Oct/Nov 2016

To raise output, a firm in industry X has to install capital equipment, whereas a firm in industry Y has to research and then introduce a new technology. Which time periods are shown by these examples?

7.5

A firm is currently making 100 units at a price of $10. The price elasticity of supply is 0.5, and the price is increased to $12. What is the new output level?

Price elasticity of supply

The diagram illustrates the coffee market in a small coffee-producing country. Domestic supply is Sd. Initially, the import supply curve was Sm1. A poor harvest that affects only other coffee-producing countries moves the import supply curve to Sm2. In what way will consumption and imports change as a result of the supply shift?

Income elasticity of demand

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

Resource allocation in different economic systems

The diagram illustrates the market for computers in Pakistan. What can be concluded about the size of consumer surplus?

Cross elasticity of demand

The diagram illustrates the demand and supply curves for a good. The government imposes a maximum price of OJ for the good. What effect will this have on the consumers and producers of the good?

Maximum and minimum prices

In a simple income tax system, income below $10 000 is untaxed. For income above $10 000, a tax rate of 30% is charged on all extra income. Which statement is correct for people who earn more than $10 000?

Maximum and minimum prices

The diagram illustrates possible demand and supply curves for college places in a country. The starting equilibrium is X. In order to raise the number of students in colleges, the government provides a subsidy to the colleges and also offers a cash grant to the students. What is the new equilibrium position?

Maximum and minimum prices

Which term is used for income earned by an individual without any corresponding contribution to output?

National income statistics

A government’s budget deficit was reduced. What could have led to this?

Fiscal policy

The diagram illustrates aggregate supply curves and aggregate demand curves for an economy. What is most likely to make the equilibrium position shift from X to Y?

Economic growth

For an economy that produces capital goods and consumer goods, the production possibility curve is shown by the line PQ. What is the opportunity cost of making OS of consumer goods?

Production possibility curves

The table indicates the proportion of a worker’s income that is spent on three categories of goods, together with the percentage increase in those goods’ prices over one year. During that same period, the worker’s money income increases by 25%. What is the effect on the worker’s real income?

Balance of payments

Over one year, the annual inflation rate turns negative. Which statement has to be true?

Balance of payments

What would lead to an immediate rise in the deficit on a country’s balance of payments current account?

6.3

The table presents the Canadian current account within the balance of payments for 2005 and 2006. Which item’s change made the biggest contribution to the shift from a surplus to a deficit in the Canadian current account balance between 2005 and 2006?

6.3

A fall in the exchange rate of the UK pound (£) against the US dollar ($), changing from £1 : $1.50 to £1 : $1.00, can only mean that

6.4

A country imposes no controls on foreign exchange transactions and lets its exchange rate float without intervention. What will always be zero?

6.4

The table shows the terms of trade index for Brunei Darussalam during 2009 to 2012. What conclusion can be drawn from the table?

6.3

The diagram illustrates an economy’s production possibility curve, PPC, and trading possibility curve, TPC. Why can the diagram not show the advantages of international trade?

International trade and free trade

Which government policy would raise aggregate demand?

Fiscal policy

Which policy would be the most effective for a country in cutting a balance of payments deficit?

Labour market

In the diagram, XY represents an economy’s production possibility curve. What might lead the curve to move to XZ?

Production possibility curves

Country X has an open economy and a fixed exchange rate. Which mix of fiscal and monetary policies would be most effective in bringing deflation to an end?

Externalities

Extremely heavy rainfall can often make houses flood. The government safeguards the area by using flood defence schemes, while households purchase sandbags to shield their houses. How would an economist classify these items?

1.6

The diagram illustrates demand for air travel in Asia. If air travel is a normal good, what might have led to the movement of the demand curve from D1 to D2?

Price elasticity of demand

Which factor does not cause the market supply curve of a commodity to shift?

Demand and supply curves

If a government levies a tax on a good, the equilibrium price increases by an amount equal to the tax. What conclusion can be drawn about the price elasticity of demand for that good?

Price elasticity of demand

What conclusion can be drawn about a product with an income elasticity of demand (YED) of –1.5 and a cross-elasticity of demand (XED) of +1.2 relative to another product?

Price elasticity of demand

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

Price elasticity of supply

The diagram illustrates a production possibility curve for an economy that makes only two goods, X and Y. The economy is producing 1200 of good X and is operating on its production possibility curve. What quantity of good Y is forgone?

Production possibility curves

What would cause the price elasticity of supply of a firm’s products to be greater?

Price elasticity of supply

The diagram illustrates the market for a luxury smartphone brand. The starting equilibrium is at point X. What is the new equilibrium after the price of batteries used by the smartphone manufacturer rises and consumer incomes increase?

Income elasticity of demand

In what circumstances would it not be possible to use price as a rationing mechanism?

Maximum and minimum prices

A government applies an indirect tax to a product whose demand and supply curves are normal. The tax raises $100 million. What impact will the tax have on the value of consumer surplus and producer surplus taken together?

Maximum and minimum prices

From the diagram, D represents the demand curve for an agricultural commodity and S shows the original supply curve. The government undertakes to keep farmers’ incomes at no less than this original level. The harvests in four later years are illustrated by the supply curves S1–S4. What total amount will the government have to pay to support farmers during the four later years?

Maximum and minimum prices

The diagram illustrates the supply and demand curves for a commodity. A government subsidy shifts the supply curve from S1 to S2. Which area represents the gap between the cost to the economy of producing the resulting rise in output (Q1–Q2) and the value that consumers assign to this increase in output?

Cross elasticity of demand

In the UK, planned public spending, apart from interest payments, is set at £679 billion for the fiscal year 2015–2016. The table breaks it down by category as follows: pensions 150, healthcare 133, education 90, defence 46, social security welfare payments 110, and other spending on goods and services 150. What total amount was allocated to transfer payments?

Fiscal policy

Which government policy could restrict the rationing function of the price mechanism?

Maximum and minimum prices

Which reason has frequently been given to support the privatisation of state enterprises?

Law of diminishing returns

A government intends to raise expenditure on education and training each year. Which diagram is most likely to show how this rise will affect the economy’s long-run output and price level?

Supply-side policy

In 2014, the Hong Kong Housing Authority reported that the waiting period for public sector housing had become longer, and that it would complete only 8900 flats out of the 15 000 planned for the year. The causes were a shortage of workers because they were required for other public sector projects, the difficulty of securing land, and government regulations. Which economic concepts are shown by this information?

Factors of production

During 2012, inflation in Botswana stood at 7.5%. Person X held all of their savings as cash, whereas Person Y placed their savings in a bank account that paid 5.0% interest. By the end of the year, what happened to the real value of their savings?

Balance of payments

The graph illustrates the annual percentage change in the prices of services and in the prices of goods from 2007 to 2012. What can be deduced from the graph?

Balance of payments

The table lists balance of payments entries for countries A, B, C and D. Official financing, together with changes in reserves, is left out of the financial account. Which country has the largest disequilibrium in its balance of payments? (Current Account, Capital Account and Financial Account shown)

6.3

In both a floating exchange rate system and a fixed exchange rate system, exchange rates may rise or fall, but the terms used are not the same in each case. What is the correct terminology?

6.4

In the diagram, curves D1D1 and SS show the demand for and supply of £ sterling in the foreign exchange market. What might lead the demand curve to move from D1D1 to D2D2?

6.4

The table presents the import price indices and export price indices for four countries from July 2013 to July 2014. For which countries did the terms of trade improve over this period?

6.3

Country X can make apples and plums at a lower cost than country Y. It can also grow strawberries, but doing so is more expensive there than it is in country Y. As a result, country X produces only apples and exchanges them for plums and strawberries from country Y. Which economic theory could account for this trade pattern?

International trade and free trade

A government wishes to use trade protection both to improve its trade performance and to increase government revenue. Which policy will enable it to do this?

Protectionism

A newly established public-sector engineering training college was given poor inspection reports. In response, the government stopped paying the college the money it had normally received as its annual grant. Which types of government policy are suggested by this statement?

Maximum and minimum prices

Which policy measure used to reduce a balance of payments current account deficit would be classed as an expenditure-dampening policy?

6.5

Which feature is most likely to distinguish the healthcare system in a mixed economy?

Resource allocation in different economic systems

A government is dealing with increasing inflation. It wants to ease inflationary pressure without causing unemployment to increase. Which policy action is most likely to satisfy these aims?

Supply-side policy

At any given time, an economy is able to make only two goods. One of these is good X and the other is either A, B, C or D. The table gives the output levels of goods A, B, C and D for each level of good X when the economy’s resources are fully employed. Which good has to be produced together with good X to show a production possibility curve with increasing costs?

Production possibility curves

Which factor would not lead to a movement of an individual's demand curve for good Z?

Demand and supply curves

Which factor is most likely to raise the number of houses supplied?

Demand and supply curves

In what situation is demand for a product described as price elastic?

Price elasticity of demand

Goods X and Y are complements, and the cross-elasticity of demand is –0.8. At a price of $10 for good X, the quantity of good Y demanded was 2000 units per week. Following a change in the price of good X, demand for good Y rises to 2800 units per week. What is the new price of good X?

Price elasticity of demand

The diagram illustrates an industry’s total revenue at different quantities demanded. Which values need to be placed at points 1, 2 and 3 to show the price elasticity of demand (PED) at that point?

Price elasticity of demand

Why does choice lie at the heart of the economic problem?

Scarcity, choice and opportunity cost

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

Price elasticity of supply

The diagram illustrates a country’s domestic supply of, and demand for, a commodity that it both uses and exports. The world price moves from WP1 to WP2. What changes result in domestic consumption and the quantity exported?

International trade and free trade

The diagram illustrates demand and supply for bread made from wheat, and X marks the initial equilibrium point. Where will the new equilibrium be after subsidies to the wheat industry are removed and advertising promoting the advantages of a wheat-free diet is successful?

Income elasticity of demand

The diagram indicates that demand for a good rises from D1 to D2. What effect does this change in demand have on producer surplus?

Cross elasticity of demand

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

Maximum and minimum prices

A government decides to revise the tax system in order to achieve greater equity. Which alteration will it make?

Short-run costs

Which factor would make paying a subsidy to firms lead to the largest rise in sales?

Price elasticity of demand

Which goods are supplied only by the government?

1.6

Privatisation may be carried out through selling shares to the general public (public offers, PO) or through a direct sale to a private company (private sales, PS). The diagram illustrates privatisation transactions and revenue for the European Union from 1981 to 2012. What can be concluded from the diagram?

Law of diminishing returns

The diagram illustrates the initial aggregate demand AD1 and aggregate supply LRAS1 for an economy. What might account for the movements in aggregate demand to AD2 and aggregate supply to LRAS2?

Economic growth

Which shift in economic system is most likely to cause the largest increase in unemployment together with the biggest reduction in economic regulation?

Resource allocation in different economic systems

A rise in a country’s consumer price index indicates a rise in

Balance of payments

The figures shown in the table were obtained from the consumer price indices for retail prices in three countries. From 2014 to 2015, which statement is correct?

Balance of payments

What could lead to a larger surplus on New Zealand’s current account of the balance of payments?

6.3

The diagram illustrates the market for £ sterling, which is currently in equilibrium. What action must the UK government take in order to reach an exchange rate of £1 = US$2.50?

6.4

Country X conducts trade with only two countries: Nigeria and Malaysia. 80% of Country X’s trade is carried out with Nigeria, while 20% is with Malaysia. The starting value of the trade-weighted exchange rate index is 100. Country X’s currency increases in value by 10% against the Nigerian Naira. Country X’s currency also increases in value by 50% against the Malaysian Ringgit. What will be the value of Country X’s new trade-weighted exchange rate index?

6.4

How do you calculate the terms of trade index?

6.3

The table sets out the possible combinations of apples and bananas that Country X and Country Y can produce, on the assumption that only these two goods are made and that all resources are being used to their fullest extent. Country Y chooses to specialise in producing the good for which it has a comparative advantage. Country X chooses to allocate 75% of its resources to the good for which it has a comparative advantage and 25% of its resources to the other good. What will be the total output?

International trade and free trade

An economy that has a long-established record of heavy barriers to trade decides to move to totally free trade. What is most likely to rise in the short term?

Protectionism

Which measure could form part of an expansionary economic policy?

Fiscal policy

Which policy is the most effective for reducing a deficit on the current account of the balance of payments?

6.5

The diagram illustrates a production possibility curve for an economy. What could explain the shift from X to Y?

Production possibility curves

Which mix of policies is most likely to bring inflation down when an economy is near full employment?

Fiscal policy

If an economy goes through a period of deflation, its aggregate monetary demand decreases. Which function of money accounts for this decrease?

Oligopoly

What makes demand for a product effective?

Demand and supply curves

How will an industry’s supply curve change if firms exit the industry?

Demand and supply curves

The diagram illustrates a demand curve for pineapples. What happens to the value of price elasticity of demand (PED) when moving from point X to point Y, and how is the value at point Y described?

Price elasticity of demand

One product is an inferior good with no close substitutes. It also acts as a complement to good X. Which product fits the description above?

1.6

The table sets out the quantities demanded (Q) of goods X and Y for various prices (P) of the two goods. What range does the cross-elasticity of demand for good Y with respect to the price of good X fall within?

Price elasticity of demand

(i) Explain one possible reason for the change in the world sugar price from 2011 to 2013.

Protectionism

Using a supply and demand diagram, Explain how imposing an indirect tax on a good would change the surplus enjoyed by the consumers of that good.

Maximum and minimum prices

Explain, using a diagram, the meaning of equilibrium national income, and illustrate how this equilibrium alters when aggregate demand rises.

Economic growth

With the help of a diagram, explain how exchange rates are set in a free market and why an anticipated rise in interest rates in the US would make the value of the US dollar rise.

6.4

Consider whether the protectionist measures used by countries such as India, China and Argentina in trade with the US could ever be justified.

Protectionism

Explain, with the aid of a diagram, what happens in the market for a product when the price of a substitute rises, and how economists would measure the link between these two products.

Price elasticity of demand

Explain any two factors that make the supply of a product price-inelastic.

Price elasticity of supply

Explain what serves as money in a modern economy, and how a rise in the quantity of money can lead to higher prices.

Oligopoly

Using a supply and demand diagram, explain how the Russian central bank is ‘attempting to protect the value of the rouble’.

Price elasticity of demand

Distinguish between market equilibrium and disequilibrium, and indicate what happens in a free market for a good when disequilibrium is present.

Income elasticity of demand

Explain with a diagram why production possibility curves are normally shown with increasing opportunity costs, and show how they can be used to illustrate scarcity.

Production possibility curves

With diagrams, explain how rising raw material prices and a fall in the rate of interest could generate different types of inflation.

Economic growth

How is net external benefit determined?

7.4

The table displays a firm’s total cost and marginal cost. What is the average fixed cost when 6 units are produced?

7.5

A firm operates in a contestable market. How is the firm likely to set the price of its product?

7.6

The diagram illustrates the demand curve encountered by a single firm in an oligopolistic industry. What accounts for the shape of the curve?

7.6

In what ways does monopolistic competition differ from perfect competition?

7.6

Which action used to reduce the misuse of monopoly power is an example of regulation?

Maximum and minimum prices

What economic efficiency losses are likely to arise from a policy of redistributing income from the rich to the poor?

Short-run costs

The diagrams illustrate the demand for and supply of labour. Which two areas show transfer earnings?

Long-run costs and economies of scale

A company is experiencing a lack of labour. It chooses to set up its own training programme for pupils leaving school. What effect is this most likely to have on the company?

Long-run costs and economies of scale

In recent data for European countries, the Netherlands recorded the highest proportion of part-time employees and an average working week of 32 hours for all employees. Greece had a lower proportion of part-time employees, but its average working week for all employees was 41 hours. Which conclusion can be drawn from this information?

Long-run costs and economies of scale

What is the most likely explanation for why an increase in a country’s savings ratio may raise its long-term rate of development?

Trade unions

The diagram illustrates how goods are allocated between two individuals in a two-person economy with the technology and resources given. The economy is at point X. Using the Pareto criterion, which point would certainly not improve allocative efficiency?

Behavioural economics

Which of the following statements best describes developing economies?

11.4

The table presents government net lending for four countries in two years. Which country experienced the greatest rise in government borrowing as a percentage of its GDP from 2005 to 2010?

National income statistics

The table presents consumption expenditure and savings at different family income levels. Across the disposable income range shown, when income increases, what happens to the marginal propensity to save?

Aggregate demand and aggregate supply

Which option shows a leakage in an economy’s circular flow of income?

Perfect competition

For a closed economy that has no government sector, the multiplier indicates the effect of a change in

Economic growth

Within Keynesian theory, in what situation would the demand for money always rise?

Oligopoly