1. A cartel has been successful in regulating output. However, recently it has shown signs of
breaking up.
Which feature of the market could have caused this?
A an agreement that the cartel produces a homogenous product
B an increase in the number of small, independent producers of the good
C stable patterns of demand for the good
D trademarks, acting as a barrier to entry to the market

2. What would be most likely to allow the survival of small firms in an economy?
A an increase in the cost of borrowing from commercial banks
B an increase in personal services as a share of GDP
C an increase in the rate of change of information technology
D an increase in the ratio of capital to labour employed in an economy

3. A private company operates a coal mine which employs 400 workers. The mining operations
have polluted the environment and created external costs.
If the government intervenes, how could it internalise the externality?
A close part of the mine and import the coal
B levy an additional tax on the miners’ wages equal to the external cost
C pay for the external costs of restoring the environment after mining
D place a tax equivalent to the external cost on the output the company produces

4. What is an advantage of using tradable pollution permits to control pollution?
A Tradable permits are restricted to the firms to which they are issued.
B Tradable permits avoid enforcement costs.
C Tradable permits encourage the use of market forces.
D Tradable permits guarantee a zero level of pollution.

5. Where might government intervention to raise the wages of a group of workers be justified in
order to prevent their exploitation?
A in an industry that is protected by tariffs on imports from abroad
B in an industry when a trade union negotiates wages for the workers
C in an industry when the output is produced by a single firm monopolist
D in an industry when workers are employed by a monopsonist

Answers