Objective Tests

This test contains ten multiple choice questions on the subject of economics. Attempt every question. No marks will be deducted for wrong answers. Make sure that you have included both your name and email address before pressing the 'submit' button. You must include your email address because you will be notified of your result by email. The occupation and education field are not compulsory, but I would be most grateful if you would include this information as it makes entries in the Hall of Fame much more interesting to read.
The price mechanism helps to allocate resources efficiently because
it results in lower rewards being paid to factors of production when the demand for the product they produce increases
it will lead to a distribution of output amongst individuals on the basis of greatest need
the prices of non-renewable resources will tend to rise as the stock of such resources nears depletion
it will always ensure that competition between firms prevents high profits being earned
The law of comparative advantage implies that trade between two countries
is always to the advantage of both
can be to the advantage of both even though one may be more technically efficient at producing everything
is beneficial to both if the exporter uses less resources than the importer would use to produce the same goods
is to the advantage of both if countries import only those goods that they are incapable of producing themselves
If an economy is operating at full capacity, the most likely effect of an increase in the output of capital goods is that the output of consumption goods will
increase in the short run but fall in the long run
fall in the short run but increase in the long run
fall in both the short and the long run
increases in the short and the long run
In a perfectly contestable market
firms are likely to earn normal profit in the long run
producers have monopoly power which enables them to fix prices
the minimum efficient scale of production is likely to be high
there are likely to be significant barriers to entry
An argument for the State providing merit goods free of charge is that
they are unlikely to be provided by the private sector
the consumption of merit goods results in negative externalities
it is considered unacceptable that people on low incomes may be unable to afford them
merit goods are both non-excludable and non-rival
When the United Kingdom Government privatised industries, such as water and telecommunications, regulatory organisations (e.g. OFWAT and OFTEL) were established.
Regulation of these industries in the United Kingdom has included
setting a limit upon the amount of profit which can be earned
preventing overseas companies competing with domestic suppliers
imposing restrictions upon the extent to which prices can be increased
preventing all the regulated industries from engaging in any form of price discrimination
In a particular country, gas is produced by a monopoly, but its price must be approved by a regulator. The gas company has asked the regulator if prices can be raised so as to increase revenues to offset falling profits. In reply, the regulator has suggested that profits can be restored by lowering rather than raising prices.
Which one of the following is consistent with the above information?
The gas company believes that
the demand for gas is price inelastic but the regulator believes it is price elastic
the demand for gas is price inelastic but the regulator believes that the supply of gas is price elastic
the demand for gas is price elastic and income inelastic
there will be no increase in demand if prices are lowered
Government intervention to correct market failure may make the situation worse because
the information needed to make sound economic decisions is widely dispersed amongst individuals
the Government is unable to provide private goods since they are both rival and excludable
positive extenlalities resulting from the consumption of merit goods means that they will be under-provided by the State
competition amongst firms in the private sector will inevitably result in an optimum allocation of resources
Which one of the following would cause aggregate demand to fall?
A decrease in personal taxation
A fall in imports
A fall in the rate of interest
A decrease in government expenditure
Indirect Taxes may be preferred to direct taxes because they
will have little impact on the pattern of demand
are less likely to distort the choice between work and leisure
will result in a more even distribution of income
are unlikely to raise the price of goods and services
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