Feb/March 2022

A production possibility curve illustrates the combinations of output that an economy can produce when it uses all of its available resources. At which points on the diagram are all available resources being used?

Production possibility curves

A firm calculates that the price elasticity of supply for its product is +1.5. What does this show?

Price elasticity of supply

An increase in the price of a good is followed by a rise in the quantity demanded. What might account for this?

Demand and supply curves

What makes the demand curve for an inferior good move to the right?

Price elasticity of demand

The diagrams illustrate the effect of a change in the market for good X on the market for good Y. Which relationship between the two goods is most likely?

Price elasticity of demand

To strengthen its financial position, a government chose to cut spending on investment in the public sector. Economic growth did not decrease. What was the most likely effect of the government’s action?

Fiscal policy

What effects would result if a government set a maximum price below the equilibrium price?

Maximum and minimum prices

The National Library Board of Singapore is a public-sector organisation that funds and oversees the state libraries. What is the most likely explanation for this?

Government intervention in markets

The following three taxes are named. • a sales tax (VAT) applied to fuel • a specific tax at 10% on cigarettes • the percentage rate of income tax on individual earnings rises as taxable income rises Which combination shows the effect of each tax type?

Maximum and minimum prices

In a rural area, the fare for a bus journey is $5. To improve local transport, the government provides bus firms with a subsidy of $2 per journey. The diagram shows the possible changes in demand and supply. What is the new quantity of journeys and the bus fare for a journey?

Income elasticity of demand

The diagram illustrates Japan’s annual consumer prices index for the years 1990–2010 inclusive. During which period did Japan have both inflation of about 2% and deflation of about 2.5%?

Balance of payments

What does a normative economic action depend on?

Economic methodology

A government abolishes its quota on imported laptops. Assuming a normal demand curve and an upward-sloping supply curve for laptops, what effects are likely for domestic laptop manufacturers?

Protectionism

The terms of trade index for Mauritius decreased from 111.2 in the first quarter of 2018 to 106.1 in the second quarter. Which combination might have led to this result?

6.3

Starting from the equilibrium position illustrated, government spending on goods and services rises while the production costs of goods and services also rise at the same time. Which option most accurately describes the probable effect on the economy?

Economic growth

The diagram illustrates a change in an economy’s aggregate demand curve from AD1 to AD2. Which factor could not have caused this change?

Economic growth

Which item is excluded from the current account section of the balance of payments statement?

6.3

The prices of a country’s exports increase by 5% whereas the prices of its imports decrease by 5%. Which aspect of the country will certainly get better as a result of these changes?

6.3

Which of the following is not a type of protectionism?

Protectionism

Two countries, X and Y, make food and drink. The table indicates the number of hours needed for each country to produce one unit of each product. What would happen if country Y doubles its productivity in producing drink and both countries specialise in producing just one good based on comparative advantage?

International trade and free trade

‘A fall in the exchange rate can help to cut a country’s balance of payments deficit because imports become more expensive and exports become cheaper.’ What is this policy called?

Labour market

An increase in which variable signals a contractionary monetary policy?

Monetary policy

Which function of money solves the double coincidence of wants problem that occurs in a barter system?

Oligopoly

Which government monetary policies would be the most effective during a global recession?

Monetary policy

The production possibility curves (PPCs) illustrate the production capacity of four economies for wheat and rice. Which PPC has the smallest opportunity cost of producing wheat?

Production possibility curves

The diagram illustrates a supply curve for chicken. What accounts for the upward slope of the supply curve for chicken?

Demand and supply curves

The diagram illustrates the demand and supply curves for cars in India. The market begins at equilibrium at X. What will be the new equilibrium if Indian car manufacturers are given a subsidy and the price of train and bus journeys in India also increases?

Income elasticity of demand

Demand curves are drawn ceteris paribus. Which ‘other things’ do not need to stay unchanged when an individual’s demand curve for ice cream is drawn?

Demand and supply curves

How is the cross-elasticity of demand for good X with respect to good Y measured?

Price elasticity of demand

At what point is the price mechanism least likely to move resources in response to a shift in consumer preferences?

Behavioural economics

Using Fig 1.1, describe how Turkey’s current account balance changed between August 2019 and April 2020.

Economic growth

Explain with the help of a production possibility curve diagram(s) how a decision to re-allocate resources in an economy to produce more capital goods and fewer consumer goods would affect consumers in both the short run and the long run.

Production possibility curves

Use examples to show why the supply of some products is price elastic, whereas the supply of other products is price inelastic.

Price elasticity of supply

Explain what is meant by ‘protectionism’ and describe two methods that could be used to protect this steel industry.

Protectionism

What can be inferred about an economy in which nobody can be made better off without making another person worse off?

Behavioural economics

A monopoly firm is producing output OT and charging a price of OW for its product, which is how it is maximising profit, as the diagram shows. The government then judges that the firm’s activities create positive externalities, so it awards the firm a subsidy. If the firm still aims to achieve maximum profit, what will happen?

Maximum and minimum prices

In many developed economies, large and small firms often operate alongside one another within the same industry. What is the most likely reason for the survival of the small firms?

7.7

What is usually linked to the principal-agent problem?

Behavioural economics

A government wants to lower the negative externalities arising from the use of coal. Which policy should the government use?

7.4

What is one example of ‘nudge’ theory?

Maximum and minimum prices

At what point is a policy that transfers income from wealthy people to poorer people most appropriate?

Short-run costs

Which diagram shows the correct relationship between average product (AP) and marginal product (MP) of labour, assuming the amounts of all other factor inputs stay constant?

Factors of production

Earnings in industry X are much higher than in industry Y. What might account for this difference?

Long-run costs and economies of scale

Economic growth brings both advantages and disadvantages. In which case would living standards be considered to have definitely risen?

Unemployment

Which item is excluded from National Income accounts?

National income statistics

What is the same as social benefits?

Short-run costs

A government wants to draw in foreign direct investment to help develop its economy. Which factor is most likely to do this?

Trade unions

Which indicator is least likely to be used when comparing the economic development of a country?

Trade unions

What term is used for short-term unemployment while people are moving from one job to another?

Price stability and inflation

The table presents figures for an economy’s labour market. number of people of working age 42.7 million; number of people of working age who are actively seeking work, but are not working 2.2 million; number of people of working age who are not actively seeking work 9.4 million. What is the economy’s percentage employment rate, to the nearest whole number?

Monopolistic competition

Some people say that rapid economic growth damages the environment. Which result would not damage the environment?

Monopoly

The diagram illustrates rises in both aggregate demand, from AD1 to AD2, and aggregate supply, from AS1 to AS2. Which diagram shows the output gap after the increase in AD and AS?

Economic growth

Which statement would be linked to Keynesian economic theory?

Economic growth

In a closed economy with no government sector, the multiplier indicates the effect of a change in

Economic growth

In year 1, countries X and Y are both in balance of payments equilibrium. During year 2, country X, which exports oil, increases the price of its oil, so its foreign earnings rise by $500m, and half of this amount is deposited in banks in country Y. Country Y is a major purchaser of X’s oil, and the higher price causes its foreign expenditure to rise by $400m. If all other factors stay the same, what are the total currency flows for X and Y?

6.3

What is shown by the Laffer curve?

Fiscal policy

The diagram presents the average cost (AC), marginal cost (MC), average revenue (AR) and marginal revenue (MR) curves for a monopoly. At what point is allocative efficiency reached?

Behavioural economics

The table presents key macroeconomic indicators for four countries in 2018. What conclusions can be drawn from it?

Market failure

In what way can the idea of marginal utility account for the downward-sloping shape of the demand curve?

Utility and rational consumer behaviour

XY is the budget line for an individual consumer. Which changes might keep the position of XY unchanged?

Indifference curves and budget lines

The diagram presents an indifference map together with two budget lines. As the consumer’s budget line moves from BL1 to BL2, consumption moves from point W to point Z. What do these changes show about the type of goods X and Y?

Indifference curves and budget lines

Small farmers sell their entire rice output to one buyer only. Which term most accurately names this market structure?

7.6

A firm in an imperfectly competitive market chooses to alter its objective from sales revenue maximisation to sales volume maximisation. Why could it have chosen to do this?

7.8

The diagram presents the marginal cost (MC), average cost (AC), marginal revenue (MR) and average revenue (AR) curves for a profit-maximising firm in monopolistic competition. On the basis of its profit, and assuming there is no market growth, what is likely to occur to the demand for this firm’s output in the long run?

7.6

Explain the difference between a fixed cost and a variable cost, then give one example of each from the article.

7.5

Explain what dynamic efficiency means and evaluate which type of market structure is most likely to achieve dynamic efficiency.

7.6

Explain what economists mean by indifference curves and budget lines and evaluate whether they can be used together to support rational consumer decision making.

Indifference curves and budget lines

A profit maximizing firm in a perfectly competitive labour market may choose to employ more workers, but it will not decide to raise the wage rates of its workers. Discuss the extent to which you agree with this statement.

Long-run costs and economies of scale

Many developing countries depend heavily on the production and export of primary products. This is the chief reason for low economic growth in developing countries and, therefore, the main explanation for the low standard of living in these countries. Discuss the extent to which you agree with this statement.

Trade unions

Government policies that depend on raising budget deficits to tackle unemployment will not succeed because they leave the natural rate of unemployment unchanged. Discuss the extent to which you agree with this statement.

Fiscal policy

Using a circular flow diagram, consider how a decrease in the rate of interest might affect output and employment levels.

Perfect competition