1. The diagram shows a firm producing at Q₁ on short-run average cost SRAC₁.

Which strategy will achieve the greatest reduction in average costs at this output?
A increasing its fixed factors of production only
B increasing its fixed and variable factors of production
C reducing its fixed factors of production only
D reducing its fixed and variable factors of production

2. Which change would make it easier for a cartel to operate effectively?
A an increase in competition from closely related industries
B an increase in the number of firms in the industry
C an increase in the range of products made by cartel members
D an increase in the stability of the market for its products

3. Some workers in a low-paid job decide to work longer hours to increase their disposable income.
However, this decision reduces state-provided benefits, leaving them worse off.
What does this describe?
A debt trap
B liquidity trap
C poverty trap
D unemployment trap

4. What indicates that nationalisation has taken place?
A a firm buys supplies locally rather than from international sources
B a firm moves from private ownership to state ownership
C a firm restricts ownership of its shares to citizens of its own country
D a firm switches sales to the domestic market from the international market

5. Too many flights in the airline industry cause unnecessary damage to the environment.
Which measure is most likely to result in the socially optimal number of flights?
A a complete ban on flights removing all private and external costs
B greater deregulation of the global airline industry
C publishing information to highlight the negative effects of flying on the environment
D the payment of a subsidy per passenger equal to the difference between the private and
social benefit

Answers