1. When the price of a good increases, which statement is correct according to the analysis that
uses budget lines and indifference curves?
A The income and substitution effects of the price increase will work in opposite directions in
the case of a Giffen good.
B The income effect of the price increase will result in reduced consumption for all goods.
C The new equilibrium position will be where the new budget line meets the original
indifference curve.
D The price rise will be represented by a parallel shift inwards of the original budget line.

2. The diagram shows a firm in an imperfectly competitive market.
Which level of output would maximise total revenue?

3. The diagram shows short-run average cost curves (SRAC) and the long-run average cost curve
(LRAC) for a firm.

Which statement is correct?
A When each of the three SRAC curves is U-shaped it shows the existence of economies of
scale.
B When the LRAC curve is upward-sloping beyond output OQ it shows the existence of
diseconomies of scale.
C When the minimum point of SRAC₂ is below that of SRAC₁ it shows the existence of the law
of variable proportions.
D When the minimum point of SRAC₂ is below that of SRAC₃ it shows the existence of
economies of scale.

4. The diagram shows a decrease in demand for the product of a profit maximising monopolist.

Which area shows the change in the monopolist’s supernormal profit as a consequence of this
decrease in demand?
A IHGK B JMLK C IHGLMJ D IHFEMJ

5. The table shows the estimated costs for operating a new factory at the end of its first year.

Costs	$m
Building the factory	20
Raw materials including fuel	5
Machinery and delivery vehicles	4
Wages for workers	1

Assuming the short run is one year, what are the total variable costs?
A $1m B $6m C $10m D $30m

Answers