May/June 2013

The diagram illustrates the production possibility curve (PPC) for an economy producing goods and services. What could bring about the shift of the PPC from XY1 to XY2?

Production possibility curves

On the diagram, D1 and S1 show the demand and supply curves for a Malaysian industry in its domestic market. The equilibrium is at X. The industry must meet a substantial rise in wages and, at the same time, it encounters stronger rivalry from imported substitutes. Which point on the diagram might indicate the new equilibrium?

Income elasticity of demand

The diagram illustrates the demand curve and supply curve for a good on which the government has levied a specific tax. What will be the outcome of this tax?

Maximum and minimum prices

The diagram illustrates the demand and supply curves for a product. Which area represents the total amount that consumers would be prepared to pay for the equilibrium level of output?

Cross elasticity of demand

In which situation is the price system not a possible method for allocating resources?

Resource allocation in different economic systems

A town council made estimates of the costs and benefits of running a bus service in 2010 and 2011. These are shown in the table. What conclusion can be drawn from the table?

Maximum and minimum prices

A cost-benefit analysis suggests that a nuclear power station project could be socially worthwhile, even though it would take 10 years to become operational. Why might a government choose not to carry out the project?

Scarcity, choice and opportunity cost

A good is more likely to be provided by the government rather than a private company if it is

1.6

A government sets a ceiling price for a product so that more of it is consumed. What is the most likely result of this policy?

Maximum and minimum prices

The diagram shows S1S1 and DD as the original supply and demand curves for an agricultural product. Bad weather then lowers supply to S2S2. If the government aims to hold the price at OP1, how much of the product will it need to provide from stocks?

Maximum and minimum prices

What could cause a country to lose its comparative advantage in rice production?

International trade and free trade

An economy has shifted from a command economy to a market economy. What could rise after this change?

Resource allocation in different economic systems

The diagram illustrates the effects of imposing an import tariff on wheat in a country. Which area shows the fall in consumer surplus caused by the tariff?

Maximum and minimum prices

Which of the following is a characteristic of a customs union?

Protectionism

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

6.3

The table presents a country’s employment statistics. What are the participation rate and the unemployment rate?

Monopolistic competition

The table presents the UK’s annual inflation rate from 2005 to 2010, as measured by the retail price index (RPI) and the consumer price index (CPI). What is a correct conclusion from the table?

Balance of payments

The diagram illustrates the country’s annual inflation rate from 2006 to 2009. Which statement about the 2006 to 2009 period is correct?

Balance of payments

If a country manages to attract foreign direct investment in a single year, what effect does this have on its balance of payments in the short run and the long run?

6.3

Country X makes 60% of its trade with country Y and the remaining 40% with country Z. Its trade weighted exchange rate index initially stands at 100. If its currency loses 20% of its value against the currency of Y and gains 10% against the currency of Z, what would the new trade weighted exchange rate index value be?

6.4

Suppose the Chinese monetary authorities are determined to keep the exchange rate of China’s currency, the Yuan, against the US$ somewhere between P1 and P2 on the diagram. What action might they take if supply shifted from S1 to S2?

6.4

A revaluation (appreciation) in the exchange rate of a currency always causes

6.4

Which outcome is most likely to arise from the division of labour?

7.5

What does the term expenditure-switching policy measure refer to?

Labour market

Once hyperinflation had occurred, the Zimbabwe dollar was no longer in use and the country used US dollars instead. A coin collector in Europe purchased an old Zimbabwe 100 trillion dollar note at an auction, hoping that it would later become scarce and rise in value. If this were to happen, which function of money would the Zimbabwe dollar note serve?

Oligopoly

In 2009, why might demand for used cars in Venezuela have risen?

Demand and supply curves

The price elasticity of demand for a product is unitary across all price ranges. What effect will a rise in its price have?

Price elasticity of demand

When the price of cars falls, demand for petrol increases by 20%. The cross-elasticity of demand between cars and petrol is –2. What change in car prices has led to this result?

Price elasticity of demand

During 2008, Ansell, the producer of surgical products and rubber gloves, saw profits rise by 2.6 %, in part due to greater concerns about safety and health in Brazil, Mexico, China and Russia. What would happen to the demand and supply curves on a diagram for Ansell’s products?

Demand and supply curves

Which combination of price and quantity will cause price to fall and quantity produced to contract until equilibrium is reached?

Income elasticity of demand

A government minister says that the principal economic advantage of placing a new factory in a coastal region is the 500 jobs that it will generate. What does this suggest about the coastal region?

Price stability and inflation

Firm Z is one of several firms making televisions. What would lead to firm Z’s supply curve moving to the left while the market supply curve for televisions moves to the right?

Demand and supply curves

A country’s government announces that the penalties for anyone convicted of supplying an illegal drug to other people will be raised, but that having small amounts of the drug for personal use will no longer count as an offence. What effect are these changes likely to have on the illegal market price of that drug and on the quantity consumed?

Income elasticity of demand

A specific tax is levied on each bottle of perfume sold. In the diagram, SS shows the supply curve before tax, while StSt shows the supply curve after tax. Which area shows the part of the tax revenue borne by consumers?

Maximum and minimum prices

The diagram illustrates how the number of passengers changes when a company lowers the fare for a train trip from OP1 to OP2. Which areas represent the consumer surplus at the new fare for the original passengers and for the extra passengers?

Cross elasticity of demand

Which option is not an example of an externality?

7.4

A government chose to give approval to a private airport-construction project because it was socially beneficial. When reaching its decision, it worked out private costs of $700 m, private benefits of $800 m and external costs of $200 m. What must have been true about the external benefits of the project?

7.4

When a tax on a product is removed, supply rises from SS to S1S1 as shown in the diagram. What effect does this change have on government tax revenue and consumer expenditure?

Maximum and minimum prices

Which form of government intervention may create shortages?

Maximum and minimum prices

In the diagram, D shows the demand curve for an agricultural commodity, while S represents the original supply curve. The government undertakes to keep farmers’ incomes at no less than this starting level. The harvests in the four later years are represented by the supply curves S1 – S4. In which years will the government have to pay additional income to farmers?

Maximum and minimum prices

The table gives the production costs for one unit of food and one unit of clothing in countries X and Y, stated in each country's own currency. country X: food $2, clothing $4; country Y: food £1, clothing £1. The exchange rate is fixed at £1 = $3. At what transport cost per unit of each commodity would the gains from trade be completely removed?

International trade and free trade

The diagram illustrates two production possibility curves (EF and GH), shown before and after technological progress has occurred. Once technological progress has occurred, what is the opportunity cost, in capital goods, of producing OX consumer goods?

Production possibility curves

Which objective is most likely to be pursued by a government that raises tariffs on imported manufactured goods?

Protectionism

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

Protectionism

From 2000 onwards, a country’s export prices have risen by an average of 50%, while its import prices have risen by 25%. What is the country’s current terms of trade figure (2000 = 100)?

6.3

The table shows information about unemployment rates and spending on unemployment benefits in the United Kingdom in 2007 and 2009. 2007: unemployment rate 2.7%, expenditure on unemployment benefits as % of GDP 1.6. 2009: unemployment rate 4.7%, expenditure 3.4% of GDP. What can definitely be concluded from the table?

Price stability and inflation

The Mexican peso’s exchange rate relative to the US$ moved from 10 pesos = 1 US$ to 9 pesos = 1 US$. In the same time span, Mexico’s general price level decreased by 10% while the US price level stayed unchanged. How did the nominal and real exchange rate of the peso against the US$ change?

6.4

The table presents index numbers of prices for 2009 to 2012. In the base year 2008, inflation was 2% per annum. In which year did the inflation rate first fall?

Balance of payments

What is likely to happen to demand-pull inflation and cost-push inflation if indirect taxes rise?

Economic growth

At what point is a balance of trade deficit likely to be regarded as a especially serious problem for a country?

6.3

The graphs illustrate how the exchange rates of the £ sterling against the US$ and against the euro change. The exchange rate of sterling against the euro is represented using an inverted scale. Which statement about the period from year 1 to year 3 is correct?

6.4

In spring 2011 the US$ was exchanged at 81.6 yen. In spring 2012 the US$ was exchanged at 76.1 yen. What would be expected to increase for the United States as a result of this change?

6.4

The table presents indicators for four countries moving towards a market economy. Which country has met the greatest number of indicators of a successful transition?

Trade unions

A country that operates a fixed exchange rate records a balance of payments surplus. Which policy action would allow it to keep its exchange rate at the intended level?

Labour market

A kitchen manufacturer wanted to improve efficiency. It chose to relocate to an industrial estate and raise the division of labour used in making its products. Which statement about the division of labour is correct?

7.7

What would lead to a shift in the demand curve for a computer?

Demand and supply curves

When the price of maize goes up, the quantity of maize demanded is expected to decrease. When demand for maize falls, the price of maize is expected to increase. What can be said about these two statements?

Demand and supply curves

If the supply of a good falls, the equilibrium price remains unchanged. What is the price elasticity of demand of the good?

Price elasticity of demand

The product is an inferior good and has no close substitutes. It also acts as a complement to good X. Which product fits this description?

1.6

The supply curve is given by the equation, quantity supplied = 10 + 5P, where P is the price of the product. What rise in price would make the quantity supplied double?

Demand and supply curves

What is likely to happen when an economy changes from state planning to a market system?

Resource allocation in different economic systems

Palm oil and sunflower oil are substitutes. Palm oil and palm kernel cake for animal feed are in joint supply. If all other factors stay the same, what effects will a fall in the price of sunflower oil have?

Income elasticity of demand

An increase in the price of a good is followed by a larger quantity demanded. What might account for this?

Demand and supply curves

A specific tax is charged on the sale of bottles of lemonade. In the diagram, SS shows the supply curve before the tax is introduced and StSt shows the supply curve after the tax has been added. Which distance shows the specific tax per bottle?

Maximum and minimum prices

The diagram illustrates a consumer’s demand curve for a product. How does consumer surplus change as the product price falls in $5 increments from $20 to $5?

Cross elasticity of demand

The table below presents the results of a government survey on the economic impact of chewing gum use in a country. What is the net external benefit of chewing gum to the economy?

7.4

Which statement concerning a product that creates external costs must be true?

7.4

The government purchases additional speed cameras from the manufacturer. Which of the following would count as an external benefit of installing more speed cameras on a country’s roads?

7.4

Improvements in technology are causing several goods that are commonly regarded as public goods, such as television broadcasting, to become private goods. Why could this happen?

Behavioural economics

The diagram illustrates the market for wheat. If the government wants to set the price at OP2, what quantity of wheat will it need to buy?

Maximum and minimum prices

From the diagram, JK represents the country’s production possibility curve. LK is the trading possibility curve, showing the combinations of good X and good Y it can obtain after specialising in the product for which it has comparative advantage and then trading that product. The country consumes OR of good X and OT of good Y. What quantities of goods X and Y does it produce?

Production possibility curves

The diagram illustrates a production possibility curve for an economy that makes only two goods, X and Y. The economy produces 400 of good Y and operates on its production possibility curve. Which quantity of good X is forgone?

Production possibility curves

Which factor would be least likely to limit international trade?

Protectionism

A country’s terms of trade rose from the base year figure of 100 to 120 in the next year. What changes in export prices and import prices could have led to this?

6.3

The balance of payments accounts are presented as follows. Which total represents the current account balance? (balance of trade in goods + balance of trade in services = total A; + net income = total B; + net transfers = total C; + capital balance = total D; financial balance; errors and omissions)

6.3

In a country where the population is 100 million, 60 million people are of working age and 50 million are in the labour force. If the unemployment rate stands at 10%, how many people have jobs?

Price stability and inflation

The diagram illustrates an economy’s output (AS and AD curves). What effect would a fall in net exports have?

Economic growth

A country had an annual inflation rate of 2% over four consecutive years. Which statement is correct for that four-year period?

Balance of payments

In 2010 it was noted that worries arose when a government left interest rates very low even though inflation was a threat. Why may the government’s policy have been a cause for concern at that time?

Monetary policy

As Australia’s spending on imports decreases and, at the same time, investment overseas by Australian firms also drops, which diagram illustrates the immediate impact of these changes on the market for the Australian dollar?

6.4

Which policy, introduced by a government with the aim of lowering the inflation rate, could result in a larger deficit on the balance of payments?

Monetary policy

Which action is likely to cause a rise in a country’s balance of payments deficit (disequilibrium) in the short run, but could lessen it in the long run?

Wage determination

During the recession of 2011, some governments chose to cut spending and reduce the number of people employed in the public sector. Trades unions arranged a large demonstration in protest. Which question about the government decision is normative rather than positive?

Economic methodology

A decline in the exchange rate of the pound sterling against the US dollar from £1 : $1.50 to £1 : $1.00 must indicate that

6.4

The table sets out the functions of money and the main advantage that each one gives. Which function of money is paired correctly with its main advantage?

Oligopoly

Which change does not immediately affect the position of a product’s demand curve?

Demand and supply curves

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

Demand and supply curves

What could cause a product to have a high negative income elasticity of demand and a high price elasticity of demand?

Price elasticity of demand

The supply function for good X is represented by QS = 10PX, where PX denotes the good’s price and QS represents the quantity supplied. What conclusion can be drawn from this equation about the elasticity of supply of good X?

Price elasticity of supply

Three businesses (X, Y and Z) provide goods to a market. The table lists how much each supplies at four separate price levels. What change in price is needed for market supply to fall to half its original level?

Demand and supply curves

Describe China’s changing contribution to global REE production between 1950 and 2012.

Maximum and minimum prices

Explain why the free market fails to arrive at the correct price for merit goods and demerit goods.

Government intervention in markets

Explain how unemployment and inflation are measured.

Economic growth

In a world with two countries, one nation may produce one product more efficiently, while the other nation may produce a different product more efficiently. Explain why specialisation and trade usually bring gains to both countries.

International trade and free trade

Give two reasons why palm oil matters for the economy of Malaysia.

Income elasticity of demand

Explain this statement and, with the help of a diagram, show how price rations scarce goods when there is an increase in the costs of production.

Income elasticity of demand

Define the components of aggregate demand and, using a diagram, explain how a rise in spending in an economy could lead to inflation.

Economic growth

Explain the meaning of the term ‘protection’ in the context of international trade, and describe two methods of protection used by governments.

Protectionism

Use the data to estimate the price elasticity of supply of scrap gold between 2003 and 2009 and say whether it is elastic or inelastic.

Price elasticity of supply

Using a diagram, explain the ways in which a production possibility curve can demonstrate opportunity cost and economic growth.

Production possibility curves

Explain, using economic analysis, how economists determine whether goods are substitutes or complementary goods.

Price elasticity of demand

Explain how a change in a country’s exchange rate might reduce a deficit on the current account of its balance of payments.

Wage determination

When equal pay legislation is introduced in a country, the wages of female workers rise. What is the most likely consequence of this increase?

Long-run costs and economies of scale

When a perfectly competitive industry is taken over by a profit-maximising monopoly, the monopolist’s marginal cost curve coincides with the supply curve of the perfectly competitive industry. What changes occur to output and price?

7.6

A firm makes supernormal profit when its profit is

7.5

The diagram illustrates an industry’s supply and demand curves. At first, the government limits output to OQ. This output restriction is then lifted. Assuming there are no externalities, which area on the diagram shows the net increase in economic welfare?

Cross elasticity of demand

A country operates a negative income tax. In the diagram, the curve NT represents the country’s original tax schedule. If a change in the tax rate shifts the schedule to NT1, what is the most likely effect on incentives and on equity?

Short-run costs

What changes to real GNP per head could make it a more dependable measure for comparing living standards across different countries?

National income statistics

Which set of conditions is most likely to cause a country’s budget deficit to rise?

Fiscal policy

Which option correctly identifies injections into a country’s circular flow of income?

Perfect competition

In a closed economy with no government, the marginal propensity to consume is 0.9. Full employment national income equals $60 000 m, while current national income stands at $40 000 m. By what amount must investment rise in order to reach full employment?

Economic growth

The diagram shows how a rise in the growth rate of national income can bring about a further rise in national income. What should be added to the diagram at points 1, 2 and 3?

Unemployment

What will happen if interest rates rise?

Monetary policy

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 = 2 units of utility. What is the greatest quantity of the good that the individual will purchase when the price is $6?

Utility and rational consumer behaviour

Under which situation will a rise in the public sector deficit fail to cause any increase in the money supply, assuming all other factors remain unchanged?

Fiscal policy

What does liquidity preference mean?

Oligopoly

Which combination is typically found in developing countries?

11.4

Which labour-market data trend would be most likely to show a rise in cyclical unemployment? (changes in compulsory redundancies / voluntary resignations)

Price stability and inflation

What would an economist consider when applying social cost-benefit analysis to evaluate policies intended to lower the level of unemployment?

7.4

The diagram depicts the short-run trade-off between a country’s inflation rate and its national output level. What might make the curve move to the left?

Balance of payments