Oct/Nov 2017

A teacher asks four students to complete the missing words in this sentence. 'A positive economic statement is .«..1«« statement that ««2«« be tested using factual evidence, whereas a normative economic statement is ««3«« statement that ««4«« be tested using factual evidence.' Which student is correct?

Economic methodology

What could account for price and quantity traded both rising at the same time in the market for a normal good?

Income elasticity of demand

The diagram illustrates the demand and supply curves for parking spaces in a hospital car park. The managers decide to depend on the price mechanism to allocate parking spaces at the hospital. What must be present for this to operate?

Income elasticity of demand

The diagram illustrates a market for a good that is provided partly by domestic production and partly through imports. Sh denotes domestic supply and Sm denotes imports. What will be the level of consumption and the corresponding quantity of imports?

Income elasticity of demand

The diagram illustrates the market for computers in Pakistan. Which regions show consumer surplus and consumer expenditure?

Cross elasticity of demand

The diagram illustrates the labour market. At what level would an effective minimum wage rate need to be fixed?

Long-run costs and economies of scale

Which statement correctly describes a production subsidy?

Maximum and minimum prices

The diagram illustrates the market supply and demand curves for an agricultural product. The government ensures that producers receive a minimum price of OX for their output, while the market price is left to be set by demand and supply. Which area on the diagram shows the total subsidy payments that the government makes to producers?

Maximum and minimum prices

What effect will transfer payments to low-income families, financed by a combination of direct taxation and indirect taxation, have on the total level of consumption?

Short-run costs

The table sets out the annual percentage change in output per worker employed for four nationalised industries both before and after privatisation. What conclusion can be drawn from the table about the impact of privatisation?

Maximum and minimum prices

In its latest budget, a government raised defence spending and the amount allocated to training in order to improve workforce productivity. The starting equilibrium point is indicated by X on the aggregate demand, AD, and aggregate supply, AS, diagram. What would the equilibrium point be after these changes?

Economic growth

Between 1990 and 2000, every country named below moved closer to a market economy by means of privatisation programmes. What conclusion can be drawn about the pace of privatisation?

Law of diminishing returns

The table gives a country’s consumer price index for March and April 2015. Which statement accurately describes the change between these two months?

Balance of payments

What is likely to raise inflation in an economy?

Economic growth

In 2014, a wealthy overseas businessman purchased a UK football club. What would be the immediate impact of such an investment?

Perfect competition

Australia’s expenditure on imports decreases and, at the same time, Australian firms’ investment overseas also decreases. Which diagram indicates the immediate impact of these changes in the market for the Australian dollar?

6.4

An economy’s terms of trade increased from the base-year value of 100 to 110. Which shifts in the export price index and the import price index could have led to this?

6.3

The adoption of the euro as the shared currency across much of Western Europe formed a strong economic bloc. Which outcome was least likely to have been the aim?

6.4

Country X can produce wheat more efficiently, while country Y can produce cars more efficiently. Even so, both countries decide against specialising and trading. What is a valid reason for this behaviour?

Protectionism

Which of the following is not an example of protectionism?

Protectionism

A country’s government intends to reduce income tax rates. The country’s original equilibrium is shown by point X on the diagram. Which new equilibrium point would an economist expect as the outcome?

Fiscal policy

If an economy operates a floating exchange rate, which policy could produce an expansionary effect on national income while causing the smallest fall in a current account surplus in the balance of payments?

Wage determination

Farmers who rely on traditional methods do not have access to finance and frequently use family members on a part-time basis. If working practices in agriculture were improved, how would this probably be reflected on the production possibility curve?

Production possibility curves

Which mix of fiscal policy and monetary policy is most likely to work effectively in the short run when dealing with deflation in a closed economy?

Fiscal policy

Which kinds of goods are separated from each other by whether opportunity cost is present or absent?

1.6

What might lead to a shift in the supply curve of good X and also a movement along its supply curve?

Demand and supply curves

The supply curve is given by quantity supplied = 10 + 5P, where P denotes the price of the product. An increase in price by which amount would make the quantity supplied double?

Demand and supply curves

By summing the individual demand curves, along which axis can the market demand curve be formed?

Demand and supply curves

The table gives the price of a good and the total expenditure on it over particular periods when the market is in equilibrium. What can be inferred from this information?

Price elasticity of demand

When the Chinese government eased restrictions on private house ownership, private house ownership increased rapidly and took the place of demand for apartments rented from the state. What would most likely have happened to private house prices and the rents of apartments?

Income elasticity of demand

To deal with the issue of scarcity, countries that have limited natural resources need to focus on improving the quality of human resources. Which group of policies would be the most suitable?

Trade unions

Consumer X is the biggest of five consumers and accounts for 50% of sales. The table displays the quantity of the good demanded by consumer X and the market supply of the good. What would be the market equilibrium price?

Income elasticity of demand

What does price not do when it serves as a way to allocate resources?

Resource allocation in different economic systems

What does the term consumer surplus mean?

Cross elasticity of demand

In the diagram, S1 shows the initial supply curve and D shows the initial demand curve. If supply moves to S2, which area shows the change in consumer surplus?

Cross elasticity of demand

Following several weak harvests, a government sets a binding maximum price for cereals. What would be one result of this policy?

Maximum and minimum prices

The diagram illustrates the demand and supply curves for a commodity before a particular tax is abolished and after it is abolished. What is the tax per unit of output, and what is the price once the tax has been removed?

Income elasticity of demand

The diagram illustrates the market for heating oil. If the government brings in a production subsidy, how will the financial advantage be divided between consumers and producers?

Maximum and minimum prices

The diagrams illustrate UK Government total spending and welfare spending in £ billions from 2005 to 2014. What conclusion can be drawn from the diagrams about UK Government spending over the period 2005 to 2014?

Fiscal policy

Healthcare services in an economy are supplied by private clinics that charge high fees. The government decides that health services ought to be available to everyone, regardless of ability to pay. Which direct action should it take?

Maximum and minimum prices

In its latest budget, a government cut total expenditure but raised the amount allocated to training in order to improve the productivity of the workforce. The starting equilibrium is indicated by X on the aggregate demand (AD) and aggregate supply (AS) diagram. After these changes, where would the equilibrium point be?

Economic growth

A government chooses to subsidise farms that produce milk within its own country. Which question about this decision is a normative question rather than a positive question?

Government intervention in markets

The table presents the retail prices index for four countries in years 2 and 3. (Year 1 index = 100 for all countries.) Which country experienced a higher rate of inflation in year 2 than in year 3?

Balance of payments

What items are included in the current account of the balance of payments?

6.3

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

6.4

In the UK in July 2014, £1 = US $1.71. By the end of August 2014, £1 = US $1.65. What is the most likely explanation for this?

6.4

What formula is used to work out a country’s terms of trade?

6.3

Country X enters into a customs union with country Y. X then stops making its own cars and starts bringing in cars from Y. Country Y redirects some of its car exports to X away from country Z. What effect is this likely to have on car prices in X and Z?

Protectionism

The table illustrates the capacity of two countries to produce two commodities when all their resources are devoted to that product. Which statement is correct?

Production possibility curves

In 2014, Poland was the world’s largest exporter of apples. 55% of the crop was exported to Russia. Russia then banned imports. What would not have stopped the revenue of the Polish apple farmers from falling dramatically?

Protectionism

Monetary policy can be used to raise the level of business activity. Which action would illustrate this?

Monetary policy

Under what conditions will a country’s balance of payments current account deficit be reduced?

6.3

As shown by the production possibility curve FW, Economy X allocates its resources to the labour-intensive manufacture of wheat and wooden furniture. Using improved strains of wheat seeds, X raised output and moved to a different production possibility curve. Which diagram shows this change?

Production possibility curves

The diagram presents four alternative aggregate supply curves and an equilibrium point X. A government uses deflationary fiscal policy to lower the inflation rate in its economy. As a result, aggregate demand moves to AD2. With which AS curve would this policy be most effective?

Economic growth

Which factor is most likely to seriously weaken money’s ability to function as a medium of exchange?

Oligopoly

Which factor would not cause the demand curve for wigs to change position?

Demand and supply curves

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

Price elasticity of demand

On the diagram, D1D1 is a straight-line demand curve, while D2D2 is a rectangular hyperbola curve. Which statement is correct?

Price elasticity of demand

During a four year period, as the price of new houses rises, the price elasticity of supply for new houses falls, as shown. All new houses were sold. What indicates that price elasticity of supply became increasingly inelastic from year to year?

Price elasticity of supply

The prices of gold, silver and copper dropped sharply in 2011 and then once more in 2015. The decline in 2011 was attributed to miners raising output. The decline in 2015 was due to demand, particularly from China, falling. If the equilibrium prior to 2011 was X, how would these changes in 2011 and then in 2015 be represented on the demand and supply diagram?

Income elasticity of demand

How does the very long run differ from the long run?

Unemployment

A market is in unstable disequilibrium when, after being displaced from equilibrium, it does not move back to its equilibrium point. The diagram represents a market with two equilibrium points. At what price is the market in unstable disequilibrium?

Income elasticity of demand

In what situation will it be necessary to use an alternative to the price mechanism to allocate a good between consumers?

Government intervention in markets

The table gives the price Rashid is prepared to pay for each additional bottle of water. If the price is $0.50 and Rashid buys four bottles, what is the monetary value of Rashid’s consumer surplus?

Cross elasticity of demand

A market is in equilibrium at price $5. Market supply changes from being inelastic at each price to become elastic at each price. The market equilibrium price remains unchanged. What effect does this have on consumer surplus and producer surplus?

Price elasticity of supply

A government has imposed a maximum price on rice that is effective. Which combination of changes would lead to the largest increase in an existing shortage of rice?

Maximum and minimum prices

The diagram illustrates the market for a product both before and after a subsidy is introduced. Which area shows the full subsidy payment?

Maximum and minimum prices

The graph illustrates the overall economic welfare gained by citizens from government spending on health and education services. If the government has $60 billion from its budget to divide between health and education services, which distribution will produce the greatest level of welfare for its citizens?

Law of diminishing returns

The table presents the demand and supply schedules for a good before the tax was introduced and after it was imposed. What were the tax and the change in price?

Maximum and minimum prices

Which government action would not count as a type of privatisation?

Maximum and minimum prices

The diagram illustrates shifts in aggregate demand and aggregate supply that have led from equilibrium point X to equilibrium point Y. Which combination of events might have brought about this change?

Economic growth

What outcome is least likely if a firm chooses to raise automation and division of labour in its production process?

7.7

What would be likely to reduce inflation in an economy?

Monetary policy

What is the mean weighted price change shown in the table below?

Balance of payments

The diagram illustrates Greece’s trade position with the EU and Russia from 2005 to 2014. What change occurred in Greek trade balances during this period?

6.3

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

6.4

What does it mean when a country’s terms of trade are said to have shifted in a favourable direction?

6.3

What is the outcome least likely to occur for countries taking part if trade becomes freer?

International trade and free trade

The diagram indicates that introducing a tariff increases a product’s world price from $10 to $14. What is the resulting change in domestic producers’ income?

Protectionism

What disadvantage arises when a quota is used instead of a tariff to cut imports?

Protectionism

If all other factors stay unchanged, what are the probable effects on the US budget deficit and on the supply of US government bonds if the US government raises its spending?

Fiscal policy

At the start of a particular period, a country tries to improve the current account of its balance of payments by devaluing its currency. The outcome of this policy over the next two years is shown in the diagram. Which statement is most likely to account for this outcome?

6.3

R1S1, R2S2, R3S3 and R4S4 are production possibility curves (PPC) for four different countries 1, 2, 3 and 4. Which statement about the opportunity cost of good R measured in terms of good S is not correct?

Production possibility curves

Imagine a country with an inflation rate far under its target level, a high level of unemployment and a substantial balance of payments deficit. What would an economic advisor to the government be most likely to advise?

Externalities

Several governments worry that the large sugar content in fizzy drinks could cause health issues such as obesity. They also worry that the public is not sufficiently aware of the risks. What can be inferred from this?

Government intervention in markets

The world price of tea sold on wholesale international markets decreases. How is the supply curve of a major tea retailer most likely to be affected?

Demand and supply curves

In 2015, milk was estimated to have an income elasticity of demand of –0.6. What conclusion can be drawn about milk from this figure?

Price elasticity of demand

The diagram displays four supply curves. Which statement correctly describes the price elasticities of the curves?

Price elasticity of supply

The data illustrate how the quantities of a product supplied to a market change in the short run and the long run when its price rises from $20 to $25 per unit. What are the short-run and long-run price elasticities of supply for the product?

Price elasticity of supply

In the diagram, D shows the demand curve for an agricultural commodity and S1 is the original supply curve. A good harvest shifts the supply curve to S2. How far must the demand curve move to keep farm incomes unchanged?

Income elasticity of demand

Explain why fixing the price of the US dollar in terms of the Argentinian peso led to a black (illegal) market.

6.4

Explain the factors that determine whether a good’s price elasticity of supply is likely to be relatively elastic or relatively inelastic.

Price elasticity of supply

Distinguish between equilibrium and disequilibrium in the market for a good. Explain how a fall in the supply of a product affects equilibrium price and equilibrium quantity. Use a diagram to back up your answer.

Income elasticity of demand

Use production possibility curves to explain the different impact on an economy of a rise in the unemployment rate and an increase in the working population.

Production possibility curves

Use Table 1 to identify two periods during which the Consumer Prices Index fell in Japan.

Balance of payments

Explain how economists use income elasticity of demand to tell apart different categories of goods.

Price elasticity of demand

Show how a movement along, and a shift in, a production possibility curve differ. Explain the possible causes of each. Use diagrams to support your response.

Production possibility curves

Describe the four parts of the current account of the balance of payments. Explain what could lead to a deficit in this account.

6.3

Using Table 1, calculate the percentage change in rice price between 2014 and 2015.

Maximum and minimum prices

Explain the factors that affect whether the price elasticity of demand for a good is likely to be relatively inelastic.

Price elasticity of demand

Explain how a production possibility curve with increasing opportunity costs shows the effects of a government’s decision to produce more military goods. Support your answer with a diagram.

Production possibility curves

Show how exchange rates are established in a freely floating system. Explain how a high inflation rate in an economy can cause that economy’s exchange rate to depreciate. Use a diagram to support your answer.

6.4

Which is the most probable motive for the privatisation of state-owned industries?

Law of diminishing returns

The businesses in an industry agree unofficially to cooperate and adopt a price leader. What would make it less likely that this collusion succeeds?

7.6

The theory of contestable markets may be applied to

7.6

Under the law of diminishing returns, what occurs when increasing amounts of a variable factor are added to a fixed factor?

Factors of production

Firm X is deciding whether to cooperate with its competitor so that their combined profit is $4000 a month ($2000 each). It worked out that, if it refused to co-operate, its own profit would be $2800 a month as long as it retained all its customers. Yet if the competitor cut X’s price and won some of X’s customers, X’s profit would fall to $1200. It does not know what strategy the competitor will choose. What term is used to describe the situation faced by the firm?

7.6

Governments seeking to improve living standards for people with low incomes sometimes introduce rent controls (maximum prices) on homes rented out by private landlords. What effects could rent controls have over the long run?

Maximum and minimum prices

In some countries, people on low income receive benefits. As their income rises, those benefits are reduced and income tax becomes payable. What may this lead to?

Long-run costs and economies of scale

What would assist a trade union in bargaining for higher wage rates for its members without causing a decrease in the number employed?

Long-run costs and economies of scale

When the world price of oil rises, the demand for deep sea divers rises from D1 to D2, as illustrated. What change occurs in the economic rent received by the divers?

Long-run costs and economies of scale

What might cause the size of a country’s labour force to grow?

Long-run costs and economies of scale

The table presents unemployment figures (%) for four countries in 1993 and 2002. UK Japan France Italy 1993 10.5 2.5 11.4 10.1 2002 5.0 5.4 8.8 8.5 What conclusions can be drawn from the table?

Price stability and inflation

The local council calculated the costs and benefits of running a bus service in 2015 and 2016. The figures are shown in the table. 2015 $000 2016 $000 private costs 2000 2200 external costs 500 900 private benefits 1500 2300 external benefits 1000 800 What conclusion can be drawn from the table?

7.4

The diagram illustrates the saving and investment curves for a closed economy without government intervention. The potential level of output is OYP. Which distance shows the gap between actual output and potential output?

Economic growth

The table presents the figures for a chosen set of macroeconomic variables across a two-year span. first year ($m) second year ($m) investment 250 350 saving 280 340 government expenditure 150 200 taxation 140 200 exports 200 250 imports 180 260 equilibrium national income 3600 4200 What is the multiplier value?

Economic growth

Over a year, a country’s national income measured in money terms rose by 3%, prices rose by 4% and the total population rose by 1%. What was the approximate change in real income per head?

National income statistics

What would cause the quantity of money demanded to decrease?

Oligopoly

Which items are excluded from the measurement of national income?

National income statistics

Which option correctly shows net injections into a country’s circular flow of income? government expenditure > taxation savings > investment exports > imports

Perfect competition