IFYEC003 Economics

THE NCUK INTERNATIONAL FOUNDATION YEAR

IFYEC003 Economics

End of Semester 1 Test

Time Allowed
2 hours 40 minutes

1 INSTRUCTIONS TO STUDENTS

Questions Answer ALL questions. These questions carry 30 marks in

1-11 total (60% of the marks for this assessment).

Questions Answer 1 question ONLY. These questions carry 20 marks in

12-13 total (40% of the marks for this assessment).

The marks for each question are indicated in square brackets [ ].

• An approved calculator may be used in the test.

• Show ALL working in your answer booklet.
• Test materials must not be removed from the test room.

DO NOT OPEN THIS QUESTION PAPER UNTIL INSTRUCTED BY THE

INVIGILATOR

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Questions 1-11
Answer ALL questions.
These questions carry 30 marks in total.

Question 1

The production possibility frontier can be used to illustrate productive [1]

efficiency of an economy. This means that

A it is only possible to produce more of one good by producing less of

another.
B standards of living are rising proportionally
C there are unused resources in an economy.
D there are no further gains to be made from division of labour.

Question 2

In an oligopolistic market, interdependence means that [1]

A the benefits of external economies of scale are shared evenly amongst

all firms.
B only the firms who collude will be able to make profits.
C the success of one firms’ pricing strategy depends upon the actions and
reactions of other firms in the market.
D consumer welfare and producer welfare are maximised.

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Question 3

The diagram below shows the demand and supply curve for a good that [1]
receives a government subsidy. As a consequence, the supply curve shifts
from S1 to S2.

Price
(£)
S1

S2
40

D1

0 50 75
Quantity

If the price elasticity of demand for the Good is -2.0, what is the new
equilibrium price at D1S2?

A £10
B £25
C £30
D £35

Question 4

Which of the following would an economist classify under the factor of [1]
production known as capital?

A Stocks and shares

B A delivery van
C Fish in the sea
D Savings in the bank

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Question 5

Which of the following is most likely to shift the supply curve for a firm to [1]
the right?

A An increase in demand
B A fall in the price of the good
C A fall in labour productivity
D A subsidy granted to the producer of the good

Question 6

If one large firm dominates a market, this is most likely to mean that [1]

A the firm may be able to successfully price discriminate.

B barriers to entry are low.
C The firm is productively efficient.
D The firm will only produce if marginal revenue is greater than marginal
cost.

Question 7

The following diagram shows the total cost of producing washing machines
as output increases

Output Total cost per month

(Washing machines per (£)
month)
0 £45,000
100 £70,000
200 £85,000
300 £90,000

What is the average fixed cost of producing 300 washing machines per [1]
month?

A £50
B £150
C £200
D £300

Question 8

Timber can be used in the production of houses, furniture, and paper. This is [1]
an example of

A derived demand.
B joint supply.
C joint demand.
D composite demand.

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Question 9

Marginal revenue is best defined as [1]

A the maximum amount of revenue a firm can receive from the sale of
goods and services.
B the increase in revenue generated from the sale of one additional unit
output.
C the lowest price that a firm can charge to remain in the market.
D the amount of revenue received that equals marginal cost.

Question 10

Which of the following is most likely to be a feature of a monopolistic [1]

competitive market?

A Diseconomies of scale.
B A perfectly elastic demand curve.
C Non-price competition.
D Long run supernormal profits.

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Question 11

Reducing industrial pollution in the Niger River Basin

The Niger River is the third-longest river in Africa, running for 4,180 km
(2,600 miles) from its source in south-eastern Guinea, through Mali, Niger
and Nigeria, before discharging via the Niger Delta into the Gulf of Guinea in
the Atlantic Ocean.

Hundreds of millions of people in West Africa depend on the river for drinking
water, for fish to eat, for irrigation to grow crops, for use in productive
processes, and for hydroelectric power.

The health of the Niger River Basin is vitally important for the people and for
the environment of West Africa. But this health is endangered by land
degradation, pollution, loss of biodiversity, invading aquatic vegetal species
and climate change.

Research has found that wastewater and other polluting substances are
discharged directly into the river, often without consideration for the
environment. National governments of the countries which the river runs
through are either unable to deal with the environmental problems or are
ineffective at preventing, regulating, reducing and managing pollution from
industrial activities.

Source: Moderndiplomacy.eu (October 2021 - adapted extract)

(a) Explain with examples the term ‘negative production externalities’ [2]

(b) Explain with the use of a diagram how negative production [6]
externalities lead to market failure.

(c) Analyse the negative production externalities that might arise from [6]
the excessive pollution of water.

(d) Explain the policies that might be used to reduce river pollution and [6]
evaluate which ONE of these you would recommend as being the
most effective

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Questions 12 - 13
Answer 1 question ONLY
This question carries 20 marks in total.

Question 12

In 1985 there were 2,676 merger and takeovers worldwide, and by 2017, this [20]
had grown to 53,302.

Explain the different types of merger and takeover that could occur and evaluate
the advantages and disadvantages of growing monopoly power to consumers
and firms.

Question 13

In December 2020, wheat was globally traded at $5.6 per bushel, but by May [20]
2021, the global price had risen to $7.7 per bushel – a 37.5% increase.

Explain the three functions of price in a market system and given that the
market for primary food is often volatile, evaluate the range of possible
government interventions that might be employed to help stabilise food prices.

- This is the end of the test -

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