IFYEC002 Economics

THE NCUK INTERNATIONAL FOUNDATION YEAR

IFYEC002 Economics
End of Semester 1 Test

2017-18

Test Session Time Allowed

Semester One 1 Hour 40 minutes
(including 10 minutes reading time)

INSTRUCTIONS TO STUDENTS
1

SECTION A Answer ALL questions. This section carries 20 marks.

SECTION B Answer 1 question ONLY. This section carries 30 marks.

The marks for each question are indicated in square brackets [ ].

 Answers must not be written during the first 10 minutes.

 An approved calculator may be used in the test.
 Show ALL workings in your answer booklet.
 Test materials must not be removed from the room.

DO NOT OPEN THIS QUESTION PAPER UNTIL INSTRUCTED BY THE

INVIGILATOR

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 IFYEC002 Economics

Section A
Answer ALL questions. This section carries 20 marks.
Questions A1 – A10: select either A, B, C or D and write your answer in the
Answer Booklet provided.

Question A1

The diagram below shows the supply curve for pizza.

Price

0
Quantity

The supply curve is drawn on the assumption that each of the following
remains constant except: [1]

A the state of technology in the pizza industry.

B the price of pizza.
C the wages of workers in pizza restaurants.
D the productivity of workers in pizza restaurants.

Question A2

The income elasticity of demand for an inferior good is always: [1]

A positive.
B negative.
C zero.
D the same as its price elasticity of demand.

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Question A3

The diagram below shows the production possibility frontier for a firm that
produces two products, X and Y.

Product
X
B
D

Product Y
Which of the following movements illustrates an improvement in a firm’s
productive efficiency assuming factor resources remain unchanged? [1]

A A to D
B B to C
C D to B
D A to C

Question A4

A firm can only benefit from economies of scale: [1]

A if it is a monopoly.
B in the long-run.
C in the short-run.
D if costs are rising.

Question A5

Under conditions of pure monopoly, all of the following statements are true
except: [1]

A The monopolist is a profit maximiser.

B The firm has the ability to price discriminate.
C The firm is allocatively inefficient.
D The firm will produce where average cost is at its lowest point.

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Question A6

The diagram below shows the demand and supply curves for train services,
where X is the initial equilibrium.

Price of S3
Train
S1
Services
B S2

X C
A

D D2

D1
D3

Quantity

Where will be the new equilibrium position (A, B, C or D) following the

introduction of a government subsidy to bus firms and at the same time the
government increases the tax imposed on train tickets? [1]

A A
B B
C C
D D

Question A7

Merit goods: [1]

A have positive production externalities.

B are over-provided by the market mechanism.
C have social benefits greater than private benefits.
D are taxed by the government to increase consumption.

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Question A8

The government wishes to impose a tax on a good that creates a negative

externality in the production process

Price
S

G E
C

B F

A D
H

0
Quantity

To be effective the tax levied should be the equivalent to the distance: [1]

A BC
B DE
C FG
D HG

Question A9

The cross price elasticity of demand for computer games consoles is -0.8. It
can be concluded that an 8% reduction in their price would lead to a
percentage change in demand for computer games of: [1]

A more than 10%

B 100%
C less than 8%
D 8%

Question A10

The government imposes a maximum price to encourage the consumption of

a merit good. The most likely result is that it will: [1]

A create excess demand.

B cause the price level to rise.
C shift the demand curve to the right.
D encourage new firms to enter the market.

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Question A11

Read the following article, and answer the questions that follow.

ThyssenKrupp and Tata agree steel merger

Germany’s ThyssenKrupp and India’s Tata Steel have agreed to merge their
European operations to create the continent’s number two steel producer.

The new combined company would generate sales of €15bn, employ about
48,000 people at 34 locations and ship 21m tonnes of steel per year. Up to
2,000 jobs in administration and 2,000 in production are to be cut, shared
evenly by both groups.

The groups said the production network would be reviewed in 2020 “with
the aim of integrating and optimising the production strategy”.

The steelmaking industry has been in disarray following a collapse in steel

prices under a supply glut driven by a large quantity of cheap Chinese
exports.

According to analysts, profitability per tonne among Europe’s steelmakers

has fallen from a peak of €215 in 2008, to €46/tonne in 2016.

Source: Financial Times (adapted extract)

a) State the difference between a merger and a takeover. [1]

b) Illustrate on a diagram the effect that Chinese exports has had on the
global steel market. [3]

c) Explain ONE reason why ThyssenKrupp and Tata have agreed to

merge. [3]

d) Explain ONE disadvantage that the merger might have on consumers. [3]

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Section B
Answer 1 question. This section carries 30 marks.
 You must answer 1 complete question.
 Each question has two parts, a) and b). Both parts must be answered for the
question you choose.
 For all questions, you may use diagrams to help illustrate your answer.

Question B1

a) With the use of relevant examples, explain what ‘merit’, ‘de-merit’ and
‘public goods’ are. [ 10 ]

b) There have been a number of news stories in recent years regarding

the decline of exercise among school children. Evaluate the different
economic policies that could be used to encourage school children to
undertake more exercise. [ 20 ]

Question B2

a) With the use of a diagram, explain the long run equilibrium position of a
firm operating as a monopoly. [ 10 ]

b) Evaluate the view that excessive monopoly power is always harmful to

the consumer. [ 20 ]

Question B3

a) Carefully explain how cost-benefit analysis might be used to judge an

economic decision. [ 10 ]

b) Evaluate the effectiveness of cost-benefit analysis techniques for

assessing whether the government should invest in transport schemes
that seek to expand the existing railway network. [ 20 ]

This is the end of the test.

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