J/02/3/01
1 Which condition defines productive efficiency?
A All factors of production are fully employed.
B All firms are producing at their profit maximising levels of output.
C The output of all goods is produced at minimum cost.
D There are no further opportunities for substituting capital for labour.
J/02/3/15
2 The diagram shows the cost and revenue curves of a profit-maximising monopolist.
Which area measures the deadweight loss arising from the exercise of monopoly power?
O output
MC AC
AR MR
cost, revenue
x y
z w
A x + y
B y
C y + z
D w + y + z N/02/3/11
3 When is allocative efficiency achieved in an economy?
A when nobody can become better off without somebody else becoming worse off B when the economy is operating at its natural rate of unemployment
C when the level of social costs is minimised D when the rate of economic growth is maximised
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Understanding Economics 164 11-Comparison between Perfect Competition and Monopoly N/02/3/12
4 The diagram shows the supply and demand curves for a good. The curve labelled MSC shows the marginal social cost of producing the good.
price, costs
MSC S
D x
y
z
O Q Q
output
2 1
Which area measures the net welfare gain to society from reducing output from OQ1 to OQ2?
A x B y C x + y D x + y + z
J/03/3/01
5 In an economy, no one can be made better off without making someone else worse off.
What does not necessarily follow from this?
A The distribution of income is socially acceptable.
B The conditions for allocative efficiency have been met.
C The economy is operating at a point on its production possibility frontier.
D The conditions for productive efficiency have been met.
J/03/3/14
6 A perfectly competitive industry becomes a profit maximising monopoly.
The marginal cost curve of the monopolist is identical to the supply curve of the perfectly competitive industry.
How will output and price be affected?
output price
A increases increases B increases decreases C decreases decreases D decreases increases
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Understanding Economics 165 11-Comparison between Perfect Competition and Monopoly J/03/3/15
7 In the diagram the imposition of a tax on a commodity causes its supply curve to shift from S1 to S2.
price
O
quantity D
J
K M
N P2
P1
Q2 Q1 S2
S1
Which area measures the resulting deadweight loss?
A P1P2JK B JKQ1Q2 C JKM D JKN
J/03/3/16
8 In what circumstances will the entry of additional fishing boats into the fishing industry necessarily result in a net loss in welfare?
A The entry of the new boats reduces fish caught by other boats.
B The entry of the new boats reduces the profits of other boat owners.
C The value of the increase in the fish caught is less than the loss in value of output elsewhere in the economy.
D The entry of the new boats reduces the overall fish stock.
N/03/3/01
9 An economy is operating at a point inside its production possibility curve.
Why is this described as inefficient?
A Individuals are enjoying too much leisure.
B Labour and capital are combined in the wrong proportions.
C More of one good can be produced without decreasing production of another.
D There are shortages of some goods and an excess supply of others.
N/03/3/17
10 By reallocating resources an economy produces more of one good but no less of other goods.
What change has necessarily occurred?
A improved technology B improved efficiency C increased equity D increased employment
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Understanding Economics 166 11-Comparison between Perfect Competition and Monopoly J/04/3/01
11 What does not pose a threat to the achievement of allocative efficiency?
A imperfect information on the part of consumers B income inequalities
C the existence of externalities
D the presence of monopolistic elements J/04/3/11
12 The diagram shows an industry producing under conditions of constant average costs.
LRAC, LRMC
AR Z
X Y
T W
MR
S V
O
output cost,
revenue
Under perfect competition, the industry produces output OV.
Which area measures the increase in the industry‟s profits if it were to become a monopoly?
A XYSO B XYWT C XYZT D YZW
J/04/3/15
13 The diagram shows the market supply and demand curves for corn.
O price
D
P1
K L R
P2
S
output
What should a government do if it is to maintain a minimum price of OP2?
A buy quantity KR B buy quantity LR
C sell quantity KL D sell quantity OL
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Understanding Economics 167 11-Comparison between Perfect Competition and Monopoly
N/04/3/01
14 A firm is operating in a perfectly competitive market.
What would ensure that it is both productively and allocatively efficient?
A It is in long-run equilibrium.
B It is maximising total revenue.
C It is producing where marginal revenue is equal to marginal cost.
D Long-run average costs are falling and sales are rising.
N/04/3/16
15 What might prevent an economy in which all firms are required to equate price and marginal cost from achieving allocative efficiency?
A differences in preferences between consumers B divergences between private and social costs C inequalities of income and wealth
D product differentiation N/04/3/17
16 A good gives rise to external benefits and is produced under conditions of imperfect competition.
Which statement must be true?
A Consumers of the good are paying too low a price.
B Firms producing the good will make a loss.
C Output of the good is below the socially optimum level.
D Social costs of production exceed private costs.
J/05/3/01
17 Which condition defines productive efficiency?
A All factors of production are fully employed.
B All firms are producing at their profit-maximising levels of output.
C The output of all goods is produced at minimum cost.
D There are no further opportunities for substituting capital for labour.
J/05/3/13
18 The government imposes a specific tax equal to $0.20 per unit on the output of a monopoly producer.
What will be the effect on the price charged by the monopoly and on the quantity it produces?
price quantity
A increases by $0.20 decreases
B increases by less than $0.20 decreases
C increases by $0.20 unchanged
D increases by less than $0.20 unchanged J/05/3/14
19 In an economy no one can be made better off without making others worse off.
What can be deduced from this?
A All markets are perfectly competitive.
B There are no externalities.
C The economy is operating on its production possibility curve.
D The distribution of income reflects what each individual deserves.
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Understanding Economics 168 11-Comparison between Perfect Competition and Monopoly N/05/3/01
20 What will happen if a firm is subsidised by an amount equivalent to the external benefits that it confers on the rest of society?
A Resource allocation will be improved.
B The firm will produce less.
C There will be a misallocation of resources.
D There will be no effect upon production.
N/05/3/15
21 Which area of skill possessed by the managers of government-owned enterprises in a planned economy is less relevant when industries are privatised?
A financial management B marketing
C production targeting D stock quality and control J/06/3/01
22 The diagram shows the production possibility curve for an economy.
good X good Y
L
O
What might make it possible for consumers in this economy to consume the combination of goods X and Y indicated by the point L?
A a reduction in unemployment
B the attainment of productive efficiency
C the elimination of a monopoly in the production of good X D trade with other economies
N/06/3/01
23 An economy is operating at a point on its production possibility curve.
What is true about the way the economy‟s resources are being used at this point?
allocatively efficient productively efficient socially desirable
A possibly yes yes
B yes possibly possibly
C possibly yes possibly
D yes possibly yes
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Understanding Economics 169 11-Comparison between Perfect Competition and Monopoly N/06/3/14
24 The diagram shows the cost and revenue curves of a profit-maximising monopolist.
MR
AR MC
AC
w z y x
O output
costs, revenue
Which area measures the deadweight loss arising from the exercise of monopoly power?
A x + y B y C y + z D w + z
J/07/3/01
25 In an economy, no one can be made better off without making someone else worse off.
What does not necessarily follow from this?
A The conditions for allocative efficiency have been met.
B The conditions for productive efficiency have been met.
C The distribution of income is socially acceptable.
D The economy is operating at a point on its production possibility frontier.
J/07/3/15
26 A perfectly competitive industry becomes a monopoly.
What would prevent a deadweight welfare loss resulting?
A The government converts it to a profit-maximising nationalised industry.
B The government places an indirect tax on the monopolist‟s product.
C The monopolist uses marginal cost pricing.
D The monopolist charges the same price to all consumers.
J/07/3/17
27 In 1995 the Canadian government increased the specific tax on each packet of cigarettes by $3.50.
What is the most likely explanation for the resulting fall in tax revenue from cigarette sales?
A Consumers switched to cheaper brands.
B The demand for cigarettes is price-inelastic.
C There was an increase in illegal imports of cigarettes from the USA.
D The whole of the increase in tax was borne by the cigarette manufacturers.
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Understanding Economics 170 11-Comparison between Perfect Competition and Monopoly N/07/3/01
28 In the diagram, a firm increases its output from OY to OZ.
MC
AR
O Y Z
costs and revenue
output
Which statement about the effect on economic efficiency is correct?
A It will increase because a greater quantity will be produced and higher total revenue will be earned.
B It will increase because the value that consumers place on the product comes closer to the cost of producing the last unit.
C It will decline because both average and marginal revenue will fall.
D It will decline because both total and marginal cost will rise.
N/07/3/14
29 What is not an example of „market failure‟?
A inequality in the distribution of income
B a monopolist charging prices above marginal cost C the damage to common land due to overgrazing D aircraft noise affecting individuals living near airports N/07/3/16
30 What should an industry regulator control if it wishes to provide an incentive for a privatised firm to improve its productive efficiency?
A dividends B output C prices D profits N/07/3/17
31 The introduction of a congestion charge on private motorists entering a city centre results in a significant reduction in traffic congestion.
What will be the net welfare effects on the following groups of car users?
those who continue to use their cars
those who no longer travel
those who switch to public transport
A uncertain lose uncertain
B uncertain uncertain gain
C lose lose gain
D lose uncertain uncertain
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Understanding Economics 171 11-Comparison between Perfect Competition and Monopoly J/08/3/01
32 What will happen if a firm is subsidised by an amount equal to the external benefits that it confers on the rest of society?
A Resource allocation will be improved.
B The firm will produce less.
C There will be a misallocation of resources.
D There will be no effect upon production.
J/08/3/10
33 A perfectly competitive industry becomes a profit-maximising monopoly.
The marginal cost curve of the monopolist is identical to the supply curve of the perfectly competitive industry.
How will output and price be affected?
output price A increases increases B increases decreases C decreases decreases D decreases increases J/08/3/12
34 In the diagram the imposition of a tax on a commodity causes its supply curve to shift from S1 to S2.
price
O
quantity D
J
K M
N P2
P1
Q2 Q1 S2
S1
Which area measures the resulting deadweight loss?
A P1P2JK B JKQ1Q2 C JKM D JKN J/08/3/13
35 A good gives rise to external costs and is produced under conditions of monopolistic competition.
Which statement must be true?
A Output of the good is at the socially optimum level.
B Output of the good is below the socially optimum level.
C Private costs of production exceed social costs.
D Social costs of production exceed private costs.
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Understanding Economics 172 11-Comparison between Perfect Competition and Monopoly J/08/3/15
36 A government decides to privatise a state monopoly.
What should the government do to try to ensure that this will result in an improvement in efficiency?
A allocate vouchers to all citizens entitling them to a share in the ownership of the monopoly
B encourage competition
C impose a maximum profit margin
D privatise the monopoly as a going concern N/08/3/01
37 Which condition must be met for economic efficiency to be achieved?
A Marginal social costs are zero in the production of all goods.
B Marginal social costs equal marginal social benefits in the production of all goods.
C Marginal social benefits are at a maximum in the production of all goods.
D Marginal social costs are at a minimum in the production of all goods.
N/08/3/02
38 The diagram shows the levels of utility corresponding to different allocations of resources between two people.
The initial allocation is Z.
Which reallocation of resources would definitely be more Pareto efficient?
45°
Z A
C D B
person X‟s utility person
Y‟s utility
O
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Understanding Economics 173 11-Comparison between Perfect Competition and Monopoly N/08/3/11
39 The diagram shows the cost and revenue curves of a profit-maximising monopolist. The monopolist's average cost curve is identical to the long-run supply curve which would exist if the industry was perfectly competitive.
X
V
AR W
AC = MC
Z Y
MR
T U
output
$
O
Which area shows the deadweight loss resulting from this monopoly situation?
A WXYZ B WXYZ C XVY D XVUT
J/09/3/14
40 In the diagram the introduction of a government subsidy causes an industry‟s supply curve to shift from S1 to S2.
S1
Q1
P1
P2
Q2
S2
quantity price
O D
N J
L K
Which area measures the resulting deadweight loss to society?
A P1NKP2 B JKN C NLK D Q1Q2JN
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Understanding Economics 174 11-Comparison between Perfect Competition and Monopoly N/09/3/09
41 The diagram shows an industry producing under conditions of constant average costs.
LRAC, LRMC
AR Z
X Y
T W
MR
S V
O
output
$
Under perfect competition, the industry produces output OV.
Which area measures the loss in consumer surplus if it were to become a monopoly?
A YWZ B XYWT C XYZT D SYZV
N/09/3/14
42 What could prevent a market economy achieving allocative efficiency?
A disagreement among consumers over resource allocation B inequalities in the distribution of income and wealth C an inability to produce free goods
D an inability to produce public goods J/10/3/12
43 A competitive market becomes a monopoly.
What is likely to happen?
A Consumer surplus will be reduced by the amount of the deadweight loss.
B Producer surplus will be reduced by the amount of the deadweight loss.
C The loss in consumer surplus will be balanced by the increase in producer surplus.
D There will be a transfer of surplus from consumer to producer.
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Understanding Economics 175 11-Comparison between Perfect Competition and Monopoly J/10/3/30
44 Which is a correct statement about efficiency?
A Allocative efficiency occurs when marginal revenue equals marginal cost.
B An economy is productively efficient when it is producing at a point on its production possibility curve.
C An economy will improve its allocative efficiency when its production possibility curve moves outward.
D Productive efficiency occurs when the prices of goods equal their marginal cost of production.
N/10/3/01
45 In an economy no one can be made better off without making others worse off.
What can be concluded from this?
A All markets are perfectly competitive.
B There are no externalities.
C The economy is operating on its production possibility curve.
D The distribution of income reflects what each individual deserves.
N/10/3/12
46 The diagram shows the outcome when a perfectly competitive market is taken over by a monopoly.
X
MR D
$
O quantity
AC
What does area X represent?
A monopoly profit
B the reduction in consumer surplus C the resulting deadweight loss D transfer earnings
N/10/3/14
47 Which is not a policy designed to correct market failure?
A competition policy
B free inoculation against infectious diseases C minimum wage policy
D regulations to limit river pollution
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Understanding Economics 176 11-Comparison between Perfect Competition and Monopoly J/11/32/07
48 A product with infinite elasticity of supply has sales of 1000 units a week at a price of $1 per unit.
Price elasticity of demand is 1.5 over the relevant range.
The government imposes a tax of 10 %.
What will be the government‟s weekly tax revenue?
A $15 B $85 C $100 D $150
J/11/32/10
49 The diagram shows the private and social marginal costs and benefits at different volumes of traffic.
z x
y
MSC
MPC + tax MPC
MPB = MSB O
costs, benefits
volume of tra f fi c
The imposition of a congestion tax raises the MPC curve to MPC + tax.
Which area measures the resulting reduction in the deadweight loss?
A x + y only B x + y + z C y only D z only
J/11/32/11
50 A government imposes a maximum price for electricity.
Which statement justifying this measure might be considered valid on economic grounds?
A It will encourage electricity suppliers to invest in additional capacity.
B It will increase the incentive for consumers to conserve energy.
C It will prevent the monopolistic exploitation of consumers.
D It will prevent the rationing of electricity through power cuts.
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Understanding Economics 177 11-Comparison between Perfect Competition and Monopoly J/11/32/30
51 In the diagram, LM is an economy‟s production possibility curve.
L
M G
H F
E
O good Y
good X
Which statement is correct?
A E only is attainable.
B F is economically efficient.
C G may be economically efficient but is not productively efficient.
D H is productively efficient but may not be economically efficient.
N/11/32/02
52 The diagram shows a firm‟s long-run cost and revenue curves.
O costs, revenue
AR MR
LRMC LRAC
A B C D
output
At which level of output is the firm both allocatively and productively efficient?
A OA B OB C OC D OD
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Understanding Economics 178 11-Comparison between Perfect Competition and Monopoly N/11/32/15
53 The diagram shows the supply and demand curves of a commodity.
A government subsidy causes the supply curve to shift from S1 to S2.
Which area measures the difference between the cost to the economy of producing the resulting increase in output (Q1 – Q2) and the value consumers place on this increase in output?
O
quantity price
D
S1
Q1 Q2
S2
D A B C
J/12/32/01
54 When is economic efficiency achieved in an economy?
A when nobody can become better off without somebody else becoming worse off B when the economy is operating at its natural rate of unemployment
C when the level of social costs is minimised D when the rate of economic growth is maximized J/12/32/15
55 A good gives rise to external benefits and is produced under conditions of imperfect competition. Which statement must be true?
A Benefits to consumers exceed the benefits to society.
B Firms producing the good will make a loss.
C Output of the good is below the socially optimum level.
D Social costs of production exceed private costs.
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Understanding Economics 179 11-Comparison between Perfect Competition and Monopoly J/12/32/16
56 The diagram shows the long-run cost and revenue curves of a monopolist.
O revenue,
costs
W Y Z
output AR
MR
LRAC LRMC X
Which level of output satisfies the condition for an efficient allocation of resources?
A OW B OX C OY D OZ
N/12/32/01
57 What will happen if a firm is subsidised by an amount equal to the external benefits that it confers on the rest of society?
A There will be no effect upon production.
B The firm will produce less.
C There will be a misallocation of resources.
D Resource allocation will be improved.
N/12/32/07
58 What would be the effect of imposing a specific tax on each item produced by a profit maximizing monopolist?
A Average revenue falls by the amount of the tax.
B Marginal costs rise by the amount of the tax.
C Price increases by the amount of the tax.
D There will be no change in price or output.
N/12/32/14
59 All firms in an economy produce at levels of output where price and marginal private cost are equal.
Why might this not be sufficient to ensure that allocative efficiency is achieved?
A a small number of buyers and sellers B differences in consumers‟ preferences C product differentiation
D the presence of externalities
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Understanding Economics 180 11-Comparison between Perfect Competition and Monopoly J/13/32/12
60 A firm operates in a perfectly competitive market.
Which relationship between the firm‟s cost and revenue describes a position where allocative efficiency would be improved if the firm reduces its present level of output?
A P = MR > MC B P = MR < MC
C P > MR = MC D P > MR > MC
J/13/32/14
61 The curve in the diagram shows the minimum combinations of capital and labour that are needed to produce 100 units of output.
capital
labour O
G
Q = 100
A firm‟s management hires the combination of capital and labour indicated by point G in the diagram to produce 100 units of output.
Which term best describes this situation?
A lack of specialization B managerial diseconomy
C market failure D X-inefficiency
J/13/32/16
62 The diagram shows the market supply and demand curves for corn.
O price
D
P1
K L R
P2
S
output
What should a government do if it is to maintain a minimum price of OP2? A buy quantity KR
B buy quantity LR C sell quantity KL D sell quantity OL