Oct/Nov 2011

If the production possibility curve stays unchanged, what is the most likely explanation for the shift from point X to point Y?

Production possibility curves

A firm calculates that the price elasticity of supply for its product is 0.4. Should the firm be concerned about this figure?

Price elasticity of supply

What conclusion can be drawn about the price elasticity of supply for the curves shown?

Price elasticity of supply

Following the movement of the supply curve from S to S1 in the rice market, what does the area JKLM show?

Cross elasticity of demand

What condition must hold for consumer surplus to be zero?

Cross elasticity of demand

Which letter might stand for the total cost of making the free market equilibrium output when production creates an external cost for society?

7.4

What is the extra social benefit when 4 units, instead of 3 units, are produced?

7.4

What does the term merit good mean?

Government intervention in markets

Which good or service can be excluded from use, yet remains non-rival in consumption?

1.6

What action must a government take to keep the price of an agricultural commodity stable when demand is greater than supply and when supply is greater than demand?

Maximum and minimum prices

Since Sealand has abundant land and labour, and Fantasia has more labour than Sealand, while X requires much land but little labour and Y requires much labour but little land, what can be inferred about Sealand?

Factors of production

What is one illustration of the factor of production known as capital?

Factors of production

Which policy would boost domestic production? A cut in which of the following?

Supply-side policy

Which pairing of export prices and import prices would produce the largest shift in a country’s terms of trade?

International trade and free trade

An Indian multinational company earns profits from its factories operating in the UK. It then acquires a firm in the UK that is owned by a US company. How will these transactions be shown in India’s balance of payments?

6.3

What is true about unemployment according to the diagram that shows the long-term unemployment rate as a percentage of total unemployment for the four countries W, X, Y and Z from 2002 to 2007?

Price stability and inflation

What conclusion can be drawn from the table showing the annual percentage change in an index of prices for 2008 and 2009 (China, Pakistan, Saudi Arabia, United States)?

Balance of payments

Which combination is most likely to occur as a result of demand-pull inflation?

Economic growth

In 2008-9, households in America cut back on their consumption of goods produced at home and abroad and used some of the money to repay part of their debts. Which outcome might be consistent with this change?

Economic growth

If a country’s floating exchange rate decreases and its export revenue also falls, what might account for this?

6.4

Which new equilibrium position might result after demand from US residents for holidays in Europe rises in the foreign exchange market diagram, which is initially at equilibrium at X?

6.4

In 2004 Bolivia promoted investment from overseas firms to develop oil and gas resources. What effect would this have on Bolivia’s balance of payments?

6.3

What opportunity cost does an unemployed worker face when they take up employment?

Scarcity, choice and opportunity cost

Which statement is most likely to account for the current account’s performance after a devaluation, where there is a short-run worsening followed by improvement over two years?

6.3

Which statement is normative?

Economic methodology

Which statement best describes the nature of this demand curve?

Demand and supply curves

How would an economist derive the market demand curve for a private good?

Demand and supply curves

What might lead to a shift in the supply curve for good X and a movement along that supply curve?

Demand and supply curves

If the price of good X increases by 10 %, the demand for its complementary good Y changes by 20 %. What is the cross elasticity of demand for good Y with respect to good X?

Price elasticity of demand

How much is the market supply of X likely to rise when the price of product X increases from $22 to $36?

Price elasticity of supply

An individual has a meeting with his bank manager. He can either drive to the meeting in a car, or leave the car at home and make the journey by bus and then by train. The journey costs are shown below. Using this information, what is the opportunity cost to the individual of travelling by car instead of by bus and train?

Scarcity, choice and opportunity cost

The diagram illustrates the market for new houses. What would bring about the shift in the market equilibrium position from X to Y?

Income elasticity of demand

On the diagram, S1 is the original supply curve and D is the original demand curve. If supply moves to S2, which area shows the change in consumer surplus?

Cross elasticity of demand

If demand for a good decreases, its price decreases. What is the role of the price decrease?

Resource allocation in different economic systems

In what circumstances is an increase in a product’s price likely to lead to more resources being devoted to producing it?

Price elasticity of supply

A congestion charge of £10 per day has been introduced for motorists who drive their cars into Central London. What aspect of driving into Central London provides the economic justification for this charge?

7.4

A cost-benefit analysis for a planned underground railway gave the statistics shown below. What conclusions can be drawn from these statistics?

Law of diminishing returns

A government acknowledges that constructing a new bridge would create a positive net benefit for society. Because there are insufficient public funds, the bridge would need to be constructed and run by a private company, which would then charge members of the public to cross it. Private companies maintain that building the bridge would not be profitable. What might account for the companies’ reluctance to build the bridge?

Government intervention in markets

What does the term merit good mean?

7.4

The diagram illustrates the market demand and supply curves for rice. What would happen if the government set a maximum price at $10?

Maximum and minimum prices

A government abolishes the tariff on a product, as illustrated in the diagram. What change will occur in domestic production?

Protectionism

In the diagram, curve PP shows the production possibility curve of a country that makes goods X and Y. Producing X is more labour intensive than producing Y. By law, the labour force’s working hours are cut. Which curve might now represent the country’s new production possibility curve?

Production possibility curves

Country X becomes part of an existing customs union made up of countries Y and Z, while Country W stays outside the customs union. X’s original tariff and W’s tariff are both equal to the customs union’s common external tariff. What is likely to happen to trade flows when X joins the customs union?

Protectionism

The table presents four combinations of price changes that could influence a country’s terms of trade. Which combination of price changes has to lead to an improvement in the country’s terms of trade?

6.3

The table lists every item in a country’s balance of payments current account. What is the value of the current account balance?

6.3

The table presents the unemployment rate and population for selected countries in 2009. What conclusion can be drawn from this information?

Price stability and inflation

An average consumer allocates his spending across food, clothing, accommodation and transport in the ratio 2 : 1 : 4 : 3. Over the course of a year, the price of food decreases by 2 %, the price of clothing rises by 4 %, the price of accommodation rises by 10 % and the price of transport does not change. If the weights in a price index are based on the expenditure of the average consumer, what is the rise in the index over the year?

Balance of payments

At the beginning of 2009, a worker received $100 a week. During 2009, the Retail Price Index (RPI) increased by 4 % and his average wage increased by 7 %. In 2010, the RPI decreased by 3 % and his wage decreased by 2 %. What happened to his real wage from the start of 2009 to the end of 2010?

Balance of payments

The table lists balance of payments items for countries A, B, C and D. Official Financing, including changes in reserves, is left out of the Financial Account. Which country has the largest disequilibrium in its balance of payments?

Labour market

What is the inevitable consequence of a surplus in a country’s current account of the balance of payments?

6.3

The graphs illustrate how the exchange rates of the £ sterling changed between 1998 and 2003. What happened to the value of the £ sterling between 2001 and 2003?

6.4

Assuming all else remains unchanged, what would happen if a British company increased the sterling (£) price of goods sold to Pakistan by exactly the same amount as a depreciation of sterling against the Pakistan rupee?

6.4

In Economics, choices are usually made ‘at the margin’. What is meant by this?

Scarcity, choice and opportunity cost

At what point will a country's balance of payments current account deficit be reduced?

6.3

Which factor of production is paired correctly with its example?

Factors of production

As incomes in Germany fell during 2009, demand for jewellery dropped. By contrast, demand for frozen foods increased. How would the changes in demand for these two products be shown?

Demand and supply curves

From the estimate made in 2010 that milk had an income elasticity of demand of –0.6, what conclusion can be drawn about milk?

Price elasticity of demand

In a free market that is out of equilibrium, which price and quantity combination will cause the price to fall and output to contract so that equilibrium is restored?

Income elasticity of demand

A manufacturer has calculated that the price elasticity of supply of ice cream is +1.5. If demand for ice cream increases and the price rises by 10 %, by how much will the manufacturer increase the quantity supplied to the market?

Price elasticity of supply

The table presents demand and supply schedules for red peppers. At first, the equilibrium price is 15 cents per kg. The government then gives producers a subsidy of 10 cents per kg. What is the new equilibrium price paid by consumers?

Maximum and minimum prices

What is the opportunity cost for an unemployed worker when they take up employment?

Scarcity, choice and opportunity cost

The diagram illustrates the effect on the market for rice of a change in government policy that shifts the supply curve from S to S1. What does the area JKLM represent?

Cross elasticity of demand

What condition must be met for consumer surplus to equal zero?

Cross elasticity of demand

When the good shown below is produced in a free market at equilibrium, society bears an external cost. Which letter could indicate the total cost of producing the free market equilibrium output?

7.4

The table gives, for two different quantities of good X, the total amount consumers are prepared to pay and the total external benefits created. What is the extra social benefit when 4 units rather than 3 units are produced?

7.4

What does the term merit good mean?

Government intervention in markets

Which good or service is excludable, yet non-rival in consumption?

1.6

What action must a government take to keep the price of an agricultural commodity stable?

Maximum and minimum prices

The world is made up of Sealand and Fantasia. Both countries make two goods, X and Y. Good X requires a lot of land but only a small amount of labour. Good Y requires a lot of labour but only a small amount of land. Sealand has abundant land and labour. Fantasia has more labour than Sealand. What can be deduced from the above about Sealand?

International trade and free trade

Which measure would stimulate domestic production? A decrease in

Protectionism

Which combination of export prices and import prices will produce the largest shift in a country’s terms of trade?

6.3

Which statement is normative in nature?

Economic methodology

An Indian multinational company earns profits from factories located in the UK. It then acquires a UK-based firm that is owned by a US company. How will these transactions be shown in India’s balance of payments?

6.3

Unemployment is generally split into two groups: long-term (more than 12 months) and short-term (less than 12 months). The diagram presents the long-term unemployment rate, expressed as a percentage of total unemployment, for four countries from 2002 to 2007. What is correct about unemployment from the diagram?

Price stability and inflation

The table presents the yearly percentage change in a price index. What conclusion can be drawn from the table?

Balance of payments

Which combination is most likely to be caused by demand-pull inflation?

Economic growth

In 2008-9 American households cut their consumption of domestic and imported goods and used some of the money to repay part of their debts. Which outcome might be consistent with this change?

Economic growth

A country has a floating exchange rate that decreases, and its export revenue drops. What might account for this?

6.4

In the diagram, the foreign exchange market starts at equilibrium at X. Once demand from US residents for holidays in Europe increases, what might the new equilibrium position be?

6.4

In 2004, when world demand for oil was strong, Bolivia sought investment from foreign firms so that its oil and gas resources could be developed. What effect would this have on Bolivia’s balance of payments?

6.3

At the start of a particular period, a country aims to improve the current account of its balance of payments by devaluing its currency. The impact of this policy over the next two years is illustrated in the diagram. Which statement is likely to account for this outcome?

Labour market

The diagram illustrates a production possibility curve for an economy. If the production possibility curve does not change, what is the most likely explanation for the shift from point X to point Y?

Production possibility curves

The diagram illustrates a demand curve for a good. Which statement best describes the characteristics of this demand curve?

Demand and supply curves

What is one example of the factor of production known as capital?

Factors of production

In what way would an economist determine the market demand curve for a private good?

Demand and supply curves

What factors could bring about a shift in the supply curve of good X, and what would cause a movement along the supply curve?

Demand and supply curves

The price of good X increases by 10%. Consequently, the demand for the complementary good Y changes by 20%. What is the cross elasticity of demand for good Y with respect to good X?

Price elasticity of demand

An industry is made up of three firms, R, S and T, that manufacture product X. By how much would an increase in the price of product X from $22 to $36 be expected to raise the market supply of X?

Price elasticity of supply

A business calculates that the price elasticity of supply for its product is 0.4. Is this a figure that should worry the business?

Price elasticity of supply

The diagram presents three supply curves. What conclusion can be drawn about the price elasticity of supply of these curves?

Price elasticity of supply

Compare the price behaviour of the three diamond sizes from July 2004 to December 2008.

Demand and supply curves

Explain how a government’s way of deciding about a construction project might differ from that of a private firm.

1.6

Explain what factors determine a country’s comparative advantage in production.

International trade and free trade

Explain the factors that determine the size and productivity of a country’s labour force.

Long-run costs and economies of scale

Calculate the world price of rice in January 2002 approximately.

Protectionism

Show how production possibility curves may be used to explain any two economic ideas.

Production possibility curves

Explain the influences that determine the level of demand for healthcare in an economy.

Demand and supply curves

Explain what could lead to an improvement in a country’s terms of trade.

6.3

Use Table 1 to identify the chief changes in world potato production between 1991 and 2007.

Protectionism

Explain, with the help of a diagram, how an economy can in the short run and long run enjoy consumption beyond its current production possibility curve.

Production possibility curves

Explain the significance of an increase in the terms of trade for a country.

6.3

Explain, with the help of a diagram, how a depreciation of a country’s exchange rate influences that country’s rate of inflation.

6.4

Which statement explains how the law of variable proportions operates?

Factors of production

The diagram shows how a negative income tax system (NIT) operates: households earning more than Yt pay tax, while those earning less than Yt obtain a tax credit. What would be the effects of reducing the effective tax rate, so that the NIT schedule moves from NIT1 to NIT2?

Maximum and minimum prices

Which commodities ought a government to tax if it wants the tax system to become more progressive?

Short-run costs

The Chinese government has been expanding the influence of market forces within its economy. Yet, in 2008, it introduced temporary maximum price controls on energy and transport. Why would a government that is committed to cutting back on central planning decide to introduce price controls?

Government intervention in markets

The table presents information for two countries in 1994 and 2004. Using the data shown in the table, what conclusion can be drawn about the real GNP per head?

National income statistics

According to monetarist theory, if the money supply rises unexpectedly, what short-run impact will this have on money wages, real wages and the level of employment?

Monetary policy

The diagram shows C1 as the link between consumption and national income. What could make the consumption function move to C2?

Economic growth

In a closed economy with no government, the investment multiplier equals 5. If investment rises by $300, by how much does consumption increase?

Economic growth

In the diagram, AD1 and AS show an economy’s initial aggregate demand and aggregate supply curves. What would cause the aggregate demand curve to shift to AD2?

Economic growth

In an economy, output volume increases by 2% over a year, while the quantity of money rises by 5%. If the velocity of circulation of money stays unchanged, what are the approximate increases in the price level and the money value of national income?

Oligopoly

The diagram illustrates three separate levels of money supply (MS) and three distinct demand curves for holding money balances (LP). The starting equilibrium is point X. Banks extend more credit and people choose to keep more money in reserve as protection against emergencies. Which point now represents the new equilibrium?

Oligopoly

In the diagram, a firm is producing at point X on its long-run average cost curve. Which statement is not correct?

7.5

Which characteristic is usually linked with a relatively low income per capita in a country?

11.4

What is likely to raise a country’s actual output in the short run but could lower the long-run growth rate of its potential output?

Fiscal policy

What is a probable result of a rise in cyclical unemployment?

Price stability and inflation

The chart illustrates the rates of economic growth and unemployment in a country during the period 2007 to 2010. What does the chart illustrate?

Unemployment

Why is long-run economic growth likely to be damaged by high and fluctuating rates of inflation?

Balance of payments

Economists have argued that the most effective policy for encouraging development is ‘trade not aid’. What is meant by this proposal?

Trade unions