Oct/Nov 2010

What is the main problem facing an economy?

Scarcity, choice and opportunity cost

Domino Pizza stated that its profits had fallen because of price inflation on ingredients and a decrease in consumers’ disposable income. How would these changes influence the demand and supply curve for its products?

Income elasticity of demand

In the diagram, which region shows the quantity of consumer surplus that would arise in a market if a government imposed an effective maximum price?

Cross elasticity of demand

Increasing demand for oil from China and other countries is causing worries that there may be a worldwide shortage of oil. How would a change in the price of oil stop such a shortage from arising?

Income elasticity of demand

In the diagram, OS1 and OS2 are both straight-line supply curves. When price rises, the elasticity of supply

Price elasticity of supply

Which reason are economists most likely to give for why governments often finance large hospital projects?

Government intervention in markets

By what method would net external benefit be calculated?

7.4

The table sets out the expected costs and benefits of four government projects. The government can afford just one project. Which project should the government select?

Scarcity, choice and opportunity cost

What would make it more likely that road tolls will cut traffic congestion?

Maximum and minimum prices

In the diagram, S1S1 and DD show the initial supply and demand curves for an agricultural product. Bad weather then cuts supply to S2S2. The government prevents the price from rising above OP1. If the price is kept at OP1, how much of the product must the government release from stocks?

Income elasticity of demand

Steel is made in several countries, such as China, Japan and the US. It is used to produce cars. The US shields its domestic steel industry by placing high tariffs on imported steel. Which two groups would gain if the US tariffs were removed?

Protectionism

Which disadvantages are most likely to occur in a market economy?

Resource allocation in different economic systems

Curve S represents the supply of an imported good. Which supply curve will replace it if an ad valorem (percentage) tariff is introduced on the good?

Protectionism

What feature is present in a customs union but not in a free trade area?

Protectionism

The table indicates the amounts of rice and wheat that two countries, X and Y, are able to produce when each one allocates its resources equally to rice and wheat production. Suppose each country then specialises according to comparative advantage and trades with the other. Which terms of trade would be beneficial for both countries?

International trade and free trade

What has to decrease when the unemployment rate increases?

Price stability and inflation

The table presents the percentage price movements for some items in the UK Consumer Price Index (CPI) in the year to 1 June 2006. During that same period, the overall CPI increased by 2.5 %. What can be concluded from the data above?

Balance of payments

During Year 1, the price of a barrel of oil rose from $60 to $110. In Year 2, it then climbed again to $115 per barrel. Assume that changes in the oil price affect the general price level immediately. How will these changes in the oil price affect a country’s Consumer Price Index and its inflation rate in Year 2, compared with Year 1?

Balance of payments

A government has low reserves of foreign currency. Under what circumstances would it be likely to regard a deficit on current account as a serious problem?

6.3

The diagram illustrates the numbers of US dollars ($) and Euros (€) that could be exchanged for one pound sterling (£) from 2002 to 2004. What change took place in the exchange rate of the $ relative to the £ and € over this period?

6.4

In a country, the Marshall-Lerner condition for an improvement in the trade balance is met in the long run, yet the quantities of imports and exports take a long time to react to price changes. The government devalues its currency in order to cut its trade deficit. Which curve shows the likely pattern of the trade balance?

6.4

Suppose the Chinese monetary authorities are determined to keep the exchange rate of China’s currency, the Yuan, against the US$ within the range shown between P1 and P2 on the diagram. What might they do if demand shifted from D1 to D2?

6.4

The diagram illustrates the production possibility curve for an economy. Which statement accounts for the curve's shape?

Production possibility curves

In 2008 the Chinese government was facing pressure from other countries to cut its current account surplus on its balance of payments. Which combination of Chinese measures would help to reduce China’s current account surplus?

6.5

Which statement about money is correct?

Oligopoly

Which factor could cause an individual’s demand curve for petrol to shift to the left?

Demand and supply curves

The diagram illustrates a consumer’s demand curves in the short run and in the long run for coconuts. At the outset, the consumer buys quantity Q0 at price P0. When the price of coconuts rises from P0, the consumer’s response in the short run is larger than his response in the long run. When the price falls from P0, his short-run response is smaller than his long-run response. Which demand curve represents the consumer’s short-run demand?

Demand and supply curves

The table presents a consumer’s spending on a variety of goods at different income levels. For which good does the consumer have an income elasticity of demand above zero, but below one?

Price elasticity of demand

The diagram depicts the demand curve for a product. Which statement is correct?

Demand and supply curves

The table gives the market demand for a product together with the separate supply from the three firms X, Y and Z in the industry. What is the equilibrium market price?

Income elasticity of demand

What is the main problem faced by an economy?

Scarcity, choice and opportunity cost

Domino Pizza stated that its profits had fallen because ingredient prices had risen and consumers’ disposable income had declined. How would these changes affect the demand and supply curve for its products?

Income elasticity of demand

In the diagram, which region shows the consumer surplus that would arise in a market if the government imposed an effective maximum price?

Maximum and minimum prices

Increasing demand for oil from China and other countries is causing worries that a global oil shortage could occur. How ought a change in the price of oil to stop such a shortage from arising?

Income elasticity of demand

In the diagram, OS1 and OS2 are two straight-line supply curves. When price rises, the elasticity of supply

Price elasticity of supply

What reason are economists most likely to give for why governments often finance large hospital projects?

Government intervention in markets

How would net external benefit be worked out?

7.4

The table sets out the anticipated costs and benefits of four government projects. The government can finance just one project. Which project should the government select?

Scarcity, choice and opportunity cost

What factor would increase the chance that road tolls will cut traffic congestion?

Maximum and minimum prices

In the diagram, S1S1 and DD show the initial supply and demand curves for an agricultural product. Bad weather then cuts supply to S2S2. The government prevents the price from rising above OP1. If the price is kept at OP1, how much of the product must the government provide from stocks?

Income elasticity of demand

Steel is made in several countries, including China, Japan and the US. It is used to produce cars. The US shields its domestic steel industry by charging high tariffs on steel imports from other countries. Which two groups would benefit if the US tariffs were removed?

Protectionism

Which disadvantages are most likely to arise in a market economy?

Resource allocation in different economic systems

Curve S shows the supply of an imported good. Which curve will represent the new supply after an ad valorem (percentage) tariff is imposed on the good?

Protectionism

What exists in a customs union but not in a free trade area?

Protectionism

The table indicates the quantities of rice and wheat that two countries, X and Y, can produce when each country allocates its resources equally between rice and wheat production. Suppose each country now specialises in line with comparative advantage and then trades with the other country. Which terms of trade would make both countries better off?

International trade and free trade

What must decrease when the unemployment rate increases?

National income statistics

The table presents the percentage price changes for some items in the UK Consumer Price Index (CPI) during the year to 1 June 2006. Over the same period, the overall CPI rose by 2.5 %. What conclusion can be drawn from the information above?

Balance of payments

During Year 1, the price of a barrel of oil rose from $60 to $110. In Year 2, it rose again, this time to $115 per barrel. Assume that any changes in oil prices affect the general price level immediately. What effect will the oil-price movements have on a country’s Consumer Price Index and on its inflation rate in Year 2, compared with Year 1?

Balance of payments

If a government has only small foreign-currency reserves, at what point would it be likely to view a deficit on the current account as a serious problem?

6.3

The diagram illustrates the quantities of US dollars ($) and Euros (€) received for one pound sterling (£) between 2002 and 2004. What changes occurred in the exchange rate of the $ relative to the £ and € during this period?

6.4

In one country, the Marshall-Lerner condition for an improvement in the trade balance is met over the long run, but the quantities of imports and exports respond only slowly to price changes. The government devalues its currency in order to reduce its trade deficit. Which curve shows the likely pattern of the trade balance?

6.3

Suppose the Chinese monetary authorities are determined to keep the exchange rate of China’s currency, the Yuan, against the US$ between P1 and P2 on the diagram. What could they do if demand shifted from D1 to D2?

6.4

The diagram illustrates the production possibility curve for an economy. Which statement accounts for the shape of this curve?

Production possibility curves

During 2008, the Chinese government faced pressure from other countries to cut its current account surplus in the balance of payments. Which combination of Chinese measures would be likely to reduce China’s current account surplus?

6.5

Which statement about money is correct?

Oligopoly

What could cause an individual’s demand curve for petrol to move leftward?

Demand and supply curves

The diagram presents a consumer’s short-run and long-run demand curves for coconuts. At first, the consumer buys quantity Q0 at price P0. If the price of coconuts rises above P0, the consumer’s short-run reaction is larger than his long-run reaction. If the price falls below P0, his short-run reaction is smaller than his long-run reaction. What is the consumer’s short-run demand curve?

Demand and supply curves

The table gives a consumer’s spending on a variety of goods at different income levels. For which good is the consumer’s income elasticity of demand greater than zero but less than one?

Price elasticity of demand

The diagram illustrates the demand curve for a product. Which statement is true?

Demand and supply curves

The table presents the market demand for a product together with the individual supply of the three firms X, Y and Z in the industry. What is the equilibrium market price?

Income elasticity of demand

Which disadvantages are most likely to occur in a market economy?

Resource allocation in different economic systems

Which region in the diagram shows the size of consumer surplus that would arise in a market if the government imposed an effective maximum price?

Cross elasticity of demand

Increasing demand for oil from China and other countries is causing worries that a global oil shortage may occur. In what way should a change in the price of oil stop such a shortage from developing?

Income elasticity of demand

The diagram shows OS1 and OS2 as two straight-line supply curves. When price rises, the elasticity of supply

Price elasticity of supply

What reason are economists most likely to give for why governments often finance large hospital projects?

Government intervention in markets

By what method would net external benefit be calculated?

7.4

The table gives the anticipated costs and benefits of four government projects. The government can fund just one project. Which project ought the government select?

Law of diminishing returns

What would make it more probable that road tolls reduce traffic congestion?

Maximum and minimum prices

In the diagram, S1S1 and DD show the initial supply and demand curves for an agricultural product. Bad weather then cuts supply to S2S2. The government does not permit the price to increase beyond OP1. If the price is kept at OP1, how much of the product must the government provide from stocks?

Income elasticity of demand

Steel is manufactured in several countries ... The US shields its domestic steel industry by levying high tariffs on imported steel. Which two groups would gain if the US tariffs were removed?

Protectionism

Curve S shows the supply of an imported good. If an ad valorem (percentage) tariff is introduced on the good, which supply curve would represent the revised position?

Protectionism

The diagram illustrates the production possibility curve for an economy. Which statement accounts for the shape of this curve?

Production possibility curves

Which feature exists in a customs union but not in a free trade area?

Protectionism

The table indicates the quantities of rice and wheat that two countries, X and Y, are able to produce when each nation allocates its resources evenly between rice and wheat production. Assume that each country then specialises in line with comparative advantage and exchanges goods with the other country. Which terms of trade would be advantageous to both countries?

International trade and free trade

What has to decrease as the unemployment rate increases?

Price stability and inflation

The table sets out the percentage price changes for some items in the UK CPI in the year up to 1 June 2006. During the same period, the overall CPI rose by 2.5%. What can be inferred from the data shown above?

Balance of payments

During Year 1, the cost of a barrel of oil rose from $60 to $110. In Year 2, it then rose again to $115 per barrel. Assume that any change in oil prices has an immediate effect on the overall price level. What effect will these oil price changes have on a country’s Consumer Price Index and on its inflation rate in Year 2 when compared with Year 1?

Balance of payments

A government has low foreign currency reserves. At what point would it probably regard a current account deficit as a serious issue?

6.3

The diagram illustrates how many US dollars ($) and Euros (€) were exchanged for one pound sterling (£) from 2002 to 2004. What change took place in the exchange rate of the $ relative to the £ and € over this period?

6.4

In a country, the Marshall-Lerner condition for an improvement in the trade balance is met in the long run, although quantities of imports and exports take a long time to react to changes in price. The government devalues its currency in order to cut its trade deficit. Which curve shows the likely pattern of the trade balance?

6.3

Assume the Chinese monetary authorities are determined to keep the exchange rate of China’s currency, the Yuan, against the US$ within the range shown by P1 and P2 on the diagram. What could they do if demand shifted from D1 to D2?

6.4

In 2008, the Chinese government faced pressure from other countries to cut its current account surplus on its balance of payments. Which combination of Chinese measures would be likely to reduce China’s current account surplus?

Labour market

Which statement about money is correct?

Oligopoly

What is the main problem facing an economy?

Scarcity, choice and opportunity cost

What could cause a person’s demand curve for petrol to move leftward?

Demand and supply curves

The diagram illustrates a consumer’s short-run and long-run demand curves for coconuts. At first, the consumer buys quantity Q0 at price P0. When the price of coconuts rises from P0, the consumer’s short-run reaction is larger than the long-run reaction. When the price falls from P0, the consumer’s short-run reaction is smaller than the long-run reaction. Which curve is the consumer’s short-run demand curve?

Price elasticity of demand

The table gives a consumer’s spending on a selection of goods at different income levels. For which good is the consumer’s income elasticity of demand above zero but below one?

Price elasticity of demand

The diagram illustrates the demand curve for a product. Which statement is correct?

Demand and supply curves

The table gives the market demand for a product and the separate supply of the three firms X, Y and Z in the industry. What is the equilibrium market price?

Income elasticity of demand

Domino Pizza reported that its profits had been lowered by price inflation on ingredients and by a decrease in consumers’ disposable income. How would these changes influence the demand and supply curve for its products?

Income elasticity of demand

In Swaziland’s current account from 2003 to 2007, (i) which component improved continuously, and (ii) which component worsened continuously?

6.3

Explain how microeconomic and macroeconomic issues can be shown with production possibility curves.

Production possibility curves

Using the relevant type of elasticity of demand, explain the terms

1.6

Explain why it is important to have an accurate measure of inflation.

Balance of payments

In Swaziland’s current account from 2003 to 2007,

6.3

Explain how production possibility curves may be used to represent microeconomic and macroeconomic issues.

Production possibility curves

With reference to the relevant type of elasticity of demand, explain the terms

1.6

Explain why it is important to have an accurate measure of inflation.

Balance of payments

Suggest the likely opportunity cost to Ghanaian children of time spent fetching water. Explain your answer.

Scarcity, choice and opportunity cost

Explain the difficulties involved in carrying out a cost-benefit analysis.

7.4

Explain why a low and stable rate of inflation can be advantageous for an economy.

Balance of payments

Explain briefly

6.5

In an economy, it is impossible to improve one person’s welfare without reducing the welfare of others. What conclusion can be drawn from this?

Behavioural economics

A company wants to take some of the consumer surplus that its customers currently receive. How could it do this?

Cross elasticity of demand

A firm operating under perfect competition sees that, at its present output level, marginal revenue is $2.00 while marginal cost is $2.50. If it aims to maximise profit, what change will occur to its price and output?

7.6

The diagram illustrates the outcome when a perfectly competitive market is replaced by a monopoly. What is represented by area X?

Behavioural economics

A tax is described as regressive when

Short-run costs

Which of the following is not a policy intended to correct market failure?

Behavioural economics

What does the term ‘real wages’ mean?

Long-run costs and economies of scale

Which of the following is not counted as a leakage from the circular flow of income?

Aggregate demand and aggregate supply

In Keynesian theory, under what circumstances will a rise in the money supply leave the level of output unchanged?

Monetary policy

According to monetarist theory, what are the short-run and long-run effects of an unexpected rise in the money supply on the real wage level?

Monetary policy

The diagram illustrates the link between consumption expenditure and income. Which of the following statements is correct?

Aggregate demand and aggregate supply

The table gives the total utility a consumer receives from good X at different quantities consumed. quantity of X consumed: 1,2,3,4,5,6,7; total utility (units): 30,50,65,75,80,83,84. The consumer gains three units of utility from the final $ she spends on each good that she buys. What is the greatest number of units of X that she will consume if the price of X is $5?

Utility and rational consumer behaviour

For a closed economy with no government sector, the full employment level of income = $400 billion and the equilibrium level of income = $380 billion. If the deflationary gap is $4 billion, what is the marginal propensity to consume?

Economic growth

The diagram shows an aggregate demand curve. What can explain why the curve slopes downwards?

Economic growth

If the money supply increases, interest rates fall. What else will also fall because of these changes?

6.4

The diagram illustrates the market for loanable funds. Which changes might lead the equilibrium to shift from E1 to E2?

Oligopoly

Which characteristic of the Indian economy might account for the purchasing power parity exchange rate of the Rupee being much higher than its market exchange rate?

6.4

What is likely to happen to the global economy if oil prices fall?

Economic growth