve for a normal good X unchanged?

1. a decrease in taste for product X and a decrease in the quality of product Y for which product X is a complement
2. a decrease in the quality of a substitute and an increase in incomes
3. an increase in the price of a substitute and an increase in population size
4. an increase in the price of product Y for which product X is a complement and a successful advertising campaign for product X.

7. A product has a normal demand curve and a normal supply curve.

What would explain a rise in the price of the product and a fall in the quantity of the product traded?

1. The decrease in demand is double the decrease in supply.
2. The decrease in supply is double the decrease in demand.
3. The increase in demand is double the increase in supply.
4. The increase in supply is double the increase in demand.

8. The diagram shows how the quantity demanded of four goods changes as income changes.

Which good has an income elasticity of demand which is always +1?

9. The cross elasticity of demand between bus travel and rail travel is +2. A rise in the price of bus fares caused the demand for rail travel to rise by 10%.

Which change in bus fares has brought this about?

10. How is the market supply of a product in a competitive market obtained?

1. by aggregating the supply of all firms producing the product
2. by averaging the supply of all firms producing the product
3. by calculating the supply of the typical firm producing the product
4. by estimating the supply of the largest firm producing the product

11. The diagram shows a market for a good which is supplied partly from domestic production and partly from imports. Sh shows domestic supply and Sw shows world supply. Domestic supply then shifts to Sh1.

What will be the level of consumption and the associated volume of imports after the supply shift?

12. The table shows the price Rashid is willing to pay for successive cans of cola. If the price is $0.50 and Rashid buys four cans.

What is the monetary value of Rashid’s consumer surplus?

1. $0.15
2. $0.85
3. $0.90
4. $1.35

13. In the diagram, the supply curve shows the number of spaces in a car park and the demand curves show the demand for spaces on four different days (Di, D2, D3 and D4). The owner wishes to charge a parking fee on each of these days to allocate the spaces according to the market mechanism.

Which pricing policy should the owner use?

1. set a fixed price at P1
2. set a fixed price at P4
3. vary prices between P2 and P3
4. vary prices between P1 and P4

14. Which situation would indicate the presence of an externality?

1. Producers’ actions cause a shortage of a particular good.
2. Private motorists contribute to traffic congestion in city centres.
3. Differences in ability cause inequality in the distribution of income in an economy.
4. Increased demand for a good by the rich raises its price for poorer consumers.

15. The term ‘cost’ in public sector cost-benefit analysis is defined as

1. external costs.
2. financial costs.
3. private costs.
4. social costs.

16. One definition of a merit good is that it is one that will be underconsumed because of poor decision making.

Who would usually be responsible for this poor decision making?

1. the consumers of the good
2. the dealers who trade the good
3. the firms producing the good
4. the government

17. A local council charges for the use of tennis courts but not for the use of street lights.

How would an economist explain this?

1. Tennis courts are a luxury but street lights are a necessity.
2. Tennis courts are worth more than street lights.
3. There is an opportunity cost of using land to build tennis courts but not street lights.
4. The use of street lights cannot be restricted.

18. The government is considering building flood defences along a river. It has calculated the costs and benefits as follows.

According to cost-benefit analysis, which decision and reasoning about flood defences is correct?

19. In the diagram, MN is the production possibility curve of a country that has a comparative advantage in the production of good Y.

What might enable the country to consume the quantities of X and Y indicated by point R?

1. increased specialisation in the production of good X
2. international trade
3. a reduction in unemployment
4. increased specialisation in the production of good Y

20. A country is willing to undertake free trade with its neighbours and to allow the free movement of factors of production with them. It is unwilling, however, to share a common currency and common external tariff.

In what sort of economic relationship is it likely to be with its neighbours?

1. a common market
2. a customs union
3. an economic union
4. a free trade area

21. Which combination of price changes must cause an improvement in the country’s terms of trade?

22. Which item that relates to a Japanese-owned car assembly plant in the US will not be recorded in the current account of the balance of payments of the US?

1. components imported from Japan
2. interest charges on a loan from a US based international bank
3. investment by the parent company in the plant’s assembly line
4. profits remitted to the Japanese parent company

23. The table shows the number of workers employed by four firms in the same industry, the average number of hours worked each day and the total output each firm produces each day.

Which firm’s workers have the highest productivity?

24. The diagram shows the aggregate demand (AD) and short-run aggregate supply (SRAS) for an economy with a price level OP.

Which combination of events would definitely cause a rise in the general price level?

25. The table shows the ability of two countries, P and Q, to produce two goods, Y and Z.

Which statement is correct?

1. P has an absolute advantage in Z and Q has a comparative advantage in Y.
2. P has an absolute advantage in Z and Q has an absolute advantage in Y.
3. P has a comparative advantage in Z and Q has an absolute advantage in Y.
4. P has a comparative advantage in Y and Q has an absolute advantage in Z.

26. What is the least likely outcome for participating countries of a move towards freer trade?

1. greater international specialisation
2. greater product choice
3. higher standards of living
4. more equal distribution of income

27. A country joins a trade organisation, where the only requirements are that members must have identical tariff rates towards non-members and no trade barriers to fellow members.

With which possible change in status for the country is this condition consistent?

1. from independent trade to membership of a free trade area
2. from membership of a customs union to membership of an economic union
3. from membership of a free trade area to membership of a customs union
4. from membership of a free trade area to membership of an economic union

28. A country has a population of 500 million. 15 million people are unemployed and the country has an unemployment rate of 6 %.

What is the size of the labour force?

1. 90 million
2. 250 million
3. 470 million
4. 485 million

29. In Australia in 2005 a shipload of exported iron ore paid for 2200 imported flatscreen TVs. In 2010 the same size shipload paid for 22 000 imported flatscreen TVs.

Which combination of price changes is certain to cause this change in the terms of trade of Australia?

30. The table gives details of some parts of a country’s balance of payments.

In which year did the country have its largest trade deficit?