Name: ______________________________ Section: _________________

Campus: _____________________________ Date: ___________________

Subject: Economics [AS] Syllabus Code: 9708

Time: 45min Total Marks: 25

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3. You may use lead pencil for diagrams, graphs, or B 17
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 Section A [Essay Question]

Use a production possibility curve (PPC) diagram to explain how a government in a mixed
economy might allocate more resources to consumption and fewer resources to investment and
consider a limitation of this approach to resource allocation. [8]

Section B [MCQz]

1 Why does a production possibility curve exist for every economy?

A Resources are unlimited.
B Resources have alternative uses.
C Some resources can be imported.
D Some resources may be unemployed.

2 Which statement is a normative statement?

A Aggregate demand will increase following a decrease in interest rates.
B A rise in unemployment will decrease inflationary pressures.
C The incentive to work will rise if benefit payments are reduced.
D Unsustainable economic growth is more harmful to the economy than hyperinflation.

3 Which combination best describes the basic economic problem?

4 A worker earns $40 per hour. Rather than work, she decides to visit a museum for three
hours. The visit costs a total of $40. What is the opportunity cost of visiting the
museum?
A $40 B $80 C $120 D $160

5 Which item would be least likely to be classed as land?

A fertilisers
B fisheries
C forests
D coal

6 Why does the concept of scarcity apply to the use of fossil fuels?
A Demand fluctuates according to price changes.
B Supply is insufficient to meet demand.
C Their use is restricted because of harmful pollution.
D They are being replaced by renewable energy sources.

7 An economist knows the current point at which an economy operates within its
production possibility curve. What can the economist conclude about this economy?
A its degree of self-sufficiency
 B its international competitiveness
C its level of output of two goods
D its rate of economic growth

8 The diagram shows a production possibility curve for an economy that produces two
goods, X and Y.
When will the opportunity cost of producing
more of good X be the largest?

A moving from point E to point F

B moving from point E to point G
C moving from point E to point H
D moving from point G to point H

9 What is the definition of long run?

A the time period when all factors of production are specialised
B the time period when all factors of production are variable
C the time period when all key inputs into production are variable
D the time period when at least one factor of production is fixed

10 The table states the consequences of two macroeconomic policies. What correctly
identifies whether the statements are normative or positive?

11 The diagram shows the production possibility curve for wheat and corn.
What can be deduced from the diagram?
A As the price of corn falls, more of it is demanded.
B Resources used in producing corn are more efficient than in producing wheat.
C The opportunity cost of producing corn falls when moving from M to N.
D The opportunity cost of producing corn is constant when moving from M to N.
12 Which factor of production is needed first in order to set up a new business?
A capital
B enterprise
C labour
D land

13 Assuming nothing else changes, which change in an economy’s labour market will
cause the production possibility curve to shift to the left?
A an increase in worker immigration
B an increase in the retirement age
C an increase in labour productivity
D an increase in the school leaving age

14 A hospital management board decides to reallocate $800 000 from its $1.2m new
buildings budget to spend on cancer care. What is the opportunity cost of this decision?
A a cost of $400 000
B a cost of $800 000
C the cost of healthcare for cancer patients
D the loss of some new buildings

15 The diagram shows the change in a country’s production possibility curve from XX to
YY.

What would explain this change?

A Consumers chose to consume more food and less drink.
B Government taxed food production and subsidised drink production.
C Productivity rose in food production and fell in drink production.
D There were more imports of food and more exports of drink.

16 A government decides that all non-essential businesses must close for three months
due to a disease pandemic. What is an opportunity cost of this policy?
 A increased leisure time for employees
B lives that are saved due to reduced disease levels
C the production of goods by essential businesses
D the loss of goods from the closed businesses

17 The diagram shows an economy’s production possibility curve. The economy produces
combinations of goods and services using all available resources.

What does the production possibility curve indicate for goods and services?
A constant returns to scale in the production of both goods and services
B diminishing returns to scale in the production of both goods and services
C increasing returns to scale in the production of both goods and services
D infinite returns to scale in the production of both goods and services