Unit 7 MCQ

A budget line (b–b) shows the combinations of two goods, X and Y, that a consumer can obtain

within a fixed income of $60 per week, when the price of Y = $1 and X = $2

If the price of X rises to $3, what will be the new budget line?

• b–b1

• b–b2

• b–b3

• b–b4

How is dynamic efficiency represented on a diagram?

• a downward move to the minimum point of a long-run average cost curve

• a downward shift in the long-run average cost curve

• a move from a point inside a production possibility curve to a point on it

• a reduction in marginal revenue so that it equals long-run marginal cost

Some multinational oil companies extracting oil in developing countries are now required to repair

the damage they do to the environment.

What best describes the total costs incurred by the oil companies in such circumstances?

• external costs

• private costs plus external costs

• social costs plus external costs

• social costs plus private costs

Which statement is not an example of government failure?

• government intervention leading to a less efficient allocation of resources

• government intervention leading to a net loss of economic welfare

• government intervention leading to an increase in consumer surplus

• government intervention leading to social costs exceeding social benefits

The diagram shows the total utility of consumers Y and Z when each consumes bars of

chocolate. What is the difference in the marginal utility of consumers Y and Z when each consumes four

bars of chocolate?

• 0

• 5

• 10

• 30

When choosing to buy two products, the satisfaction gained by the consumption of different

combinations of these two products can be represented by an indifference curve.

Which statement about such an indifference curve diagram is correct?

• The range of indifference curves shows the combination of products a consumer can

  purchase with a given income.

• If an indifference curve is a downward-sloping straight line, the principle of diminishing

  marginal utility must be operating.

• Indifference curves never cross, because this means that a consumer would be indifferent

  between combinations of two goods, even when one combination provides more of each

  good.

• The gap between indifference curves is always constant.

Negative externalities, such as air pollution due to car emissions, can cause damage to people’s

health in cities.

Which response is most likely to occur from this situation?

• car manufacturers will automatically bear any external costs

• market failure will be resolved when private costs equal external costs

• most people will decide to use buses rather than cars

• some form of government intervention to improve economic efficiency

The diagram shows the cost and revenue curves of a profit-maximising, monopolistically

competitive firm in long-run equilibrium. Which statement correctly describes the performance of this firm?

• It is allocatively efficient.

• It is making abnormal losses.

• It is making abnormal profits.

• It is making normal profits.

What is not an example of a moral hazard?

• People with a higher risk of unemployment are more likely to undertake training.

• People with free dental care are less likely to take care of their teeth with good oral hygiene.

• People with insurance against car theft are more likely to park their car in high crime areas.

• D People with unemployment benefits are less likely to undertake retraining if they become

  unemployed.

What is an example of an external cost?

• distribution costs

• energy costs

• labour costs

• road congestion costs