Oct/Nov 2020

The diagram illustrates an economy’s production possibility curve. It has been using its resources in a mix of 80% consumer goods production and 20% capital goods production. What will happen if it chooses to double its capital goods output?

Production possibility curves

A farmer allocates his land between the cultivation of two crops – wheat and oats. If he wants to raise the output of one, he has to cut the output of the other. What would lead the farmer to raise his supply of wheat?

Scarcity, choice and opportunity cost

What would lead the demand curve for vegetables to shift from D1 to D2, as illustrated?

Demand and supply curves

The demand curve for new cars in a country moved leftward. Which change could have brought about this shift?

Demand and supply curves

What is accurate about market supply?

Demand and supply curves

Which statement gives the best description of a transfer payment?

Short-run costs

The diagram illustrates the effect of a unit tax introduced by a government on a good. The initial supply curve is S1, while the supply curve following the unit tax is S2. What is the amount of tax paid by the consumer?

Maximum and minimum prices

The diagram illustrates the demand and supply curves for healthcare in a private market. What would happen if the government were to supply the same quantity of healthcare free of charge?

Maximum and minimum prices

A good is supplied by the government. If one person consumes it, this does not reduce the quantity of the good left for other people. What type of good is this?

Government intervention in markets

A government levies income tax on individuals. The first $100 000 of earned income is taxed at 20%, while any earned income above $100 000 is taxed at a marginal rate of 50%. Which statement is not valid?

Short-run costs

Agricultural economies have seen their terms of trade worsen. What factors may have caused this?

11.5

Which comment about the introduction of charges for medical treatment that had previously been free is normative?

Economic methodology

The table presents the output of rice and cotton for countries X and Y. Each country allocates its resources equally to producing rice and cotton. According to the law of comparative advantage, which statement is correct?

International trade and free trade

The AD / AS diagram shows an economy that starts in macroeconomic equilibrium. Which change will certainly lead to an increase in real output?

Economic growth

The figures present the consumer prices index (CPI) and an index of money wages in an economy over four years. year 1-4 CPI 100,102,105,110 index of money wages 100,102,107,110 Which statement is incorrect?

Balance of payments

A country is running a $300 million deficit on the current account of its balance of payments. It devalues its currency in an effort to cut the deficit. Which row best matches the view that the J-curve applies in the short run, whereas the Marshall-Lerner condition holds in the long run?

6.3

A family goes on a holiday overseas. Four students are asked to show where the cost of the accommodation would be entered in the current account of the balance of payments of the country they visit. Which student is correct?

6.3

The diagram illustrates the introduction of a tariff on imports. Which combination of values is correct?

Protectionism

At what point is a current account deficit in the balance of payments likely to become worse?

6.3

A government operating a floating exchange rate wants to promote an increase in the international value of its currency. What action should it take?

6.4

In 2016, Greece’s unemployment rate was above 20%. Which set of policies would be most suitable for the Greek government to use in order to reduce unemployment?

Price stability and inflation

The diagram illustrates how the income tax rate is related to tax revenue. Which statement is correct?

Fiscal policy

Which feature of money is most important for it to operate as a medium of exchange?

Oligopoly

Which policy action would be considered a supply-side policy measure?

Supply-side policy

Which is not a feature of a planned economy?

Resource allocation in different economic systems

Good X is a substitute for good Y and a complement to good Z. What would occur after the price of good X falls?

Price elasticity of demand

The table indicates how one person’s weekly intake of biscuits and coffee changes as income changes. income ($) 100 150 biscuits (packs) 0 5 coffee (cups) 5 10 Which statement about the income elasticity of demand over the range of income shown is true?

Price elasticity of demand

The diagram illustrates four supply curves. Which statement correctly describes the price elasticity of these supply curves?

Price elasticity of supply

The diagram illustrates the market for a good where the initial equilibrium price is $10. At every price, demand for the good rises by 40 units, so the equilibrium price increases to $12. What is the value of the producer surplus after the price rise?

Cross elasticity of demand

For a product, the quantity demanded (QD) is represented by QD = 400 – 20P, with P as the price in dollars. The quantity supplied (QS) is represented by QS = 100 + 40P. What alteration will take place if the price increases from $5 to $6?

Demand and supply curves

The diagram displays a production possibility curve. What can be inferred from the form of this curve?

Production possibility curves

A rise in the popularity of air conditioning units has caused their price to go up by 20%. As a result, the quantity supplied rose by 30%. What can be concluded from this?

Price elasticity of supply

Which change would not have an immediate effect on the position of the demand curve for a product?

Demand and supply curves

When demand for a good decreases, its price decreases. What is the purpose of the price decrease?

Income elasticity of demand

A firm calculates that the price elasticity of supply for its product is 0.4. Would this figure be a cause for concern for the firm?

Price elasticity of supply

A government plans to privatise a state-owned company. What action should the government take to help make sure that this leads to greater efficiency?

Law of diminishing returns

The graph compares an individual’s income before income tax is deducted with the income after income tax has been deducted. What is the marginal percentage rate of tax for the interval $0 to $10 000, and for $10 000 to $20 000?

Fiscal policy

During year 1, for the good shown in the diagram, the starting demand and supply curves are D1 and S1, and the government has imposed a maximum price of OP2. In year 2, demand shifts to D2, with no further alteration to supply conditions or to the maximum price. Which row correctly shows the market price and quantity for both years?

Income elasticity of demand

What must happen for an action to be treated as a transfer payment?

Maximum and minimum prices

The market for good X is initially in equilibrium. The government then introduces a subsidy for producers of good X. Under what conditions will the government’s total expenditure on the subsidy be highest?

Maximum and minimum prices

In which combination of conditions would a policy of raising the money supply be most effective in helping an economy recover from recession?

Monetary policy

Which of the following statements is correct?

Economic methodology

In what economic context is the term ‘protectionism’ usually used?

Protectionism

Which factor is most likely to lead to an increase in a country’s exchange rate?

6.4

The table gives an approximate breakdown of Thailand’s balance of payments current account. Bank of Thailand current account (millions of US dollars) April 2018: exports 18 990; imports 18 715; trade balance 275; net services, primary income and secondary income 1130. Calculate the current account balance, in millions of US dollars?

6.3

The diagram presents the production possibility curves for two economies when all resources are fully employed. Country X is able to make 10 million cars or 20 million bicycles, and country Y is able to make 20 million cars or 40 million bicycles. Based on the theory of comparative advantage, which statement about country X and country Y is correct?

Production possibility curves

A country is running a balance of payments deficit. It then devalues its currency. Which combination causes its balance of payments deficit to fall in the long run?

6.4

The diagram illustrates aggregate demand curves AD1 and AD2 together with an aggregate supply curve AS1. What might cause the aggregate demand curve to move from AD1 to AD2?

Economic growth

A government in an open economy that has an overvalued currency chooses to give up its fixed exchange rate and switch to a floating exchange rate. Which macroeconomic policy aim is least likely to be achieved as a result of this change?

Efficiency

Devaluation always results in

6.4

A government applies monetary policy and fiscal policy to tackle a deflation problem. Which combination of policies is most likely to be the most successful?

Fiscal policy

A government cuts its spending on workplace training, raises indirect taxes, and lowers the interest rate it pays on government debt. Into which categories would these government macroeconomic policies be placed?

Fiscal policy

Consider the two statements below. 1 Increasing the price of rice is the most effective way to raise the living standards of farmers in South-East Asia. 2 If the price of rice rises, demand will decrease. Which row shows the correct description of these two statements?

Demand and supply curves

Which term denotes the total level of aggregate demand in a closed economy?

Economic growth

Which of the following is a characteristic of money, rather than a function of money?

Oligopoly

In the UK, proposals to persuade people to switch from travelling by road to using rail by introducing a road pricing system were expected to have little impact because ‘people like using their cars too much’. How could this prediction be explained?

Price elasticity of demand

The diagram illustrates the demand curve for a product with unitary price elasticity. What will happen to this curve?

Price elasticity of demand

The diagram illustrates the market supply and demand for a good. Which region shows producer surplus?

Cross elasticity of demand

Vanilla is a key input in ice cream production. From 2011 to 2018, the price of vanilla rose from about US$100 per kg to almost US$600 per kg. The diagram displays market demand for, and supply of, ice cream. The initial equilibrium is X. Which point shows the impact of this price increase on the ice cream market?

Income elasticity of demand

If a government cuts income tax but, at the same time, increases the VAT rate, what are the likely effects on the demand and supply of a normal good?

Maximum and minimum prices

An economy is producing at a point inside its production possibility curve. Why is this called inefficient?

Production possibility curves

A bus trip is classed as an inferior good in a comparatively affluent country such as Singapore, but as a normal good in a comparatively low-income country such as Tanzania. In what direction would a rise in incomes in both countries make the demand curve for bus trips in Singapore and Tanzania move?

Price elasticity of demand

A firm supplies a quantity of a good equal to Q. Each of these goods is sold at a price of P. The area beneath the supply curve for Q goods equals C. What is the firm’s producer surplus?

Cross elasticity of demand

The figure presents the market demand for and supply of good E. Equilibrium has moved from X to Y. Which statement is not correct?

Income elasticity of demand

The diagram illustrates the market for CDs. The government increases the minimum price of CDs from $12 to $14. What is the result?

Maximum and minimum prices

A government classifies alcoholic drinks as a demerit good and sets a minimum price above equilibrium in an effort to protect consumers. Demand for alcoholic drinks is price inelastic. What is the most likely outcome?

Maximum and minimum prices

Manufacturers of solar panels receive a government subsidy of $50 per unit. What effect will this have?

Maximum and minimum prices

For what reasons could a government choose to privatise the railway industry in a country?

Law of diminishing returns

Which tax is charged on a stock of wealth instead of a flow of income?

Maximum and minimum prices

How is a transfer payment classified?

Maximum and minimum prices

In which situation would the inflation rate be most likely to decrease?

Balance of payments

What is meant by a free good?

1.6

Under what circumstances will country X possess a comparative advantage in rice production over country Y?

International trade and free trade

The diagram illustrates an economy where the initial equilibrium real output is Y1 at a price level of P1. Which combination of events would be most likely to make the equilibrium real output increase to Y2?

Economic growth

The table shows data from New Zealand’s current account in the balance of payments for 2018. Two gaps, X and Y, appear in the account. Which student gave the correct answer?

6.3

What do an economy’s terms of trade indicate?

International trade and free trade

A country uses a floating exchange rate. Why might a government switch to a fixed exchange rate?

6.4

Which term refers to a decrease in the domestic real value of a currency?

6.4

A country is experiencing a continuous balance of payments deficit. What is most likely to improve the position over the long term?

6.5

In order to combat deflation, a central bank uses expansionary monetary policy. What is likely to result?

Monetary policy

A government lowers the benefits paid to unemployed workers so as to increase the incentive to work. Which kinds of macroeconomic policies are being used?

Supply-side policy

Imagine a country where inflation is far under the target level, unemployment is high and the balance of payments is in a large deficit. What would an economic adviser to the government be most likely to suggest?

Externalities

A country is changing from a planned economy to a market economy. In the past, the government supplied transport services, but it has now sold them to private firms. What result will this have?

Resource allocation in different economic systems

In Country X, an open economy operating under a fixed exchange rate, which blend of fiscal and monetary policies would work best to reduce deflation?

Fiscal policy

A government wants to stop an infectious disease from spreading by vaccinating all children. Why could vaccination be regarded as a merit good?

Government intervention in markets

A product has a demand curve that slopes downward and a supply curve that slopes upward. What would explain a rise in the product's price and a fall in the quantity sold?

Income elasticity of demand

Public transport in an economy has an income elasticity of demand of –0.36. What does this indicate about public transport?

Price elasticity of demand

The demand for a product is represented by QD = 400 – 10P, where P denotes the price in dollars. The supply of the product is held constant at 100 units. If the price is $20, what will be the market position?

Income elasticity of demand

D1 and S1 are the original demand and supply curves in the market for new cars, with equilibrium at X. What would lead the demand curve to move to D2 and the supply curve to move to S2?

Income elasticity of demand

A product has a unitary price elasticity of demand, and when its price is $20, a firm sells 40 000 units. How many units will the firm sell if it charges $5?

Price elasticity of demand

Describe the roles of an entrepreneur in the production process.

6.4

Explain, using examples, how imperfect information among consumers influences their consumption of merit goods and demerit goods.

Government intervention in markets

Cross elasticity of demand for bread with respect to the price of rice is +1.4 while the cross elasticity of demand for bread with respect to the price of butter is –0.7. Explain why the cross elasticity of demand figures for bread differ.

Price elasticity of demand

Explain, with the aid of a diagram, the effect of a subsidy to domestic producers of a product on the export revenue from that product.

6.5

With reference to the extract and Fig. 1.1, explain the change in the price of natural vanilla using supply and demand diagrams

Price elasticity of demand

Use a diagram to explain how a subsidy granted to producers in the vaccinations market will influence the market price and explain how this subsidy affects the consumer surplus in this market.

Maximum and minimum prices

Explain how the factor of production enterprise adds to aggregate supply in a modern economy and how it is unlike the other factors of production in the reward it receives for its services.

Factors of production

State how the terms of trade are measured, and explain three possible reasons for the fall in China’s terms of trade shown above.

6.3

State whether, over the period July 2013 to July 2017, the Malaysian ringgit depreciated or appreciated against the US dollar. Justify your answer.

6.3

Using diagrams, explain what might lead to a market being in disequilibrium, and how market forces would bring equilibrium back.

Income elasticity of demand

Explain what is meant by income elasticity of demand and, with the help of examples, show how it can be used to decide whether a good is normal or inferior.

Price elasticity of demand

Use an AD/AS diagram to explain how this funding affects the level of output in the economy.

Supply-side policy

What is the primary purpose of cost-benefit analysis?

Law of diminishing returns

The diagram illustrates a firm’s short-run average cost curve. What accounts for the curve’s shape?

7.5

A firm succeeds in pursuing a policy of predatory pricing. What will happen to the prices set by the firm in the short run and in the long run?

7.8

Which of the following is not a reason why small firms exist in a market dominated by large companies?

7.7

The diagram illustrates an industry’s supply and demand curves. If externalities are absent, which area on the diagram shows the net reduction in economic welfare when the government restricts output to OQ?

Cross elasticity of demand

In 2007, the government of the United Kingdom prohibited cigarette smoking in enclosed public places. What government failure is caused by this ban?

Maximum and minimum prices

At what time does a more equal distribution of income take place?

Short-run costs

What is likely to make labour more occupationally mobile?

Long-run costs and economies of scale

The diagram shows a case in which a trade union has secured a wage, OW, for its members. Employment is at OQ. What do the trade union members maximise in this situation?

Long-run costs and economies of scale

What does the Human Development Index not include?

Trade unions

In what circumstances would low wages and cheap land in a developing country fail to draw foreign investment into manufacturing?

Trade unions

The diagram illustrates a firm operating under perfect competition and causing pollution. What is shown as the external cost?

7.4

A person had no work only briefly, then got a job soon after. Which type of unemployment is being described?

Price stability and inflation

The diagram compares the annual percentage variation in the Inclusive Wealth Index (IWI) for four economies from 1990 to 2008, together with their 2008 GDP per head. What can be concluded from the diagram?

Monopoly

Which measure would count as a monetarist policy to combat inflation?

Monetary policy

The national income/expenditure diagram illustrates changes in consumption expenditure (C). What would cause the consumption function to move from C1 to C2?

Economic growth

According to the accelerator theory, what would make investment in an economy fall below the level of the previous year?

Unemployment

Which statement correctly shows net leakages from a country’s circular flow of income? (private sector S > I, government sector T > G, trade sector X > M)

Aggregate demand and aggregate supply