May/June 2012

The phrase ‘transition economy’ refers to a country that is

Resource allocation in different economic systems

When demand for a good decreases and its costs of production also decline, what combined impact will these changes have on the good’s price and the quantity supplied?

Income elasticity of demand

The diagram illustrates the effect of a tax of FG being placed on a commodity. Which area shows the fall in consumer surplus?

Maximum and minimum prices

The diagram indicates the average world price of coffee in US cents per pound weight (lb) from 1997 to 2005. Which event fits the price pattern shown over the stated period?

Income elasticity of demand

Which is not a function of the price mechanism?

Income elasticity of demand

Which of the following statements is correct?

Economic methodology

When deciding whether to invest in a new project, which consideration would government cost-benefit analysis include but a private company would not?

7.4

What is the reason that the government has to fund the production of public goods?

Government intervention in markets

The government must select the most suitable one from four potential locations for a port. The benefits and costs for each location are presented in the table in $m. Which location would be selected?

Law of diminishing returns

The diagram depicts the market for spectacles. At first, the market equilibrium price is PO and quantity Q3 is bought and sold. The government then imposes a maximum price of PX as well as a minimum price of PM. What impact will these policies have on the market for spectacles?

Maximum and minimum prices

Thailand can produce rubber at a lower opportunity cost than China. Even so, it still brings in some rubber from China. What might account for Thailand importing rubber from China?

International trade and free trade

In the diagram, JK is an economy’s production possibility curve. What might make the curve move to GH?

Production possibility curves

The diagram illustrates the production possibility curves of two countries, X and Y. A fall in productivity shifts country X’s production possibility curve from X1 to X2. Which statement is correct?

Production possibility curves

The diagram indicates that the introduction of a tariff increases the price from $10 to $14. What is the amount of tax revenue generated?

Protectionism

A firm obtains a loan from a bank located overseas in order to pay a lower rate of interest than the rate offered by banks in its own country. Which two sections of the balance of payments accounts will this transaction affect?

6.3

The table shows unemployment rates (%) for four countries in 1993 and 2002. What can be inferred from the table?

Price stability and inflation

During which year did the real value of money increase?

Balance of payments

A country saw unemployment drop sharply, yet its inflation rate stayed low. What might account for this?

Market failure

Prior to 1999, the Brazilian government had no preferred target inflation rate. From 1999 onwards, it introduced target rates with both an upper and a lower limit. The diagram illustrates the inflation rate from 1994 to 2003 and the target rate from 1999 to 2003. What conclusion can be drawn from the diagram?

Monetary policy

A government chooses to cut the quota for imported cars from 2000 to 1000 per year. What is likely to happen?

Protectionism

In the United States, a representative basket of goods has a price of $2500. In the UK, that same basket of goods has a price of £2000. What can be deduced from this?

6.4

When the price of a good that is traded internationally rises, which group would be affected most negatively?

6.3

What is the opportunity cost for an economy at full employment of raising capital investment?

Production possibility curves

A nation is running a deficit on the current account of its balance of payments. What could assist the country in cutting this deficit?

6.5

Skilled actors ought to be paid a high income since they give pleasure to people who go to the theatre. What conclusion can be drawn from this statement?

Economic methodology

What does the term market demand curve mean?

Demand and supply curves

A product has a unitary price elasticity of demand, and when its price is $20 a firm sells 40 000 units. If the firm sets the price at $5, how many units will it sell?

Price elasticity of demand

The cross elasticity of demand for products X and Y is negative. What would happen immediately if the price of product Y increases?

Price elasticity of demand

The table shows the short-run supply schedules for three firms X, Y and Z, which make up an industry. Which option is a point on the industry’s short-run supply schedule?

Demand and supply curves

The diagram illustrates the demand and supply curves for a commodity both before and after a particular tax is withdrawn. What is the tax per unit of output and what is the price following the tax removal?

Maximum and minimum prices

What is one feature of a planned economy?

Resource allocation in different economic systems

Demand for a good drops while its costs of production also fall. What combined impact will these changes have on the good’s price and on the quantity supplied?

Income elasticity of demand

The diagrams indicate a movement in demand from D1 to D2 and a movement in supply from S1 to S2 for four different goods. Which diagram represents the good for which further new uses have been found and which also experiences an increase in government subsidy?

Income elasticity of demand

The table gives the highest amount that each of three students would be prepared to pay for a taxi journey home from a night club. Assume that the taxi fare is shared as shown in the table below. Which option shows the amount each should pay so that they all receive the same consumer surplus?

Cross elasticity of demand

The diagram illustrates the demand and supply curves for parking spaces in a hospital car park. The managers choose to depend on the price mechanism to distribute parking spaces at the hospital. What is needed for this to work?

Income elasticity of demand

Which of the statements below is correct?

Economic methodology

When deciding whether to invest in a new project, what would be considered in government cost-benefit analysis but not by a private company?

7.4

Why must the government finance the production of public goods?

Government intervention in markets

On the diagram, D represents the demand curve for an agricultural commodity, while S1 shows the original supply curve. A good harvest shifts the supply curve to S2. By what amount must the demand curve shift so that farm incomes remain unchanged?

Income elasticity of demand

The diagram illustrates the spectacles market. At first, market equilibrium is at price PO, with quantity Q3 being purchased and sold. The government then introduces a maximum price of PX and also a minimum price of PM. What impact will these measures have on the spectacles market?

Maximum and minimum prices

A country has a comparative advantage in producing spices. Why might it decide not to specialise in spices?

International trade and free trade

In the diagram, JK represents an economy’s production possibility curve. What might make the curve move to GH?

Production possibility curves

The diagram illustrates the production possibility curves for countries X and Y. If productivity falls, country X’s production possibility curve shifts from X1 to X2. Which statement is correct?

Production possibility curves

Which statement regarding the effects of a tariff and a quota is correct?

Protectionism

A business takes out borrowing from a bank overseas in order to pay a lower interest rate than it could obtain from banks in its own country. Which two sections of the balance of payments accounts are affected by this transaction?

6.3

Which change would immediately decrease the size of a country’s labour force?

Monopolistic competition

The figures present the Consumer Price Index (CPI) for a country. (1990 = 100) What may be deduced from the data?

Balance of payments

A country saw unemployment drop sharply, yet its inflation rate stayed low. What might account for this?

Market failure

A country operates a fixed exchange rate. What is most likely to improve its balance of payments?

Labour market

A government chooses to cut the quota on imported cars from 2000 to 1000 per year. What is likely to happen?

Protectionism

In the United States, a representative basket of goods costs $2500. In the UK, that same basket of goods costs £2000. What conclusion can be drawn from this?

6.4

In the diagram, D1 and S1 show the original demand and supply curves for the pound sterling (£) in the foreign exchange markets. What would make the demand curve move to D2 and the supply curve move to S2?

6.4

Rising demand for water from households, agriculture and industry is causing a global water shortage. Which change would lessen this problem of water scarcity?

Scarcity, choice and opportunity cost

A country’s currency is set by the Central Bank at a fixed rate against US dollars. If currency devaluation cannot be done, which policy could be adopted to cut a current account deficit in the balance of payments?

6.5

What counts as money if money is defined as anything that is always accepted when payment is made for goods and services?

Oligopoly

How is a market demand curve defined?

Demand and supply curves

The table shows the short-run supply schedules for three firms, X, Y and Z, that together make up an industry. Which option is a point on the industry’s short-run supply schedule?

Demand and supply curves

The diagram illustrates how total expenditure changes with price for three products, 1, 2 and 3. Which curves show the products with price elastic demand and unitary price elasticity of demand?

Price elasticity of demand

The table gives the quantities demanded (Q) of goods X and Y for various prices (P) of both goods. In which range does the cross elasticity of demand for good Y with respect to the price of good X lie?

Price elasticity of demand

The diagram illustrates the demand and supply curves for a commodity before and after a particular tax is abolished. What is the tax per unit of output, and what is the price after the tax is removed?

Maximum and minimum prices

The term ‘transition economy’ refers to a country that is

Resource allocation in different economic systems

The diagram indicates the equilibrium price (OP) and quantity (OQ) in the maize market. The government aims to reach a target price of OP1. What would happen if the government intervenes in the market and raises demand by Q-Q1?

Maximum and minimum prices

The diagram illustrates the impact of introducing a tax of FG on a commodity. Which area shows the fall in consumer surplus?

Cross elasticity of demand

The diagram illustrates the average world price of coffee in US cents per pound weight (lb) from 1997 to 2005. Which event is in line with the price pattern shown during the period stated?

Income elasticity of demand

Which item is not a function of the price mechanism?

Resource allocation in different economic systems

In Europe, it was agreed that farm subsidies would be given to farmers who safeguard the environment as well as produce food. What would this mean for farmers who receive the subsidy?

Maximum and minimum prices

UK supermarkets are able to purchase some vegetables from Kenyan farmers at a lower price than from UK farmers. However, once the environmental harm caused by transporting the vegetables is included, the social costs of UK supermarkets buying Kenyan vegetables are greater than the social costs of buying vegetables grown in the UK. What can be inferred from this information about the purchases made by UK supermarkets?

7.4

What can be included in a government cost-benefit analysis that a firm seeking only to maximise profits would not calculate?

7.4

The government must select the best location from four possible sites for a port. The benefits and costs for each site are given in $m in the table. Which site would be selected?

Maximum and minimum prices

The diagram illustrates the market for apples. A government keeps a minimum price at P2 by purchasing apples. Which area indicates the amount of money the government must spend to sustain price P2?

Maximum and minimum prices

Thailand can produce rubber at a lower opportunity cost than China. Even so, it still brings in some rubber from China. What might account for Thailand importing rubber from China?

International trade and free trade

In the diagram, curve JK shows a country’s production possibility curve. What might make the curve move to LM?

Production possibility curves

Which point supports trade protection?

Protectionism

The diagram indicates that introducing a tariff increases the price from $10 to $14. What is the amount of tax revenue generated?

Protectionism

The diagram illustrates the UK trade balance with China and Japan in 2003 and 2004. How did the UK's trade balance change between the beginning of 2003 and the end of 2004?

6.3

The table shows unemployment rates (%) in four countries in 1993 and 2002. What conclusions can be drawn from the table?

Price stability and inflation

In which year did the real value of money increase? (table: year and Price Index base year 2001)

Balance of payments

The table gives the price indices and weights for the three commodity groups used to calculate a country’s consumer price index. By how much has the cost of living risen since the base year?

Balance of payments

Prior to 1999, the Brazilian government did not set a desired inflation target rate. Starting in 1999, it established target rates with an upper limit and a lower limit. The diagram illustrates the inflation rate from 1994 to 2003 and the target rate from 1999 to 2003. What can be concluded from the diagram?

Monetary policy

The UK saw its trade in goods deficit rise during 2003 to 2007, yet the exchange rate remained steady. What might explain why the trade deficit did not lead to a change in the exchange rate?

6.4

If export supply and import supply are assumed to be perfectly elastic, which pair of demand elasticities for imports and exports would mean that a 10 % decrease in a currency’s value causes the trade account in a country’s balance of payments to deteriorate?

6.4

The price of a good sold on the international market rises. Which group would be affected most adversely?

International trade and free trade

What opportunity cost does a fully employed economy face when capital investment is increased?

Scarcity, choice and opportunity cost

A country has a deficit on the current account of its balance of payments. What action might help it to reduce this deficit?

6.5

Talented actors ought to be paid a high income because they give enjoyment to people who go to the theatre. What conclusion can be drawn from this statement?

Economic methodology

How would you define a normal good?

1.6

A good has a unitary price elasticity of demand. When its price is $20, a firm sells 40 000 units. How many units will the firm sell if it sets a price of $5?

Price elasticity of demand

The cross elasticity of demand between two products, X and Y, is negative. What would be the immediate consequence of an increase in the price of product Y?

Price elasticity of demand

The table shows the short-run supply schedules for three firms X, Y and Z, which together make up an industry. Which point lies on the industry’s short-run supply schedule?

Demand and supply curves

Two firms, X and Y, supply the tractor market, and each one initially has 50 % of the market. If the price of tractors rises by 10 %, firm X increases output by 10 % and firm Y raises output by 20 %. What is the price elasticity of supply of tractors in this market?

Price elasticity of supply

Explain the likely impact of the depreciation of the New Turkish Lira on Turkey’s rate of inflation.

Balance of payments

Explain the effect of a loss of confidence in money on an economy’s production possibility curve.

Production possibility curves

Explain, using elasticity of demand, the possible reasons why in some countries private transport has become more widely used than public transport.

Price elasticity of demand

Use economic analysis to explain why international trade is beneficial.

International trade and free trade

Compare the movements in the current account balance of Russia and the United States between 2006 and 2010.

6.3

Explain why every type of economic system gains from the existence and use of money.

Resource allocation in different economic systems

Explain, using elasticity of demand, why a train company might introduce a policy of increasing fares at busy travel times and reducing fares at less busy travel times.

Price elasticity of demand

Explain, with the help of a diagram, how a government can maintain a stable foreign exchange rate.

6.4

(i) Use Table 1 to compare the export performance of the three trade groups in 2003.

11.6

Explain whether the factors of production are always equally important in economic terms both within and between economies.

Factors of production

Explain how income elasticity of demand and cross elasticity of demand may be used to sort different types of goods.

Price elasticity of demand

In what way does aggregate demand and aggregate supply analysis account for inflation in the short run?

Economic growth

What condition has to be satisfied for economic efficiency to be achieved?

Behavioural economics

The five-firm concentration ratio in an industry rises from 50% to 60%. Which statement about the industry is correct?

7.6

What condition has to be satisfied before a market may be considered perfectly contestable?

7.6

A perfectly competitive firm is presently producing at an output level where its marginal cost is greater than both its average total cost and the market price. If the firm were to maximise profit, what would happen to price and output?

7.6

An industry shifts from monopolistic competition to oligopoly. In what way will this change barriers to entry and the level of interdependence among firms?

7.6

In the diagram, introducing a tax on a commodity shifts its supply curve from S1 to S2. Which area shows the deadweight loss that results?

Maximum and minimum prices

A government decides to privatise a state monopoly. What measures should the government take to make sure this leads to greater efficiency?

Law of diminishing returns

The diagram presents the long-run cost and revenue curves for a monopolist. Which output level meets the condition for an efficient allocation of resources?

Behavioural economics

Because of a cyclical downturn, a government is facing a budget deficit. If the government wants to boost aggregate demand, which policy would be the most effective?

Fiscal policy

The graphs show a country’s economic performance from 2007 to 2010. Which conclusion can be drawn from the graphs?

Unemployment

Which of the following is an injection into an economy’s circular flow of income?

Aggregate demand and aggregate supply

The table gives the total utility an individual gains from consuming various quantities of a good. The individual’s marginal utility of money is $1 = 3 units of utility. What is the maximum quantity of the good that the individual will buy when its price is $4?

Utility and rational consumer behaviour

According to monetarist theory, what short-run effect results from an unexpected rise in the money supply?

Monetary policy

In the diagram, C1 represents the starting link between consumption and national income. What might make the consumption function move to C2?

Economic growth

Assuming all other factors stay the same, the money supply in an open economy will rise if

Oligopoly

In Keynesian theory, under what circumstance would demand for money always rise?

Oligopoly

Within a banking system, every bank keeps 10% of deposits as cash. Customers take out $20 000 in cash. If there is no later net change in notes and coins in circulation, by what amount will the banks need to cut their net loans?

Oligopoly

The table presents the values of consumption, capital formation and depreciation for four economies, with all amounts expressed in US $. If technology stays the same, which economy is most likely to have economic growth?

Unemployment