Feb/March 2016

An individual has a meeting scheduled with his bank manager. He can either go to the meeting in his car, or keep the car at home and make the journey by bus followed by train. The journey costs are shown below. $ bus fare 2 train fare 3 car parking charge 4 petrol 2 car wear and tear costs 1 Using this information, what is the opportunity cost to the individual of going by car instead of by bus and train?

Scarcity, choice and opportunity cost

The demand for tablets rises, while the cost of making them falls. What effect will this have on the price of tablets and on the quantity supplied?

Income elasticity of demand

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

Maximum and minimum prices

In which market would equilibrium not be reached at point E if price were above Op?

Income elasticity of demand

A company made a garden open to the public and asked visitors to pay to enter. The government later awarded a grant to improve the garden, provided that admission was made free. What would be the outcome of the government’s action?

Maximum and minimum prices

The diagram presents the percentages of people on low pay and those on extremely low pay in the UK from 1976 to 2012. A national minimum wage was introduced in 1999. Which conclusion is consistent with the diagram?

Maximum and minimum prices

A 10% tax is imposed on a good. Which type of product would be most likely to experience the greatest effect on its equilibrium price as a result?

Price elasticity of demand

During 2009, the Australian government paid $900 to people earning under $100 000 each year. What would be the effect of this transfer payment called?

Fiscal policy

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

Maximum and minimum prices

Under a privatisation policy, a government removes regulation from bus services and transfers its publicly owned bus services to the private sector. Which outcome is least likely to happen after these changes?

Law of diminishing returns

A government chose to cut income tax and raise sales tax. The starting equilibrium is marked by X on the aggregate demand (AD) and aggregate supply (AS) diagram. Which equilibrium point would result after these tax changes?

Fiscal policy

What proves that scarcity exists?

Scarcity, choice and opportunity cost

The table presents data for an economy. 2010 2011 2012 2013 2014 Gross Domestic Product (GDP) at current prices ($ billion) 200 220 240 300 320 GDP deflator (price index) 100 109 125 149 154 In which year did real GDP fall compared with the previous year?

National income statistics

What is always the effect when the Consumer Price Index rises?

Balance of payments

What would show that a country is experiencing a fundamental balance of payments disequilibrium?

6.3

Currently, 1 unit of a country’s currency is worth US$1.20. The country wants to fix its exchange rate at US$1.00. Which mix of government measures in the foreign exchange market must be used to achieve this aim?

6.4

The diagram illustrates the exchange rate of the UK£ measured against the US$. The initial equilibrium exchange rate is shown at X. What will the new exchange rate equilibrium of the UK£ be after UK interest rates rise?

6.4

A country’s terms of trade rose from a base year index of 100 to 120 in the following year. If export prices had risen by 50%, by what amount did the price of the country’s imports change?

6.3

For each country, P and Q, one person is able to produce either the quantity of X or the quantity of Y indicated. In which situation does country P have absolute advantage in producing Y and country Q have comparative advantage in producing X?

International trade and free trade

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

Protectionism

What would an expansionary fiscal policy cause to rise?

Fiscal policy

Policies that a government could adopt to cut a deficit on the current account of the balance of payments include devaluation, cuts in government spending, higher interest rates and tariffs on imports. Which two of these policies would be regarded as expenditure-switching?

Labour market

The diagram illustrates the production possibility frontier for a desert island economy in which the inhabitants depend on only two commodities, coconuts and fish. What accounts for the shape of the production possibility frontier?

Production possibility curves

During March 2014, Sweden recorded a change of –0.6% in its Consumer Price Index. Which mix of policies could the government adopt to bring back price stability?

Fiscal policy

In 2014, an outbreak of ebola, a deadly disease, occurred in West Africa. People received advice from hospitals, radio broadcasts and roadside notices on how to stop the disease spreading. What category do these sources of information belong to?

1.6

If the price of a good goes up and the quantity demanded also increases, what might account for this?

Demand and supply curves

What would cause the demand curve for an inferior good to shift rightward?

Price elasticity of demand

Within a town, bus fares are reduced by 50% and bus usage rises by 30%. Car use is affected only slightly, with a decrease of just 1%. What is the value of the cross-elasticity of demand between car travel and bus travel?

Price elasticity of demand

The diagram shows the rectangular hyperbola, DD, as a firm’s demand curve. What can be deduced from it?

Price elasticity of demand

What does price elasticity of supply mean?

Price elasticity of supply

Compare the trend in crude oil price from April 2014 to June 2014 with the trend from June 2014 to September 2014.

Price elasticity of demand

Explain, with examples, why the prices set for merit goods and demerit goods in a free market do not match the value to consumers.

Maximum and minimum prices

Explain two factors that are likely to make the supply of a product relatively price-inelastic.

Price elasticity of supply

Outline the components of aggregate demand and explain one cause of an increase and one cause of a decrease in aggregate demand in an economy.

Economic growth

What is one example of market failure?

Behavioural economics

A monopolist switches its aim from maximising sales revenue to maximising profit. On the diagram, which areas show the monopolist’s total profit?

7.5

Which of the following is an external economy of scale?

7.7

The diagram illustrates a firm’s total revenue curve. Which statement is correct at the curve’s peak point?

7.5

A labour supply curve that slopes backward is one in which, after a particular point, the supply of labour

Long-run costs and economies of scale

The diagram illustrates a firm’s average physical product of labour and marginal physical product of labour curves. What conclusion can be drawn from the diagram?

Factors of production

Labour is the sole variable factor for a profit-maximising firm that is a price taker in the labour market. What is the basis from which the firm’s demand curve for labour is derived?

Long-run costs and economies of scale

Which government policy has increased equality as one of its consequences?

Short-run costs

Which government policy used to reduce the effects of income inequality is paired correctly with one of its benefits and one of its drawbacks?

Taxes and subsidies

A government may use personal disposable income per head as an indicator of the standard of living. What does this measure fail to include?

National income statistics

The table presents estimates made when the train drivers’ strike had ended. $ (000s) revenue lost from train journeys 600 value attributed to the extra leisure time of the strikers 20 government tax revenue lost 40 overtime pay for police 30 By how much did the strike reduce the measured level of national income?

National income statistics

For what reason would an economy want to achieve economic efficiency?

Behavioural economics

The table shows the percentage of employment in the primary, secondary and tertiary sectors in four countries. Which of the four countries is most likely to be a developed country?

11.4

In what ways could outward migration from a developing economy influence its balance of payments?

6.3

What type of unemployment could result from a global fall in demand for electronic goods?

Price stability and inflation

Which labour market data pattern is most likely to suggest an increase in cyclical unemployment? alterations in compulsory redundancies / voluntary resignations

Price stability and inflation

A country's central bank produces cash in order to buy government bonds from commercial banks. What is this known as?

Monetary policy

An increase in the curve linking consumption and national income could be brought about by

Economic growth

The table presents some information about an economy. At what point are injections and withdrawals in equilibrium?

Aggregate demand and aggregate supply

Which policy is most likely to clash with a government’s objective of price stability?

Fiscal policy

Which option is not a supply-side policy measure?

Supply-side policy

At what point is a government's success in securing economic growth most likely to clash with its aim of cutting a balance of payments surplus?

Market failure

What effect will there be if a firm is charged a tax equal to the external costs that it creates for the rest of society?

7.4

The diagram provides information on the British Government’s projected expenditure and receipts for 2010–2011. All figures are in UK £bn. What conclusion can be drawn from the diagram?

Fiscal policy

The present allocation of goods between two people in a two-person economy, given the technology and resources available, is shown at point X. Using the Pareto criterion, which point would certainly show a rise in allocative efficiency?

Behavioural economics

What is meant by the transfer earnings of the factor enterprise?

Factors of production

The diagram illustrates two indifference curves together with two budget lines for goods X and Y. The starting point is P. The movement from P to R represents a substitution effect. The movement from R to S represents an income effect. What kind of good is good X?

Indifference curves and budget lines

What explains why, in long-run equilibrium under monopolistic competition, firms earn only normal profits?

7.6

A business has fixed costs of $300 and is able to make two units per hour. Its total variable costs amount to $200 for one unit and $300 for two units. Which cost decreases by the smallest amount when the second unit is produced?

7.5

Which mix of characteristics is likely to be present in nearly all high-growth firms?

7.7

What evidence is given in the information for the statement that youth unemployment has been ‘hit hardest’?

Price stability and inflation

‘The most effective way to raise economic welfare is to encourage competition in a market system.' Consider whether you agree with this view.

7.6

‘If a firm is facing diminishing returns and diseconomies of scale, its output has to be falling.' Explain whether this statement is true.

7.5

Discuss how wage rates are determined in a perfect market.

Long-run costs and economies of scale

Consider whether the chief cause of economic growth is a rise in population, and therefore in labour supply.

Unemployment

Assess the ways in which changes in interest rates may influence investment.

Monetary policy

Discuss how dependable the indicators used to measure the standard of living are, and also assess what policies a government might use to try to raise the standard of living in its country.

Efficiency