International Foundation Programme in Humanities and Social Sciences
14:30 – 17:00
14 MAY 2015
IFP3805 ECONOMICS
Duration: 2 hours 30 minutes
YOU ARE NOT PERMITTED TO READ THE CONTENTS OF THIS QUESTION PAPER UNTIL
INSTRUCTED TO DO SO BY AN INVIGILATOR.
Answer ALL Questions
Do NOT use a separate answer booklet for this paper
Calculators are permitted in this examination. Please state on your answer book the name and type of
the machine used.
Complete all rough workings in the answer book and cross through any work that is not to be
assessed.
Possession of unauthorised material at any time when under examination conditions is an
assessment offence and can lead to expulsion from QMUL. Check now to ensure you do not have
any notes, mobile phones, smartwatches or unauthorised electronic devices on your person. If you
do, raise your hand and give them to an invigilator immediately. It is also an offence to have any
writing of any kind on your person, including on your body. If you are found to have hidden
unauthorised material elsewhere, including toilets and cloakrooms it will be treated as being found in
your possession. Unauthorised material found on your mobile phone or other electronic device will be
considered the same as being in possession of paper notes. A mobile phone that causes a disruption
in the exam is also an assessment offence.
EXAM PAPERS MUST NOT BE REMOVED FROM THE EXAM ROOM
Examiner:
Y. G. Makedonis
STUDENT NUMBER: ________________________________________
DESK NUMBER: ____________________________________________
© Queen Mary, University of London, 2015
Page 2 of 12
IFP3805 (2015)
Section A: Each correct answer is worth 1 mark
Choose the correct letters a – d and write a tick √ in the appropriate cells in the table. In case of a
mistake, put a cross X the cell.
a)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
b)
c)
d)
IFP3805 (2015)
Page 3 of 12
Question 1
In a floating exchange rate system:
a) The government intervenes to influence the exchange rate
b) The exchange rate should adjust to equate the supply and demand of the currency
c) The Balance of Payments should always be in surplus
d) The Balance of payments will always equal the government budget
Question 2
The balance of payments equals:
a) The difference between household spending and income
b) The difference between government spending and income
c) A measure of the value of economic transactions between residents of a country and the rest of
the world
d) The difference between inflation and unemployment
Question 3
The basic economic problems will not be solved by:
a) Market forces
b) Government intervention
c) A mixture of government intervention and the free market
d) The creation of unlimited resources
Question 4
The free market involves:
a) The free provision of products by the state
b) The subsidising of products by the government
c) Market forces of supply and demand
d) All trade occurring via barter
Question 5
Average income increases from £20,000 per year to £22,000 per year. Quantity demanded per year
increases from 5000 to 6000 units. Which of the following is correct?
a) Demand is price inelastic
b) The good is inferior
c) Income elasticity is -2
d) The product has a positive income elasticity of demand
Question 6
If demand is price inelastic:
a) An increase in price must raise profits
b) An increase in price decreases revenue
c) An increase in price increases revenue
d) A decrease in price reduces sales
Question 7
If the price in a market is fixed by the government below equilibrium then assuming a downward
sloping demand curve and upward sloping supply curve:
a) There is excess equilibrium
b) There is excess supply
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Page 4 of 12
IFP3805 (2015)
c) There is excess demand
d) There is equilibrium
Question 8
If the price in a market is fixed by the government above equilibrium then assuming a downward
sloping demand curve and upward sloping supply curve:
a) There is excess equilibrium
b) There is excess supply
c) There is excess demand
d) There is equilibrium
Question 9
Which of the following is not an export?
a) Sales of cars abroad
b) Purchase of foreign components
c) Students from abroad studying in your country
d) Sales of financial services overseas
Question 10
Free trade is based on the principle of:
a) Comparative advantage
b) Comparative scale
c) Economies of advantage
d) Production possibility advantage
Question 11
Firms in perfect competition face a:
a) Perfectly elastic demand curve
b) Perfectly inelastic demand curve
c) Perfectly elastic supply curve
d) Perfectly inelastic supply curve
Question 12
In perfect competition:
a) The products that firms offer are very similar
b) Products are heavily differentiated
c) A few firms dominate the market
d) Consumers have limited information
Question 13
In the long run in perfect competition:
a) The price equals the total revenue
b) Firms are allocatively inefficient
c) Firms are productively efficient
d) The price equals total cost
Question 14
In perfect competition:
a) A few firms dominate the industry
b) Firms are price makers
IFP3805 (2015)
Page 5 of 12
c) There are many buyers but few sellers
d) There are many buyers and many sellers
Question 15
In the short run firms in perfect competition will still produce provided:
a) The price covers average variable cost
b) The price covers variable costs
c) The price covers average fixed cost
d) The price covers fixed costs
Question 16
X inefficiency occurs when:
a) The price is greater than the marginal cost
b) The price is greater than the average cost
c) Costs are higher than they could be due to a lack of competitive pressure
d) There are external costs
Question 17
In monopoly when abnormal profits are made:
a) The price set is greater than the average cost
b) The price is less than the marginal cost
c) The average revenue equals the marginal cost
d) Revenue equals total cost
Question 18
In monopoly in long run equilibrium:
a) The firm is productively efficient
b) The firm is allocatively inefficient
c) The firm produces where marginal cost is less than marginal revenue
d) The firm produces at the socially optimal level
Question 19
A monopolist faces:
a) An upward sloping demand curve
b) A perfectly elastic demand curve
c) A downward sloping demand curve
d) A demand curve with a positive price elasticity of demand
Question 20
In a monopoly which of the following is not true?
a) Products are differentiated
b) There is freedom of entry and exit into the industry in the long run
c) The firm is a price maker
d) There is one main seller
Question 21
Which of the following is not a macroeconomic issue?
a) Unemployment
b) Inflation
c) The wages paid to footballers
d) Economic growth
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Page 6 of 12
Question 22
Which of the following can the government not use directly to control the economy?
a) Pay rates within the private sector
b) Pay rates in the public sector
c) Investment in state education
d) Benefits available for the unemployed and sick
Question 23
Which of the following is likely to be a government objective?
a) Lower unemployment
b) Negative economic growth
c) Very high inflation
d) A recession
Question 24
Which of the following is a possible government objective?
a) High borrowing costs
b) Low income per person
c) Lower employment
d) Lower inflation
Question 25
An increase in national income is:
a) Likely to increase exports
b) Likely to decrease savings
c) Likely to decrease investment
d) Likely to increase spending on imports
Question 26
An increase in national income is likely to:
a) Decrease tax receipts
b) Worsen the trade position
c) Automatically cause an increase in government spending
d) Cause an increase in injections into the economy
Question 27
A significant increase in the government budget deficit is likely to:
a) Reduce injections into the economy
b) Reduce national income
c) Move the economy away from full employment
d) Boost aggregate demand
Question 28
If injections are greater than withdrawals:
a) National income is likely to increase
b) National income is likely to decrease
c) National income will stay in equilibrium
d) Prices will fall
IFP3805 (2015)
IFP3805 (2015)
Page 7 of 12
Question 29
As national income increases:
a) The average propensity to consume falls and gets nearer in value to the marginal propensity to
consume
b) The average propensity to consume increases and diverges in value from the marginal propensity
to consume
c) The average propensity to consume stays constant
d) The average propensity to consume always approaches infinity
Question 30
An increase in consumption at any given level of income is likely to lead to:
a) Higher aggregate demand
b) An increase in exports
c) A fall in taxation revenue
d) A decrease in import spending
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Page 8 of 12
IFP3805 (2015)
Section B: Each correct answer is worth 3 marks
Define the term…
a. tariffs
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b. protectionism
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c. scarcity
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d. opportunity cost
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e. law of supply
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IFP3805 (2015)
Page 9 of 12
f. appreciation of the exchange rate
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g. cost-push inflation
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h. cyclical unemployment
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i. economic recession
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j. money
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Page 10 of 12
IFP3805 (2015)
Section C: Each correct solution’s marks are highlighted at the beginning of the exercise.
Solve the exercise…
1. (10 marks) The following diagram shows two demand curves that cross at a price of P0.
Price
P0
P1
D2
D1
Q0
Q1
Q2
Quantity
Which of the following statements are true? Briefly justify your answer.
a. Curve D1 is inelastic and curve D2 elastic. ..................................................................................................
..............................................................................................................................................................................
b.
Demand is more elastic between P0 and P1 along curve D2 than along curve D1 ...........................................
..............................................................................................................................................................................
2. (10 marks) How will the market demand curve for a ‘normal’ good shift in each of the following cases? Sketch
a graph and briefly explain your answer for each of the two cases.
a. The price of a substitute good falls ...................................................................................................................
..............................................................................................................................................................................
..............................................................................................................................................................................
..............................................................................................................................................................................
..............................................................................................................................................................................
b. Population rises .................................................................................................................................................
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IFP3805 (2015)
Page 11 of 12
3. (12 marks) The demand and supply schedules for wheat in a free market are as follows:
Price per tonne (£)
130
170
210
250
290
330
370
410
Tonnes demanded per week
730
700
660
650
620
550
520
425
Tonnes supplied per week
230
300
420
500
620
750
1000
1300
a. (2 marks) Draw the demand and supply curves on the following diagram:
400
360
Price (£ per tonne)
320
280
240
200
160
120
0
200
400
800
600
1200
1000
1600
1400
Quantity (tonnes per w eek)
b.
(2 marks) What is the equilibrium price and quantity? ............................................................................
c.
(2 marks) Assume the government fixes a maximum price of £200 per tonne. What will be the effect?
.....................................................................................................................................................................
d.
(2 marks) Suppose that supply now increases by 150 tonnes at all prices. Enter the new figures.
Price per tonne (£)
130
170
210
250
290
330
370
410
Tonnes demanded per week
730
700
660
650
620
550
520
425
(old) Tonnes supplied per week
230
300
420
500
620
750
1000
1300
(new) Tonnes supplied per week
e.
(4 marks) How much will price change from the original equilibrium (assuming that the government
no longer fixes a maximum price)? How much more will be sold?
Change in price …………………………………………..
Change in quantity …………………………………………..
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Page 12 of 12
IFP3805 (2015)
4. (8 marks) The following diagram shows the aggregate demand and supply of labour and the total labour force
(N). Assume that there is a contraction of aggregate demand and that, as a result, there is a recession.
Assume also that wage rates are ‘sticky’ downwards and as a result do not fall.
Real wage rate
ASL
N
A
B
ADL1
ADL2
O
C
D
E F G
Number of workers
a.
What is the level of employment after the onset of recession? ...............................................................
b.
How much is the equilibrium unemployment? .........................................................................................
c.
How much is the disequilibrium unemployment? ....................................................................................
d. How much unemployment would there have been if wages were not ‘sticky’ and had fallen to the
equilibrium.
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End of Paper
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