Certificate SECTION ACIMA 52 MARKS Test 04

in Business Accounting

ANSWER ALL TWENTY-SIX SUB-QUESTIONS 2 MARKS EACH

Each of the sub-questions numbered from 1.1 to 1.26 inclusive, given below, has only ONE correct answer. REQUIRED:

Place a circle O around the letter A, B , C or D that gives the correct answer to each sub-question. CIMA C04 fundamentals of business economics If you wish to change your mind about an answer, block out your first answer completely and then circle another letter. You will NOT receive marks if more than one letter is circled. Please note that you will NOT receive marks for any notes or workings to these sub-questions.

Question One 1.1 A B C D In economics, the term opportunity cost refers to the monetary cost of a good or service. the cost of producing the goods measured in money terms. the monetary cost of acquiring a factor of production. the value of a good or service forgone.

1.2 A B C D

The importance of saving in promoting economic growth is because of the relationship between savings and present consumption. future consumption. investment. interest rates.

1.3 A B C D

Economic growth is desirable because it makes all of the following possible EXCEPT which ONE? The elimination of the economic problem. Higher living standards. Increased private and public consumption. Increased leisure.

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1.4 A B C D

All of the following policies would promote export-led economic growth EXCEPT which ONE? A reduction in the country's tariffs on imports. A restrictive domestic monetary policy. The removal of taxes on employing labour. An appreciation in the countrys foreign exchange rate.

1.5 A B C D

Economic growth in developed economies tends to be associated with a reduction in the output of the industrial sector in the economy. a rise in the importance of the service sector in the economy. a reduction in the dependence on imports. a rise in the number of workers in the primary sector.

1.6 A B C D

Economies of scale are best described as the process by which large, dominant firms can secure higher profits. large firms can better organise their factors of production. large-scale production permits the use of new technology. large-scale production leads to lower costs per unit of output.

1.7 A B C D

Which ONE of the following will tend to make the demand for a companys product LESS price elastic? A rise in consumer incomes. A rise in the price of complementary goods. A fall in the number of substitute goods. A lower price for the good.

1.8 A B C D

Which ONE of the following does NOT restrict the number of firms in an industry? Low levels of product differentiation. Significant economies of scale. Barriers to entry. The use of capital-intensive technology in the industry.

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1.9 A B C D

A profit-seeking company may engage in advertising to achieve any of the following outcomes EXCEPT which ONE? To increase the cross elasticity of demand for the product. To shift the demand curve for the company's product to the right. To make the demand curve for the product more price inelastic. To increase total sales revenue.

1.10 All of the following are features of oligopoly EXCEPT which ONE? A B C D Non-price competition. Interdependence in decision making. Entry barriers. A large number of firms.

1.11 A policy of price discrimination by a monopolist may involve all of the following EXCEPT which ONE? A B C D Charging different prices to different customers. Charging different prices in different markets. Charging different prices for products of differing quality. Charging different unit prices for different quantities purchased.

1.12 Which ONE of the following is an example of an external social cost? A B C D Bad weather reducing the output of the farm sector. Possible illness caused to owners of mobile phones as a result of excessive use. Smoke emissions by a factory causing health problems for nearby residents. Cost increases caused by rising prices of imported raw materials.

1.13 If, in the long run, a business doubles all the inputs it uses, but total output less than doubles, it is experiencing A B C D diminishing returns. decreasing returns to scale. diminishing marginal utility. market saturation.

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1.14 If a business sells a product with a high income elasticity of demand, A B C D its sales will fall steeply if it raises its prices. its sales will fall only slightly if there is a fall in consumer income. its sales will be unaffected by changes in the prices of substitutes and complements. its sales will rise steeply when consumer income is rising rapidly.

1.15 In a market economy, prices perform all of the following functions EXCEPT which ONE? A B C D A means of allocating resources between competing uses. A means of ensuring a fair distribution of incomes. A signal to consumers. A signal to producers.

1.16 The minimum condition for a business to continue to operate in the short run is that A B C D its revenue is sufficient to cover variable costs. its revenue is at least equal to its total costs. its marginal revenue is equal to its marginal cost. it is making normal profits.

1.17 The government may discourage horizontal mergers in manufacturing industry because A B C D by controlling the sources of supply, the merged firms will have unfair advantages over rivals. the merged firms will be unable to secure economies of scale. consumers may lose out if the merged firm acquires market dominance. multi-product firms tend to become inefficient.

1.18 The main function of the money market is to A B C D enable businesses and government to obtain liquidity. encourage saving. permit the efficient buying and selling of shares. deal in credit instruments of more than one year maturity.

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1.19 The effects of low real interest rates include all of the following EXCEPT which ONE? A B C D Credit-based sales will tend to be high. Nominal costs of borrowing will always be low. Business activity will tend to increase. Investment will be encouraged.

1.20 The recession phase of the trade cycle A B C D is often caused by excessive consumer expenditure. is normally characterised by accelerating inflation. is most prolonged when the country has high levels of imports. is usually caused by falling aggregate monetary demand.

1.21 Supply side policy is designed to A B C D raise the level of aggregate monetary demand in the economy. manage the money supply in the economy. improve the ability of the economy to produce goods and services. reduce unemployment by limiting the supply of labour.

1.22 All of the following are direct taxes EXCEPT which ONE? A B C D Corporation tax. Value added tax. Income tax. National insurance (social security tax).

1.23 Two countries, Northland and Southland, both produce two goods, X and Y. Northland has a comparative advantage in the production of good X if A B C D less of good X must be given up to produce one unit of Y than in Southland. less of good Y must be given up to produce one unit of X than in Southland. less labour is required to produce one unit of X than in Southland. less labour and capital are required to produce one unit of X than in Southland.

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1.24 All of the following are examples of international factor mobility EXCEPT which ONE? A B C D The migration of skilled labour from one country to another. A business investing in a new factory in another country. The switching of cash from a bank account in one country to an account in another country. A company sending managers to work in its subsidiary in another country.

1.25 If a country were to join a free trade area, its business sector would gain because A B C D it could get tariff-free raw materials from countries inside the free trade area. there would be exchange rate stability between the member countries. prices of competitors from countries not in the free trade area would rise. there would be fewer barriers to establishing subsidiaries in other countries in the free trade area.

1.26 All of the following are features of globalisation EXCEPT which ONE? A B C D Rising trade ratios for countries. Increased international capital flows. Improved terms of trade for all countries. Reduced barriers to international factor movements.

(Total = 52 Marks)

November 2002

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