Economics Paper 3 November 2008

1. ARising average costs that occur once a firm expands beyond its optimal size.
2. BFalling average costs that continue to fall indefinitely as a firm's output increases.
3. CThe lowest average cost achievable at any level of output for the industry.
4. DThe minimum efficient scale a firm needs to reach in order to compete in the industry.

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1. ATotal revenue exceeds total cost, generating a surplus over and above what is needed to keep the firm in the industry.
2. BTotal revenue equals total cost, once the opportunity cost of the entrepreneur's own capital and effort is included.
3. CTotal revenue is less than total cost, meaning the firm's return falls short of what is needed to keep it operating in the industry.
4. DTotal revenue equals total cost, but the calculation excludes the opportunity cost of the entrepreneur's own capital and effort.

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1. AOutput is produced at the lowest point on the firm's average cost curve, given its current scale.
2. BA firm earns the highest profit possible at its current level of output, regardless of how that price compares with marginal cost.
3. CPrice is equal to marginal cost, so the quantity produced reflects consumers' willingness to pay for the last unit.
4. DA firm operates at the minimum cost achievable with its current technology and management effort.

1. AThe liquidity preference theory, which explains interest as a reward for giving up the liquidity of holding money instead of less liquid interest-bearing assets.
2. BThe quantity theory of money, which relates the money supply to the general price level.
3. CThe purchasing power parity theory, which relates exchange rates to relative price levels between countries.
4. DThe loanable funds theory, which explains interest as the price that equates the supply of savings with the demand for investment funds.

1. AThe supply of money and the public's demand for holding money as a liquid asset.
2. BThe supply of household and firm savings together with the demand for funds to finance new investment projects in the economy.
3. CThe general price level in the current year relative to a base year.
4. DThe exchange rate between the domestic currency and a foreign currency.

1. AMonopoly power, where a single firm can restrict output and raise price above the competitive level.
2. BAn externality, where the production or consumption of a good affects a third party outside the transaction.
3. CInformation asymmetry, where one party to a transaction has more or better information than the other.
4. DA public good, which is non-excludable and non-rival in consumption.

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1. AA rise in the country's interest rates relative to other countries, attracting foreign capital inflows and raising demand for the domestic currency.
2. BA rise in the country's inflation rate relative to its trading partners, making its exports less competitive.
3. CAn improvement in the country's export performance, increasing foreign demand for its currency.
4. DA fall in the country's inflation rate relative to its trading partners.

1. AAllow the exchange rate to adjust automatically to changes in currency supply and demand.
2. BSet interest rates solely according to domestic inflation targets, without reference to the exchange rate.
3. CRemove all restrictions on the movement of capital into and out of the country.
4. DHold sufficient reserves of foreign currency to buy or sell its own currency and defend the fixed rate.

1. APlanned injections into the circular flow of income equal planned withdrawals from it.
2. BConsumption spending by households equals the total amount of savings set aside by households in the economy.
3. CThe value of exports equals the value of imports.
4. DGovernment spending equals the total tax revenue collected.

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1. AIt increases, as the additional tax revenue collected allows the government to raise its own spending by exactly that same additional amount collected.
2. BIt decreases, as higher VAT reduces households' disposable income and consumption, lowering aggregate demand through the multiplier.
3. CIt has no effect, since VAT is levied on firms rather than directly on households' income.
4. DIt decreases, because VAT directly reduces the money supply available for banks to lend.

1. AMoney loses real purchasing power over time, making it less attractive to hold as savings.
2. BDebtors and creditors are affected equally by changes in the general price level.
3. CPrices become noticeably easier for both households and firms to compare across different goods and over time.
4. DMoney remains equally acceptable in exchange for goods and services.

1. AA rise in the market-clearing equilibrium price of the good.
2. BAn increase in the incomes firms earn from selling the controlled good.
3. CShortages of the controlled good, as the ceiling price is set below the market equilibrium price.
4. DAn increase in the quantity firms are willing to supply at the newly lower, government-controlled price.

1. ACyclical and seasonal unemployment.
2. BDemand-deficient and frictional unemployment.
3. CStructural and cyclical unemployment.
4. DFrictional and structural unemployment.

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