Feb/March 2019

Which result is influenced by the division of labour?

Factors of production

In the diagram, the supply of a product rises while the demand curve stays fixed. Which row correctly shows the effect on consumer surplus and producer surplus?

Cross elasticity of demand

The diagram illustrates the market demand and supply for a good. Which statement is not valid?

Income elasticity of demand

On which supply curve is the price elasticity of supply value not constant at every point on the curve?

Price elasticity of supply

Producer surplus is the gap between

Cross elasticity of demand

A government wants to increase farmers’ incomes without increasing the price of food for consumers. Which policy should it adopt?

Maximum and minimum prices

The diagram illustrates the demand and supply for rice. Supply rises from S1 to S2. What change occurs in the rice farmer’s sales revenue?

Income elasticity of demand

The government pays money to a worker who is unemployed as a benefit. Why is this known as a transfer payment?

Aggregate demand and aggregate supply

What is meant by a regressive tax?

Short-run costs

A government is worried that companies owned by foreigners account for a large share of the economy’s output. It therefore nationalises timber extraction, which is run by a foreign-owned company. What benefit will the economy receive from the change in ownership?

Maximum and minimum prices

What is certain to result in an improvement in the terms of trade?

6.3

‘When one person’s consumption rises, the benefits remaining for other people are not reduced’. Which good is described by this statement?

1.6

In the diagram, Sd represents the domestic supply of a product, Sw represents the world supply and Dd represents the domestic demand for the product. Once the country has been operating under a free trade system, it then prohibits all imports. What effect will this ban have on the revenue of domestic producers and world producers?

Protectionism

The diagram illustrates the value of the Nigerian naira against the US dollar from June 2015 to June 2016. What term is used to describe the change in the value of the naira in June 2016?

6.4

Countries M and N account for the world’s supply of machines and textiles. The table shows the output of each country when its resources are split equally between the two products. What should occur according to the principle of comparative advantage?

International trade and free trade

The diagram illustrates an aggregate supply curve together with aggregate demand curves. What could lead to aggregate demand falling from AD1 to AD2?

Economic growth

Two countries trade with each other without any protectionist measures. They also levy a common external tariff on imports from all other countries. What arrangement have these two countries formed?

Protectionism

A developing country's terms of trade declined from 90 in 2010 to 80 in 2015. If its import price index stayed unchanged at 110 over these two years, what was the index of its export prices?

6.3

Which kind of import control enables a country to build up a potential comparative advantage in a specific good?

Protectionism

The diagram illustrates aggregate demand (AD) and aggregate supply (AS) in an economy. The starting equilibrium is at point E. What leads to the movement of the aggregate supply curve from AS to AS1 and from AS to AS2?

Economic growth

Which action could be included in an expansionary economic policy?

Fiscal policy

A government is dealing with increasing inflation. It wants to curb inflationary pressure without causing output to fall. Which action is most likely to achieve this?

Supply-side policy

The diagram illustrates a production possibility curve for a farmer. The initial position is X. If the farmer reallocates some of his land from pear production to apple production, which point shows his new position?

Production possibility curves

For what reasons might a government want to reduce a surplus on the current account of the balance of payments?

Labour market

A student purchases a flute for $80 but then cannot learn to play it. Its resale value is $50, whereas the shop retail price of the same type of flute has increased to $95. What is the current opportunity cost to the student of keeping the flute?

Scarcity, choice and opportunity cost

The diagram illustrates a supply curve for beef. What explains why the supply curve for beef slants upwards?

Demand and supply curves

A theatre raises the price of its tickets from $10 to $15. As a result, its total receipts fall from $10 000 to $6000. Within what range does the price elasticity of demand for theatre tickets lie?

Price elasticity of demand

A taxi company increases fares during its peak periods to as much as five times the usual fare. Taxi drivers and customers are informed about the changes through mobile (cell) phones. What outcome will this policy produce?

Income elasticity of demand

The table compares Shanaz’s and Sunil’s price elasticity of demand for restaurant meals and theatre tickets. The price of restaurant meals rises, whereas the price of theatre tickets falls. What can be concluded after these changes in price?

Price elasticity of demand

The diagram illustrates the demand curve for a normal product. Which two points indicate a movement from a price inelastic point to a less inelastic point?

Price elasticity of demand

Identify two policies adopted by the Polish government that could be considered as supply-side policies.

Economic growth

Show how a production possibility curve can be used to illustrate scarcity, choice and opportunity cost.

Production possibility curves

Explain how understanding a good’s price elasticity of demand can help a business judge the effect of price changes for that good on total revenue.

Price elasticity of demand

Explain how a government can bring down the value of the exchange rate in an economy with a managed exchange rate system.

6.4

A project incurs a social cost of $100 million, a private cost of $40 million and an external benefit of $20 million. Its net social value is zero. What conclusion can be drawn about the project?

7.4

The diagram illustrates the average fixed cost (AFC), average variable cost (AVC) and average total cost (ATC) curves confronting three firms X, Y and Z. DX, DY and DZ are the three corresponding demand curves. Each of the three firms aims to earn a profit. Which statement is not correct?

7.5

When a firm quadruples all its inputs, its output only triples. What does this illustrate?

7.7

What do the transfer earnings of the factor enterprise indicate?

Factors of production

A country operates a negative income tax. In the diagram, curve NT represents the country’s original tax schedule. A change in the tax rate shifts the schedule to NT1. What effect will this have on work incentives and the after-tax distribution of income?

Short-run costs

In which labour market diagram is workers’ economic rent highest?

Long-run costs and economies of scale

Which of the following statements about government intervention is correct?

Maximum and minimum prices

The government sets a minimum wage higher than the equilibrium market wage rate. According to marginal revenue product (MRP) theory, what impact will this have on low-paid workers?

Long-run costs and economies of scale

The diagram illustrates the market for a good that generates a negative externality in production and no positive externalities. The present level of consumption is OQ1. The government chooses to impose a tax on producers of the good. What size of tax on producers would lead to a socially efficient allocation of resources?

7.4

The diagram illustrates a production possibility frontier, PPF1. The economy starts at point X. If actual economic growth is achieved, but potential growth is not, where would the economy end up?

Production possibility curves

The figures in the table come from a country’s national income accounts: consumer expenditure $250m, investment $100m, government expenditure $150m, exports $100m, imports $150m, taxes $80m, subsidies $40m. What is the value of national income at factor cost in $ million?

National income statistics

The diagram presents a firm’s cost and revenue curves. At what price does allocative efficiency occur?

Behavioural economics

Which source of income is excluded when real GDP is measured?

National income statistics

What changes to real GNP per head could make it a more dependable measure when comparing standards of living across different countries?

National income statistics

What does the Kuznets curve show?

Trade unions

For an open economy that also includes a government sector, the marginal propensity to import is 0.3, the marginal propensity to tax is 0.3 and the marginal propensity to save is 0.2. What is the value of the multiplier?

Economic growth

The figures in the table come from a country’s national income accounts: national income $600m, consumer spending $400m, investment $80m, government spending on goods and services $100m, exports $140m. What is the value of imports in $ million?

National income statistics

A country’s central bank prints money in order to buy government bonds from commercial banks. What is this process known as?

Monetary policy

Which row gives the characteristics of a rapidly growing emerging economy? (the rows contain different combinations of GDP per head, birth rate and household saving ratio)

11.4

Which policy is most likely to raise unemployment?

Fiscal policy

A government in a developed economy wants to reduce cyclical unemployment. Which policy is likely to be the most effective?

Externalities

Suppose an economy introduces expansionary monetary policy in order to raise employment. One outcome of this policy is that the consumer price index increases at an accelerating rate. Which curve could show this?

Market failure

A government is weighing whether to upgrade the rail network and select one of four high-speed routes. The benefits and costs for each route (private benefits, external benefits, private costs, external costs in $bn) are as follows: A: 14,20,0.4,0.1; B: 16,22,1.6,0.4; C: 18,12,0.2,1; D: 20,18,2,4. Which route ought to be selected?

7.4

In country X, the government wants to safeguard jobs. Which policy is most likely to be successful?

Long-run costs and economies of scale

The table presents the total utility a consumer obtains as more apples are eaten (apples consumed: 0→6; total utility: 0,10,18,24,28,30,30). At what consumption level does marginal utility become zero?

Utility and rational consumer behaviour

In the indifference curve diagram, point M shows the consumer’s starting equilibrium, JK and JL represent budget lines, and MN is the substitution effect of a decrease in the price of good X. If good X is a Giffen good, which point will be the consumer’s new equilibrium point after the price of good X falls?

Indifference curves and budget lines

Selina receives an income of $100 and purchases food and drink. One unit of food costs $2, whereas one unit of drink costs $1. Which pattern of spending would indicate that Selina intends to save part of her income?

Indifference curves and budget lines

The diagram illustrates a profit-maximising monopolist. What would be the price change if this monopolist switched from profit maximisation to revenue maximisation?

7.6

Firm X aims to achieve a minimum acceptable level of profit. What term does this describe?

7.7

A monopoly firm earns only normal profit in the long run. What is the most likely explanation for this?

7.6

What does the term ‘quantitative easing’ mean?

Unemployment

‘Governments should use whatever methods they can to regulate monopolies because they are inefficient.’ Judge whether monopolies are always inefficient and which methods governments might use to regulate them.

Maximum and minimum prices

Explain why indifference curves are generally drawn convex to the origin, slope downward and never intersect one another.

Indifference curves and budget lines

Analyse whether a connection exists between a firm's marginal cost and

7.5

In economic theory, what importance does a worker’s marginal product and average product have for a firm operating in a perfectly competitive labour market?

Long-run costs and economies of scale

Distinguish between leakages and injections in the circular flow of income, and explore how they may be connected.

Perfect competition

‘Keynesian policies used to solve unemployment will not succeed because they will conflict with the achievement of other key macroeconomic aims.’ Assess the accuracy of this statement.

Externalities