Oct/Nov 2018

The demand for a product is inversely related to its price, ceteris paribus. What is meant by ceteris paribus in this context?

Economic methodology

As the demand for a good decreases, its costs of production also decline. What is the overall impact of these changes on the price of the good and on the quantity supplied?

Income elasticity of demand

The championship match of a major sporting event takes place in a stadium with a fixed capacity of 40 000 spectators. A ticket is priced at PF, yet once sales begin every ticket is bought almost immediately, leaving many unhappy people unable to obtain one. Which diagram best shows this?

Income elasticity of demand

In the diagram, S and S1 show the supply curves for an agricultural product in years 1 and 2, respectively. D is the demand curve for both years 1 and 2. During year 1, the government bought the quantity needed to keep the price at OP. The price remains fixed at OP in year 2. By how much does the government need to buy more in year 2 than it did in year 1?

Maximum and minimum prices

The diagram represents the European airline market. The initial demand curve is D1 and the initial supply curve is S1. Demand for air travel then rises. Which regions indicate consumer surplus and producer surplus at the new equilibrium?

Cross elasticity of demand

The diagram illustrates the demand and supply curves for a good. The government sets a maximum price at OP1. What is likely to happen?

Maximum and minimum prices

If a government lowers the tax rate on goods and services but raises the tax rate on incomes, what is the probable effect on the distribution of income and on the incentive to work?

Short-run costs

The diagram illustrates the market’s equilibrium price, P1, and the quantity bought and sold, Q1, before a subsidy is introduced. What shows the producer incidence (benefit) once the subsidy has been introduced, and what is the government expenditure on the subsidy?

Maximum and minimum prices

At what point is a transfer payment most likely to form an individual’s principal source of income?

Short-run costs

Which argument is used to support a policy of nationalisation?

Government intervention in markets

The table shows macroeconomic data for an economy. All values are given in $ billions. What is the equilibrium real output?

Economic growth

Which is not an example of the role of the factor enterprise in a modern economy?

Factors of production

The diagram illustrates an economy’s aggregate supply curve. What is most likely to make the curve shift leftward?

Economic growth

The diagram illustrates how an economy’s inflation rate changed across 4 years. What occurred to the overall price level during those 4 years?

Balance of payments

The table presents selected entries from a country’s balance of payments in 2015. What was the country’s current account balance in 2015?

6.3

What is most likely to account for a rise in the deficit on a country’s current account of the balance of payments?

6.3

The diagram illustrates how the floating exchange rate is determined between the US$ and the UK£. D represents the demand curve for pounds and S represents the supply curve for pounds. The starting equilibrium exchange rate is E. Which change could lead to a rise in the UK exchange rate?

6.4

The table compares the production potential of two countries, P and Q, for the two goods Y and Z. Which statement is correct?

International trade and free trade

Which action raises the level of protectionism, and which action lowers it?

Protectionism

Country M places a tariff on steel imports. Which values of price elasticity would lead to the least fall in steel imports into M?

Price elasticity of demand

In 2012, the Indian Government announced that it planned to cut its budget deficit to 5.1% of GDP. Which policy is most likely to assist with this objective?

Fiscal policy

Which policy is most likely to help correct a deficit on the current account of the balance of payments?

6.5

The production possibility curves illustrate the capacities of four economies to make trucks and cars. In which economy is the opportunity cost of making cars the lowest?

Production possibility curves

A government cut the tax on company profits from 28% to 20%. Which statement best describes this policy?

Supply-side policy

John charges $10 for cakes. Aisha provides online tutoring at $20 per hour. The value of one hour of Aisha’s tutoring equals the value of two of John’s cakes. Which function of money is shown here?

Oligopoly

In the diagram, D1 shows the original demand curve for university student places. What might make the demand curve move to D2?

Demand and supply curves

From the diagram, the area of OP1M1Q1 is the same as the area of OP2M2Q2. If the price is reduced by half from P1 to P2, what is the value of the price elasticity of demand?

Price elasticity of demand

Which elasticity figures show that cars are normal goods and that petrol is complementary to the use of cars?

Price elasticity of demand

What information is required to calculate the price elasticity of supply of a product when its price changes?

Price elasticity of supply

The government sets a minimum price for a product that is higher than the present equilibrium price. Which value of the product’s price elasticity of supply would lead to the smallest excess supply in its market?

Price elasticity of supply

Which statement made by a company is normative?

Economic methodology

The diagram depicts the cocoa market, and cocoa is a normal good. At first, the market is at equilibrium with price Pe and quantity Qe bought and sold. Which pair of events, with event 1 occurring before event 2, must have taken place to shift the market to the new equilibrium at point X?

Income elasticity of demand

Goods X and Y are complements, and both have upward-sloping supply curves. What effect will an increase in the supply of good Y have on the equilibrium price and quantity of good X?

Income elasticity of demand

What is usually regarded as one benefit of using the price mechanism as a rationing device?

Resource allocation in different economic systems

The diagram illustrates a competitive market that is in equilibrium at price P and quantity Q sold. Which area indicates the producer surplus?

Cross elasticity of demand

The government sets a maximum price for wheat flour at a level below the market equilibrium price. Once the maximum price has been introduced, which statement is not correct?

Maximum and minimum prices

A country’s income tax system has two parts. 1 The first $20 000 of earned income is exempt from tax. 2 Any earnings above $20 000 are taxed at 20%. Which description correctly matches this tax system?

Fiscal policy

In 2014 Egypt cut subsidies for fossil fuels including gasoline and diesel. The diagram illustrates the original equilibrium at point X. What will the new equilibrium be after subsidies are reduced?

Maximum and minimum prices

What is one purpose of a transfer payment?

Short-run costs

There have recently been calls for the UK government to bring its railways into public ownership. Which of the following would not count as a reason for nationalising the railways?

Government intervention in markets

The diagram illustrates a movement of the aggregate demand curve, from AD1 to AD2. What could have brought about this shift?

Economic growth

The diagram illustrates an economy’s production possibility curve for goods X and Y. What opportunity cost is involved in shifting from point R to point S on the production possibility curve?

Production possibility curves

The table gives the consumer price index (CPI) and national output at current prices in 2014 and 2015 for an economy. What can be concluded when 2015 is compared with 2014?

National income statistics

From June to the end of July 2016 the UK pound sterling fell by 11% against a basket of currencies belonging to the UK’s major trading partners. The diagram illustrates the initial aggregate demand curve AD1 and the initial aggregate supply curve AS1 for the UK economy prior to June 2016. The equilibrium is at X. What will the new equilibrium be for the UK economy as a result of the depreciation of the pound sterling?

Economic growth

Which item is excluded from a country’s balance of payments current account?

6.3

A government wants to increase the external exchange rate of its currency. What action should it take?

6.4

Country X carries out 60% of its trade with country Y and 40% of its trade with country Z. The starting value of country X’s trade-weighted exchange rate index is 100. What will be its revised trade-weighted exchange rate index if its currency loses 20% of its value against the currency of country Y and gains 10% in value against the currency of country Z?

6.4

A country’s terms of trade index moved from 100 in 2015 to 104 in 2016. What might have brought about this change?

6.4

The table presents the production possibilities for cloth and food in four countries when all resources are fully used. If the world exchange rate is 1 unit of food for 6 units of cloth, which country is V most likely to trade with?

International trade and free trade

The diagram illustrates domestic and world demand and supply for a good. The government places a tariff on imports of the good. What happens to the quantity imported?

Protectionism

Give one example of a supply-side policy.

Supply-side policy

In a country, the Marshall-Lerner condition for an improvement in the trade balance holds in the long run, yet the quantities of imports and exports respond slowly to price changes. The government devalues its currency in order to cut its trade deficit. Which curve shows the likely movement of the trade balance?

6.4

During 1995 to 2000, all of the countries named below shifted towards a market economy through privatisation programmes. Which country had the slowest pace of transition?

Resource allocation in different economic systems

In a closed economy, which combination of policies is most likely to work effectively in the short run to cut inflation?

Externalities

A businesswoman establishes a charity to supply toys for young children in low-income families. Which term best describes these toys?

1.6

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

Demand and supply curves

D1D1 represents one person’s original demand curve for public transport. What would make the demand curve move to D2D1?

Demand and supply curves

Goods X and Y have a positive cross-elasticity of demand, and their supply curves slope upwards. What effect will a fall in the price of good Y have?

Price elasticity of demand

Which statement most accurately describes what price elasticity of supply means?

Price elasticity of supply

The table sets out how a consumer’s spending on different goods changes as her income rises from $20 000 to $24 000. If everything else is assumed to stay the same, for which goods does the consumer’s income elasticity of demand exceed 1.0?

Price elasticity of demand

The statements come from a report written by a water company that provides water to households and businesses. Which of the statements is normative?

Economic methodology

An international oil company said that it would end its search for oil off the coast of Namibia. The reason was that the amount of oil available was only sufficient to supply a local power station for Namibia, and not enough to make exports of oil possible. What could be one possible advantage and one disadvantage to Namibia of this decision?

Scarcity, choice and opportunity cost

The data table illustrates a competitive market that is in equilibrium across two periods. What might account for the shift from period 1 to period 2?

Income elasticity of demand

On the diagram, D1 represents the demand curve for Indian tea and S1 shows the original supply curve. The Indian government introduces a tax on tea, so the supply curve moves to S2. Which areas on the diagram show the tax revenue earned by the Indian government and the new producer surplus?

Maximum and minimum prices

The diagram illustrates the supply and demand curves for bananas. What occurs to consumer surplus as the price rises from P1 to P2?

Cross elasticity of demand

A ««1«« price that is set lower than the market equilibrium will create a ««2«« of the product, whereas a ««3«« price set above the market equilibrium will create a ««4«« of the product. Which words fill gaps 1, 2, 3 and 4?

Maximum and minimum prices

The diagram illustrates the initial demand curve D1 and initial supply curve S1 for a good. The government then introduces a subsidy. What will total consumer spending be after the subsidy has been introduced?

Maximum and minimum prices

Which of the following is a transfer payment?

National income statistics

A flood-control dam is an example of a good supplied directly by a government. Which statement about the direct provision of a flood-control dam is not correct?

Maximum and minimum prices

Around the world, economies have been moving in the direction of market economies and away from state-controlled nationalised industries. Which policy would restrict this shift?

Maximum and minimum prices

An economy is currently at an equilibrium level of real output Y, yet it aims to shift towards its full employment level of real output YFE. Which mix of policy measures is most likely to bring about this aim without generating high inflation?

Supply-side policy

The sets of output for goods X and Y listed in the table could all be produced with the country’s current resources being used at full capacity. Which statement correctly describes the opportunity cost of good Y in terms of good X?

Production possibility curves

In the diagram, AD1 and AS show an economy’s initial aggregate demand and aggregate supply curves. What would lead the aggregate demand curve to move to AD2?

Economic growth

A country experiences a decline in the consumer price index. What must be linked to this decline?

Balance of payments

The balance of payments accounts are presented in this format. Which total represents the current account balance? balance of trade in goods + balance of trade in services = total A + net income (primary income) = total B + net transfers (secondary income) = total C + capital balance = total D financial balance errors and omissions

6.3

The US central bank reduces its interest rate. This affects the exchange rate of the US$. The diagram illustrates the resulting changes in both the demand for and supply of US$ in the foreign exchange market. A change is shown by a movement from a curve numbered 1 to a curve numbered 2. What should curves W, X, Y and Z be labelled to show the effect of the fall in interest rates on the exchange rate?

6.4

The table is about a specific country. Which statement concerning the 2005 to 2015 period is correct?

Unemployment

Two countries, Northland and Southland, make two goods, food and drink. The table indicates the number of hours each country must spend to produce one unit of each product. Once they have specialised in line with comparative advantage, they choose to trade. Which exchange rate will enable both countries to gain from trade?

International trade and free trade

What feature is present in a customs union but not in a free trade area?

Protectionism

The diagram shows Dd and Sd as the domestic demand and supply curves for a product. Sw shows the world supply of the product under free trade, where the world price is Pw. The product’s starting domestic-market equilibrium consumption level is at E. If a tariff of t is introduced, world supply is then shown by Sw + tariff, at a price of Pw + t. What would be the level of domestic production and the total government revenue from tariffs after the tariff of t is introduced?

Protectionism

Which government policy would be most likely to aim at increasing the number of skilled labour?

Long-run costs and economies of scale

A country has experienced a current account deficit on the balance of payments for a long time. The government was applying an expenditure-switching policy, but it now intends to move to an expenditure-reducing policy. What might the former policy have been, and what might its new policy be?

6.5

The diagram illustrates two production possibility curves for goods and services in an economy. Which factor would not make the economy’s production possibility curve move from PPC1 to PPC2?

Production possibility curves

The government raises interest rates so as to lower the inflation rate. What other effect will this action have?

Monetary policy

What is meant by the non-rivalrous nature of public goods?

1.6

What is the one thing that is not kept unchanged when individual firms’ supply curves are added together to form the short-run market supply curve?

Demand and supply curves

The diagram illustrates demand for a product bought by only three people, Freeman, Hardy and Willis. The table gives the demand of two of these three buyers. Which statement correctly describes Willis’s demand for the product?

Demand and supply curves

Which statement correctly describes price elasticity of supply?

Price elasticity of supply

A manufacturer sells 20 units of a good per week when the price stands at $4. For the stated price range, the value of the price elasticity of supply is 2. How many goods will be supplied at $5?

Price elasticity of supply

People who want to play music at home are now able to get it online. As a result, shops that sell music CDs have closed down. How should this be shown on a demand and supply diagram for music CDs?

Demand and supply curves

Using Table 1.1, calculate the percentage rise in prices in the US between April 2015 and January 2016.

Balance of payments

Explain the ways in which capital goods help production in a modern economy and how capital is rewarded.

Factors of production

Explain the factors that can affect the value of the price elasticity of supply for a product.

Price elasticity of supply

Explain the difference in how tariffs and quotas work as protection methods.

Protectionism

Outline why the US would argue that subsidies for Chinese steel makers give them an ‘unfair advantage in world markets’.

Protectionism

Explain the importance of cross elasticity of demand values that are negative, positive and zero.

Price elasticity of demand

Explain how the rate of deflation is measured and what impact a period of deflation has on an economy.

Balance of payments

Explain the features of a public good. Think about whether a motorway (highway) is an example of a public good.

Behavioural economics

(i) Using Fig. 1.1, describe the pattern in the number of air passengers carried since 1971.

Demand and supply curves

Using examples, explain why certain goods cannot be supplied as private goods.

1.6

Explain how a government intervenes to manage the value of its currency in the foreign exchange market.

6.4

Using a diagram, explain why the interaction of aggregate demand and aggregate supply matters for an economy.

Economic growth

Which statement is correct?

Economic methodology

The diagram presents a firm's short-run cost curves together with its long-run average cost curve. What conclusion can be drawn from the diagram?

7.5

A cartel has been able to control output effectively. However, it has recently begun to show signs of collapsing. Which market characteristic could have led to this?

7.6

Which factor would be most likely to help small firms remain in business in an economy?

7.7

A private company runs a coal mine that employs 400 workers. Its mining activities have polluted the environment and generated external costs. If the government steps in, how might it internalise the externality?

7.4

What advantage does using tradable pollution permits have in controlling pollution?

Maximum and minimum prices

In which case could government intervention to increase the pay of a group of workers be justified so as to stop them being exploited?

Long-run costs and economies of scale

If the supply of female labour falls, what is the likely impact on the wages of men and women?

Long-run costs and economies of scale

What criteria are applied in official labour market surveys to decide whether a person is classified as unemployed?

Price stability and inflation

To raise the number of cleaners at a local school from 10 to 11, the employer must increase the hourly wage from $3.00 to $3.25. What is the marginal cost of labour per hour to the employer?

Long-run costs and economies of scale

What would lead to a fall in labour cost per unit of output?

7.5

What does the term negative externality from consumption mean?

7.4

Of any increase in national income, 25% is spent on imports, 15% is paid in taxes, 10% is saved and the remainder is spent on goods produced domestically. What is the value of the multiplier?

Economic growth

Which economic indicator is worked out from these three components to give a value between 0 (low) and 1 (high)? GNI per capita; life expectancy; education

Trade unions

Which of the following is not a possible benefit to a developing country when a multinational company invests in a new factory there?

Trade unions

What policy would be most effective for reducing cyclical unemployment?

Fiscal policy

A government decided to raise its spending on a major infrastructure scheme by constructing new roads. Which factor would reduce the project’s multiplier effect if it took place at the same time?

Fiscal policy

A country is experiencing recession and has spare resources that are not being used. The government cuts interest rates. According to Keynesian economists, what will the short-run result be? (unemployment; economic growth; inflation)

Monetary policy