Feb/March 2020

The diagram illustrates the production possibility curve for a desert island economy in which the inhabitants make only two goods, coconuts and fish. What accounts for the shape of the production possibility curve?

Production possibility curves

A power station burns waste in order to generate electricity. As a by-product, this also creates fertiliser for farmers. What is the effect in the fertiliser market of an increase in demand for electricity?

Income elasticity of demand

The table sets out the supply and demand for avocados in Mexico City. Because transport costs have fallen, supply increases by 60 kg at every price. What is the equilibrium price now?

Income elasticity of demand

The diagram illustrates a demand curve for pineapples. What happens to the value of price elasticity of demand (PED) as there is a movement from point X to point Y, and how is the value at point Y described?

Price elasticity of demand

Four firms make furniture. The table gives the price elasticity of supply (PES) for each firm. If the price of furniture goes up by 5%, which firm would see quantity supplied rise by 2.5%?

Price elasticity of supply

Which argument has frequently been used to support the privatisation of state enterprises?

Law of diminishing returns

A government sets a ceiling on rent so that rented accommodation becomes more affordable. What long-term result is likely if the ceiling is fixed below the present free market price?

Maximum and minimum prices

What kinds of activity would be classified as direct government provision of goods and services?

Maximum and minimum prices

What kind of tax is the 15% sales tax imposed in South Africa?

Maximum and minimum prices

What is one example of a transfer payment?

Aggregate demand and aggregate supply

Which change would cause an instant reduction in the current account deficit in the balance of payments?

6.3

A worker is paid $40 per hour. Instead of working, she chooses to spend three hours at a museum. The trip has a total cost of $40. What is the opportunity cost of going to the museum?

Scarcity, choice and opportunity cost

How is an increase in the value of the South African rand in foreign exchange markets most likely to help the South African government meet which policy objective?

6.4

Four countries, A, B, C and D, engage in international trade. In the diagram, each circle shows a free trade area made up of the countries inside that circle. One country may be part of more than one free trade area. Any country that lies outside a circle encounters trade barriers. Which country has the greatest opportunity to benefit from free international trade?

International trade and free trade

The diagram illustrates Greece’s trade position with the EU from 2005 to 2014. In what way was the Greek trade balance with the EU different in 2014 from 2005?

6.3

A central bank predicts that raw material costs will increase. The government intends to raise spending on health and education. The starting equilibrium position is marked by X on the aggregate demand, AD, and aggregate supply, AS, diagram. Which new equilibrium point would occur in the short run if the predictions are correct and the government plans are carried out?

Economic growth

In a country operating under a floating exchange rate, the current account of the balance of payments shows a substantial surplus. What is likely to fall as a result?

6.4

In 2018, an investor from the United States (US) bought shares in a German bank. In December 2018, that US investor received a dividend from those shares. How were these transactions shown in the US balance of payments for 2018? purchase of shares / dividend receipt

6.3

Which statement gives a description of disinflation?

Balance of payments

For output in a closed economy to rise, aggregate demand must increase. What has to occur for this rise in output to be brought about in the economy?

Economic growth

A country that uses a fixed exchange rate and has a deficit on the current account of its balance of payments moves into recession. It then devalues its currency in an attempt to put right its balance of payments. Under which conditions is the deficit most likely to improve?

Labour market

What is one example of a fiscal policy used to raise aggregate demand in an economy?

Fiscal policy

A newspaper report includes these remarks. 1 The tax burden ought to be moved more heavily onto the highest earners. 2 Nationalising essential services is in the public interest. What kind of economic statement is shown by each remark?

Economic methodology

A country that operates a fixed exchange rate records a balance of payments surplus. Which policy measure will allow it to keep its exchange rate unchanged?

6.4

Which shift in how resources are allocated within an economy matches a move from a planned economy to a market economy?

Resource allocation in different economic systems

Under which condition will consumers’ total spending on a good rise when its price rises?

Price elasticity of demand

In which situation would a manufacturer be more able to increase the quantity supplied in the short run?

Price elasticity of supply

The diagram illustrates the market for strawberries. The initial equilibrium point is X. What will the new point be after strawberries fail to ripen and the price of cream, a complement to strawberries, falls?

Income elasticity of demand

Good X is related to good Y. Incomes rise and the price of good Y drops. Which combination would lead to the biggest rise in demand for good X?

1.6

When the free market for a good is in disequilibrium, what must be true?

Income elasticity of demand

Explain how each of ‘a healthy US economy, a large US fiscal deficit and a strong US dollar’ could add to a US trade deficit.

6.3

Explain what causes the shift in equilibrium price and equilibrium quantity of a good when incomes in an economy rise.

Income elasticity of demand

Explain how an economist would categorise each of these provisions.

1.6

Explain using aggregate demand and aggregate supply diagrams the difference between cost-push inflation and demand-pull inflation and explain one cause of each.

Economic growth

Which statement about a product that creates external costs must be correct?

7.4

Which statement is correct for economies of scale but not for diseconomies of scale?

7.5

What is most likely to be observed when the long-run equilibrium outcome in monopolistic competition is compared with that in perfect competition?

7.6

A government splits a nationalised rail service and then sells it to five private companies. The biggest of these firms dominates the four smaller firms. How will these changes affect the market structure for rail services?

7.6

What does the term ‘real wages’ mean?

Long-run costs and economies of scale

The graph illustrates the percentage increase in average earnings in the UK economy. What is the most likely reason for the pattern that appears in the graph?

Long-run costs and economies of scale

Which pairing of policy changes would be most likely to shift income away from the richest households and towards the poorest households in an economy?

Taxes and subsidies

The diagram illustrates how introducing a national minimum wage (MW) affects the labour market. What do the distances XY and YZ indicate?

Long-run costs and economies of scale

At present, motorists who drive their cars within area 1 on the map pay a daily congestion fee of $8. Which car journeys would fall in number if the congestion charge zone were expanded to include area 2?

Maximum and minimum prices

Which factor is most likely to make the greatest contribution to sustainable economic growth in a developed economy?

Monopoly

In the income method of calculating national income, what would be excluded?

National income statistics

Which statement is true when a firm in a perfectly competitive market is maximising its long-run profits?

7.6

What changes to basic income at points W and X could be included in the calculation to arrive at disposable income?

National income statistics

In a closed economy without a government sector, under what conditions will an increase in investment spending produce the greatest rise in equilibrium national income?

Aggregate demand and aggregate supply

The table presents economic data for four different countries in 2015. Which country is most likely to be classified as ‘developed'?

11.4

Give one example of a Keynesian macroeconomic policy that could lower cyclical unemployment.

Fiscal policy

The graph illustrates how the unemployment rates in countries X, Y and Z changed during the period 2000 to 2010. All three countries experienced recession from 2008 to 2010. Which conclusion can be drawn from the graph about the period 2000 to 2010?

Price stability and inflation

The diagram illustrates the yearly percentage (%) change in employment and output in the UK private sector from 2000 to 2012. In which year did labour productivity fall by the greatest amount?

Unemployment

In recent years, among European countries, the Netherlands recorded the largest share of part-time workers and an average working week of 32 hours for all employees. Greece had a lower share of part-time workers, but an average working week for all employees of 41 hours. What conclusion can be reached from this information?

Monopolistic competition

A report in 2017 indicated that, by 2030, automated robots might put 33% of current jobs in the UK at risk, compared with 38% in the US and 21% in Japan. Jobs in manufacturing and retail were seen as being at the highest risk. Which type of unemployment is shown in the paragraph above?

Price stability and inflation

Which diagram illustrates the effect of a quantitative easing policy on the rate of interest?

Monetary policy

Which macroeconomic policy is most likely to be used as a long-term way of reducing inflationary pressures?

Supply-side policy

The table presents the outcome of a cost-benefit analysis carried out by a government while it was deciding whether to invest US$200 million in a new airport construction project. The airport will be built if the net social benefit delivers a return of at least 10% on the investment. What minimum external benefit, in US$ million, is required to reach this?

7.4

What factors might stop a government from achieving a higher rate of growth of real GDP?

Unemployment

The diagram illustrates a total utility curve for a consumer. At which point is marginal utility zero?

Utility and rational consumer behaviour

The diagram illustrates a consumer’s indifference curves together with a budget line for electronic goods and food. Assuming income and prices do not change, which point on the diagram will enable the consumer to maximise satisfaction?

Indifference curves and budget lines

The diagram illustrates a consumer’s total utility. Which curve would indicate that marginal utility is diminishing?

Utility and rational consumer behaviour

Which option counts as an internal economy of scale?

7.7

Why may a firm keep producing in the short run even though the price of its product has fallen below its average total production costs?

7.5

The diagram indicates that a producer raises output from Q1 to Q2. What outcome will follow?

7.5

Identify from the article one example, other than expansionary monetary policy, of a macroeconomic policy tool that a government could use and analyse how it might affect the economy.

Unemployment

‘If externalities are present, market failure follows, so the good must be supplied by the government.’ Discuss this claim.

7.4

Explain how a consumer’s rational behaviour, marginal utility, prices of different goods and the demand for a good are related.

Utility and rational consumer behaviour

Explain what determines the size of a firm.

7.7

Using economic analysis, how can the level of wage rates in a perfectly competitive labour market be explained?

Long-run costs and economies of scale

‘Monetarists maintain that controlling the money supply is the main way to tackle inflation, whereas Keynesians contend that inflation can only be curbed by controlling expenditure.’ To what extent do you agree that both of these approaches are only partly correct?

Monetary policy

Using a diagram, explain the Laffer Curve analysis and assess how it is linked to supply-side policies.

Supply-side policy