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  • 1. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance The price elasticity of demand for a good is unitary. What would be the effect of a 1 % fall in its price? A to increase total revenue by 0.1 % B to leave quantity demanded unchanged C to leave total revenue unchanged D to reduce quantity demanded by 1 % What is an important influence on price elasticity of demand? A average earnings B tastes of consumers C the cost of living D the number of close substitutes A firm’s average revenue is $10. It sells 2000 units. What is the firm’s total revenue and the price of the product? The table shows the demand schedule for maize. What will happen if price rises from $5 to $6 per kilo? A Total revenue will rise. B Demand will rise. C Total revenue will fall. Page | 1
  • 2. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance D Total costs will rise. An entrepreneur can use either capital or labour in the production process. The actual combination changes as the prices of the factors alter. When is capital most likely to replace labour? Page | 2 What is happening when a firm is experiencing economies of scale? A It has rising long-run average costs. B It is operating in the short run. C Its fixed costs are less than variable costs. D Its output is increasing faster than its inputs. The diagram shows the demand for chocolate. What could cause the movement from point X to point Y? A a change in tastes B a fall in the price of chocolate C an increase in income
  • 3. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance D a successful advertising campaign for chocolate When is a firm most likely to undertake capital investment? A when it has increasing demand for its product B when it has increasing variable cost C when it has a decreasing rate of profit D when it has decreasing availability of finance The table shows the price of, demand for and supply of X per week. What will be the effect if the government imposes a minimum price of $40 per tonne? A a fall in the price of X B a shortage of X C a surplus of X D a waiting-list for X A bus company knows that demand for travel before 09 00 hours is inelastic and that after 09 00 hours it is elastic. How is the company certain to increase total revenue? A by increasing all fares B by increasing fares before 09 00 hours C by reducing all fares D by reducing fares before 09 00 hours Why might a government encourage a monopoly? A It can have high average costs. B It can compete against foreign firms. C It can prevent innovation. D It can make excessive profits. What is meant by the incidence of a tax? A how the revenue raised by the tax is spent B how the tax is collected C why the tax is imposed D where the burden of the tax is finally felt More people decide to travel by bus and train rather than by car because government subsidies result in reduced fares. What will be the effect on the private benefit for passengers and external benefit? Page | 3
  • 4. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 4 In many countries, extra staff are employed by the postal service and additional collections of post are made to clear the large amount of mail before holiday periods. What happens to the demand and supply curves for postal services during these periods? Which of the following is true for any inelastic demand curve? AA price cut causes a fall in expenditure. B A price rise has no effect on demand. C A price rise has no effect on total profit. D The percentage change in demand is greater than the percentage change in price. The graph shows the market for rice. It was in equilibrium at X. Later, there is a very good harvest of rice. What is the new equilibrium point?
  • 5. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance This worksheet is designed to help you understand the issues of taxation using data obtained from the Internet. The table shows the proportion of income saved for different age groups. Page | 5 What can be concluded from this data? A The youngest age group spends more than the oldest age group. B The 50 - 62 age group saves the highest proportion of its income. C The 50 - 62 age group has the highest level of income. D The older age groups earn more than the younger age groups. There is an increase in interest rates. What is the likely effect on saving and borrowing? The diagram shows the costs of a firm. What is the firm's total variable cost at an output of 100 units? A $100 B $500 C $10 000 D $50 000 In a company fixed costs are a high proportion of the total costs. What will result in the short run if production is cut by 50 %? A Average costs will rise. B Fixed costs will fall. C Total costs will remain constant. D Variable costs will rise.
  • 6. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance The retail store Woolworth’s has expanded the range of products it sells to include sweets, toys and compact discs. What term describes this change? A diversification B integration C merger D specialisation In a country where the government pays the unemployed a small weekly income, there is a reduction in consumer expenditure and, as a result, unemployment increases. What will be the effect on tax revenue of the government and on government expenditure? Which is a description of indirect taxes? A They are easy to avoid and deter effort. B They are levied on income and cause inflation. C They are levied on spending and are regressive. D They are progressive and discourage consumption. In a country, income tax is charged at $50 on an income of $500. Compared with this, which of the following would indicate that the income tax scale was progressive? A $150 tax on $2000 income B $300 tax on $3000 income C $450 tax on $4000 income D $480 tax on $5000 income The diagram shows the demand for and supply of a product. The original equilibrium is at X. Which point indicates the new equilibrium position if there is an increase in the price of a close substitute for the commodity while other things remain the same? Page | 6
  • 7. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 7 The diagram shows the demand for and supply of a firm's product. The original equilibrium is at X. The firm pays for a successful advertising campaign. What is the new equilibrium? The charts show the number of railway passenger journeys made and the miles of route open.
  • 8. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 8 What can be concluded from the charts? A The overall trend in passenger journeys between 1990 and 1994 was upwards. B The routes had more people travelling on them in 1994 than in 1992. C The revenue of the railway decreased between 1990 and 1994. D There were more trains running in 1994 than in 1992. There are a fixed number of seats at a concert. Most of the audience would continue to attend even if the seat prices were increased. Which diagram represents this situation? The table shows how three people spend their income. Place the three people in the most likely order of income, from highest income to lowest income.
  • 9. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A X, Y, Z B Y, Z, X C Z, X, Y D Z, Y, X The table shows the weekly values of certain items for the average person in each group. Which group saves the most on average? ‘Between 1988 and 1998 the real income of the poorest 5 % of the world’s people fell by almost 25 %, while the real income of the richest 5 % increased by 12 %.’ What does this mean? A Rich and poor people were equally affected. B The poor lost 25 % of their money. C The poor lost about twice as much money as the rich gained. D The poor were relatively worse off in 1998 than 1988. The table shows a firm’s average revenue and average cost. What level of output, A, B, C or D, gives maximum profit? The following extract appeared in a UK newspaper. ‘The UK construction firm Wimpey yesterday announced an £85 million deal to buy two companies in the United States which supply its raw materials.’ Which term best describes Wimpey's actions? A diversification B horizontal integration C vertical integration backwards D vertical integration forwards The diagram shows the fixed costs, variable costs and total costs of a firm. Page | 9
  • 10. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 10 Which distance represents the firm’s fixed costs? A PQ B PS C QR D QS The table shows output and total costs of a firm with three workers. How did output per worker and average cost change over the period? Which statement describes a progressive tax? A a tax that increases government income over time B a tax that places an increasing burden on the poor C a tax that rises in line with the rate of inflation D a tax that has a higher rate as income rises When is the budget described as balanced? A when direct taxes and indirect taxes are equal B when exports and imports are equal C when government spending and government revenue are equal D when the demand for money and the supply of money are equal External benefits are
  • 11. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A private benefits minus private costs. B private benefits plus social benefits. C social benefits minus private benefits. D social benefits plus social costs. What would not cause a shift in the demand curve for a good? A a change in incomes B a change in the price of a substitute good C a change in the price of the good D a change in the tastes of consumers 9 Four changes affecting the supply of a good are listed below. What would cause the supply curve to shift to the right? A an improvement in technology B an increase in its market price C a reduction in labour productivity D the introduction of a sales tax What is an example of complementary demand? A buses and bus fares B cotton and cotton seed C televisions and electricity D wood and sawdust A good is successfully advertised. What is the most likely impact on the demand and supply curves for the good? A person has no outstanding debts. What might cause that person to save more and spend less from their monthly income? A a rise in the choice of products B a rise in income tax C a rise in interest rates D a rise in the price of essential products The table gives information about full-time workers in a country. Page | 11
  • 12. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance What can be concluded from the table? AAll female workers earned less than male workers. B The difference between male and female earnings became smaller. C The hourly rate of pay for females was higher than for males. D The productivity of female workers was higher than that of males. What is likely to be found when there are many small firms in an industry? A There are few barriers to entry. B There is high expenditure on research developments. C Products are distributed to widely dispersed markets. D Very large capital costs are needed to establish a firm. A firm producing instant coffee previously paid for the disposal of the waste. It now sells the waste to be made into garden fertiliser. Which cost to the firm has not changed? A average cost B fixed cost C total cost D variable cost In 2003 Hewlett-Packard, a major computer company, announced that its profits had fallen below the level predicted. What might have caused this? A increased advertising costs that greatly improved sales B low prices that made the company’s product competitive C new technology that reduced costs D reduced sales and low prices Wal-Mart, the world’s biggest food retailer, has acquired a large number of supermarkets. What type of integration is this? A conglomerate B horizontal C vertical backward D vertical forward Ericsson is the world’s leading maker of mobile phone machinery. It announced that it had won a major contract to supply a Chinese phone company, China Mobile, with machinery. Ericsson also announced that it would become more efficient by reducing its workforce. How would economists classify these changes for the two companies? Page | 12
  • 13. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 13 A firm bottles 10 000 bottles of cola a week. Its fixed costs are $1000 a week. Its variable costs are $0.50 a bottle. Each bottle of cola is sold for $1. What is the profit per bottle of cola? A $0.40 B $0.50 C $0.60 D $0.90 The table gives information on the rate of economic growth in a country from 2001 to 2004. What is likely to have fallen in this period? A Gross Domestic Product B imports C prices D unemployment A demand curve for a product shows the relationship between its price and A cost of production. B population changes. C the income of the consumer. D the quantity of the product consumed. The following was printed in a magazine. More soft drinks are being consumed than ever before by the 16 – 34 age group. Schweppes, the drink manufacturers, claim that over 45 per cent of their soft drinks are now being consumed without alcohol as people switch away from alcoholic spirits. How would this change be represented on a demand and supply diagram for soft drinks? A decrease in demand B decrease in supply C increase in demand D increase in supply A firm produces a good with a price elasticity of demand greater than 1. What must the firm experience if there is a fall in the price of this good? A a decrease in costs B a decrease in sales C an increase in revenue D an increase in profits
  • 14. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Australian mines are among the world’s largest suppliers of uranium but the mines are contaminating Australia’s natural environment. It is recommended that the mining companies install new equipment which causes less pollution. If this is done, how would it be represented on a demand and supply diagram for uranium? Page | 14 The diagram shows the demand and supply of places in independent (private) schools which charge fees. The equilibrium position is X. The costs of independent (private) schools rise. Also a report is issued which states that Government schools achieve very good examination results. What is likely to be the new equilibrium position? Which diagram represents a firm with economies of scale?
  • 15. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A British firm, Dyson, moved production of its vacuum cleaners from the UK to Malaysia. Why might it have made this change? A average costs would fall B average revenue would rise C market share would fall D transport costs would rise What is a fixed cost of production? A the commission paid to sales staff B the cost of using the telephone C the interest paid on a bank loan D the money spent on repairs What is not equal to the average revenue? A the price of each unit B the profit from each unit C the revenue from each unit D the total revenue divided by output What is most likely to happen if a regressive tax replaces a progressive tax? A the amount of tax paid by richer people increases B incomes before tax become less equal C the majority of people continue to pay the same tax D the amount of tax paid by poorer people increases A government decides to reduce income tax. Which aims of government policy would this help to achieve? A a smaller balance of payments deficit and lower inflation B a smaller balance of payments deficit and more economic growth C lower unemployment and lower inflation D lower unemployment and more economic growth Why might a government discourage monopolies? A They can achieve low average costs. B They can compete against foreign firms. C They can introduce new technology. D They can make large profits. What is an external cost of smoking cigarettes? A the cost of the tobacco B the danger to non-smokers’ health C the harm done to smokers D the tax on cigarettes Why may it be better to increase public expenditure while reducing private expenditure? A Goods and services which the market ignores can be provided. B Government officials are likely to be more careful spending money than private individuals. C The profit motive makes government departments more efficient than private firms. D The government is the best judge of the satisfaction gained from goods and services. Page | 15
  • 16. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance In London, an extra charge is placed on the use of cars in the city centre which causes car drivers to switch to public transport. What is likely to happen to the private costs of those who continue to drive cars and to external benefits? Page | 16 An Italian-owned tour operator needs its staff in Rome to be able to speak a number of languages so it employs people from different countries. It also uses other firms in different countries to provide tour guides and coach drivers. It is part of an organisation that has shares issued on the stock exchange. Which type of company is this? A a co-operative B a private company C a public company D a multi-national A commercial bank is appointed to act as a country’s central bank. What new function would it now have? A controlling monetary policy B dealing in foreign exchange C ensuring security for loans D holding liquid assets What is not a function of a trade union? A to act as a pressure group to change labour laws B to negotiate with employers over conditions of work C to promote the sales of products made by its members D to protect the living standards of its members Due to good weather, there is a surplus in the market for an agricultural product. Which change would cause the market to return to equilibrium? A a decrease in demand B a fall in price C an increase in supply D a rise in price In July 2006, the UK chocolate producer, Cadbury Schweppes, had to withdraw one million bars of chocolate from the market because of food contamination at one of its factories. This was widely reported in UK newspapers. Which diagram shows the likely effect on the market for chocolate produced by Cadbury Schweppes?
  • 17. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 17 What combination of events might cause a rise in the willingness and the ability of consumers to buy a product? What could cause the demand for a product to become more price-elastic? A a smaller proportion of income being spent on the product B more substitutes coming onto the market C the product becoming more of a necessity D the product falling in price When the price of a product rises from $10 to $15, the demand falls from 5000 to 4000 units. What is the value of the price elasticity of demand for the product? A 0.2 B 0.4 C 1.5 D 2.5 What would an individual be doing to be described as a worker in the secondary sector? A working in a firm that grows fruit trees and plants B working in a firm that produces machines for other firms C working in a government passport office D working in the reception area of a hospital A supermarket wishes to recruit a qualified manager for a senior position to control the stocks of goods. Some work will be required at night as the supermarket is open 24 hours. A good salary is being offered. Which applicant would be most likely to be suitable for the position? A a person currently employed as a supervisor in another supermarket
  • 18. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance B a person who has experience of managing a small newsagents C a person who has to travel a long way and has demanding family commitments D a person who has recently graduated in Economics In India, there is a considerable gap between the incomes of the rich and the incomes of the poor.In 2006, there were 6 million rich households with an annual income above 215 000 rupees and 50 million poor households with an annual income less than 22 000 rupees. What is most likely to be true about spending? Why would people use their savings to buy shares on a stock exchange? A to allow easy access to their income B to earn a fixed income C to keep their money in a safe place D to make a capital gain An Economics student made the following statements about costs of production. Average costs remain the same at all levels of output. Fixed costs can exist when there is no output. Total costs can include both fixed and variable costs. Total variable costs fall as output increases. How many of these statements are correct? A1B2C3D4 A Japanese company which has spare capacity has agreed to refine 20 000 barrels of oil a day for a Chinese company. What is likely to happen in the Japanese firm to fixed cost, to variable cost and to total cost? A firm sells its products for $10 each. It produces 100 units. Its average variable cost is $5 and its average fixed cost is $2. How much profit does the firm make from selling 100 units? A $1000 B $700 C $500 D $300 In 2006, the Indian company, Ratnagin Gas and Power bought another Indian power company, Dabhol Power. Page | 18
  • 19. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance What type of integration is this? A conglomerate B horizontal C vertical backwards D vertical forwards The diagram shows the price per litre paid for petrol in four countries in a year. The amount of tax included in that price is shown by the shaded area. If there was no tax on petrol, which country would have the highest petrol price? What might a government increase if it wished to raise the growth rate of an economy? A expenditure on road building B goods and services tax (value added tax) C the rate of income tax D the rate of interest What is meant by a regressive indirect tax? A a tax on income that falls more heavily on the poor B a tax on income that falls more heavily on the rich C a tax on spending that falls more heavily on the poor D a tax on spending that falls more heavily on the rich A government decreased the tax on all goods produced in a country. What is the most likely result of this? A a decrease in imports B a decrease in industrial production C a decrease in real incomes D a deterioration in the balance of trade in goods What is an advantage if a region specialises in a narrow range of products? A Other regions will become over-dependent on the region. B Scarce resources are used more efficiently. C The level of production in the region will decrease. D The region’s system of transport is improved. What is the main reason why the government, rather than the private sector, builds and runs hospitals? A Hospitals are expensive to build. B The government has enough tax revenue to pay for hospitals. C The government needs to be sure that the doctors are well-trained. Page | 19
  • 20. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance D The whole country can benefit from the provision of good health facilities. A conference representing countries from many parts of the world agreed to ban trade in ivory products in order to try to stop the killing of elephants. Local people also argued that elephants are a menace: they threaten lives and destroy crops. Which policy do the above statements support? A All resources should be exploited fully. B Government regulation of production is unnecessary. C The market system should be used to make profits. D The social costs of production should be considered. A major airline needs a range of people and equipment. These can be divided into factors of production. Which is allocated to its correct factor of production? Commercial companies are cutting down tropical rainforests for hardwood timber. What is the opportunity cost to society of this activity? A tax revenue from the sale of the timber B the environment that is destroyed C the products made from the timber D the profits of the companies The market for a good was in equilibrium. A change occurred which resulted in a new equilibrium with a higher price for the good and a lower quantity traded. What change would have caused this? A The demand curve moved to the left. B The demand curve moved to the right. C The supply curve moved to the left. D The supply curve moved to the right. It was reported in 2002 that South Africa, a mixed economy, would face sharp increases in air and water pollution unless action was taken to develop environmentally friendly policies for its citizens. Page | 20
  • 21. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Why is a mixed economy thought to be a satisfactory means of achieving environmentally friendly development? A because all development is paid for by the government B because it allows external costs to be considered C because it ensures development at lowest cost D because it is the most productive system It was reported that a company producing designer clothes had increased its revenue by 20 % at a time when it decreased its prices. What does this suggest about the demand for these goods at that time? A It was perfectly price elastic. B It was perfectly price inelastic. C It was price elastic. D It was price inelastic. 10 Which costs will be reduced if a factory decreases the amount of pollution it causes to the environment? A average costs B external costs C fixed costs D variable costs The diagram shows a change in demand for coffee. What might cause the demand for coffee to change from D1 to D2? A a good coffee harvest B a rise in the price of alternative drinks C a rise in the wages of coffee workers D a successful advertising campaign for tea A product has a totally inelastic price elasticity of demand. What will happen to total revenue if the price of the product falls by 25 %? A It will fall by 25 %. B It will fall to zero. C It will remain unchanged. D It will rise by 25 %. Which organisation is most likely to raise large amounts of capital through shareholders? Page | 21
  • 22. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A a group of lawyers B a local builder C a manufacturer and exporter of televisions D a safari park with a hotel How does a firm guarantee that it makes the maximum profit? A by maximising the difference between its total revenue and total cost B by maximising the number of goods that it sells C by minimising the amount of goods that it keeps in stock D by minimising the difference between average revenue and average cost Some travellers complain about the disturbance caused when other people use their mobile (cell) phones. As a result, a UK train operator announces that it will buy some new trains that will have a device fitted to prevent the use of mobile (cell) phones. What will definitely happen to the train operator? A Its average revenue will decrease. B Its total revenue will increase. C Its fixed cost will increase. D Its total cost will decrease. Which is a diseconomy of scale? A Bulk buying reduces costs. B Communications deteriorate. C Employees are more motivated. D Technological improvements take place. The diagram shows the fixed costs, variable costs and total costs of a firm. What is the firm’s variable cost at an output of 100 units? A $500 B $10 000 C $50 000 D $60 000 In a popular tourist city there are three large hotels but many smaller guest houses. The company which owns one of the large hotels decides to add more rooms to its hotel and also purchase one of the other large hotels. What will happen as a result? A The company will be able to control the price of tourist accommodation in the city. B The market for hotel accommodation will become less competitive. C The smaller guest houses will be forced out of business. D There will be a monopoly supply of tourist accommodation in the city. Page | 22
  • 23. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A government decreased the tax on all goods imported into the country. What is the most likely result of this? A a decrease in domestic production B an increase in economic growth C an increase in exports D an improvement in the balance of trade in goods Changes in demand mean that the government of Bangladesh hopes to switch some production from clothes made by low-paid, unskilled workers to medicines produced by highly-trained technicians. What policies would enable Bangladesh to achieve this switch in employment and production? A demolish clothes factories and decrease imports B encourage immigration of foreign labour and introduce tariffs on clothing C invest in education and purchase new machines D substitute labour for machines and encourage emigration of workers from Bangladesh In 2003 in the UK, income tax raised £110 billion at a cost of 1.4 p per £1 raised. Company tax raised £21.1 billion at a cost of 1.2 p per £1 raised. What can be concluded from comparing this information on the two taxes? A Company tax was the more productive tax. B Company tax caused less tax avoidance. C Income tax was the more progressive tax. D Income tax was less economical to collect. What might cause a decline in economic output? A a decrease in income tax B a decrease in sales tax C an increase in company investment D an increase in unemployment The government of a country with a rapidly increasing population decides to switch resources from investment to increased subsidies to farmers. What is the opportunity cost of this decision? A the profit earned by farmers B the rent of the land on which food is grown C the reduction in investment D the wages of the farm workers The diagram shows the market for fresh fish in the Caribbean with equilibrium point X. New, more efficient boats with lower running costs are then used. Which point represents the new equilibrium? Page | 23
  • 24. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 24 The diagram shows the demand for and the supply of bread. A maximum price P1 is fixed by the government. What is likely to be the immediate result of this? A a movement of the demand curve to the right B a movement of the supply curve to the right C a shortage of bread D a surplus of bread The diagram shows a market for wheat that is in equilibrium. Which area represents the total revenue for wheat farmers? A OTXY B OVXZ C OVXY D OWXY The diagram shows the supply curve for a good.
  • 25. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 25 What is the price elasticity of supply when the price rises from $2 to $4? A 0.2 B 0.5 C 1 D 2 The diagrams show possible demand curves for four commodities. Which diagram shows a completely inelastic demand curve? What could a government do to reduce external costs in the economy? A Decrease direct tax for higher income earners. B Decrease direct tax for lower income earners. C Increase indirect tax on petrol / gasoline. D Remove indirect tax on tobacco. What is a function of a commercial bank? A acting as the lender of last resort B deciding what is a legal tender C determining monetary policy D providing overdrafts In August 2008, Infosys, an Indian information technology company, bought Axon, a UK information technology company. Which type of integration is this? A conglomerate B horizontal C vertical backwards D vertical forwards 19 What is correct about a monopoly? A It may benefit from economies of scale. B It must be privately not state owned. C Its costs are always higher than those of a firm in perfect competition. D It sells only one product. South African companies are planning to undertake major investment in Zimbabwe in order to mine platinum.
  • 26. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance If this investment occurs, what would happen in the short term to the supply of platinum, the price of platinum and the profits of the companies? Page | 26 Barilla, an Italian company, is the world’s largest pasta maker. It also produces bread. In 2006 its bread production contributed $1.5 billion (bn) to its total revenue of $5.1 bn. Overall profit was $0.6 bn. What was the total cost to Barilla of producing pasta and bread in 2006? A $2.1 bn B $3.0 bn C $3.6 bn D $4.5 bn A firm which sells its product for $6 has the following total costs. Which statement is correct? A Average cost is lowest when 10 units are produced. B The firm breaks even when 20 units are sold. C The firm has no fixed costs. D Total variable costs fall continuously over these outputs. What is likely to be found when there are many small firms in an industry? A There are few barriers to entry. B There is high expenditure on research and development. C There is little competition. D Very large capital costs are needed to establish a firm. What is a direct tax? A a tax on electricity B a tax on imported goods C a tax on services D a tax on income and wealth The directors of a firm have to discuss the following topics. Which topic is least likely to be directly affected by the government’s influence on the firm? A health and safety laws B the interest it pays on borrowed money C the minimum wage it must pay its workers
  • 27. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance D the replacement of the director of finance The diagram shows the market for fresh fish in the Caribbean with equilibrium point X. New, more efficient boats with lower running costs are then used. Which point represents the new equilibrium? Page | 27 The diagram shows the demand for and the supply of bread. A maximum price P1 is fixed by the government. What is likely to be the immediate result of this? A a movement of the demand curve to the right B a movement of the supply curve to the right C a shortage of bread D a surplus of bread The diagram shows a market for wheat that is in equilibrium. Which area represents the total revenue for wheat farmers?
  • 28. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A OTXY B OVXZ C OVXY D OWXY The diagram shows the supply curve for a good. Page | 28 What is the price elasticity of supply when the price rises from $2 to $4? A 0.2 B 0.5 C 1 D 2 What could a government do to reduce external costs in the economy? A Decrease direct tax for higher income earners. B Decrease direct tax for lower income earners. C Increase indirect tax on petrol / gasoline. D Remove indirect tax on tobacco. Which policy would best enable a government to encourage greater specialisation in the use of its country’s resources? A encouraging diversification in industry B protecting small businesses C reducing tariffs on imports into its country D subsidising job creation in rural areas The diagrams show possible demand curves for four commodities. Which diagram shows a completely inelastic demand curve? A firm which sells its product for $6 has the following total costs. Which statement is correct? A Average cost is lowest when 10 units are produced. B The firm breaks even when 20 units are sold. C The firm has no fixed costs. D Total variable costs fall continuously over these outputs.
  • 29. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Which activity is correctly linked to the organisation that provides it? Page | 29 In August 2008, Infosys, an Indian information technology company, bought Axon, a UK information technology company. Which type of integration is this? A conglomerate B horizontal C vertical backwards D vertical forwards Barilla, an Italian company, is the world’s largest pasta maker. It also produces bread. In 2006 its bread production contributed $1.5 billion (bn) to its total revenue of $5.1 bn. Overall profit was $0.6 bn. What was the total cost to Barilla of producing pasta and bread in 2006? A $2.1 bn B $3.0 bn C $3.6 bn D $4.5 bn South African companies are planning to undertake major investment in Zimbabwe in order to mine platinum. If this investment occurs, what would happen in the short term to the supply of platinum, the price of platinum and the profits of the companies? What is correct about a monopoly? A It may benefit from economies of scale. B It must be privately not state owned. C Its costs are always higher than those of a firm in perfect competition. D It sells only one product. What is likely to be found when there are many small firms in an industry? A There are few barriers to entry. B There is high expenditure on research and development. C There is little competition. D Very large capital costs are needed to establish a firm. What is a direct tax?
  • 30. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A a tax on electricity B a tax on imported goods C a tax on services D a tax on income and wealth Which policy would best enable a government to encourage greater specialisation in the use of its country’s resources? A encouraging diversification in industry B protecting small businesses C reducing tariffs on imports into its country D subsidising job creation in rural areas Due to changes in the costs of production, an industry’s supply curve shifted at various times from S1 to either S2 or S3. If a shift in supply was due to a seasonal increase in the cost of raw materials, what would have been the effect on demand? A The demand curve would move from D1 to D2. B The quantity demanded would move from x to w. C The quantity demanded would move from x to y. D The quantity demanded would remain the same at x. The table shows the changes in two influences on the demand for and supply of televisions. If these two changes occurred at the same time, in which case is it impossible for the price of televisions to rise? Page | 30
  • 31. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance In a country where the demand for petrol (gas) is price-inelastic, the incidence of any increase in petrol tax will be mainly on A the company that refines the oil. B the motorist who buys the petrol. C the petrol station that sells the petrol. D the wholesale company that stores the petrol. What is an example of market failure? A a growth of competition B an existence of scarcity C a spread of pollution D a surplus of production in the short-term Which action by the operators of an airport directly reduces external costs? A the stopping of night flights B the building of a new runway C the payment of a productivity bonus D the reduction of charges for landing aircraft A person wishes to buy shares in order to make a long-term profit, but wants as little risk of short-term loss as possible. Which type of share is most likely to meet these wishes? A a share in a coffee growing company B a share in a fashion house C a share in a high-tech electronics company D a share in a supermarket chain Which statement about a country’s banks is correct? A Commercial banks hold the financial accounts of the government. B Commercial banks settle debts by clearing customers’ cheques. C The central bank sets the government’s tax and spending policies. D The central bank supplies foreign currency to members of the public. A musician has a choice of playing for an orchestra in either England or Germany. Which combination of incomes and cost of living is most likely to cause her to choose the German orchestra? What is an advantage of small-scale production? A diseconomies of scale B division of labour Page | 31
  • 32. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance C flexible production D spreading of overheads A major computer company announced that its profits had fallen below the level predicted. What might have caused this? A increased advertising costs that greatly improved sales B low prices that made the company’s product competitive C new technology that reduced costs D reduced sales and low prices A firm raised the price of its product from $10 to $15 and as a result its sales fell from 200 units to 150 units. What happened to its average revenue and total revenue? Which change must occur when a firm starts to experience diseconomies of scale? A Average costs begin to rise. B Employees are made redundant. C Profits turn into losses. D Variable costs become fixed. If a firm increases its output in the short run, what will happen to its average fixed cost (AFC)? A AFC will decrease continually. B AFC will equal zero. C AFC will increase then decrease. D AFC will increase continually. Cathay Pacific, Hong Kong’s largest airline, flies to a number of countries. Shares in the firm are owned by both individuals and other firms in a number of countries. The shares are traded on the Hong Kong Stock Exchange. Which type of business organisation is Cathay Pacific? A a partnership B a private limited company C a public corporation D a public limited company Which statement is most likely to be correct? AA direct tax benefits the government. B An indirect tax benefits small shopkeepers. C A progressive tax benefits successful entrepreneurs. D A regressive tax benefits lower income earners. In 2008, the government of Argentina imposed a tax on exports of wheat and soya beans. What was the most likely aim of this tax? Page | 32
  • 33. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A to increase agricultural output B to increase exports C to reduce a budget surplus D to reduce the rise in domestic food prices A government gives farmers a subsidy of $5 per kilo to supply food on the open market where X is the equilibrium position. The effect is illustrated in the diagram below. What will be the new equilibrium price and quantity supplied as a result of the subsidy? A shopkeeper runs a business as a sole proprietor. What does this mean? A The business has limited liability. B The business is owned by shareholders. C The business is quoted on a stock exchange. D The profits of the business go to the shopkeeper What is most likely to cause a shift in the supply curve for oil? A an increase in purchases of cars B an increase in the price of oil C a rise in consumer incomes D the discovery of new oilfield Which method of advertising is likely to be the most effective for promoting the sales of textbooks? A direct mail B local radio C national television D posters on buses and taxis Page | 33
  • 34. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance In 2003 the US government was asked to stop subsidising tobacco growers. What would happen if the government agreed? Page | 34 The diagram shows demand and supply curves for a good. The market is in equilibrium at point X. What would be the new equilibrium position if there were a successful advertising campaign for the good and an increase in the cost of raw materials? In 2002 the world price of cocoa was higher than in 2001. Which combination of changes in the demand for and the supply of cocoa would always lead to a rise in price? A product has a price elasticity of demand that is greater than one. What will happen to total revenue if the price of the product is reduced by 3 %? A It will fall by more than 3 %. B It will fall to zero. C It will be unchanged. D It will rise. What might cause a fall in the proportion of income that a person saves? A a rise in income tax
  • 35. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance B a rise in interest rates C a rise in real incomes D a rise in the population Which activity can a small firm carry out more easily than a large firm? A adapting to changing fashions B having specialised managers C raising finance D undertaking research and development A firm finds that it can increase its production by replacing some of its workers by a machine. If this happens, what changes occur? A Fixed costs increase and variable costs increase. B Fixed costs increase and it becomes more capital-intensive. C Variable costs decrease and it becomes more labour-intensive. D Variable costs increase and fixed costs decrease. Which group has profit maximisation as a goal? A entrepreneurs B governments C savers D workers In 2004 Banco Santander, a Spanish bank, bought Abbey National, a British bank. What was achieved by this? A diversification B horizontal integration C vertical integration backwards D vertical integration forwards IKEA, the world’s largest retailer in home furnishings, opened a new store in Malaysia in 2003. What was likely to happen to fixed costs, variable costs and profits for IKEA? The following information relates to a company producing shoes. What is the profit per pair of shoes when the firm is maximising its profits? A $0.50 B $1.00 C $2.00 D $3.00 Page | 35
  • 36. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 36 The diagram shows the price per litre paid for petrol in four countries in a year, and (shaded) the amount of tax included in that price. If there were no tax on petrol, which country would have the highest petrol price? The table shows some changes in the output of Namibia between 1998 and 1999. What can be concluded from this information about the Namibian economy between 1998 and 1999? A Exports of fish increased. B Namibia’s primary sector production became more important. C Stocks of fish increased. D Unemployment rose by 0.8 % in manufacturing. The charts show the distribution of employment between the three sectors in Countries X and Y. Which statement is true about Country X compared with Country Y?
  • 37. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A Country X employs more people in the service industries. B Country X enjoys lower living standards. C Country X has a higher proportion of workers in manufacturing. D Country X produces more agricultural products. The table shows the main source of export earnings by product for selected countries. From this table we can conclude that A all these countries specialise in the production of primary products. B W and X specialise in the production of tertiary products. C the largest % of export earnings from Y is from the sale of secondary products. D export earnings of W and Z are identical. How is the social benefit of an activity calculated? A private benefit minus positive externalities B private benefit minus private cost C private benefit plus negative externalities D private benefit plus positive externalities Countries that have changed from command to market economies will expect to find an increase in A choice. B price control. C rationing. D subsidies. What makes an industry capital-intensive? A It employs many unskilled workers. B It manufactures expensive products. C It occupies sites on cheap land. D It uses a large amount of equipment and a small labour force. What makes Barclays Bank a public limited company? A It experiences economies of scale. B It has more than two directors. C It is quoted on the London Stock Exchange. D It operates in more than one country. The diagram shows a change in the demand for a company’s products as a result of a change in advertising. What has increased? Page | 37
  • 38. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 38 A the cost of advertising to the company B the cost of advertising to a rival company C the expenditure on advertising by the company D the expenditure on advertising by a rival company The demand for and supply of a good both change. As a result the price of the good rises but the quantity traded remains the same. What must have happened to demand and supply? In a market there is a shortage of a good. What change would cause the market to come to an equilibrium? A an increase in demand B a decrease in supply C a fall in price D a rise in price The diagram shows the supply curve for a good. What is the price elasticity of supply when the price rises from $2 to $4? A 0.2 B 0.5 C 1 D 2 A firm changes the price of its product and finds that its revenue increases. What combination of price change and price elasticity of demand would have caused this?
  • 39. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 39 A government wishes to impose a tax on a good to raise revenue. It would be most likely to achieve this aim if the price elasticity of demand for the good were A high. B infinite. C low. D unitary. Which feature of working in an occupation might tend to keep the basic wage rate down? A handling dangerous materials B receiving commission payments C undertaking training D working unsocial hours Which change would be most likely to cause the earnings of hotel managers in Mauritius to rise more than the earnings of sugar cane workers there? A a decrease in the supply of sugar cane workers in Mauritius B a decrease in the price of hotel rooms in Mauritius C an increase in the productivity of hotel managers in Mauritius D an increase in the price of sugar cane from Mauritius The table shows percentage increases in earnings in a country between 1997 and 2004. According to the table what happened between 1997 and 2004? AAll female workers became better paid than male workers. B The highest paid male workers had the most rapid growth in earnings. C The earnings of male workers became more evenly distributed. D The earnings of female workers became less evenly distributed.
  • 40. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance What is most likely to increase a firm’s profits? A government controls on its prices B grants for the purchase of new machines C an increase in the wages paid to its workers D rising costs of its raw materials The table shows the quantity of coffee demanded per day and the quantity supplied per day. At the equilibrium price, what will be the total expenditure on coffee? A $10 B $20 C $200 D $400 At the equilibrium price, what will be the total expenditure on coffee? A $10 B $20 C $200 D $400 Which statement about fixed costs is correct? A They exist only in the long run. B They include raw material and direct labour costs. C They increase at the same rate as output. D They must be paid even if there is no output. An athlete needs an income and also needs time for training and competitions. Which occupation is most appropriate for the athlete? A department store manager who is paid a salary B livestock farmer working for profit C assembly-line worker who is paid a wage D self-employed photographer What is an example of backward vertical integration? A An aircraft manufacturer takes over an airline. B A bank takes over another bank. C A plastics manufacturer takes over a drinks firm. D A tyre manufacturer takes over a rubber plantation. Which is a diseconomy of scale? A Bulk buying reduces costs. B Communications deteriorate. C Employees are more motivated. D Technological improvements take place. Page | 40
  • 41. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance The governments of many countries raise revenue from a tax on a wide range of essential goods and services. What is the nature of this tax? A It is direct and proportional. B It is direct and regressive. C It is indirect and proportional. D It is indirect and regressive. Why might a new indirect tax be undesirable? A It encourages firms to export. B It creates a more regressive tax system. C It produces a narrower basis of taxation. D It creates a more progressive tax system. Which action by the operators of an airport directly reduces external costs? A the abolition of night flights B the building of a new runway C the payment of a productivity bonus D the reduction of charges for landing aircraft The table shows the contribution to Gross Domestic Product made by different sectors for four countries. The diagram shows demand and supply curves for a product at its equilibrium price P. How would the introduction of a subsidy be shown? A Demand would shift to D1. B Demand would shift to D2. C Supply would shift to S1. D Supply would shift to S2. Which statement is correct? Page | 41
  • 42. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A Most production in Bangladesh was in the tertiary sector. B Most production in China was in the primary sector. C Most production in the Philippines was in the secondary sector. D Most production in the US was in the tertiary sector. Which statement could explain a decrease in the demand for natural rubber? A Demand for car tyres has increased. B New techniques of producing substitutes for rubber have been introduced. C Productivity of rubber plantations has increased. D The area of land on which rubber is grown has increased. The table illustrates the demand and supply for rice in a market in Africa. When the price rises from $20 to $30 per kg, what is the approximate price elasticity of demand for rice? A 0.25 B 0.5 C 1.0 D 2.0 The diagram shows that when a tax of $2 on a good raises the supply curve from S1 to S2, the price to the consumer rises from $4 to $5 What is the total tax yield to the government? A $75 B $150 C $200 D $375 The diagrams show different conditions of demand and supply for an agricultural product. Page | 42
  • 43. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance In which diagram would market price remain unchanged if consumers’ incomes fell? Page | 43 A government intends to build a new international airport in an area of outstanding natural beauty. What would be an external cost of this decision? A the cost of importing construction materials B the countryside that is lost C the increase in profits for local businesses D the wages paid to the construction workers A stock exchange is a market in which Aa system of barter operates. B the interest rate is fixed. C the value of the exchange rate is determined. D shares are bought and sold. What is the most likely reason for a worker preferring to be employed by the government rather than by a firm in the private sector? A more chance of a fast changing environment B more chance to work in a large organisation C more opportunity to gain from successful risk taking D more possibility of productivity bonuses ‘There are actors who earn extremely high incomes.’ What best explains this? A Acting is a popular career. B Actors have regular employment. C Actors work short hours. D Some actors have a unique talent. What might be a direct benefit to the individual worker of a specialised job?
  • 44. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance A Specialisation can enable the worker to become more skilled. B Specialisation enables a better quality product to be produced. C Specialisation enables the firm to introduce more machinery. D Specialisation makes better use of resources Page | 44 Which change would be most likely to cause the earnings of hotel managers in Mauritius to rise more than the earnings of sugar cane workers in Mauritius? A a decrease in the number of tourists visiting Mauritius B a decrease in the supply of sugar cane workers in Mauritius C an increase in the price of sugar cane from Mauritius D an increase in the productivity of hotel managers in Mauritius A milk processing company takes over a group of dairy farms before merging with a chain of supermarkets. Which types of integration have taken place? A diversification followed by horizontal B horizontal followed by vertical backward C vertical backward followed by vertical forward D vertical forward followed by diversification What is usually an advantage of a small firm? A the ability to benefit from bulk buying arrangements B the ability to raise finance from a stock exchange C the ability to respond quickly to changes in consumer demand D the ability to run a national advertising campaign In 2008, XL, the UK’s third largest tour operator went out of business. What would have been the effect of this on the level of competition in the industry, the external economies of scale experienced by the remaining firms and the level of business confidence in the UK? The table shows a firm’s fixed and variable costs at four levels of output. At which level of output is average cost at its lowest?
  • 45. Chapter 7 How market Price are Determined Chapter 13 Cost Revenue Profits Chapter 11 Borrowing Saving Consumption Chapter 21 Social Cost & Benefits Chapter 15 Public Sector Finance Page | 45 A2B3C4D5 What is unlikely to be a feature of a large firm in a monopoly position in a market? A It achieves economies of scale. B It charges high prices. C It removes barriers to entry. D It will attract government attention Direct taxes can be used to A place the burden of tax on sellers not buyers. B protect domestic industries from foreign competition. C raise revenue without affecting the number of hours employees work. D redistribute incomes from rich to poor. Brazil is a highly taxed economy. Some Brazilian economists have suggested that if the government were to cut tax rates, the government would actually receive more tax revenue. Why may cutting taxes increase revenue? A It may encourage emigration. B It may increase the tax burden. C It may lead to a fall in investment. D It may reduce tax evasion. What is most likely to be the responsibility of a central government? A the provision of immigration officials at an airport B the provision of security cameras in a shopping centre C the provision of security staff at a bank D the provision of ticket inspectors on a train Firms often advertise saying that they specialise in providing a certain product or service. What is an advantage of such specialisation to the firm? A Its workers are motivated by more varied tasks. B Production is dependent on other firms supplying components. C The firm’s average cost of production is likely to fall. D The firm can quickly adapt production if their product or service is no longer required.