May/June 2021

During 2015, China's economy expanded by 6.9%, India's economy by 7.6% and the US economy by 2.4%. Which remark includes two positive statements?

Unemployment

A government introduces a subsidy for product X, so the market price of X falls by 5%. The cross elasticity of demand for product Y, in relation to the price of product X, is +0.4. What will happen to the demand for product Y?

Price elasticity of demand

In 2011 and then again in 2015, the prices of gold, silver and copper declined sharply. The 2011 price drop was attributed to miners raising output. The 2015 price drop happened because demand, particularly from China, weakened. If equilibrium before 2011 was shown as X, how should these changes in 2011 and later in 2015 be represented on the demand and supply diagram?

Income elasticity of demand

The price elasticity of supply for the good is elastic. If all output is sold, which combination accurately shows the relationship between the effect of a rise in price on the quantity supplied and the firm’s total revenue received?

Price elasticity of supply

A municipal authority is considering whether to raise car parking charges and add more lanes reserved for bus use only. One official claimed that higher car parking charges ought to lead to more bus travel. A second official claimed that increasing the frequency of bus services will reduce the demand for bus travel. Are these official statements correct or incorrect?

Price elasticity of demand

What does nationalisation mean?

Maximum and minimum prices

What would economists regard as an increase in transfer payments?

Taxes and subsidies

The government made extra hospital treatment available to its citizens free of charge. What was the outcome?

Maximum and minimum prices

The diagram illustrates a market that is presently in equilibrium. A government is thinking about the possible effects of introducing a price control in this market. Which statement is incorrect?

Maximum and minimum prices

A government introduces a subsidy to encourage the purchase of electric cars. Which area on the diagram shows the cost to the government?

Maximum and minimum prices

Which items would appear in India’s balance of payments financial account?

6.3

What payment is made for using capital?

Factors of production

In what way could an unfavourable change in a country’s terms of trade be beneficial to its economy?

6.3

Two industries in a country are fishing and tourism. In 2010, the foreign exchange rate of the country’s currency fell. If nothing else changed, what effect did this have on the country?

6.4

Why would a government want to raise the value of its foreign exchange rate when the total of the price elasticity of demand for imports and exports is greater than 1?

6.4

The table below gives a country’s consumer prices index (CPI) for the years 2015 to 2019. CPI 2015 100 2016 99 2017 98 2018 101 2019 102 Relative to the year before, in which year did disinflation occur but not deflation?

Balance of payments

The diagrams illustrate the production possibility curves for four countries, W, X, Y and Z. Each country produces rice and cotton with the same resources. After comparing these four countries, what conclusion can be drawn from the diagrams?

Production possibility curves

The diagram indicates that aggregate demand (AD) and aggregate supply (AS) are balanced at point X. Welfare payments rise and the government enhances industrial training. What will the new equilibrium be?

Economic growth

A small country brings in tractors from abroad. The government in this country chooses to place a quota on imported tractors. What is likely to happen to the price of imported tractors and the domestic output of tractors?

Protectionism

What is likely to push inflation higher in an economy?

Balance of payments

Japan is experiencing deflation. Which government policy would not be effective in solving this problem?

Fiscal policy

A country lowers the value of its currency to improve the current account of its balance of payments. The effect of this policy is shown. What is the most likely reason for the shift from X to Y?

Labour market

Which category of good would be consumed too much as a result of information failure?

7.4

A country uses a fixed exchange rate system, yet it is now facing high unemployment and a deficit on the current account of its balance of payments. Which pair of policies would be most likely to improve both unemployment and the current account of the balance of payments?

Labour market

What is the meaning of the term ‘ceteris paribus’?

Economic methodology

What might cause an upward-sloping supply curve to move to the right?

Demand and supply curves

At what time would price not be able to act as a rationing mechanism?

Behavioural economics

What must be present for demand for a good to be effective?

Demand and supply curves

Why is the price elasticity of demand for one specific brand of coffee likely to be greater than the price elasticity of demand for coffee as a whole?

Price elasticity of demand

A government aims to encourage young adults to purchase their first home by offering a subsidy to the builder. Which region on the diagram shows the magnitude of the consumer surplus for those who buy a house with this subsidy?

Cross elasticity of demand

A visitor comes to the coast for a holiday. On her first day, she goes to the local tourist office to get information, swims in the sea, spends the evening appreciating the coastline view, and hires a campsite for one night’s accommodation. Which of these activities involve economic goods and which involve free goods?

1.6

Goods X and Y are complements. 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

A private company earns a producer surplus at the market equilibrium price. What could cause the private company’s producer surplus to become smaller?

Cross elasticity of demand

How might an economist derive the market demand curve for a private good?

Demand and supply curves

Which combination of demand elasticities would be relevant for a firm that wants to raise its revenue? (For each option, state whether price elasticity, cross elasticity and income elasticity are relevant.)

Price elasticity of demand

What is certain to cease after an industry has been nationalised?

Maximum and minimum prices

The diagram illustrates the impact of the government’s introduction of a subsidy for a product. What effects does the subsidy have on government spending and consumer spending?

Maximum and minimum prices

In the diagram, S1 and D1 show the original supply and demand curves for a product. After the ad valorem tax on the product is removed, what would the new supply curve be?

Maximum and minimum prices

The table presents the sources of government revenue in a fiscal year for an economy. What is the total amount, in $ billions, of tax revenue collected from indirect taxes?

Fiscal policy

In most developed economies, education for children from 4 to 16 years of age is offered free of charge and funded through taxation. Why ought the government to do this?

Government intervention in markets

What would lead to a movement along an aggregate supply curve?

Economic growth

Which feature of a planned economy could be seen as negative by a consumer but positive by a producer?

Resource allocation in different economic systems

When a government devalues its fixed exchange rate, what is it most likely trying to achieve?

Labour market

As one element of its trade policy, a government provides a subsidy for the cost of machinery used to produce goods for export. How will this impact the balance of payments?

6.3

Which statement about the causes of inflation is correct?

Balance of payments

The figures below are taken from New Zealand’s balance of payments for 2017, using data published by Stats NZ in September 2018. What was the value of the balancing item (net errors and omissions) in NZ$m?

6.3

Two statements are given. 1 One country can make a good at a lower opportunity cost than another country. 2 One country can make a larger amount of a good using the same amount of inputs as another country. What do these two statements describe?

International trade and free trade

The diagram illustrates the effect of country Y introducing a tariff on good X. What revenue, in US$ million, do producers of good X in country Y receive after the tariff has been introduced?

Protectionism

From 2011 to 2013, retailers said that spending on goods made locally and on imported goods had fallen. This happened because consumers did not borrow money, since the economy was in recession. What is the most likely outcome of this?

Economic growth

If international competition becomes stronger, a country’s current account balance will deteriorate. If there are no countervailing influences, how is this expected to influence the exchange rate and domestic cost-push inflation?

6.3

Why are higher interest rates along with increased taxation on expenditure likely to result in domestic deflation?

Monetary policy

Which policy, intended to reduce a balance of trade deficit, is classed as an expenditure-reducing policy?

Labour market

If the inflation rate increases from 2% to 20%, which function of money would be affected the most?

Oligopoly

Which policy would not lead to a fall in the inflation rate?

Monetary policy

Which statement would an economist classify as a positive statement?

Economic methodology

Which statement correctly describes price elasticity of supply?

Price elasticity of supply

The price elasticity of demand for a firm’s product is 1 for every change in price. What would this mean for the outcome?

Price elasticity of demand

What causes a normal supply curve to shift downward?

Demand and supply curves

A market is initially in equilibrium, with 100 units of the product being sold at a price of US$10 each. The price elasticity of supply for the product is +2.0 and the price elasticity of demand is –1.0. What will be the condition of the market if a minimum price of US$11 is introduced?

Maximum and minimum prices

The diagram illustrates the meat market in equilibrium at X. The cost of producing meat increases, and consumers are increasingly switching from meat to a vegan (non-animal) diet. What will the new market equilibrium be?

Income elasticity of demand

A government department gives milk free of charge to families with very low incomes. Which term best describes the milk?

1.6

A UK-based food company plans to broaden its product range. To fund this, it has secured a $10m loan from a bank to purchase land, construct and equip a bakery. Which of the following would not be regarded by an economist as a factor of production?

Factors of production

A country’s central bank has asked for a report about the demand for houses and house prices. Which combination of reasons would be the most likely to cause both the price and the quantity demanded of houses to rise?

Income elasticity of demand

The diagram illustrates the effect of a landowner who previously let motorists park in his field free of charge, but then sets a parking fee of $1. What is the result of this change?

Income elasticity of demand

The table presents data for the market for two car models. model 1200 cc: weekly number of cars sold 10 000, cross elasticity of demand with respect to the price of petrol -0.25; model 2000 cc: weekly number of cars sold 5 000, cross elasticity -0.50. If the car prices stay the same, but the price of petrol rises by 100%, what effect will this have on the weekly number of cars sold?

Price elasticity of demand

In many countries, some goods have to be supplied directly by the government. What would be the strongest argument in favour of this provision?

Government intervention in markets

Rail services are transferred from the private sector to the public sector. Which statement must be true?

Maximum and minimum prices

The diagram shows the initial demand curve D1 and the initial supply curve S1 for electric cars. The government decides to give electric car manufacturers a subsidy. Which area shows the car manufacturer’s total revenue after the subsidy has been received from the government?

Maximum and minimum prices

A government chooses to construct extra public sector housing that will be let to people on low incomes. What is most likely to decrease as a result of this rise in public sector housing?

Maximum and minimum prices

A government’s spending over one year comprises the following items: $m pensions for elderly people 200, welfare payments to sick people 200, spending on hospitals 150, payment to unemployed workers 100, defence spending 100, teachers’ salaries 50. What is the total amount of transfer payments made by this government in $m?

National income statistics

Which change would definitely lead to a decrease in a country’s cost of living?

Balance of payments

Which of the following is a normative statement?

Economic methodology

Which of the following is not an aim of protectionism?

Protectionism

In a country that uses a fixed exchange rate, the inflation rate is greater than that of its trading partners. What is the probable effect on the quantities of its exports and imports?

6.4

An unexpected jump in the price of imported oil made the annual inflation rate in a particular period higher than forecast. What could be one likely outcome of this?

Balance of payments

Which factors can increase the advantages a country obtains from international trade?

International trade and free trade

The world market price of cars in country Y stands at US$10 000. At this price, domestic car producers provide 100 000 cars to the market, while domestic consumers buy 200 000 cars. The government of country Y introduces a 10% tariff on imported cars. Under what conditions would this tariff generate the greatest revenue for the government?

Protectionism

A country has a balance of trade deficit. In which circumstance would a depreciation of its currency be least likely to reduce this deficit?

6.4

Which of the following statements about trade protection is correct?

Protectionism

Which sort of policy would have the quickest impact in addressing a deflationary economic downturn?

Monetary policy

Which pairing identifies a principal aim of supply-side policy and a measure used to reach this objective?

Supply-side policy

Deflation is linked to a sustained decline in price levels. Which government policy would be the most effective in preventing deflation?

Monetary policy

According to economists, what is regarded as the reward for bearing risk and organising production?

Factors of production

The graph illustrates inflation rates over 10 years for selected emerging economies. Government central banks establish target minimum inflation rates before readjusting interest rates to stabilise the economy. If the minimum inflation rate target set by central banks was 4% per year, at which points would they permit interest rates to fall?

Monetary policy

The British pound serves as the national currency of the UK. In Brixton, in south London, people can obtain a specially designed currency known as the Brixton pound from dedicated cash machines. It may then be used with 150 local shopkeepers. Comparable schemes also exist in towns in the US, Italy and France. Should Brixton pounds be regarded as money?

Oligopoly

When explaining the law of demand for a good, economists use the phrase ‘all other things being equal’. Which factor is not one of those ‘all other things’?

Demand and supply curves

Which factor will not lead to a shift in the market supply curve for a commodity?

Demand and supply curves

A product shows a low price elasticity of supply. What could account for this?

Price elasticity of supply

A car manufacturer estimates that the price elasticity of supply for its cars is +2.5. What effect will a 10% rise in price have?

Price elasticity of supply

The diagram illustrates the initial demand curve D1 and supply curve S1 for diesel cars in Europe. Point X marks the starting equilibrium. Electric car producers carry out a successful advertising campaign, and a new unit tax is imposed on diesel cars. What will the new equilibrium be?

Income elasticity of demand

Explain one possible demand factor and one possible supply factor that may have led to the increase in Vietnam’s export sales of fruit and vegetables.

6.3

Explain whether private goods, free goods and public goods would all be sold within a free market economy.

1.6

With the aid of diagrams, Explain how consumer surplus changes when the price of a luxury product with many substitutes decreases, and when the price of an essential product with few substitutes decreases.

Cross elasticity of demand

Using a diagram(s), Explain one demand factor and one supply factor that would make the value of a currency in a floating exchange rate system depreciate.

6.4

Compare the change in the price level in Myanmar with that in Cambodia between 2016 and 2018.

Protectionism

State what is meant by a demerit good, and with the aid of a diagram(s) explain how a tax on producers can improve the allocation of resources in the market for sugar-sweetened drinks.

Maximum and minimum prices

Explain how cross elasticity of demand can be used to tell apart goods that are substitutes, goods that are complements and goods that are unrelated.

Price elasticity of demand

Explain what is meant by deflation and use aggregate demand and aggregate supply diagrams to explain how it might arise in an economy.

Economic growth

Explain how opportunity cost may be applied to the Great British government’s decision to subsidise public transport.

Maximum and minimum prices

Explain the meaning of cross-elasticity of demand and what these values show about the effect of changes in the price of flights to Barbados on

Price elasticity of demand

Explain what aggregate supply means and explain one reason why the aggregate supply curve of an economy would move outwards in

Economic growth

Explain how a free trade area is different from a customs union and explain two reasons why countries move towards tariff-free trade.

Protectionism

What negative consumption externality can be linked to chewing gum?

7.4

The diagram illustrates a firm’s short-run total cost curve (TC). Which of the following statements is correct?

7.5

The diagram represents the demand curve for a firm’s product. Which diagram illustrates the form of the firm’s total revenue (TR) curve?

7.5

What determines the output level needed to achieve the stated aim of a monopoly firm?

7.6

A government introduces three economic policies: 1 lower income tax 2 higher indirect taxation on alcohol to cut consumption 3 higher spending on infrastructure Which of these policies are forms of government macro economic policy?

Fiscal policy

When consumption creates positive externalities, what may be inferred about market output?

7.4

A country has a Gini coefficient of 0.40. In this country, the lowest-income earners do not pay any income tax. The government raises the tax rate for the highest-income earners, leading to a more equal spread of income. What conclusion could be drawn from this?

Taxes and subsidies

What is understood by economic rent?

7.5

A firm is perfectly competitive in both product and factor markets, and labour is the only variable factor input. In the diagram, line JK represents the link between the marginal physical product of labour and the hours worked. If the marginal revenue of the product is $1.60 and the firm employs 3000 hours of labour, what is the hourly wage?

Long-run costs and economies of scale

A government tries to boost growth by lowering its main interest rate. What could lessen the effectiveness of this?

Monetary policy

The diagram illustrates the comparative locations of two countries X and Y on a Kuznets curve. What does the diagram suggest?

11.4

A firm was manufacturing its goods with an average cost of $14. It then achieves the same output at a lower average cost by using different production methods. The price is still above the marginal cost. In what ways has this firm become more efficient?

Behavioural economics

The Measure of Economic Welfare (MEW) is often seen as a better indicator of economic welfare than Gross Domestic Product (GDP) per head. What is also included when MEW is calculated?

National income statistics

Which statement concerning national income accounting is true?

National income statistics

The chart shows employment rates, expressed as a percentage of total employment, in the primary, secondary and tertiary sector of four countries. Which one is most likely to be the most economically developed country?

11.4

A government wants to raise real GDP and plans to rely only on fiscal and monetary policies. Which mixture of measures is most likely to be the most effective in meeting this objective?

Fiscal policy

What term describes the multiplier process as it operates in a closed economy with no government sector?

Economic growth

Given an economy with no government sector: C = consumption I = investment X = exports M = imports Y = national income. If C = 40 + 0.5Y, I = 80, X = 100 and M = 100, what is the equilibrium level of Y?

Aggregate demand and aggregate supply