Oct/Nov 2009

Tom has started his own business, which operates from premises that belong to Fanda. Every machine is rented from an equipment company. Tom and Fanda both work for the business. What term describes the income of Tom and Fanda?

Factors of production

The table gives the highest amount a consumer would pay for each additional can of fruit juice. One can of fruit juice costs $4 and, after purchasing three cans, the consumer chooses to purchase a fourth. What effect does buying the fourth can have on his consumer surplus?

Cross elasticity of demand

What is usually regarded as one benefit of using the price mechanism as a rationing device?

Resource allocation in different economic systems

The diagram’s demand curve illustrates the link between the number of car journeys and the cost of one car journey. What would make the demand curve move to the left?

Demand and supply curves

What would lead to a failure in the market mechanism’s rationing function?

Behavioural economics

The government is thinking about constructing flood defences along a river. It has worked out the costs and benefits as shown. Using cost-benefit analysis, which decision and explanation about flood defences is correct?

Government intervention in markets

Although there was strong opposition, the local government in a well-known tourist resort constructed a leisure centre and swimming pool that anyone can use. A large number of tourists go to the centre. People who live locally pay a lower entry charge. How would economists classify this service?

1.6

What can be supplied only in the form of a public good?

Behavioural economics

The diagram illustrates the market for wheat. If the government wants to increase the market price from P1 to P2, what quantity of wheat would it need to purchase?

Maximum and minimum prices

The government sets a ceiling price of P1 for an agricultural product. The supply and demand conditions for this product are illustrated. What outcome will result in the market for this product?

Maximum and minimum prices

A country has a climate that is ideal for tea, so tea is produced very cheaply and then exported. Fruit is also cultivated, but this is more expensive because the climate is less suitable. Since fruit can be sold for a higher price than tea, some of the land previously used for tea is changed over to fruit. What will certainly happen as a result?

Scarcity, choice and opportunity cost

The diagram shows the production possibility curves of an economy in Year 1 (X1 Y1) and Year 2 (X2 Y2). What conclusion can be drawn from the diagram?

Production possibility curves

A government has been shielding its domestic car industry by using a quota on imported cars. It then abolishes the quota and substitutes it with a subsidy for domestic car producers. What effect will this have on the price of cars and the amount of consumer choice?

Maximum and minimum prices

What factor would result in an improvement in a country’s terms of trade?

6.3

The table presents the balances of four items in a country’s current account within the balance of payments for two years. What conclusion can be drawn about the changes from year 1 to year 2?

6.3

What factors could cause a country’s labour force to grow?

Long-run costs and economies of scale

The graphs illustrate consumer prices and employment in Ireland. What conclusion can be drawn from the graphs?

Balance of payments

What factors may lead to cost-push inflation?

Economic growth

The table shows information about some components of a country’s balance of payments. In which year was the country’s visible trade deficit the largest?

6.3

The table presents indicators of a country’s economic performance across a two-year period. Which statement is consistent with the information above?

Unemployment

The diagram illustrates the market for Japanese Yen. What might have caused the supply of Yen to shift from S1 to S2?

6.4

Country X carries on trade with only two nations, the USA and Japan. 90% of its trade is with the USA, while 10% is with Japan. The initial trade-weighted exchange rate index has a value of 100. Country X’s currency appreciates by 10% against the US$. It also appreciates by 50% against the Japanese yen. What will be the value of country X’s new trade-weighted exchange rate index?

6.4

How does the concept of ceteris paribus enable economists to analyse a situation?

Economic methodology

A government that operates a floating exchange rate wants to promote an increase in the currency’s external value. What action should it take?

6.4

The diagram illustrates a person’s marginal costs and marginal benefits from going to the cinema. How many trips will this person make?

7.4

When market conditions alter and supply falls, the product’s price rises. Since demand slopes downward, what is the necessary result of this higher price?

Demand and supply curves

A government wants to levy a tax on a good so that consumers, rather than producers, bear most of the rise in tax. Which kind of elasticity would be most effective in achieving this objective?

Price elasticity of demand

The table gives the price elasticity of demand for four goods and services. If the price of each item rose by 1%, which items would see total expenditure go up?

Price elasticity of demand

Goods X and Y are complementary goods. In the table below, column 1 presents the initial market position in time period 1, while column 2 shows the position after the price of good Y has risen. The value of the cross elasticity of demand for good X in relation to the price of good Y is between

Price elasticity of demand

A specific tax is imposed on every bottle of perfume sold. In the diagram, SS is the supply curve before the tax, while StSt is the supply curve after the tax. Which area shows the revenue the government receives from the tax?

Maximum and minimum prices

The diagram shows the production possibility curves for an economy in Year 1 (X1 Y1) and Year 2 (X2 Y2). What conclusion can be drawn from the diagram?

Production possibility curves

What is usually regarded as one benefit of using the price mechanism as a rationing device?

Resource allocation in different economic systems

The diagram’s demand curve illustrates the link between the number of car journeys and the cost of a car journey. What would make the demand curve move left?

Demand and supply curves

What factors would bring about a failure of the market mechanism’s rationing function?

Behavioural economics

The government is considering constructing flood defences. Costs: private $450m, external $60m. Benefits: private $260m, external $190m. Based on cost-benefit analysis, which decision and explanation is correct?

Maximum and minimum prices

Although there was opposition, the local government constructed a leisure centre and swimming pool that anyone may use. Many tourists go there; local residents are charged a lower admission fee. How would economists classify this service?

1.6

What can only be supplied as a public good?

1.6

The diagram illustrates the market for wheat, including points X, Y and Z and the prices P1 and P2. If the government wants to increase the market price from P1 to P2, what quantity has it to purchase?

Maximum and minimum prices

The government sets a maximum price of P1 for an agricultural product. The supply and demand conditions are illustrated. What will be the outcome in the market?

Maximum and minimum prices

A country can produce tea at low cost and sell it abroad; fruit is more expensive to grow, but it commands a higher selling price, so some land is changed from tea to fruit. What will certainly occur as a result?

Scarcity, choice and opportunity cost

A government has been shielding its domestic car industry through a quota on imported cars. It then abolishes the quota and substitutes a subsidy for domestic car producers. How will this policy change alter the price of cars and the extent of consumer choice?

Protectionism

What does the concept of ceteris paribus enable economists to do?

Economic methodology

What would lead to an improvement in a country’s terms of trade?

6.3

The table gives the balances for four current account items in a country over two years (visible, invisible, income, transfers). What conclusion can be drawn about the changes from year 1 to year 2?

6.3

What factors could cause a country’s labour force to grow in size?

Long-run costs and economies of scale

What can lead to cost-push inflation?

Balance of payments

The graphs present consumer prices and employment in Ireland for 2002-2007. What can be concluded from the graphs?

Balance of payments

The table shows information about some components of a country’s balance of payments. In which year did the country record its greatest visible trade deficit?

6.3

The table presents figures for two years: exchange rate index at 100 in each year, exports volume index 100 and then 90, imports volume index 100 in both years, and balance of trade zero followed by +500m. Which statement fits the information?

6.3

The diagram illustrates the market for Japanese Yen. Supply moves from S1 to S2. What might have led to the change in the supply of Yen from S1 to S2?

6.4

Country X carries out 90% of its trade with USA and 10% with Japan. The original trade-weighted exchange rate index is 100. The value of X's currency increases by 10% against the US$ and by 50% against the yen. What is the updated trade-weighted exchange rate index?

6.4

A government using a floating exchange rate wants to promote an increase in the international value of its currency. What should it do?

6.4

The diagram illustrates a person's marginal costs and marginal benefits from going to the cinema. How many trips will that person make?

Utility and rational consumer behaviour

Tom has started his own business, operating from premises owned by Fanda. All of the machinery is hired. Both Tom and Fanda work in the business. What term describes the earnings of Tom and Fanda?

Factors of production

A shift in market conditions reduces supply. As a consequence, the product’s price rises, and demand for it is shown by a downward-sloping demand curve. What will be the result of this higher price?

Income elasticity of demand

A government wants to place a tax on a good in such a way that the consumer, rather than the producer, bears most of the rise in tax. Which type of elasticity would be most effective in achieving this objective?

Price elasticity of demand

The table presents the price elasticity of demand for four goods and services. If the price of each item rises by 1%, which items would lead to an increase in total expenditure?

Price elasticity of demand

Goods X and Y are complementary goods. In column 1, the original market is shown at time period 1, while column 2 presents the position after the price of good Y rises. The value of cross elasticity of demand for good X in relation to the price of good Y is between:

Price elasticity of demand

A fixed tax is charged on every bottle of perfume sold. In the diagram, SS shows the supply curve before the tax, while StSt shows the supply curve after the tax. Which area shows the tax revenue gained by the government?

Maximum and minimum prices

The table lists the highest amount a consumer would be prepared to pay for each extra can of fruit juice: first $14, second $10, third $6, fourth $4, fifth $3. The price is $4 and, after buying three cans, the consumer chooses to purchase a fourth. How will buying the fourth can change his consumer surplus?

Cross elasticity of demand

Using Fig. 2, explain a likely reason for the different price elasticity values for

Price elasticity of demand

Explain, with the help of a diagram, how the price of a product moves to a fresh equilibrium after a decrease in its supply.

Income elasticity of demand

Explain why trading internationally is usually more difficult than trading domestically.

International trade and free trade

Explain how a rapid rate of inflation in a country will affect its floating exchange rate.

6.4

Explain one possible reason why the IFPRI reported world food supply as responsive to changes in price.

Balance of payments

With the aid of a diagram, explain how a government subsidy for fuel producers will affect producers and government expenditure.

Maximum and minimum prices

Explain why a lighthouse is commonly used to illustrate a public good, whereas a light bulb is not.

7.4

Compare the aims and features of a free trade area and an economic union.

International trade and free trade

The economy is producing at a point on its production possibility curve. What is true about the use of the economy’s resources at this point?

Production possibility curves

The diagram depicts an industry operating with constant average costs. In perfect competition, output is OV. If the industry were to turn into a monopoly, which area represents the reduction in consumer surplus?

7.6

The price elasticity of demand for a firm’s product is zero. What effect will a 5% rise in its price have on the firm’s revenue?

Price elasticity of demand

The diagram illustrates the monopolist’s short-run situation, and he expects that, in the long term, abnormal profits may attract new firms into the industry. If the monopolist thinks that competitors would enter whenever prices are higher than Pe, which output would he select in order to safeguard his long-run profits?

7.8

The diagram illustrates the cost and revenue curves for a monopoly producer whose sole production cost is a fixed cost. What action will such a monopolist take?

7.6

Steel producers in a country belong to a cartel. Every member receives a production quota, and at first each one makes the largest amount permitted by its quota. What effect would allowing the producers to trade the quotas with one another have on total steel output and on the industry’s total profits?

7.6

What might stop a market economy from achieving allocative efficiency?

Behavioural economics

The figures in the table come from a country’s national income accounts. What is the value of exports?

National income statistics

If the income velocity of circulation of money is assumed to stay constant, and the money supply grows by 8% while the average price level rises by 5%, what is the approximate change in real output?

Oligopoly

Under monetarist theory, what short-run impact does an unexpected rise in the money supply have?

Monetary policy

The table shows a country’s national income across six years. Using the accelerator principle, in which year did net investment first drop to a level lower than in the previous year?

Unemployment

The table indicates the total utility gained by a consumer from good X at various consumption levels. The consumer receives two units of satisfaction from the final cent spent on each good she buys. What is the greatest number of units of X that she will consume if the price of X is 6 cents?

Utility and rational consumer behaviour

From any extra national income, 20% goes on imports, 15% is paid in taxes, 5% is saved, and the remainder is used to buy domestically-produced goods. What is the value of the multiplier?

Economic growth

The diagram illustrates several expenditure functions. The initial expenditure function is represented by E. The government announces that it will cut government expenditure on goods and services and lower the standard rate of income tax. Which line indicates the new expenditure function that results from these changes?

Fiscal policy

The diagram illustrates an economy’s aggregate supply curve. What is most likely to make the curve shift to the left?

Economic growth

The government sells $1 million of bonds to the commercial banks. It then uses the funds raised to give subsidies to sugar producers, who deposit these into their bank accounts. Assuming that notes and coins in circulation remain unchanged, what will be the immediate effect on the assets and liabilities of the commercial banks?

Oligopoly

According to loanable funds theory, what would cause the rate of interest to increase?

Oligopoly

In the diagram, curve X1 represents an economy’s original trade-off between inflation and unemployment. What might make the curve move to X2?

Balance of payments

A country’s GDP per capita rises over a given time span, yet its development as measured by the Human Development Index does not change. What might account for this difference?

Trade unions

What effect is most likely on economic growth and the inflation rate in developed economies when migrant labour flows in from developing economies?

Unemployment

An economy is experiencing unemployed resources and has a flexible exchange rate. It reduces interest rates to a level below that in other countries. What is the likely impact on domestic demand for goods and services and on demand for the country’s exports?

Monetary policy

Which policy would be most likely to help reduce a deficit on the current account of the balance of payments?

Labour market

In the diagram, a person first selects combination N on budget line LM. When his money income rises and the price of good Y also rises, his budget line moves to RS, and he then selects combination T. What effect does this have on his economic welfare?

Indifference curves and budget lines

A government chooses to adopt a more deflationary fiscal policy together with a more reflationary monetary policy. Which mix of changes in policy instruments would match this?

Fiscal policy

Which statement describes a case where an increase in the input of factor X, with every other factor held constant, leads to no change in a firm’s output?

Factors of production

What might make a perfectly competitive firm’s marginal revenue product of labour curve move to the right?

Long-run costs and economies of scale

In the diagram, MRPL represents a firm’s marginal revenue product of labour curve, S shows its supply of labour curve, and MCL shows its marginal cost of labour curve. If profit maximisation is assumed, how many workers will the firm hire and what wage rate will it pay?

Long-run costs and economies of scale

Give one example of a wage differential that offsets the drawbacks linked to certain jobs?

Long-run costs and economies of scale

The diagram illustrates the original position in a labour market. The government passes a law that cuts the statutory working week from 39 hours to 36 hours. How will this change the supply and demand curves shown in the diagram?

Long-run costs and economies of scale

The table gives the amounts of the two factors of production, capital and labour, required to make different output levels. For which output range do increasing returns to scale take place?

Factors of production

The schedule indicates the total utility a consumer gains from good X at various consumption levels. She receives two units of satisfaction from the final cent spent on each good she buys. What is the largest number of units of X that she will consume if the price of X is 6 cents?

Utility and rational consumer behaviour

A firm’s product has a price elasticity of demand of zero. What happens to the firm’s revenue if it raises its price by 5%?

Price elasticity of demand

The diagram illustrates the short-run situation of a monopolist who thinks that, in the long run, abnormal profits could draw new firms into the industry. If the monopolist assumes that at prices above Pe fresh competitors would enter, which output would he select to safeguard his long-run profits?

7.6

The diagram illustrates the cost and revenue curves for a monopoly producer whose sole production cost is a fixed cost. What action will such a monopolist take?

7.6

The steel producers in a country belong to a cartel. Every member is given a production quota, and at first each one makes the greatest amount permitted by that quota. What effect would permitting the producers to buy and sell the quotas among themselves have on total steel output and the industry’s overall profits?

7.6

What factors could stop a market economy from achieving allocative efficiency?

Behavioural economics

The figures in the table are drawn from a country’s national income accounts. What is the value of exports?

National income statistics

If the income velocity of circulation of money is constant, and the money supply grows by 8% while the average price level rises by 5%, what is the approximate percentage change in real output?

Oligopoly

According to monetarist theory, what short-run effect will an unexpected increase in the money supply have?

Monetary policy

The table shows a country's national income across six years. Using the accelerator principle, in which year did net investment first drop to a level lower than in the preceding year?

Unemployment

From any increase in national income, 20% goes on imports, 15% is paid in taxes, 5% is saved, and the remainder is spent on goods produced domestically. What is the value of the multiplier?

Economic growth

In the diagram, an individual first selects combination N on budget line LM. If his money income rises and the price of good Y also rises, his budget line moves to RS, after which he selects combination T. What happens to his economic welfare?

Indifference curves and budget lines

The diagram presents several expenditure functions. The original expenditure function is indicated by E. The government states that it will cut government expenditure on goods and services and lower the standard rate of income tax. Which line indicates the new expenditure function that results from these changes?

Fiscal policy

The diagram illustrates an economy’s aggregate supply curve. What is most likely to make the curve move to the left?

Economic growth

The government sells $1 million of bonds to the commercial banks. It then uses the money raised to give subsidies to sugar producers, who deposit them in their bank accounts. Assuming that notes and coins in circulation stay the same, what is the immediate effect on the assets and liabilities of the commercial banks?

Oligopoly

In loanable funds theory, what would make the rate of interest increase?

Oligopoly

In the diagram, curve X1 represents the economy’s starting trade-off between inflation and unemployment. What might make the curve move to X2?

Balance of payments

A country’s GDP per capita increases across a particular period, yet its development level as measured by the Human Development Index does not change. What might account for this difference?

Trade unions

What is the most likely effect on economic growth and on the inflation rate in developed economies of an inflow of migrant labour from developing economies?

Unemployment

An economy is operating with unemployed resources and a flexible exchange rate. It reduces interest rates to a level below that in other countries. What is likely to happen to the level of domestic demand for goods and services and to the demand for the country’s exports?

Monetary policy

Which policy is most likely to help correct a current account deficit in the balance of payments?

6.5

A government chooses to implement a more deflationary fiscal policy together with a more reflationary monetary policy. Which pair of changes in policy instruments would be consistent with this?

Fiscal policy