9708A. 6 December

1. When will a cartel find it most difficult to fix the market price of its product?

Proportion of firms in the industry that are members of the cartelBarriers of entry into the industry

2. The diagram shows the cost and revenue curves of a monopoly:

What is the firm’s objective if it produces output OX?
A to achieve normal profit
B to maximise profit
C to maximise total revenue
D to minimise average cost

3. Which policy is not designed to correct a market failure?
A government provision of healthcare
B price controls on large firms
C regulations to limit smoke pollution
D removing import quotas

4. A chemical firm produces toxic fumes that impose costs on society. The diagram shows the free market equilibrium of the firm’s product at P1Q1:

The government imposes a tax on the firm of XY.
How would this improve resource allocation?
A It will internalise the external benefit.
B It will internalise the external cost.
C It will internalise the private benefit.
D It will internalise the private cost.

5. The level of benefit paid to an individual receiving a means-tested benefit depends on the individual’s
A age.
B family size.
C income.
D qualifications.


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