Feb/March 2017

This diagram comes from the Economics textbook chapter titled ‘The Economic Problem’. It needs the terms opportunity cost, scarcity and choice to be placed in the sequence that shows the economic problem. In which order should the terms be arranged in the diagram?

Scarcity, choice and opportunity cost

The diagram illustrates the market for new houses. What would bring about the shift in the market equilibrium position from X to Y?

Income elasticity of demand

Jam and honey are substitutes. Honey and beeswax are produced in joint supply. Assuming all other factors stay unchanged, what is likely to happen if the price of jam increases? (columns: honey price / beeswax price)

Income elasticity of demand

For price to function as a rationing mechanism for a final product, an increase in price has to

Income elasticity of demand

A familiar clothes retailer plans a summer sale in its stores. Consequently, the number of shoppers using the stores rises. Which areas show the change in consumer surplus for the customers who would have purchased the clothes anyway, and the surplus for the new customers?

Cross elasticity of demand

In 2014, some supermarkets cut the price they were prepared to pay farmers for milk to a level below the market equilibrium price at that time. They then passed this lower price on to consumers in an attempt to draw them into the store. After that, the government introduced an effective minimum price that the supermarkets had to pay the farmers. These two moves are represented in the diagram. What would be the result after the supermarket move and then the government move?

Maximum and minimum prices

The starting market for a product is shown by the demand and supply curves D1 and S1 respectively. A subsidy is then added, shown by the movement of S1 to S2 (+ subsidy). What is the incidence of the subsidy for the consumer and producer?

Maximum and minimum prices

What is the most likely reason for a government to make transfer payments, such as social security benefits, to workers who are unemployed?

Short-run costs

In the diagram, D shows 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 starting level. The harvests in four later years are represented by the supply curves S1–S4. What total amount will the government have to pay to subsidise farmers across the four later years?

Maximum and minimum prices

Which situation would not usually be seen as a strong reason for an industry to be nationalised?

Government intervention in markets

In what way does an increase in the price of factors of production impact the aggregate supply (AS) curve?

Economic growth

What is the key requirement for the effective operation of the division of labour in a modern economy?

Factors of production

In the diagram, AD1 shows an economy’s starting aggregate demand curve. What might make the curve move to AD2?

Economic growth

Relative weights are applied when calculating the index of retail prices so as to represent the varying

Balance of payments

The table gives selected figures from the United States (US) 2014 balance of payments account. What cannot be inferred about US trade in 2014 from the table?

6.3

A country operates a fixed exchange rate. What would be likely to cause a worsening of its balance of payments?

6.4

Currently, 1 unit of a country’s currency is worth US$1.2. The country wants its exchange rate to be US$1.0. Which pair of government measures in the foreign exchange market would need to be used to achieve this objective?

6.4

The table shows the Terms of Trade Index in 2010 and 2013 for Japan and Venezuela. Which set of statements gives the correct interpretation of the changes from 2010 to 2013?

6.3

The US President approved a trade agreement that granted Latin American and Caribbean countries wider duty-free entry into the US market. Who could gain in the short run from this agreement?

International trade and free trade

Which statement is not a legitimate explanation for why a country might introduce protectionist measures?

6.2: Protectionism

A government is aiming to apply a more restrictive monetary policy. What would it raise?

Monetary policy

A country is experiencing a large current account deficit. Its government chooses to devalue its currency. Under which condition would this action reduce the deficit? (table shows price elasticity of demand for exports and imports)

Labour market

The diagram illustrates a production possibility curve for an economy operating at point P. Which amount of X must be sacrificed to make the quantity of Y shown?

Production possibility curves

The diagram presents four potential aggregate supply curves together with an equilibrium point X. A government introduces deflationary fiscal policy to bring down the inflation rate in its economy. As a result, aggregate demand moves to AD2. For which AS curve would this policy be least effective?

Economic growth

Even though there was strong opposition, the local authority in a well-known tourist destination constructed a leisure centre and swimming pool that anyone may use. A large number of tourists go to the centre. Local residents pay a smaller entry charge than the one imposed on tourists. In economists’ terms, how is this service classified?

1.6

On a demand and supply diagram, assuming everything else stays unchanged, a decrease in the price of a commodity will usually shift

Demand and supply curves

In 2014, as part of efforts to discover new uses for seven sites that had formerly been used to bury rubbish, the Hong Kong government said that private companies would be permitted to bid for redevelopment of the sites. Which diagram illustrates the change in the market for these sites?

Income elasticity of demand

The price elasticity of demand for a firm’s product remains equal to one whatever the price change. What would be the consequence of this?

Price elasticity of demand

Which change would reduce the price elasticity of supply for a product?

Price elasticity of supply

The diagram illustrates the market for coffee. The starting equilibrium position is X. The price of tea, a substitute good, decreases and an indirect tax is introduced on coffee. Which position will be the new equilibrium?

Income elasticity of demand

Explain any two factors that would determine the effect of China’s decision to devalue the yuan on Vietnam’s trade with China.

6.3

Explain the difference between public goods and private goods. Think about why one kind of good can be supplied profitably, whereas the other cannot.

1.6

Explain the factors that are likely to cause a product's supply to be relatively price inelastic.

Price elasticity of supply

Explain what is used as money in a modern economy. Think about how a rise in the money supply can lead to inflation.

Oligopoly

What could assist in achieving allocative efficiency?

Law of diminishing returns

A firm carries out a successful policy of predatory pricing. What happens to the prices charged by the firm in the short run and in the long run?

7.8

What will operate as an obstacle to collusion between firms?

7.6

The diagram shows various combinations of good X and good Y. A consumer likes having more of both goods rather than less, but would, whenever possible, avoid sacrificing any good Y in order to gain more good X. Which combination shown in the diagram could fit the consumer’s ranking of preferences from highest to lowest?

Indifference curves and budget lines

A consumer buys two goods, X and Y. An indifference curve diagram illustrates what happens to the consumer’s equilibrium when the price of one of these goods changes. Which demand curve can be inferred from the diagram?

Indifference curves and budget lines

What might prevent a market failure?

Maximum and minimum prices

The diagram presents the Gini coefficient for four countries from 1975 to 2010. Which country showed the largest shift towards a more equal distribution of income during this period?

Taxes and subsidies

Additional fishing boats begin working from a nearby harbour that relies on fishing as its chief source of income. Which measure taken by the local authority would be an example of nudge theory?

Maximum and minimum prices

What is the principal drawback of government regulation intended to limit the profits made in a monopolistic industry?

Maximum and minimum prices

What advantage does a ‘creation of property rights’ solution offer for externalities caused by river pollution?

7.4

In the UK in 2015, the average wage stood at £26 500 per year. At the same time, some footballers were receiving more than £150 000 each week. Which part of the theory of wage determination is most likely to account for this difference in wages?

Long-run costs and economies of scale

In 2015, a company electrified the main railway line connecting two cities so that the journey time would be reduced. The project created a lot of noise, cost a great deal and needed a long time to finish. What is the most likely result of this project?

7.4

Which government policy would be the most effective for lowering frictional unemployment?

Price stability and inflation

Which combination is usually associated with the least developed countries?

11.4

The diagram presents selected US labour statistics for 2001 to 2014. What can be concluded from the diagram about 2001-2014?

Monopolistic competition

When there is full employment, the Quantity Theory of Money indicates that, other things remaining the same, a rise in the velocity of circulation will cause an increase in

Oligopoly

For a closed economy with no government expenditure or taxation, the starting income is $2000 million. Consumers are responsible for all saving and save 25% of any income received above $2000 million. Businesses intend to invest $2000 million. What is the value of the multiplier?

Economic growth

Which combination of factors is most likely to lead to economic growth?

Unemployment

A country’s real national income per head rises. What might account for this being accompanied by a decrease in households’ standard of living?

National income statistics

After a company merger, a director is made redundant. He had been paid a salary of $80 000. He has an entitlement to an annual private pension of $30 000. In the first year after becoming redundant, he gains $40 000 from consultancy fees and cuts his spending by $8000 by dismissing his gardener. What is the change in measured national income in that first year?

National income statistics

Which source of economic growth would impose the smallest cost on both current and future generations of a country’s population?

Monopoly

What factors would stimulate industrial growth in an area with high unemployment?

Supply-side policy

Which measure is intended in particular to reduce the gap between private costs and social costs?

7.4

A government’s budget is presently balanced. It is examining the possible changes in tax revenue and government expenditure shown below. Which three options are most likely to have the ability to push the budget into surplus? (options: W increase/increase; X increase/reduce; Y reduce/increase; Z reduce/reduce)

Fiscal policy

Which of the following is an internal economy of scale?

7.7

The diagram illustrates a profit-maximising firm’s position in a perfectly competitive industry. Which analysis of this position is correct?

7.6

If a firm doubles its variable inputs while its fixed inputs remain unchanged, and output rises by less than double, what does this demonstrate?

Factors of production

Which of the following would count as price discrimination: (charging higher rail fares to cover the extra costs of train companies) and (offering lower return flight fares from Kuala Lumpur to Hong Kong to passengers who remain overnight on a Saturday in Hong Kong)

7.6

To maximise total revenue, until what point should a monopolist raise output?

7.6

A firm is operating in perfect competition. What will happen to the firm’s revenue if it raises output by 5%?

7.6

The information is about supply-side policies. Explain, with two examples, what is meant by supply-side policies.

Supply-side policy

Explain what consumer equilibrium means in economic theory.

Indifference curves and budget lines

Some firms can exert influence over their market. Explain what this means and think about why this influence may alter in a contestable market.

7.6

A politician stated that the absence of trades unions would automatically bring about an improvement in all labour markets. To what extent does economic analysis support this claim?

Long-run costs and economies of scale

In what ways might the employment composition and age structure of a developing country differ from those of a developed country?

11.4

Discuss whether a rise in a country's national income is a reliable sign that the standard of living for its people has improved.

Oligopoly

A society that claims to value efficiency must give up the idea of using a market system to allocate resources. Markets exist only for self-interest and are never efficient. Discuss whether economic analysis supports this view.

Behavioural economics