9708A. 7 November

1. What is a necessary condition required to achieve Pareto efficiency?
A when it is not possible for some people to become better off without others becoming worse off
B when it is possible to produce greater output with the same quantity of inputs
C when resources have spare capacity
D when resources can be re-allocated and total consumer satisfaction can be increased

2. What is an example of a negative externality?
A the non-provision of public goods by the market
B indirect taxation that fails to internalise the external cost
C monopoly power leading to reduced output and a higher price
D the production of a good that has a harmful effect on a third party

3. A rational consumer maximises satisfaction by buying three units of good X and four units of good Y which are the same dollar price.
What does this indicate?
A Marginal utility per dollar spent is equal for both goods.
B The total utility of 3X is equal to the total utility of 4Y.
C The consumer should buy one more unit of good X to maximise utility.
D Good Y has greater marginal utility than good X.

4. What does a budget line on an indifference curve diagram show?
A the amount that a household has available to spend plotted against time
B the combinations of two goods that can be purchased when all income is spent
C the difference between a government’s income and expenditure plotted against time
D the relationship between the price of a good and the amount demanded

5. Firm X, which currently specialises in producing cars, takes over firm Y, which owns a number of car retail outlets.
How may this be described?
A horizontal integration
B the formation of a cartel
C vertical integration backwards
D vertical integration forwards


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