May/June 2011

The diagram illustrates the production possibility curves of two economies, X and Y. Which statement concerning the two economies is correct?

Production possibility curves

A refinery that converts oil into petrol (gas) is operating under these conditions. 1 It is operating at maximum capacity. 2 Its petrol storage tanks are already full. 3 It has been delivered a new fleet of petrol tankers to move its petrol. 4 It takes six months to train new workers so that they are qualified in safety procedures. Which of these conditions would be likely to make the supply of petrol relatively price inelastic?

Price elasticity of supply

The table presents estimates of the price elasticities and cross elasticities of demand for bus and rail travel. What would be the change in the volume of rail travel following a 1 % rise in bus fares?

Price elasticity of demand

The diagram illustrates the demand and supply curves for a good. The government imposed a maximum price of OP1. What would this have achieved?

Maximum and minimum prices

Global stocks of cod are now being endangered by over-fishing, whereas supplies of the less favoured Alaskan pollock remain abundant. How may the price mechanism work to reduce the depletion of fish stocks?

Income elasticity of demand

The table presents some of the costs and benefits at a particular output level for a good. Which statement is correct at this output level?

7.4

When a good is consumed, external benefits arise. Its market equilibrium is E. Which diagram shows the shift in equilibrium (E to E1) needed to show the good’s correct value to society?

7.4

What is one advantage, instead of a disadvantage, of cost-benefit analysis when deciding on a government investment project?

Maximum and minimum prices

What feature sets a public good apart from private goods?

Behavioural economics

In the diagram, S and S1 show the supply curves for an agricultural product in years 1 and 2, respectively, while D shows the demand curve in years 1 and 2. During year 1, the government bought the quantity needed to keep the price at OP. The price remains fixed at OP in year 2. By how much more does the government need to buy in year 2 than it bought in year 1?

Maximum and minimum prices

Each diagram presents the production possibility curves for two economies, X and Y, that make food and clothes. In which diagram would both economies gain from specialising in the good for which they have comparative advantage and then trading at an exchange rate of 1 unit of clothes for 1.5 units of food?

International trade and free trade

How is capital different from the other factors of production?

Factors of production

A criticism of trade protection is that it would raise

Protectionism

A country’s terms of trade is currently 150 (base year 2000 = 100). Since 2000, the average price it has obtained for its exports has risen by 20 %. By how much has the average price it has paid for its imports changed?

6.3

A government wants to publish its final balance of payments account. It has worked out the current account balance, the capital account balance and the financial account balance. What further information is needed to finish the task?

6.3

The table presents inflation rates, unemployment rates and changes in money wage rates from 2008 to 2009 for several countries. What conclusions can be drawn from the table?

Balance of payments

The diagram presents a comparison of inflation rates in Paraguay and Argentina from 1950 to 2005. What conclusion can be drawn about the inflation rates in the two countries during the period 1950 to 2005?

Balance of payments

During a one-year period, the yearly inflation rate decreases from 10 % to 6 %. Which statement is correct?

Balance of payments

A Japanese company sets up a factory in the UK so that it can serve both the UK market and the market elsewhere in Europe. What is most likely to happen in the long run to the UK’s balance of trade in goods and to its current balance?

6.3

A country undergoes changes in the value of its exports and imports of goods and services, together with its inflow of incomes and transfers. Which combination of changes is most likely to bring about a depreciation of its floating exchange rate?

6.4

What is likely to occur if the international value of a country’s currency rises?

6.4

The table presents data on the exchange rate of an economy and its current account balance across six years. Which concept do the figures in the table illustrate?

6.4

What is likely to be higher in a planned economy than in a market economy?

Resource allocation in different economic systems

The diagram illustrates the exchange rate of the UK£ against the US$. The initial equilibrium exchange rate is shown at E. What will be the new equilibrium exchange rate of the UK£ after UK interest rates fall and US interest rates increase?

6.4

Which statement is normative?

Economic methodology

Which statement is in line with an individual demand curve that slants downward from left to right?

Demand and supply curves

Which factor would make the demand curve for cars made domestically shift left?

Demand and supply curves

The diagrams illustrate changes in the market for a good. Which diagrams indicate ‘a change in the quantity demanded’?

Demand and supply curves

The diagram illustrates the demand curve for a product with unitary price elasticity. What happens to this curve?

Price elasticity of demand

In the diagram, D and S represent the demand and supply curves for a good. What might lead the supply curve to move in the short run to S1?

Demand and supply curves

In what way is capital different from the other factors of production?

Factors of production

The table shows estimated price elasticities and cross elasticities of demand for bus and rail travel. What change would occur in the volume of rail travel if bus fares rose by 1 %?

Price elasticity of demand

The diagram illustrates the demand and supply curves for a good. The government imposed a maximum price at OP1. What would this have resulted in?

Maximum and minimum prices

Global stocks of cod are now at risk because of over-fishing, while supplies of the less popular Alaskan pollock are abundant. In what way might the price mechanism work to reduce the depletion of fish stocks?

Income elasticity of demand

The table presents some of the costs and benefits at a particular output level for a good. What is correct at this level of production?

7.4

When a good is consumed, external benefits are created. Its market equilibrium is E. Which diagram illustrates the adjustment in equilibrium (E to E1) needed to show the good’s true value to society?

7.4

What is one benefit, instead of a drawback, of cost-benefit analysis when choosing a government investment project?

Maximum and minimum prices

Which characteristic sets a public good apart from private goods?

Behavioural economics

In the diagram, S and S1 show the supply curves for an agricultural product in years 1 and 2 respectively. D is the demand curve for years 1 and 2. In year 1, the government bought the quantity needed to keep the price at OP. The price remains at OP in year 2. By how much does the government need to increase its purchases in year 2 compared with year 1?

Maximum and minimum prices

Each diagram presents the production possibility curves for two economies, X and Y, that make food and clothes. In which diagram would both economies gain by specialising in the good for which they have comparative advantage and trading at an exchange rate of 1 unit of clothes to 1.5 units of food?

Production possibility curves

One objection to trade protection is that it will raise

Protectionism

What is likely to be higher in a planned economy than in a market economy?

Resource allocation in different economic systems

A country’s terms of trade are currently 150 (base year 2000 = 100). Since 2000, the average price it has obtained for its exports has risen by 20 %. What change has occurred in the average price it has paid for its imports?

6.3

A government wants to present its final balance of payments account. It has worked out the current account balance, the capital account balance and the financial account balance. What extra information is needed to finish the task?

6.3

The table presents inflation rates, unemployment rates and changes in money wage rates for a number of countries in 2008 and 2009. What conclusion can be drawn from the table?

Market failure

The diagram shows a comparison of the inflation rates in Paraguay and Argentina from 1950 to 2005. What conclusion can be drawn about the inflation rates in the two countries over the period 1950 to 2005?

Balance of payments

During a year, the annual inflation rate decreases from 10 % to 6 %. Which statement is correct?

Balance of payments

A Japanese company sets up a factory in the UK so that it can serve both the UK market and the market in the rest of Europe. What is the most likely long-run effect on the UK’s balance of trade in goods and on its current balance?

6.3

A country sees shifts in the value of its exports and imports of goods and services, together with its inflow of incomes and transfers. The table shows these changes. Which combination of changes is most likely to lead to a depreciation in its floating exchange rate?

6.4

What is likely to occur if the international value of a country’s currency increases?

6.4

The table presents observations of an economy’s exchange rate and current account balance across six years. Which concept is shown by the information in the table?

6.4

The diagram illustrates the exchange rate for the UK£ measured against the US$. The initial equilibrium exchange rate is at E. What is the new exchange rate equilibrium of the UK£ after UK interest rates fall and US interest rates rise?

6.4

Which statement is normative?

Economic methodology

The diagram illustrates the production possibility curves for two economies, X and Y. Which statement about these two economies is correct?

Production possibility curves

What would be consistent with an individual demand curve that slopes downward from left to right?

Demand and supply curves

Which factor will make the demand curve for cars produced domestically move to the left?

Demand and supply curves

The diagrams illustrate changes in the market for a product. Which diagrams indicate ‘a change in the quantity demanded’?

Demand and supply curves

The diagram illustrates the demand curve for a product with unitary price elasticity. What would be the effect of such a curve?

Price elasticity of demand

On the diagram, D and S are the demand and supply curves for a good. What might cause the supply curve to move in the short run to S1?

Demand and supply curves

A refinery that converts oil into petrol (gas) is dealing with the conditions below. 1 It is operating at full capacity. 2 Its petrol storage tanks are already full. 3 It has taken delivery of a new fleet of petrol tankers to move its petrol. 4 It takes six months to train new workers so that they are qualified in safety procedures. Which of these conditions would make the supply of petrol relatively price inelastic?

Price elasticity of supply

What is likely to be larger in a planned economy than in a market economy?

Resource allocation in different economic systems

The diagram presents the demand and supply curves for a good. The government set a maximum price of OP1. What would this have achieved?

Maximum and minimum prices

Worldwide cod stocks are now at risk because of over-fishing, whereas supplies of the less popular Alaskan pollock remain abundant. In what way could the price mechanism work to help reduce the depletion of fish stocks?

Income elasticity of demand

The table sets out some of the costs and benefits at a particular level of production of a good. Which statement is correct at this level of production?

Buffer stocks

When a good is consumed, external benefits are created. The market equilibrium is E. Which diagram shows the shift in equilibrium (E to E1) needed to reflect the good’s true value to society?

7.4

What is one benefit, rather than a drawback, of cost-benefit analysis when deciding whether a government should invest in a project?

Law of diminishing returns

What characteristic sets a public good apart and is not present in private goods?

1.6

In the diagram, S and S1 represent the supply curves for an agricultural product in years 1 and 2, respectively. D shows the demand curve in years 1 and 2. During year 1, the government bought the quantity needed to keep the price at OP. The price remains fixed at OP in year 2. By how much does the government need to increase its purchases in year 2 compared with year 1?

Maximum and minimum prices

In each diagram, the production possibility curves for two economies, X and Y, are shown; they produce food and clothes. In which diagram would both economies gain if they specialised in the good for which they have comparative advantage and then traded at an exchange rate of 1 unit of clothes to 1.5 units of food?

Production possibility curves

A criticism of trade protection is that it will raise

Protectionism

A country’s terms of trade is presently 150 (base year 2000 = 100). From 2000 onwards, the average price it has earned for exports has risen by 20 %. By how much has the average price it has paid for imports changed?

International trade and free trade

Which statement is a normative statement?

Economic methodology

A government wants to present its final balance of payments account. It has worked out the current account balance, the capital account balance and the financial account balance. What further information is needed to finish the task?

6.3

The table gives inflation rates, unemployment rates and changes in money wage rates between 2008 and 2009 for several countries. What conclusion can be drawn from the table?

Market failure

The diagram shows a comparison of the inflation rates in Paraguay and Argentina from 1950 to 2005. What conclusions can be drawn about the inflation rates in the two countries over the period 1950 to 2005?

Balance of payments

Over the course of a year, the annual inflation rate decreases from 10 % to 6 %. Which statement is correct?

Balance of payments

A Japanese company sets up a factory in the UK to serve both the UK market and the market in the rest of Europe. What would probably be the long-run effect on the UK’s balance of trade in goods and on its current balance?

6.3

A country sees shifts in the value of its exports and imports of goods and services, together with its inflow of incomes and transfers. The table shows these changes. Which combination of changes is most likely to lead to a depreciation in its floating exchange rate?

6.4

What is likely to occur if a country’s currency becomes more valuable in international markets?

6.4

The table presents observations of an economy’s exchange rate and current account balance across six years. Which concept is shown by the data in the table?

6.4

The diagram illustrates the exchange rate of the UK£ in terms of the US$. The initial equilibrium exchange rate is shown at E. What will the new equilibrium exchange rate of the UK£ be after a fall in UK interest rates and an increase in US interest rates?

6.4

The diagram illustrates the production possibility curves for two economies, X and Y. Which statement about these two economies is correct?

Production possibility curves

What is compatible with an individual demand curve that slopes downward from left to right?

Demand and supply curves

How is capital different from the other factors of production?

Factors of production

What factor would shift the demand curve for cars made domestically to the left?

Demand and supply curves

The diagrams illustrate changes in the market for a good. Which diagrams indicate ‘a change in the quantity demanded’?

Demand and supply curves

The diagram illustrates the demand curve for a product with unitary price elasticity. What will occur with this curve?

Price elasticity of demand

In the diagram D and S represent the demand and supply curves for a good. What might cause the supply curve to shift in the short run to S1?

Demand and supply curves

A refinery that converts oil into petrol (gas) is operating under the following circumstances. 1 It is running at full capacity. 2 Its petrol storage tanks are full. 3 It has been delivered a new fleet of petrol tankers for transporting its petrol. 4 It takes six months to train new workers to meet safety procedures. Which of these conditions will tend to make the supply of petrol relatively price inelastic?

Price elasticity of supply

The table shows estimated price elasticities and cross elasticities of demand for bus and rail travel. What change in the amount of rail travel would result from a 1 % rise in bus fares?

Price elasticity of demand

Explain how one group, other than dairy farmers, would be harmed by lower milk prices and how another group would benefit from lower milk prices.

Government intervention in markets

Explain how an economic system functions.

Resource allocation in different economic systems

Explain how the effect of a devaluation on the level of economic activity differs from the effect of a deflation.

6.4

Explain how a country's various international transactions are recorded in its balance of payments account.

6.3

Explain two additional pieces of information that would help when judging Australia’s international financial position.

6.3

Explain the part that a government should play in a mixed economy.

Government intervention in markets

Using economic analysis, explain the possible reasons for the rise in sales of electronic goods, such as mp3 players, in recent years.

Income elasticity of demand

Explain why the successful operation of the division of labour relies on the use of money.

Factors of production

Compare the exchange rate of the S$ against the US$ from the beginning of 1980 to the beginning of 2010.

6.4

Explain how resources are distributed in a free market economy.

Resource allocation in different economic systems

Explain how and why the price elasticity of supply of agricultural goods is different from that of manufactured goods.

Price elasticity of supply

Explain the limitations of the theory of comparative advantage in accounting for a country’s pattern of trade.

International trade and free trade

In the diagram, LM represents an economy’s production possibility curve. Which statement is correct?

Production possibility curves

A firm is practising price discrimination. To maximise profits, what action should the firm take?

7.6

The diagram illustrates the private and social marginal costs and benefits at various traffic volumes. When a congestion tax is imposed, the MPC curve shifts up to MPC + tax. Which area shows the resulting fall in deadweight loss?

7.4

A government sets a maximum price for electricity. Which justification for this action might be regarded as valid on economic grounds?

Government intervention in markets

Individuals are able to decide how many hours to work, how much income to set aside as savings and which goods and services to purchase. Which kind of tax will not affect the choices that individuals make?

Maximum and minimum prices

The table presents figures for a country’s gross national product at market prices and domestic expenditure. In which of these years will the country experience a deficit on the current account of the balance of payments?

6.3

An economy is functioning at its natural rate of unemployment. In monetarist theory, what effect will an unanticipated rise in the money supply have on unemployment in the short run and in the long run?

Monetary policy

What would decrease the value of the investment multiplier?

Economic growth

The diagram illustrates a consumption function. When income rises, what happens to the average propensity to save and the marginal propensity to save?

Economic growth

Assuming all other factors remain unchanged, what will lead to a fall in aggregate demand?

Economic growth

What factor will cause the money supply to increase in an open economy?

Oligopoly

A consumer aims to maximise his utility. Until what point should he keep consuming each good?

Utility and rational consumer behaviour

According to Keynesian theory, under what circumstance will the demand for money always rise?

Oligopoly

Which features are commonly present in developing countries?

11.4

Which cause of economic growth would place the smallest burden on both the present and the future generations of a country’s population?

Monopoly

The table presents some indicators of macro-economic performance in the US economy across five decades. During which decades did the US government record an overall rise in performance without any trade-off among separate policy goals?

Market failure

The diagram illustrates the link between the rate of inflation and the rate of unemployment. What would make the curve FG shift to JK?

Market failure

The diagram illustrates a government’s revenue and expenditure across three years. What conclusion can be drawn from the diagram?

Fiscal policy