Oct/Nov 2015

Which characteristic of travelling by road would appear in a mixed economy but not in a pure market economy?

Resource allocation in different economic systems

An industry that makes textbooks and operates in a competitive market experiences a rise in demand for its product. Which diagram shows the short-run effect of this rise in demand on the industry?

Income elasticity of demand

The table sets out the demand and supply schedules for red peppers. At first, the equilibrium price stands at 15 cents per kilogram (kg). The government gives producers a subsidy of 10 cents per kg. What is the new equilibrium price?

Maximum and minimum prices

An eighteenth-century clockmaker produced 12 identical clocks in total. At present, only three collectors of these clocks exist: X, Y and Z. The diagram displays their demand curves. X, Y and Z each begin with 4 clocks. They meet to trade among themselves. At the market clearing price (or equilibrium price), which statement is correct?

Income elasticity of demand

The diagram illustrates the European airline market. New entrants have entered the market, causing supply to move from S1 to S2. Which area shows the new producer surplus?

Cross elasticity of demand

Which option would be least likely to create an external benefit?

7.4

Which statement is true?

Economic methodology

A government has enough funds to finance two transport projects. It must choose from four projects, each of which has a social cost of $200 million. The table lists the benefits of the projects. Which two projects should the government select?

Scarcity, choice and opportunity cost

Which factor would make it most likely that road tolls reduce traffic congestion?

Maximum and minimum prices

The diagram illustrates the demand curve for an agricultural commodity with unitary elasticity. S1 is the supply curve when there is a bad harvest, while S2 is the supply curve when there is a good harvest. What action should the government take to ensure that farmers' total revenue stays unchanged?

Income elasticity of demand

An economy makes two goods, X and Y. In the diagram, line ML is the economy’s production possibility curve, while line MN is its trading possibility curve. What is shown by the diagram?

Production possibility curves

The diagram illustrates a production possibility curve for an economy that makes only two goods, X and Y. The economy produces 800 of good Y and is operating on its production possibility curve. Which amount of good X is sacrificed?

Production possibility curves

A group of people in a country launch a campaign supporting free trade because they think it will help the economy. Which argument in support of free trade is least likely to be included in their campaign?

Protectionism

The table is about one specific country. Which statement about the period from 2005 to 2015 is correct?

Unemployment

A foreign government funds a UK university to teach its students. How should this be shown in the current account of the UK balance of payments?

6.3

In a recession, when national output dropped sharply, the rise in unemployment in an economy was far smaller than anticipated. What could have explained this?

Price stability and inflation

The diagram illustrates an economy’s aggregate demand and aggregate supply curves. In what way are these curves likely to change after a natural disaster that wipes out a large share of the economy’s resources?

Economic growth

Which factor is most likely to lead to cost-push inflation in an economy?

Economic growth

The table presents the consumer price index (CPI) for a country. What conclusion can be drawn from the table?

Balance of payments

A company from Japan sets up a factory in the UK so that it can provide goods for both the UK market and markets elsewhere in Europe. What is likely to be the long-run effect on the UK’s balance of trade in goods and its current account balance?

6.3

In the diagram, the foreign exchange market begins at equilibrium at X. After demand from US residents for European consumer goods falls, what might the new equilibrium position be?

6.4

Without any compensating changes, what is most likely to rise if a country’s exchange rate appreciates?

6.4

Within the diagram, GH shows an economy’s original production possibility curve. What might lead the curve to shift to JK?

Production possibility curves

Tourism is regarded as a useful means of raising net export earnings. An economy regards luxury tourism, such as wildlife safaris and cultural tours, as having demand that is very price-inelastic. If this is correct, which change is most likely to raise the export revenue this economy earns from luxury tourism?

Price elasticity of demand

In June 2013, unemployment among young people in Spain was 56.1%. Youth unemployment in Spain should be lowered. Which option correctly classifies these two statements?

Economic methodology

A government sought to raise car sales by offering consumers $3000 if they scrapped any car more than 10 years old and bought a new one. How would this be represented on a demand and supply diagram for new cars?

Maximum and minimum prices

Good X and good Y are jointly supplied. In what situation would an increase in the supply of good X leave the price of good X unchanged?

Price elasticity of demand

A businessman had planned to take out a loan of $5000 at an interest rate of 8% per year. After the interest rate increased to 10% he decided to borrow only $4000. In what range does his interest elasticity of demand for loans fall?

Price elasticity of demand

Which factor does not remain unchanged when individual firms’ supply curves are combined to produce the short-run market supply curve?

Demand and supply curves

In the diagram, S1 shows the original market supply curve for good X. What might make the curve move to S2?

Demand and supply curves

Which question does not make direct reference to the basic economic problem?

Scarcity, choice and opportunity cost

Which business is most likely to be the slowest to adjust its output when demand for its product remains higher for a prolonged period?

Price elasticity of supply

In one year, 12 000 units of a product are sold at $1 per unit. In a later year, 14 000 units are sold at $1.20 per unit. If consumer tastes have stayed unchanged, what might explain the difference between the two years?

Income elasticity of demand

The diagram illustrates the demand and supply curves for petrol (gas). The starting equilibrium is at X. Which could be the new equilibrium if the price of cars fell sharply?

Demand and supply curves

The diagram illustrates one person’s demand curve for a commodity. The supplier sets a unit price of OP, but buyers must currently buy at least OQ. Which area or areas in the diagram represent the net increase in consumer surplus after the minimum purchase requirement is removed?

Cross elasticity of demand

During 2011, the Health Ministry of a country urged parents to vaccinate their children against measles. Taking the vaccine was optional, and no payment was required. To finance the programme through taxation, the government stopped other projects because research showed that the vaccine helped the wider community by stopping the spread of a serious disease. Which concepts are implied in the statement above?

7.4

A gardener plants bamboo in order to make the roadside look more attractive. The bamboo spreads into his neighbour’s garden, and the neighbour then gets rid of it using a chemical spray. What cannot be concluded about what happened as a result of the planting?

7.4

A cost-benefit analysis for a planned underground railway gave the following figures. (annual costs and benefits $ million) annual capital cost 10; operating and maintenance costs 3; fare revenue 6; savings to private travellers 5; savings to business 10; other economic benefits 7. What conclusion can be drawn from the figures?

7.4

Which of the following is the clearest example of something that used to be a public good but later became a private good?

1.6

The diagram illustrates the market for onions when it is in equilibrium at point X. The government possesses a stock of onions and wishes to create a new equilibrium at point Y. Which actions ought the government to take?

Maximum and minimum prices

The diagram shows the production possibility curves for countries S and T, which produce goods X and Y. Countries S and T each specialise in the good for which their opportunity cost is lower. They then trade with one another at a ratio of two good X to one good Y. What is one possible set of goods that country S could consume after specialisation and trade?

Production possibility curves

The diagram illustrates how an economy’s production possibility curve changes as it expands over the long term. Which movement starting from point X is most likely to indicate the greatest growth potential?

Production possibility curves

What is the most likely reason that Pakistan may choose to lower its barriers to imports?

Protectionism

In the Barbados market, a given good could be supplied either by domestic producers, by producers in Trinidad & Tobago, or by producers in the USA, at the prices listed in US dollars. (Barbados $1.00; Trinidad & Tobago $0.85; USA $0.75). At first, Barbados imposed a 20% ad valorem duty on imports coming from Trinidad & Tobago and the USA. Barbados later entered into a customs union with Trinidad & Tobago, together with a common external tariff, which was also 20%. From which countries would Barbados import the good before the customs union was created and after the customs union was created?

Protectionism

A car producer from Japan set up a profitable factory in France. In the Japanese balance of payments, how would this be recorded?

6.3

The graph illustrates how unemployment rates changed in countries X, Y and Z from 2000 to 2010. Each of the three countries experienced recession from 2008 to 2010. Which conclusion can be reached from the graph about 2000 to 2010?

Price stability and inflation

Which supply-side policy is most likely to lead to short-run growth in a country's aggregate supply?

Supply-side policy

An economy is facing cost-push inflation that is increasing more rapidly. Which group is most likely to be the least concerned about this?

Balance of payments

The table presents the Consumer Price Index (CPI) for a country across the years 2008–2013 (2008:100; 2009:104; 2010:102; 2011:105; 2012:108; 2013:111). Which statement about the period 2008 to 2013 is correct?

Balance of payments

When world demand for oil was very strong, Bolivia promoted investment from foreign companies so that its oil and gas resources could be developed. What overall effect would this have on Bolivia’s balance of payments?

6.3

In an economy that operates a fixed exchange rate, the current account deficit of the balance of payments rises. What is most likely to rise as a result?

6.3

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

6.4

The diagrams illustrate how a country’s production possibility curve changes from Year 1 to Year 2. What conclusion can be drawn from the diagrams?

Production possibility curves

During a recession, a government chose to sell a state-owned industry that was making a loss to a foreign private company. What is the most likely short-term outcome?

Labour market

Which term do economists use for the income earned by the factor of production enterprise?

Factors of production

The diagram shows the demand curve for housing. Which factor is not assumed to stay unchanged when this curve is drawn?

Demand and supply curves

Which of the following does not move the demand curve for cars to the right?

Demand and supply curves

After the price of good X rises by 5%, an individual raises the share of his income spent on good X from 2% to 3%. If nothing else changes, what conclusion can be drawn about the individual’s demand for good X?

Price elasticity of demand

The cross-elasticity of demand for good X with respect to good Y is –0.5. What conclusion can be drawn from this?

Price elasticity of demand

The diagram depicts a supply curve for beef. What is the reason that the supply curve for beef rises as it slopes upward?

Demand and supply curves

A country’s production possibility curve shifts from XX to YY, as shown in the diagram. What might have led to this change?

Production possibility curves

A product has a high price elasticity of supply. What could account for this?

Price elasticity of supply

The market for onions is in equilibrium. A disease affects the onion crop, and new health benefits of eating onions are discovered. Which combination of changes in demand and supply corresponds to these events?

Income elasticity of demand

The diagram illustrates a competitive market in equilibrium at price P and quantity Q. Which region represents consumer surplus, and which region represents producer surplus?

Cross elasticity of demand

The diagram illustrates the demand and supply curves for a good. The government sets a maximum price of OP1. What would happen?

Maximum and minimum prices

People who pass by a bakery often say that they enjoy the smell of bread that has just been baked. What is this an example of?

7.4

At what point would cost-benefit analysis clearly show that a government project ought to be approved?

Maximum and minimum prices

The table provides details about the 2011 Australian Grand Prix in Australian dollars (AUD). What was the worth of the welfare outcome from staging the Australian Grand Prix?

Cross elasticity of demand

Which of the following statements is correct?

Economic methodology

The diagram illustrates the demand and supply curves for a good. The government imposes a minimum price of OJ for the good. How will this influence the producers and consumers of the good?

Maximum and minimum prices

The table sets out each worker’s annual production in three countries. Because there are no trade barriers and no transport costs, and specialisation is based on opportunity cost, which country will export each product?

International trade and free trade

What might account for the fact that, in the short term, a shift from a planned economy to a market economy often leads to a fall in national output?

Resource allocation in different economic systems

What factors may restrict the benefits a country gains from taking part in international trade?

Protectionism

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

Protectionism

Trade relations between two countries have passed through four stages. During which stage was a customs union set up?

International trade and free trade

The table shows the youth unemployment percentages and the overall unemployment percentages for France and the UK in 2001 and 2005. What conclusions can be drawn from the table?

Price stability and inflation

The diagram illustrates the initial aggregate demand curve, AD1, together with the initial aggregate supply curve, AS1. What will be the new equilibrium if there is a decline in the country’s exports and a rise in government subsidies to firms?

Economic growth

In June 2013, the Governor of the Bank of Namibia stated that the Central Bank’s lending rate would stay low for as long as inflation stayed low. What would not create a risk of inflation?

Balance of payments

The capital value of a non-interest bearing asset is linked to an index. In a time of inflation, how will its money value and its real value alter?

Balance of payments

For many years, Japan recorded a current account surplus, but this later changed to a current account deficit. What could account for this change?

6.3

How is the volume of exports and imports likely to change if a country that has a fixed exchange rate has a higher inflation rate than its trading partners?

6.4

The graphs illustrate how the exchange rates of the £ sterling against the US$ and the Euro (€) changed between 2001 and 2003. What change occurred in the value of the £ sterling between 2001 and 2003?

6.4

The diagram illustrates a person’s marginal costs and marginal benefits from going to the cinema. How many trips will the person make?

Utility and rational consumer behaviour

A government lowers the value of its exchange rate. What is most likely to be its objective?

Labour market

Several changes take place in an economy. Engineers are offered online training, food-processing machinery is automated, profit taxes are introduced on information technology entrepreneurs and farmers receive subsidised fertilisers. Which factor of production is least likely to see an increase in productivity?

Factors of production

What is true of market demand?

Demand and supply curves

D1D1 represents a person’s original demand curve for public transport. What would make the demand curve move to D2D1?

Demand and supply curves

A theatre raises the price of its tickets from $5 to $10. As a consequence, its total revenue rises from $2500 to $4000. Between which values does the price elasticity of demand for theatre tickets lie?

Price elasticity of demand

The table illustrates how one person’s weekly purchases of biscuits and coffee change as income changes. Which statement about the income elasticity of demand across the income range shown is correct?

Price elasticity of demand

The diagrams illustrate changes in the market for a good. Which diagram(s) indicate an increase in the quantity supplied?

Demand and supply curves

(i) Calculate the percentage change in the price of cereals between 2011 and January 2014. (ii) Explain two possible reasons why the world price of cereals and the world price of dairy products moved in opposite directions between 2012 and January 2014.

Maximum and minimum prices

Explain, using the concept of income elasticity of demand, how a fall in incomes influences demand for inferior goods and necessary goods.

Price elasticity of demand

Using diagrams, explain the ways in which a falling exchange rate can result in both cost-push and demand-pull inflation.

Balance of payments

Explain how the efficient economy can gain from specialisation and trade with the less efficient economy.

International trade and free trade

Describe the movement in the value of the Indonesian rupiah from July 2009 to July 2013 shown in Fig.1.

6.4

A study reports that dark chocolate has a price elasticity of demand of (–)0.8 and that white chocolate has a price elasticity of demand of (–)1.4. Explain how chocolate producers could adjust price to raise total revenue for each type of chocolate.

Price elasticity of demand

Explain what the term ‘money’ means and outline its characteristics in a modern economy.

Oligopoly

In a two-country setting, one nation is more efficient at producing one product while the other nation is more efficient at producing a different product. Explain why specialisation and trade usually bring benefits to both countries.

International trade and free trade

Compare Canada’s current account balance in 2012 with the 2008 balance.

Protectionism

Explain the functions of price, enterprise and profit in a free market economy.

Resource allocation in different economic systems

Explain why defence and education services would not be supplied in enough quantity if the government did not supply them.

Government intervention in markets

Explain how a rise in the quantity of money in an economy and a fall in an economy’s exchange rate can each lead to inflation.

Balance of payments

An economy is described as economically inefficient when

Production possibility curves

When a firm acquires one of its chief rivals, what is likely to occur to the price elasticity of demand for the firm’s product, and how will the acquisition affect its average cost of production?

7.7

The diagram illustrates a firm's cost and revenue curves. At present, the firm seeks to maximise sales provided that it earns a normal profit. What effect will there be on price and output if it switches its objective to revenue maximisation while keeping the same minimum profit requirement?

7.8

Four bus companies account for more than two-thirds of the UK market and are alleged to have fixed prices on some routes while cutting prices temporarily on others to force competitors out. Which anti-competitive practices are they alleged to have used?

7.6

Which conditions would make collusion between firms in an industry more likely in order to maximise joint profits?

7.6

The diagram depicts an industry's supply and demand curves and the areas u, v, w and x. If there are no externalities, which area represents the net loss in economic welfare when the government limits output to OQ?

Cross elasticity of demand

Drivers travelling in area 1 have to pay an $8 congestion charge; people living inside the zone receive a 90% discount. If the congestion zone were expanded to cover area 2, which car journeys would fall?

Maximum and minimum prices

The government requires all young citizens to complete 6 months of community service at wages below market rates. What effect will this have on recorded GDP and on national welfare?

National income statistics

What has to follow from an increase in the supply of money if the income velocity of circulation stays unchanged?

Oligopoly

For years 1–3, the data provided are GDP at market prices and domestic spending figures (GDP: 630,650,680; private consumption: 460,470,480; government consumption: 140,160,170; gross investment: 20,30,50). In which of these years will the country have a balance of trade deficit?

6.3

The diagram shows the initial saving function moving from S1 to S2. If the saving function shifts to S2, what is the effect on marginal propensity to consume and the multiplier?

Economic growth

Using the total utility schedule (units: 1→20, 2→36, 3→50, 4→62, 5→72, 6→80) and the marginal utility of money $1 = 3 units of utility, what is the greatest quantity purchased when price = $4?

Utility and rational consumer behaviour

If output goes up by 2% and the quantity of money goes up by 5%, while velocity stays constant, what are the approximate percentage increases in the price level and in the money value of national income?

Oligopoly

The diagram illustrates three money supply curves (MS) and three liquidity preference curves (LP). The initial equilibrium is at X. Bank lending falls and people keep more money for precautionary reasons. What might the new equilibrium point be?

Oligopoly

Cuba attains health and education standards that are as high as those in developed countries, yet its 2005 HDI placed it 51st. What could account for its HDI figure?

11.4

In developing countries, which features are typically seen most often (saving ratio, capital-output ratio)?

11.4

From 2012 to 2014, national output declined by 2% whereas unemployment dropped from 6% to 4%. What might account for this?

Price stability and inflation

Table showing government revenue and expenditure (% of GDP) in 2000 and 2010 for four countries. Which country changed from a budget deficit in 2000 to a surplus in 2010?

Fiscal policy