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Flashcards in Unit 1 Multiple Choice Deck (13)
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1

Which one of the following is most likely to discourage the growth of a firm? The existence of
A diseconomies of scale at low levels of output
B marketing economies of scale at high levels of output
C large economies of scale at low levels of output
D competing firms in the same industry

A diseconomies of scale at low levels of output

2

The income elasticity of demand for bus travel is −1.5. This means that
A a 10% increase in fares will lead to a 15% decrease in passengers.
B bus travel is an inferior good.
C bus travel has a negative cross elasticity of demand.
D as unemployment falls, more people will use buses.

B bus travel is an inferior good

3

Which one of the following is a factor of production?
A The profits made by firms
B Land owned or rented by firms
C A bank loan
D The productivity of labour

B Land Owned or Rented by Firms

4

Which one of the following is an example of government failure?
A The government overproducing a merit good
B Government provision of national defence
C All subsidies given to private sector firms
D The government allowing free market forces to raise the price of oil

A The government overproducing a merit good

5

The free market equilibrium price of a merit good is £50 per unit. At present, the government does not intervene in the market for this good. The government is most likely to correct the market failure associated with this good if it
A imposes a maximum price of above £50 per unit.
B sets a minimum price of £50 per unit.
C taxes the free market price.
D subsidises the free market price.

D subsidises the free market price

6

A firm is productively efficient when
A it is operating at the lowest point on its average cost curve.
B it cannot increase current production even if demand for its product increases.
C output per worker cannot increase.
D an increase in production will decrease average costs.

A it is operating at the lowest point on its average cost curve

7

Which one of the following is most likely to be a source of monopoly power?
A The employment of additional workers by a firm as it increases its size
B The existence of diseconomies of scale at high levels of output
C The granting of a patent to a pharmaceutical company for a newly developed drug
D The merger of two small firms in a large industry

C The granting of a patent to a pharmaceutical company for a newly developed drug

8

If there is a negative value for the cross elasticity of demand between two goods, this means that the two goods are
A complementary to each other.
B both inferior goods.
C unrelated to each other.
D substitutes for each other.

A complementary to each other.

9

Which one of the following is an example of government failure?
A The government overproducing a merit good
B Government provision of national defence
C All subsidies given to private sector firms
D The government allowing free market forces to raise the price of oil

A The government overproducing a merit good

10

The free market equilibrium price of a merit good is £50 per unit. At present, the government does not intervene in the market for this good. The government is most likely to correct the market failure associated with this good if it
A imposes a maximum price of above £50 per unit.
B sets a minimum price of £50 per unit.
C taxes the free market price.
D subsidises the free market price.

D subsidises the free market price

11

A firm is productively efficient when
A it is operating at the lowest point on its average cost curve.
B it cannot increase current production even if demand for its product increases.
C output per worker cannot increase.
D an increase in production will decrease average costs.

A it is operating at the lowest point on its average cost curve

12

Which one of the following is most likely to be a source of monopoly power?
A The employment of additional workers by a firm as it increases its size
B The existence of diseconomies of scale at high levels of output
C The granting of a patent to a pharmaceutical company for a newly developed drug
D The merger of two small firms in a large industry

C The granting of a patent to a pharmaceutical company for a newly developed drug

13

If there is a negative value for the cross elasticity of demand between two goods, this means that the two goods are
A complementary to each other.
B both inferior goods.
C unrelated to each other.
D substitutes for each other.

A complementary to each other.