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Wycherley International School-Gampaha

Term II- 2023/2024
Mock Examination- March
Economics-Paper 3

Grade 12 C Duration -: 1hr & 15 minutes

Name:…………………………………………..

INSTRUCTIONS
 There are thirty questions on this paper. Answer all questions.

 For each question there are four possible answers A, B, C and D. Choose the

one you consider correct and record your choice in soft pencil on the multiple

choice answer sheet.

 Follow the instructions on the multiple choice answer sheet.

 Write in soft pencil.

 Do not use correction fluid.

 You may use a calculator..

INFORMATION

 Total marks for this paper is 30.

Total
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1. In 2015, a company electrified the main railway line between two cities in order to decrease the

journey time. The work was noisy, expensive and took a long time.

What would be the likely outcome of this project?

A External costs increased and private benefits decreased.

B Private benefits decreased and external cost decreased.

C Private benefits increased and private costs increased.

D Private costs increased and external costs decreased.

2. A cost-benefit analysis concludes that a nuclear power station project might be socially

worthwhile, although it will take 10 years to bring into operation.

Why might a government decide not to undertake the project?

A Cost-benefit analysis has no method for valuing the long-term impact of a project.

B Cost-benefit analysis is only suitable for private sector projects.

C The government believes that the project has too high an opportunity cost.

D The government’s policy is to restrict the extent of the market system.

3. Which measure is specifically designed to reduce divergences between private and social costs?

A equal pay legislation

B minimum wage legislation

C the abolition of tuition fees paid by university students

D the introduction of ‘bus only’ lanes in city centres

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4. Which is an internal economy of scale?

A efficient local transport networks

B improved access to spare parts as a result of industry growth

C lower risks from supplying a wider range of customers

D the training of skilled labour at a college financed by local firms

5. When a firm increases all its inputs by 100%, its output increases by 50%.
What does this illustrate?
A decreasing returns to scale
B economies of scale
C the law of diminishing returns
D the law of variable proportions

6. The diagram shows a consumer’s initial budget line is GH and a set of indifference curves IC1,
IC2 and IC3 for goods R and S. The original equilibrium for the consumer is point X.
The inflation rate is rising faster than money incomes.
What will be the most likely new equilibrium for the consumer if income is spent?
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7. What is true about the average fixed costs of a firm?

A They fall as output rises at first, but then rise.
B They fall continuously as output rises.
C They increase continuously as output rises.
D They remain unchanged at all output levels.

8. The diagram shows two indifference curves for a consumer.

What necessarily differs between IC1 and IC2?

A level of income
B level of satisfaction
C price of good X
D price of good Y

9. What are the correct formulae for calculating average cost (AC) and average revenue (AR)?
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10. The diagram shows the position of a profit-maximising firm in a perfectly competitive industry

What is the correct analysis of this position?

profits in short number of firms in the

run industry in the long
run
A supernormal decrease

B supernormal increase

C normal remain the same

D subnormal decrease

11. Which practices would be classified as price discrimination?

charging lower return flight fares

charging higher rail fares to from Kuala Lumpur to Hong Kong for
meet the additional costs of passengers who stay overnight on a
train companies Saturday in Hong Kong
A no no
B no yes
C yes no
D yes yes
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12. A shopkeeper earns $75 per week, but he would be willing to carry on working in his shop for
up to $25 per week less. Therefore, $50 is his level of
A marginal revenue product.
B producer’s surplus.
C economic rent.
D transfer earnings.

13. A developing country experiences economic growth. The economic growth is most likely to
lead to economic development when it
A causes rapid rural to urban migration.
B is based on the extraction of mineral raw materials.
C mainly rewards the country’s entrepreneurs.
D results from the expansion of labour-intensive industries.

14. In 1979 in the UK the marginal rate of income tax imposed on the highest earners was 83%
which increased to 98% if income was received from interest or dividends. By 1989 the highest
marginal rate was reduced to 40%. Despite this reduction, the tax revenue raised from the
highest earners increased substantially.
Which theoretical concept illustrates this relationship between tax rates and tax revenue?
A the J curve
B the Laffer curve
C the Marshall-Lerner condition
D the Phillips curve

15. Which indicator is least likely to be used when measuring the comparative economic
development of a country?
A adult literacy rate
B average life expectancy at birth
C level of real GNP per head
D size of population
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16. In an economy with no government sector:

C = consumption
I = investment
X = exports
M = imports
Y = national income.
If C = 40 + 0.5Y, I = 80, X = 100 and M = 100, what will be the equilibrium level of Y?
A 60 B 240 C 280 D 640

17. The diagram shows a closed economy in which the full employment level of income is YF.

Which distance measures the deflationary gap?

A JK B JL C NYF D MYF

18. In the Quantity Theory of Money equation, MV = PT, V is defined as the income velocity of
circulation. Which change would tend to reduce the value of V?
A a move to monthly rather than weekly salary payments by firms
B an increase in interest rates
C an increase in the use of cash machines to reduce money balances held
D an increase in the use of credit cards by individuals
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19.A firm operates under perfect competition in both product and factor markets with labour as
the only variable factor input.
In the diagram, the line JK shows the relationship between the marginal physical product of
labour and the hours worked.

When the marginal revenue of the product is $1.60, the firm uses 3000 hours of labour.
What is the hourly wage?
A $0.40 B $2.40 C $5.60 D $6.40

20. What is meant by liquidity preference?

A a desire to be paid in cash rather than by cheque
B a desire to be paid monthly rather than weekly
C a desire to hold assets that are convertible into cash
D a desire to hold money rather than other assets

21. What is an appropriate government policy for closing a deflationary gap?

A an increase in the rate of interest
B an open market sale of bonds
C an increase in government spending
D an increase in income tax
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22. The diagram shows the Gini coefficient for four countries between 1975 and 2010.

Which country made the greatest move towards a more equal income distribution over the
period?
A Brazil
B China
C India
D Mexico

23.The chart provides information about employment rates, as a percentage of total employment,
in the primary, secondary and tertiary sector of four countries.
What is most likely to represent the most economically developed country?
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24. Which policy is most likely to contribute to people ending up in a poverty trap?
A legal minimum wage
B means-tested benefits
C prevention of cheaper imports
D proportional taxation

25. The Gini coefficient of a country is 0.40. The poorest income earners in this country pay no
income tax.
The government increases the tax rate on the highest income earners, which results in a more
even distribution of income. What could be concluded from this?
A The Gini coefficient falls and the income tax system becomes more progressive.
B The Gini coefficient falls and the income tax system becomes more regressive.
C The Gini coefficient rises and the income tax system becomes more progressive.
D The Gini coefficient rises and the income tax system becomes more regressive.

26.What is an example of an expenditure-switching policy?

A an increase in income tax rates
B an increase in interest rates
C an increase in tariff rates
D an increase in the supply of money

27.In August 2002, the US President signed a trade agreement which allowed more duty-free
access to the US market for Latin American and Caribbean countries.
Who might benefit in the short run from this agreement?
A Caribbean countries, because they may export to Latin America
B Latin American businesses, because they may be able to sell more in the US
C Latin American governments, because they will not have to pay so much duty
D the US, because it may export more to Latin America
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28. What is present in a customs union but not in a free trade area?
A a common monetary system
B a common external tariff with the rest of the world
C a common system of taxation
D the free movement of all goods, services and factors of production

29. Country X trades with only two countries, Nigeria and Malaysia. 80% of the country’s trade is
with Nigeria and 20% is with Malaysia. The original value of the trade-weighted exchange rate
index is 100. The value of the country X’s currency against the Nigerian Naira rises by 10 %. The
value of the country X’s currency against the Malaysian Ringgit rises by 50 %.
What will be the value of country X’s new trade-weighted exchange rate index?
A 115 B 118 C 130 D 160

30. Which type of unemployment is associated with a deficiency in aggregate demand?

A cyclical
B frictional
C structural
D voluntary

(Total=30 marks)