AQA AS Economics Unit 1 Markets & Market Failure Quiz Test

1. Multiple Choice Questions for AQA AS Economics UNIT 1 Markets & Market Failure 1.3 Production and Efficiency Click here to Commence quiz Test 1

2. AQA AS Economics Unit 1 – Markets & Market Failure Question 1 Specialisation results in each of the following with the exception of… self sufficiency Correct The last three are the consequences and advantages of specialisation. Self sufficiency, on the other hand, is not possible for specialist workers who depend on exchanging the products of their specialism with that of other specialist producers. increased output Incorrect higher incomes Incorrect higher living standards Incorrect Next question APT Initiatives Ltd

3. AQA AS Economics Unit 1 – Markets & Market Failure Question 2 The benefits of specialisation depend on … more competitive businesses that have focused on producing better products Incorrect Specialisation requires us to engage in exchange, and money is a more efficient medium of exchange than relying upon barter (the direct exchange of goods/services without the medium of money). the use of money as a means of exchange Correct managing inflation successfully Incorrect increased use of technology, which reduces average costs Incorrect Next question APT Initiatives Ltd

4. AQA AS Economics Unit 1 – Markets & Market Failure Question 3 Which one of the following statements is not a reason why money is a more efficient medium of exchange than barter? Money provides a common measuring rod of value Incorrect The value of money is stable A general rise in prices (a process known as inflation) means that the value of money is definitely not stable. What we could say is that price stability is desirable in terms of permitting money to function as an efficient means of exchange, but even with some inflation, money is still a more efficient medium of exchange than barter. Correct Money overcomes the problem of the double coincidence of wants Incorrect Money is portable and divisible Incorrect Next question APT Initiatives Ltd

5. AQA AS Economics Unit 1 – Markets & Market Failure Question 4 Division of labour requires an efficient means of exchange because… A specialist worker does not produce the full range of goods and services that he / she requires. Therefore, specialists must engage in exchange – goods for goods, goods for money, labour services for money, and so on. B and D are valid statements but do not explain why specialists need to engage in exchange. C is an incorrect statement – exchange can occur without the use of money. specialist workers are not self sufficient Correct specialist workers achieve high productivity Incorrect exchange is not possible without the use of money as a medium of exchange Incorrect specialist workers produce a surplus Incorrect Next question APT Initiatives Ltd

6. AQA AS Economics Unit 1 – Markets & Market Failure Question 5 The extent of division of labour is determined by… the size of the market Correct The larger the market the greater the opportunities for division of labour. the productive efficiency of the economy Incorrect the profits of the enterprise Incorrect the productivity of labour Incorrect Next question APT Initiatives Ltd

7. AQA AS Economics Unit 1 – Markets & Market Failure Question 6 Which of the following statements is incorrect? Production refers to the total output of goods in the economy Correct The term production covers both goods and services. Production refers to the total output of goods and services in an economy Incorrect Production is the process whereby inputs are converted into outputs Incorrect Production is the means by which consumer wants are satisfied Incorrect Next question APT Initiatives Ltd

8. AQA AS Economics Unit 1 – Markets & Market Failure Question 7 A 5% rise in the workforce in a factory led to a 4% increase in the output of goods. From this we can conclude that… both output and productivity increased Incorrect We are told that output or production rose, which rules out B and D. As output rose by less than the workforce then productivity must have fallen. productivity increased but output fell Incorrect production increased but productivity fell Correct both production and productivity fell Incorrect Next question APT Initiatives Ltd

9. AQA AS Economics Unit 1 – Markets & Market Failure Question 8 Labour productivity is defined as… how many items a workforce produces Incorrect Productivity is output per unit of input and so labour productivity is output per worker per time period (day, shift, week, or year). the value of the output a business produces Incorrect the output per person per period of time Correct the average cost of employing someone Incorrect Next question APT Initiatives Ltd

10. AQA AS Economics Unit 1 – Markets & Market Failure Question 9 A production manager has noted higher labour productivity in the factory and, therefore, can confidently look forward to … reduced cost per unit made Correct If employees produce more per hour then wage costs are spread more thinly over a given wage. This will lead to a fall in average costs. increased sales Incorrect more hours being worked Incorrect lower total costs Incorrect Next question APT Initiatives Ltd

11. AQA AS Economics Unit 1 – Markets & Market Failure Question 10 Which one of the following will cause a fall in the productivity of labour? A reduction in the size of the workforce Incorrect With lower quality capital equipment, labour will be less productive. A causes a reduction in production but not in output per head. B and D will lead to a rise in productivity. An improvement in the quality of recruits Incorrect A deterioration in the quality of capital equipment Correct Investment in training Incorrect Next question APT Initiatives Ltd

12. AQA AS Economics Unit 1 – Markets & Market Failure Question 11 Investment in new technologically-advanced capital equipment will result in… increased output Incorrect Investment in capital equipment will raise output and will raise the productivity of the workforce. The greater the capital per worker, the greater the output per head. The fact that this investment improves the quality of capital leads to a rise in the productivity of capital. a rise in the productivity of labour Incorrect a rise in the productivity of capital Incorrect all the above Correct Next question APT Initiatives Ltd

13. AQA AS Economics Unit 1 – Markets & Market Failure Question 12 Productive efficiency is defined as… producing the best quality products Incorrect Efficiency is a measure of output in relation to input. A is incorrect, whereas C and D only deal with partial efficiency. B, on the other hand, deals with total efficiency. If output is produced at the lowest cost per unit then production has reached the point of maximum efficiency. the lowest cost per unit of output Correct the lowest average cost per person employed Incorrect maximum output per square foot Incorrect Next question APT Initiatives Ltd

14. AQA AS Economics Unit 1 – Markets & Market Failure Question 13 A productively efficient economy is one which… spends heavily on capital goods, in order to ensure that standards of living rise in the future Incorrect If the economy is productively efficient it is producing on the PPF curve and this means that the output of one good cannot be increased without a reduction in the production of other goods. benefits from full employment Incorrect can ensure that consumers’ welfare is maximised Incorrect can only increase output in one product at the expense of output in another Correct Next question APT Initiatives Ltd

15. AQA AS Economics Unit 1 – Markets & Market Failure Question 14 In a fully employed and productively efficient economy an increase in the productivity of factors of production will result in… a movement along the production possibility frontier Incorrect From the description of the economy it is clear that it is operating on the PPF. A rise in productivity suggests that more can be produced with available resources and this means that the PPF shifts outwards and to the right. a movement from a point inside the production possibility frontier to a point on the frontier Incorrect a leftward shift of the production possibility frontier Incorrect a rightward shift of the production possibility frontier Correct Next question APT Initiatives Ltd

16. AQA AS Economics Unit 1 – Markets & Market Failure Question 15 On the production possibility diagram below there are four points identified. Which of the following statements is not valid? Consumer goods A movement to D can be achieved with additional resources D Incorrect A If resources were fully employed then the combination of output would be significantly greater than shown at C. Productive efficiency with full employment of resources could take the economy to either of the two points on the production possibility frontier ie A or B. B A movement to D can be achieved with improved technology Incorrect C A and B are points of equal productive efficiency Incorrect At point C resources are fully employed 0 Capital goods Correct Next question APT Initiatives Ltd

17. AQA AS Economics Unit 1 – Markets & Market Failure Question 16 For an individual firm the productively efficient level of output occurs when… total costs are at their lowest Incorrect Productive efficiency for a firm means making best use of its resources thereby producing at the lowest unit cost. This is not necessarily the point where profits are maximised. average costs are at their lowest Correct profits are maximised Incorrect output is maximised Incorrect Next question APT Initiatives Ltd

18. AQA AS Economics Unit 1 – Markets & Market Failure Question 17 Economies of scale refer to lower average costs arising from, for example… increasing output Incorrect Economies of scale refer to the advantages of increasing the scale of production, eg by moving to larger premises. Increased output could be achieved by increasing the use of existing plant and for this reason D rather than A is correct. B and C are incorrect because they do not relate to an increase in the scale of production. employing more specialised factors Incorrect buying resources from a cheaper supplier Incorrect producing in a larger factory Correct Next question APT Initiatives Ltd

19. AQA AS Economics Unit 1 – Markets & Market Failure Question 18 Larger businesses benefit from financial economies of scale, for example by… producing more efficiently Incorrect One of the benefits of being a large organisation is that increased scale provides access to more and cheaper forms of finance. This is a category of internal economy of scale known as a financial economy. paying lower interest rates on loans Correct employing low-wage staff Incorrect buying cheaper materials or components Incorrect Next question APT Initiatives Ltd

20. AQA AS Economics Unit 1 – Markets & Market Failure Question 19 Some shipping businesses can benefit from economies of increased dimensions because… they can buy fuel in bulk and, therefore, at a lower cost Incorrect The first three responses are all economies of scale but are not technical economies of increased dimension. Only the final response can be classified as an economy resulting from increased dimension. In essence, it means that a doubling of the size of a ship results in a more than doubling of capacity. they use more technically advanced ships Incorrect they can employ more specialised staff Incorrect bigger ships can carry a more than proportionate amount of cargo Correct Next question APT Initiatives Ltd

21. AQA AS Economics Unit 1 – Markets & Market Failure Question 20 A large firm benefits by spreading its advertising budget over a larger volume of output. This is an example of… an external economy of scale Incorrect A marketing economy (also known as a commercial economy) refers to any advantage in terms of buying and selling that a business derives from an increase in the scale of its operations. a managerial economy of scale Incorrect a financial economy of scale Incorrect a marketing economy of scale Correct Next question APT Initiatives Ltd

22. AQA AS Economics Unit 1 – Markets & Market Failure Question 21 Workshop employees increase output by 5% per hour and are awarded a pay rise of 3% per hour. Other things remaining equal (ceteris paribus), the labour cost of producing each unit of production will… fall by 1.90% Correct As output per hour rises by more than labour costs per hour, then it is clear that unit costs will fall. Hence, only A or D could be correct. A is, in fact, correct because the average labour cost falls by 1.9% (1.03 / 1.05 = 0.98095, representing a fall of 1.90%). rise by 1.90% Incorrect rise by 1.85% Incorrect none of the above Incorrect Next question APT Initiatives Ltd

23. AQA AS Economics Unit 1 – Markets & Market Failure Question 22 Which of the following statements illustrates the concept of economies of scale? A business experiences management difficulties which… reduces output per hour Incorrect Economies of scale are a long term rather than a short term concept. Only B is concerned with a rise in the scale of production. can be overcome by moving to a larger factory Correct rationalises its two factories into one to save money Incorrect adjusts the output level in its factory so that efficiency is improved Incorrect Next question APT Initiatives Ltd

24. AQA AS Economics Unit 1 – Markets & Market Failure Question 23 The benefits of external economies of scale can arise when… investing in training to enable employees to be more productive Incorrect External economies are the benefits that the individual firm gains from an increase in the size of the industry in which it operates. In this case, the infrastructure improvements benefit other (including rival) firms, in the vicinity. employing specialist managers from outside to improve business efficiency Incorrect a growing business prompts infrastructure improvements in its vicinity Correct buying more cheaply from overseas suppliers as a means of reducing costs Incorrect Next question APT Initiatives Ltd

25. AQA AS Economics Unit 1 – Markets & Market Failure Question 24 Diseconomies of scale can arise when… the average cost of a business increases Incorrect This is the best known example of diseconomies of scale. As the scale of production rises so do the management problems associated with the business. The other three responses might relate to the consequences of diseconomies but not to the reasons why they arise. total costs increase as scale of a business increases Incorrect efficiency suffers because of communication problems among employees Correct factor costs increase Incorrect Next question APT Initiatives Ltd

26. AQA AS Economics Unit 1 – Markets & Market Failure Quiz Completed Question 25 Which one of the following statements is incorrect? Increased scale of production leads to economies of scale Incorrect Economies of scale do not reduce the total cost of production – instead they reduce the average cost per unit of production. Increased scale of production can lead to diseconomies of scale Incorrect Economies of scale result in a reduction in total costs Correct Diseconomies of scale result in a rise in average costs Incorrect Exit APT Initiatives Ltd