1. Which assumption is essential for a market to be contestable?
A The market is supplied by a large number of firms.
B Firms are free to enter and leave the market.
C Firms cannot earn abnormal profits in the short run.
D Firms produce differentiated goods.

2. What is generally associated with the principal-agent problem?
A Directors prefer company growth to greater shareholder dividends.
B Managers ignore workers’ concerns about safety in the workplace.
C Shareholders determine the price of products.
D Workers go on strike against managers’ reorganisation plans.

3. The table shows the output of chairs at a factory when different numbers of workers are
employed:

Number of workers	0	1	2	3	4	5
Number of chairs produced	0	7	17	26	34	40

When will diminishing marginal returns to labour set in?
A When the second worker is employed.
B When the third worker is employed.
C When the fourth worker is employed.
D When the fifth worker is employed.

4. The chart gives information about the average daily wage rate for all industries in India.

What could have caused this trend in wage rates?
A an increase in capital-intensive production
B an increase in the number of industrial workers
C an increase in the number of people unemployed
D an increase in the productivity of labour

5. A country has a negative income tax regime. The curve NT in the diagram shows the country’s initial tax schedule.

A change in the tax rate causes the schedule to shift to NT₁
How will this affect work incentives and the after-tax distribution of income?

	Work incentives	Distribution of income
A	strengthen	less equal
B	strengthen	more equal
C	weaken	less equal
D	weaken	more equal

Answers