9708A. 7 December

1. What is an example of a negative externality?
A Lower profit due to increased competition from new firms entering the market.
B Reduced government funding for a museum.
C The increase in noise levels from aircraft due to the expansion of a large city airport.
D The increase in production costs due to an increase in the cost of importing raw materials.

2. The diagram shows a firm operating in monopolistic competition.
At which point is the firm allocatively efficient?

3. The amount of training undertaken in a mixed economy is not socially optimal.
What could explain this?
A Experienced educators are a scarce resource.
B In a mixed economy training is a public good.
C The individual’s benefit from training is less than the benefit to society.
D Training is a large variable cost for firms.

4. Four bus companies control more than two-thirds of the market in a country.
Critics claim that these companies fix prices on some routes to maximise revenue whilst lowering prices on other routes to stop smaller competitors entering the market.
Which anti-competitive practices are these companies accused of?
A collusion and limit pricing
B collusion and price leadership
C limit pricing and price discrimination
D price leadership and x-inefficiency

5. On a diagram the slope of a consumer’s budget line becomes steeper.
What can definitely be concluded from this?
A The consumer’s income has fallen.
B The consumer’s income has risen.
C The price has decreased for the product on the horizontal axis.
D The price has increased for the product on the horizontal axis.


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