Feb/March 2018

Which statement regarding economics is false?

Economic methodology

What might have led the price to move from P1 to P2? (the diagram shows the diamond market, with supply moving from S1 to S2)

Income elasticity of demand

Good X has a substitute, good Y, and a complement, good Z. The price of good Y falls, while the price of good Z rises. Why could the equilibrium price of good X stay unchanged?

Income elasticity of demand

Initially, the television service can be viewed free of charge. The television company then starts to charge viewers $6 per hour to watch its programmes. The demand curve is D. What is the value of the fall in consumer surplus, and what value of consumer surplus is left after the hourly charge is introduced?

Cross elasticity of demand

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

Cross elasticity of demand

Which advantage is most likely to arise from an increase in the minimum price of labour (wage rate)?

Long-run costs and economies of scale

The diagram illustrates the equilibrium price and quantity of good X. The starting market equilibrium is marked by point E. What could make the market equilibrium shift to point F?

Income elasticity of demand

The table presents the demand and supply schedules for a product both before and after the government gives producers a subsidy of $4 per unit. If any additional sales are made to new consumers, how much do the original consumers of the product benefit from the subsidy by saving?

Maximum and minimum prices

Which of the following statements about transfer payments is correct?

Short-run costs

What is the main difficulty linked to a government supplying the precise quantity of a public good directly?

Behavioural economics

An aggregate demand curve slopes down from left to right. One explanation for this is that a decrease in the average price level will cause

Economic growth

A farmer can produce three crops, X, Y and Z, on his land. He decides to cultivate no more than two crops in any one year. The table shows six possible combinations of output units for the three crops. What is the opportunity cost of 1 unit of X?

Scarcity, choice and opportunity cost

In the diagram, the economy starts from equilibrium at point X. The government raises spending on education. This happens at the same time as an increase in wage rate inflation. Which point indicates the economy’s most likely short-run equilibrium?

Economic growth

In a single year, a country's national output measured using money prices rose by 8%, while the index of prices for every good and service produced in the country rose by 3%. By how much did the real national output increase?

National income statistics

The table presents the CPI rate of inflation (%) in the United States from 2006 to 2013. What conclusion can be drawn from the figures for the period 2006 to 2013?

Balance of payments

In 2014 Australia and China negotiated a trade agreement. This eliminated Chinese tariffs on 95% of Australian exports in return for improved access to the Australian economy for Chinese investors. How would the agreement be expected to affect the Australian balance of payments in the short run?

6.3

Turkey is able to produce a good, but it also imports part of this good from Egypt. The Turkish currency falls in value relative to the Egyptian currency. How would this most likely influence production of this good in Egypt and in Turkey?

6.4

The table presents the terms of trade for Saudi Arabia. What conclusion can be drawn from the table about Saudi Arabia?

6.3

What exists in a customs union but not in a free trade area?

Protectionism

Which argument in support of protectionism is not usually regarded as economically valid?

Protectionism

Which action would be regarded as a fiscal policy measure?

Fiscal policy

A country is running a current account deficit in the balance of payments. Which policy would be expected to make the deficit larger?

6.3

Why does the production possibility curve have a concave shape towards the origin?

Production possibility curves

Which type of policy would have the most immediate impact in addressing a deflationary economic downturn?

Monetary policy

The Bureau of Alcohol, Tobacco, Firearms and Explosives is an agency of the United States Government that oversees markets. What does its name suggest is most likely to be its principal responsibility?

Government intervention in markets

Which factor is considered the variable when a market demand curve is drawn?

Demand and supply curves

The diagram illustrates how the quantity demanded for four goods varies as income changes. Which good has an income elasticity of demand that is always +1?

Price elasticity of demand

The table presents three different weekly prices and quantities supplied for two products, X and Y. Which statement about price elasticity of supply (PES) is correct?

Price elasticity of supply

In 2016, car drivers bought a larger quantity of fuel (gas) because the price of the oil used to produce it had decreased. Which diagram illustrates this change in the market for fuel?

Income elasticity of demand

The market demand for a product is formed from the demand of three firms, X, Y and Z. The table displays the demand from each firm together with the market supply. What is the equilibrium price in the market?

Income elasticity of demand

Use a production possibility curve diagram to show what is expected to happen to the Venezuelan economy from 2014 to 2017.

Balance of payments

Explain how governments experience rising opportunity cost when making decisions. Support your response with a production possibility curve diagram.

Production possibility curves

Explain how economists assess the extent to which the supply of a good responds when its price changes. Explain two factors that affect the result.

Price elasticity of supply

Describe what is meant by a rise in an economy’s terms of trade. Outline how a change in an economy’s exchange rate and its domestic price level could each cause this to happen.

6.4

Within cost-benefit analysis, the term net social benefit means

7.4

A monopolist selects an output level that maximises profit and earns normal profits. What must be true at the output level chosen?

7.6

A business operates in an imperfectly competitive market. The selling prices of its products are set by the highest amount each consumer is prepared to pay. What is this pricing method called?

7.8

What is one argument in favour of a government policy that permits companies to acquire other companies?

7.7

A government sets a ceiling price for electricity. Which statement supporting this policy could be regarded as economically valid?

Government intervention in markets

The diagram illustrates how a market changes when a government imposes a production quota OQt on the output of a good that had earlier been traded at quantity OQ. Which welfare loss is caused by the government’s policy?

Maximum and minimum prices

Which government policy would make the negative externalities caused by cigarette smoking greater?

7.4

A teacher is paid $30 000 at present but would still be prepared to carry on in the role if her pay were at least $25 000. She would rather remain in her teaching position than move to her next best alternative job as an accountant, in which she could receive $40 000. Which statement is correct?

Scarcity, choice and opportunity cost

What factor would strengthen a trade union, enabling it to raise wages without lowering the employment of its members in a particular industry?

Long-run costs and economies of scale

The table gives the number of employees in four firms operating in the same industry, the average number of hours worked per day, and the total output produced by each firm each day. Which firm has the most productive workers?

Factors of production

At which point in the business (trade) cycle is an expanding negative output gap most likely to be seen?

Unemployment

A government school is constructed by private builders in a residential area. The builders do not consider the noise and disruption caused. Why does a free market fail to include these external costs of constructing the school?

7.4

Which characteristics are commonly found in the least developed countries?

11.4

What lies at the core of economic growth but is not always part of economic development?

Unemployment

What would be the key factor for arranging countries in order of their standard of living in a given year?

National income statistics

A government wanted to raise demand in an economy in order to cut unemployment. Which policy is most likely to do this?

Fiscal policy

What would constitute a rise in leakages or withdrawals from the circular flow of income?

Aggregate demand and aggregate supply

By what is the deflationary gap measured?

Economic growth

The table below sets out an economy’s consumption function. income ($m) / consumption ($m): 100/90, 140/122, 180/154, 220/186 What may be concluded about the value of the marginal propensity to consume in this economy?

Economic growth

In what situation will the domestic money supply rise immediately?

Oligopoly

The estimated turning point on the Kuznets Curve for income inequality is about US $10 500. For a country with a GDP per capita of $8000, which is most likely?

Trade unions

Which macroeconomic policy aims are most likely to support each other?

Government macroeconomic policy objectives

Across all market structures, what must firms make equal to ensure allocative efficiency?

Behavioural economics

If everything else stays the same, what would cause capital funds to flow out of a country?

6.3

In the diagram, the consumer’s budget line changes from JK to GH. Which statement must be true?

Indifference curves and budget lines

The table sets out substitution and income effects for a normal good and for an inferior good as the good’s price changes. Which combination is correct?

Indifference curves and budget lines

A government levies a $10 tax on every unit of output for a product. How will this influence the firm?

Maximum and minimum prices

According to oligopoly theory, which feature would be unlikely to describe firms’ behaviour in the industry?

7.6

The diagram illustrates the cost and revenue curves for a monopolist whose sole production cost is a fixed cost. What price will maximise the monopolist’s profit?

7.6

Company R makes steel. Company S builds ships. Company T runs oil tankers. Company V runs cruise liners. Which statement is correct?

1.6

What does economic growth per capita in real terms mean?

Behavioural economics

Explain how indifference curve theory predicts that a consumer will respond to changes in income and to changes in the price of a product in order to maximise satisfaction. Consider whether the use of 'nudge' theory (persuasion) conflicts with this theory of maximising satisfaction.

Indifference curves and budget lines

Explain what is meant by equity, allocative efficiency and Pareto optimality. Consider whether a link exists between them.

Behavioural economics

Explain, with a diagram, how this situation could be shown within the marginal revenue productivity theory used to determine wages and employment.

7.5

Distinguish between the transactions demand for money and the speculative demand for money. Decide which of these is likely to matter more for a consumer in a modern economy.

Oligopoly

Explain the difference between autonomous investment and induced investment. Consider whether there is a link between these two types of investment.

Economic growth

Compare these approaches, then assess which one is likely to prove more effective.

Trade unions