Oct/Nov 2021

A European airline launches a fresh route to Dubai. It acquires extra aeroplanes, leases additional landing slots, employs pilots and repurchases some of its shares to increase the firm’s value on the stock market. Which of these is an example of the factor of production capital?

Factors of production

The diagram illustrates the demand and supply curves for a good in a free market. What can certainly be inferred from the diagram?

Income elasticity of demand

Demand for a good rises. In which situation will the quantity supplied of the good increase the most?

Price elasticity of supply

The diagram illustrates the demand curve and supply curve for a good on which the government places a specific tax. What will be the outcome of this tax?

Maximum and minimum prices

The diagram illustrates how a 10% rise in consumer incomes moves the demand for good X from D to D1. Which statement about good X is correct?

Price elasticity of demand

What is one example of privatisation?

Supply-side policy

In Adam Smith’s canons of taxation, what was meant by the term ‘economy’?

Fiscal policy

A government chooses to abolish fees for higher education in both the public sector and the private sector. What will be the result of this policy?

Maximum and minimum prices

What is the principal consequence of introducing an effective maximum price on foodstuffs?

Maximum and minimum prices

An effective minimum price is imposed on alcohol in an attempt to cut consumption. Why might a government choose not to purchase any surplus that results?

Maximum and minimum prices

A government intends to raise expenditure on education and training each year. Which diagram is most likely to show how this increase affects the economy’s long-run output and price level?

Supply-side policy

Which statement regarding the behaviour of firms in a planned economy is correct?

Resource allocation in different economic systems

What does disinflation mean?

Balance of payments

Which option most accurately describes a country’s terms of trade?

6.3

A developed country has a price-inelastic demand for oil and imports all of its oil. Oil-producing countries raise the supply of oil. What is likely to happen to the developed country’s inflation rate and balance of trade?

Balance of payments

Country X and country Y each make rice and tables. In both countries, half of the resources go into rice production and the remaining half is devoted to table production. The table shows the output of each item. What conclusion can be drawn from the table?

Production possibility curves

An economy has a deficit on the current account of its balance of payments. What could the economy do in order to fund this deficit?

6.3

A person living in country X purchases shares in a company in country Y. Those shares later pay that person a dividend. In country X’s balance of payments, where are these two transactions recorded?

6.3

Which factor is most likely to trigger cost-push inflation in an economy?

Economic growth

Which changes are most likely to make the consumer prices index (CPI) a less accurate measure of inflation?

Balance of payments

When a government cuts the rate of direct income tax and reduces the external value of its currency, which row shows the effects of these policies?

Fiscal policy

Guatemala’s balance of payments on the current account stood at –US$1.6 bn in 2011 and at +US$1.0 bn in 2016. Which factor is most likely to have contributed to this shift in the balance of payments on the current account during this five-year period?

6.3

The table shows data on entrepreneurship among males in three countries in 2013. What conclusion can be drawn from the table?

7.7

The government wants to raise aggregate demand. Which measures would be most likely to achieve this?

Fiscal policy

The diagram presents the production possibility curves for two economies, Northland (Y1–X1) and Southland (Y2–X2). Each economy specialises according to the theory of comparative advantage and then trades with the other. What can be concluded from the diagram?

International trade and free trade

The supply curve for fresh fish moves from S1 to S2, as illustrated. What could be one possible reason for this change in the supply of fresh fish?

Demand and supply curves

If the supply of a good falls and the equilibrium price does not change, what is the price elasticity of demand of the good?

Price elasticity of demand

What does cross-elasticity of demand measure?

Price elasticity of demand

The table gives the highest price a consumer would pay for each additional can of fruit juice. One can of fruit juice costs $4 and, after purchasing three cans, the consumer chooses to buy a fourth. In what way does buying the fourth can change his consumer surplus?

Cross elasticity of demand

The diagram presents four supply curves. Which statement correctly describes the price elasticities of the curves?

Price elasticity of supply

Line XX shows the production possibility curve (PPC) for a worker who picks peas and beans during a 10 hour working day. What might make the worker’s PPC move to line YY?

Production possibility curves

A diagram is given of the demand and supply curves for bread in a developed economy. Since bread can replace pasta and rice, what would make the demand curve for bread shift from D1 to D2 in a developed economy?

Demand and supply curves

The table indicates the amount demanded of three goods as the price of good X varies. What relationships among X, Y and Z can be inferred from the table?

Price elasticity of demand

The diagram displays three supply curves. What conclusion can be drawn about the price elasticity of supply for these curves?

Price elasticity of supply

The diagram illustrates the smartphones market in India. As incomes in India have increased, demand for this normal good has moved from D1 to D2. Which shaded area now shows consumer surplus, and which shaded area now shows producer surplus?

Cross elasticity of demand

A nationalised industry is made private. Assuming that the industry’s output does not change in the short run, what are the immediate effects of this change?

Maximum and minimum prices

What characteristic distinguishes a progressive income tax?

Short-run costs

What reasons might lead a government to nationalise a private firm?

Government intervention in markets

The diagram illustrates a firm's supply and demand for apples. If the minimum price rises from P1 to P2, what happens to the quantity of apples sold?

Maximum and minimum prices

To try to cut crime, a government offers a subsidy for the production of burglar alarms, yet sales increase only a little. Which possible features of the good could explain this result?

Price elasticity of demand

Relative to Pakistan, Germany produces more pharmaceuticals for each unit of resources used. What might account for this?

Factors of production

What counts as a function of money?

Oligopoly

Which statement regarding inflation is correct?

Balance of payments

Why does a country’s balance of payments have to balance at all times?

6.3

If the government of country X decided to use voluntary export restraint in trade with country Y, which argument in favour of protection would be the most relevant?

Protectionism

The mean price of a country's exports rose by 5%, and the mean price of its imports rose by 10%. What can be concluded with certainty from this information?

6.3

An increase in indirect taxes occurs. What effect will this have on demand-pull inflation and on cost-push inflation?

Maximum and minimum prices

The table lists how many biscuits and cakes four workers can make in one hour. Which worker has the highest comparative advantage in biscuit production?

Scarcity, choice and opportunity cost

What condition must hold for a country’s balance of payments on its current account to improve after it lowers its exchange rate?

6.4

The diagram illustrates the effect of the United States (US) introducing a tariff on steel imports in 2018. Which statement correctly describes the impact of the tariff?

Protectionism

In 2012, the Indian Government announced that it intended to cut its budget deficit to 5.1% of GDP. Which policy would be most likely to support this objective in the short run?

Fiscal policy

What factor would make a policy of increasing interest rates less effective at reducing inflation?

Monetary policy

How do economists define a public good?

1.6

Country X has an open economy and uses a floating exchange rate. It then switches to a fixed exchange rate. Which set of policy changes would be the most effective in cutting inflation?

Wage determination

Which of the following statements about the factors of production is correct?

Factors of production

Which supply curve indicates that the price elasticity of supply of the good is always equal to 1?

Price elasticity of supply

Which changes might bring about a shift in the supply curve for good X, and what might cause movement along that supply curve?

Demand and supply curves

At X, the market for mobile phones is first in equilibrium. The government then introduces a sales tax. What is the total tax revenue earned by the government from this tax?

Maximum and minimum prices

What is one example of how the price mechanism performs its rationing function?

Income elasticity of demand

In 2016, car drivers purchased more fuel because the price of the oil used to produce it had decreased. Which diagram shows this change in the fuel market?

Income elasticity of demand

In the diagram, JK shows the economy’s original production possibility curve for computers and cars. What might lead the curve to move to JL?

Production possibility curves

What is the price elasticity of demand for smartphones if the price drops from US$100 to US$90 and the quantity demanded increases from 200 to 250?

Price elasticity of demand

The diagram illustrates the demand for and supply of a normal good. E1 is the original equilibrium point. Which changes might lead to a new equilibrium E2?

Income elasticity of demand

The table presents the market demand and market supply for kiwifruit during a year. When the market price is $3 per kg, the market is in disequilibrium. What action would the government need to take in order to bring about market equilibrium at a price of $3 per kg?

Maximum and minimum prices

The cross-elasticity of demand of good S in relation to the price of good P is +1.5. The cross-elasticity of demand of good S in relation to the price of good R is –1.5. The cross-elasticity of demand of good P in relation to the price of good R is –1.5. What conclusion can be drawn about goods P, R and S?

Price elasticity of demand

A government wants to levy a tax on a good so that consumers bear most of the tax rise. Which elasticity would be most suitable for this purpose?

Price elasticity of demand

Why must the government pay for the production of public goods?

Government intervention in markets

Which payment counts as a transfer payment?

Short-run costs

The diagram illustrates the impact of a subsidy in the wheat market. Which region indicates the total government expenditure on the subsidy?

Maximum and minimum prices

A government wants to lower alcohol consumption. Which policy would it use to meet this objective by setting the price of alcohol?

Maximum and minimum prices

In comparative advantage theory, why does trade bring benefits between two countries?

International trade and free trade

In country X, consumers purchase some goods and services from private sector firms. The state supplies the rest of the goods and services. What type of economy is this?

Resource allocation in different economic systems

If the demand for a country’s exports is price-elastic, and its government then introduces export subsidies, what impact will this have on the balance of trade and on the terms of trade?

6.5

The table gives the average changes in the prices and volumes of exports and imports. Which combination of changes would cause the terms of trade to rise?

6.3

A government chooses to raise the quota on an imported good. What is most likely to occur?

Protectionism

The diagram illustrates aggregate demand (AD) and aggregate supply (AS) in an economy. What is most likely to bring about the move from AS1 to AS2?

Economic growth

Country X imposes a 20% tariff on steel products brought in from country Y. Country Y then responds by imposing a 20% tariff on computers imported from country X. What is one definite economic result of these actions?

Protectionism

A nation uses a floating exchange rate. An increase in which variable inside that nation could lead to its exchange rate appreciating?

6.4

The diagram illustrates the consequences of a tariff being introduced on a good traded internationally. Sdom is the supply and D the demand in country R. Sw is the world supply curve for the product and Swt is the world supply curve following the introduction of a tariff by country R. Which combination describes how domestic supply of, and demand for, the good in country R changes after the tariff is introduced?

Protectionism

The graph illustrates how Belgium’s current account balance of payments changed between 2016 and 2017. Which effect is most likely to result from the change shown on the graph for Belgium’s domestic economy?

6.3

What is one example of how monetary policy is used?

Monetary policy

Which policy would be most likely to cause inflation to rise?

Monetary policy

In 2017, the Bank of England launched a redesigned £1 coin because there were worries that very large numbers of counterfeit £1 coins had entered circulation. Which feature of money did these illegal £1 coins put at risk?

Oligopoly

What components make up aggregate demand?

Economic growth

Which statement is an example of a positive statement?

Economic methodology

What might lead to a rise in consumer surplus in the market for a good?

Cross elasticity of demand

The diagrams illustrate the impact of a shift in the market for good X on the market for good Y. What conclusion can be drawn from the diagrams?

Price elasticity of demand

The diagram presents the mean global price of coffee in US cents per pound weight (lb) from 1997 to 2005. Which event fits the price pattern shown in this period?

Income elasticity of demand

The diagram illustrates a movement of the supply curve for a product from S1 to S2. What might have caused this change in the supply curve?

Demand and supply curves

The diagram illustrates four supply curves. Which curve has a constant price elasticity of supply?

Price elasticity of supply

Explain how inflation can make the ‘real value’ of money fall to half its original level.

Balance of payments

With the help of a diagram, compare the changes in an economy’s resources that lead to movement along its production possibility curve with the changes in an economy’s resources that lead to a shift of its production possibility curve.

Production possibility curves

Using a diagram, explain the effects on consumers and producers of the introduction of a minimum price in the market for a product.

Maximum and minimum prices

Using a diagram, explain how a central bank intervenes to hold a fixed exchange rate when the economy has a current account deficit on its balance of payments.

6.4

Calculate import expenditure as a percentage of total demand in India for quarter 1 2019.

Price elasticity of demand

Use a diagram(s) to show how a production possibility curve can be used to illustrate opportunity cost and why such a curve is usually drawn with increasing opportunity costs.

Production possibility curves

Explain what is meant by consumer surplus and use diagrams to assess the effect on consumer surplus when an indirect tax is imposed on a good with price-elastic demand compared with the effect when demand is price-inelastic.

Cross elasticity of demand

Explain what inflation means, and use diagrams to show how it can emerge both from a shift in the aggregate demand curve and from a shift in the aggregate supply curve.

Economic growth

Using the information in Fig. 1.1, describe how the contribution to real output growth from the different parts of aggregate demand in China changed between 2010 and 2017.

Economic growth

Explain how a planned economy and a market economy each deal with the fundamental economic problem.

Resource allocation in different economic systems

Using price elasticity of demand, explain why raising the product’s price is:

Price elasticity of demand

Explain how inflation is calculated and why an increase in the inflation rate may be a concern for consumers and producers.

Balance of payments

What condition must be satisfied in order to achieve Pareto efficiency?

Behavioural economics

Which combination of income elasticity of demand and price elasticity of demand is most likely to account for a firm being able to earn higher profits in specialised luxury product markets?

Price elasticity of demand

The diagram shows a firm’s cost and revenue curves. The firm carries out one successful $100 million advertising campaign. How will this influence its cost and revenue curves?

7.5

Under what conditions are a firm’s aims most likely to be unlike profit maximisation?

7.8

Which mix of policies is most likely to lessen income distribution inequality?

Taxes and subsidies

To address pollution, some governments impose standards, such as production limits, whereas others use tradeable pollution permits. Which comparison between these two approaches is correct?

Maximum and minimum prices

The diagram represents an economy’s Lorenz curve (VW). Area Y is three times the size of area X. What is the economy’s Gini coefficient?

Short-run costs

Which factor will not cause the labour demand curve to move rightward?

Long-run costs and economies of scale

The diagram illustrates one individual’s labour supply curve. He has been offered a job that would require him to work a standard 40-hour week. Which area shows the amount needed to persuade him to accept this job offer?

Long-run costs and economies of scale

The aggregate demand in country X is given by the equation AD = C + I + (X – M). Four students are asked to complete the two missing words in the statement about the economy of country X. ‘Country X is ......1...... economy ......2...... a government.’ Which student is correct?

Economic growth

The diagram illustrates the Kuznets curve. Which statement is correct about the description of an economy and the matching letter on the Kuznets curve?

Trade unions

Give one example of a negative externality.

7.4

When economists measure a country's total output value, they use the concept of value added. What might account for this?

National income statistics

A government uses personal disposable income per head as a measure of the standard of living. What is not included in this measure?

National income statistics

Which policy would be most likely to raise employment?

Fiscal policy

Low income countries that sought loan support from the IMF were generally obliged to adopt structural adjustment programmes (SAPs), which consist of policies designed to encourage a free-market economy. Which measure would have formed part of a SAP?

Trade unions

In a closed economy with no government, the initial equilibrium level of national income is $500 billion. Households in the economy always spend a fixed proportion of every $1 of income that they receive. If investment spending rises by $20 billion, the economy reaches a new equilibrium level of national income of $600 billion. What is the marginal propensity to consume of the economy’s households?

Aggregate demand and aggregate supply

According to Keynesian theory, the demand for money (Md) depends on personal level of income (L1) and the rate of interest (L2), giving Md = L1 (Y) + L2 (r). In the aggregate demand for money function, what do L1 and L2 denote?

Oligopoly