A reason the free market fails to achieve an optimal allocation of scarce resources is because

there is underproduction of goods with +ve externalities

Complete market failure always exists when

there is a missing market in the provision of public goods.

Which one of the following measures of elasticity indicates that two goods are substitutes?

A positive cross elasticity of demand

A policy to make smoking illegal in enclosed public places would lead to government failure if

economic benefits from the ban were outweighed by its costs

The fundamental economic problem facing all societies is

what, how and for whom goods and services should be produced

Composite demand is where

a good is demanded for more than one use

A tradeable pollution permit

is designed to reduce -ve externalities from pollution

The YED for a good is −3. Which one of the following statements is correct?

A 20% increase in Y leads to a 60% fall in Q.

Specialisation and the division of labour require

a means of exchanging goods and services

Cross elasticity of demand measures the extent to which a change in

the price of one good affects the demand for another good

Which one of the following statements involves a value judgement?

The government was wrong to increase spending on roads

A firm is productively efficient when it

operates at the minimum point of its average cost curve

Which one of the following is a normative statement?

The government must intervene in markets

Government provision of a merit good can be justified because

without gov't interv'n partial market failure would result.

A pure public good (or service) is always

available for cons'n by others when cons'd by an addn person

studbud

Year 12 ECON1 Revision

25 termsStudBud Administration69 plays

Imported from external platform

Flashcards25 cardsFPractice quizPHost liveL

Questions 25

Answers

1
A reason the free market fails to achieve an optimal allocation of scarce resources is because
positive externalities lead to overproduction of a good
there is underproduction of goods with +ve externalities
public goods are provided free of charge to users
individuals’ incomes and wealth are not identical
2
Complete market failure always exists when
the free market fails to provide sufficient merit goods.
there are negative externalities in production.
the free market underprices demerit goods.
there is a missing market in the provision of public goods.
3
Which one of the following measures of elasticity indicates that two goods are substitutes?
A negative income elasticity of demand
A positive price elasticity of demand
A negative price elasticity of demand
A positive cross elasticity of demand
4
The equilibrium price in a market
changes when demand equals supply
is the balance of excess demand and excess supply
is the market-clearing price
always increases when demand rises
5
A policy to make smoking illegal in enclosed public places would lead to government failure if
the government’s tax revenue from cigarette sales fell.
jobs were lost in the tobacco industry
economic benefits from the ban were outweighed by its costs
some people continued to smoke cigarettes in their own homes
6
The fundamental economic problem facing all societies is
D inequalities in the distribution of income and wealth.
what, how and for whom goods and services should be produced
a divergence between social & private costs of prod. & cons.
the existence of unemployed resources.
7
The cross elasticity of demand between two complementary products is always
zero
positive
negative
greater than 1
8
Composite demand is where
two goods are complements
the demand for one good depends on the demand for another
two goods are bought together
a good is demanded for more than one use
9
Specialisation requires the existence of
rising productivity.
a system of exchange.
economies of scale.
economic efficiency.
10
A positive statement in economics is always
capable of being tested.
based upon an opinion.
correct.
based upon numerical data.
11
The income elasticity of demand for a normal good is always
positive
greater than +1
less than +1
negative
12
A tradeable pollution permit
will be bought by a firm if price < social cost of pollution
is designed to reduce -ve externalities from pollution
can be used only by the firm to which it is issued.
is needed to equalise +ve & -ve externalities in production
13
P of washing machines falls by 5% and, as a result, Q rises by 4%. PED for the good is
-1.0
+1.25
-1.25
-0.8
14
The YED for a good is −3. Which one of the following statements is correct?
A 10% increase in P leads to a 30% fall in Q.
Demand for the good is income inelastic.
The good is a normal good.
A 20% increase in Y leads to a 60% fall in Q.
15
Specialisation and the division of labour require
that the economy is operating on its PPF
an absence of negative externalities
a means of exchanging goods and services
competitive markets
16
Price elasticity of supply measures the responsiveness of the quantity supplied to a change in
demand.
price.
costs of production.
the size of firms.
17
Cross elasticity of demand measures the extent to which a change in
the demand for a good affects the amount supplied
the demand for one good affects the price of another good
the price of one good affects the demand for another good
consumers’ incomes affect the demand for a good
18
Which one of the following statements involves a value judgement?
Inferior goods have a negative income elasticity of demand
The supply of beef is likely to be inelastic in short run
Economies of scale can lead to lower prices
The government was wrong to increase spending on roads
19
The income elasticity of demand for bustravel is -2.0. This means that
a 10% fare rise will lead to a 20% decrease in passengers
buses are likely to have a -ve cross elasticity of demand
bus travel is an inferior good
as unemployment falls more people will use their local buses
20
Which one of the following is classified as an economic resource?
Enterprise
Consumption
Production
Productivity
21
A shift to the right of the demand curve for a product could be caused by a
rise in production costs
fall in the price of that product
fall in the price of close substitutes
rise in income
22
A firm is productively efficient when it
operates profitably
benefits from economies of scale
is the only firm in the industry
operates at the minimum point of its average cost curve
23
Which one of the following is a normative statement?
Labour is the human contribution to production
The government must intervene in markets
Consumers consider opportunity cost when making decisions
Economic theory assumes that firms will maximise profits
24
Government provision of a merit good can be justified because
without gov't interv'n partial market failure would result.
merit goods are non-rival and non-excludable.
the provision of merit goods has an opportunity cost.
without gov't intervention there would be a missing market.
25
A pure public good (or service) is always
heavily subsidised by the government.
provided by the government for all consumers
available for cons'n by others when cons'd by an addn person
provided free of charge for all consumers

Year 12 ECON1 Revision Flashcards | StudBud