Acca paper F1 fia diploma in Accounting and Business Accountant in Business (AB/fab) exam kit

80 B 
The opposite is true – perfect markets assume that all goods sold by suppliers are 
homogenous (identical). 
81 
A – OLIGOPOLY 
A market with only a few dominant organisations is referred to as an oligopoly. 
82 C 
This type of market occurs when a business has many different competitors, but each offers
a somewhat differentiated product. 
83 D 
The other factors are the availability of substitutes and the definition of the market. 
 
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ANSWERS TO PRA C TICE O BJECTIVE TEST QUESTIONS :
S EC T I O N 3
K APLA N PUBLISH ING
133 
84 C 
Upwards shifts in the supply curve are caused by increases in the costs of making and/or 
selling the product. This means that, even if the selling price stays constant, the profitability 
of the product will fall, meaning that suppliers like L will not wish to produce as many units 
of the product as they are less profitable. 
Options (i) and (iv) both involve the costs of production rising. These would therefore cause 
an upward shift in the curve. Options (ii) and (iii) are the opposite, leading to a decline in 
the costs of production of the windows and therefore a downward shift in the curve. 
85 C 
Low price elasticity of demand indicates that even a significant change in the selling price 
will have little effect on the number of units that customers demand. If the customers 
spend a high proportion of their income on E’s product, any rise in the selling price could 
make it unaffordable, leading to a significant fall in demand. This would therefore indicate 
HIGH elasticity of demand. If the product is not seen as a necessity, it would again mean 
that if the price rises, customers may no longer feel that they have to keep buying the 
product, again leading to a significant decline in demand. A high number of substitutes 
would enable customers to easily switch to cheaper rival products if E raises its prices. If, 
however, customers buy the product habitually (or automatically) without ever really 
checking the price (as often happens with gum, or newspapers), a significant rise in prices 
will have little impact on sales volume. 
86 A 
The government is setting a minimum price for labour. This will increase the supply of 
labour, as work becomes more attractive to the population of country X – but will reduce 
the demand for labour from companies as it becomes more expensive. This is likely to lead 
to a surplus of labour, leading to rising unemployment. The rising cost of wages is likely to 
lead manufacturing companies to avoid making items that are labour intensive and move 
towards automation where possible. 
87 D 
As production increases, the cost per unit will initially fall due to the larger number of units 
being made which the total cost is spread over. However, even within the short-term, as 
the number of units of output grows, efficiency of the production system will fall, leading to 
a rise in average cost per unit again. This is known as the law of diminishing returns. 
Diseconomies of scale occur over the long-term. 
88 B 
This is sometimes referred to as demand-deficient, persistent or Keynesian unemployment. 
Keynesian economists refer to this as a deflationary gap and would seek to remove it by 
boosting demand. Monetarists would seek to reduce cyclical unemployment by appropriate 
supply side measures as they would argue that cyclical unemployment does not really exist.