May/June 2022

The diagram illustrates a production possibility curve for an economy currently operating at point P. What amount of X must be sacrificed to make the quantity of Y shown?

Production possibility curves

What condition must hold for consumer surplus to be zero?

Cross elasticity of demand

Under what circumstances does the price mechanism fail to operate as a system for allocating goods?

Behavioural economics

A product is priced higher than the market equilibrium price. As the market moves back towards equilibrium, which combination of changes must definitely occur?

Income elasticity of demand

What conclusion can be drawn about a good when its cross-price elasticity of demand is positive?

Price elasticity of demand

Which row indicates the effect of the maximum and minimum prices named in the table headings?

Maximum and minimum prices

Suppose a government introduces tolls (charges) for using all major roads. What is the most likely effect on the number of trips taken on major roads and on minor roads?

Maximum and minimum prices

The table presents information for a bus company that was privatised in 2013. year revenue $000 passenger journeys percentage change from previous year (%) 2012 470 +5 2013 495 +2 2014 430 –2 2015 440 –1 What is the most likely conclusion that may be drawn from the data?

7.7

The diagram illustrates the market for electricity in a country with a fixed supply of electricity and the introduction of a maximum price so that poorer households can afford it. What effect will this have?

Maximum and minimum prices

State one example of a transfer payment.

Short-run costs

Turkey is able to make a good, but it also imports some of that good from Egypt. The Turkish currency loses value against the Egyptian currency. How is this most likely to influence the production of this good in Egypt and in Turkey?

6.4

The Indian government runs a pension scheme. Which statement about this scheme would be regarded as normative?

Economic methodology

The table gives a country's total output and its mean price for each of three years. year output (millions) price ($) 1 10 20 2 12 24 3 13 26 What conclusion can be drawn about output?

National income statistics

The diagram illustrates how the supply curve for imports shifts from S–S1 to curve S–S2 following the government’s introduction of a trade protection measure. What form of protection is it?

Protectionism

The aggregate demand (AD) and aggregate supply (AS) diagram indicates that the economy is in equilibrium at X. In this economy, a serious shortage of raw materials leads to a substantial increase in their price. Which point shows the result of this change?

Economic growth

For what reasons might a country's government levy a tax on fuel exports?

Government intervention in markets

What causes a country’s terms of trade to fall?

6.3

The diagram contains three lines showing an economy’s exports, imports and trade balance from 2011 to 2019. How should the lines be labelled?

6.3

Which policy would be most effective in raising the value of a currency?

6.4

A central bank in an economy chooses to increase interest rates so that it can draw in capital inflows and strengthen the financial account of the balance of payments. In which situation is the central bank’s decision least likely to work?

Labour market

What might be called an expansionary fiscal policy?

Fiscal policy

Why does a contractionary monetary policy lower inflation?

Monetary policy

Economics students are required to complete the missing words in the passage below. ‘The three fundamental questions that come from the economic problem of scarcity are ......1...... to produce, ......2...... to produce, and ......3...... to produce.’ Which option gives the correct combination?

Scarcity, choice and opportunity cost

A country's government is concerned by a large deficit on the current account in its balance of payments and by a rising inflation rate. The country's currency is kept at a fixed exchange rate. Which policy measure is most likely to enable the government to cut the current account deficit and bring down the inflation rate?

Labour market

Which of the following is not a function of money?

Oligopoly

A producer of a good with price-elastic demand notices that when its price increases, total revenue also increases. What could account for this?

Price elasticity of demand

What would raise the producer surplus of farmers who grow carrots?

Cross elasticity of demand

A well-known band is scheduled to perform at a music concert in a venue with a 5000-seat capacity. Recent performances and the launch of a new album have increased the band's popularity further. D1 and S show the original demand and supply curves for concert tickets, and D2 shows the new demand curve. Which diagram most accurately shows the likely result in the market for concert tickets?

Income elasticity of demand

Why is it that an individual’s demand curve usually slopes downwards from left to right?

Demand and supply curves

What does the term price elasticity of supply mean?

Price elasticity of supply

Which list contains the greatest number of words that are more likely to refer to a positive statement rather than a normative statement?

Economic methodology

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

Price elasticity of demand

Which pair of events is most likely to keep the demand curve for a normal good in the same position?

Demand and supply curves

Which of the following does not occur when price is used as a way to allocate resources?

Resource allocation in different economic systems

Which statement regarding market disequilibrium is correct?

Income elasticity of demand

Which combination of tax reforms is most likely to be regressive in a developed economy?

Short-run costs

For a product, the demand and supply functions are quantity demanded = 1500 + 50P and quantity supplied = 300P – 2000, where P = price. If government regulation sets the market price at $15, what can be inferred about the type of price regulation and the relationship between demand and supply in this market?

Demand and supply curves

With the aim of improving air quality for its citizens, a government offers a subsidy to producers of cars powered by batteries charged from the electricity supply. How would this subsidy probably affect the price of electricity and the amount sold?

Maximum and minimum prices

What is certainly not part of a transfer payment?

National income statistics

Which outcome is not likely to happen when the supply of public goods increases?

Behavioural economics

In 2020, retailers saw sales decline when domestic demand in an economy decreased. Even so, the effect on the wider economy was less adverse than had originally been expected. What could have reduced the impact on the economy?

Economic growth

What is the principal feature of a planned economy?

Resource allocation in different economic systems

What does a trade-weighted exchange rate try to allow for?

6.4

What would cause the terms of trade to improve?

6.3

The diagram illustrates the economy’s annual inflation rate. What can be inferred from the graph?

Balance of payments

A country uses a fixed exchange rate system. What factor would create pressure for the country to devalue its currency?

6.4

The table shows several possible pairings of a country’s price elasticity of demand for exports and price elasticity of demand for its imports. After the country’s currency is devalued, which pairing of elasticities would cause its balance of payments on the current account to deteriorate?

6.3

A small country has no tariffs and receives a perfectly elastic supply of smartphones from the rest of the world. Which statement is correct after a tariff is imposed?

Protectionism

In a recent year, Japanese car manufacturers agreed to cap the number of cars exported to the USA. Which type of protectionism is this?

Protectionism

The diagram illustrates a movement of a country’s short-run aggregate supply curve from SRAS1 to SRAS2. The country imports oil. Why could a rise in the world price of oil have led to this shift?

Economic growth

What, if lowered, will help bring down the inflation rate?

Economic growth

Give one example of contractionary fiscal policy.

Fiscal policy

A production possibility curve (PPC) diagram shows the combinations of computers and food that an economy can make. If every available resource is being used, which two points on the PPC diagram indicate the greatest combinations of computers and food that the economy is able to produce?

Production possibility curves

In a country where unemployment is low and the exchange rate is managed by a floating system, the balance of payments shows a continuing current account deficit. Which policy used to cut this deficit is most likely to leave unemployment low, but result in inflation?

Labour market

A table showing the functions of money has to be completed by four students. Which student is right?

Oligopoly

In which circumstance is the price elasticity of supply for a product most likely to be relatively low?

Price elasticity of supply

The diagram illustrates supply and demand for a good. If price rises from P1 to P2, what happens to consumer surplus?

Cross elasticity of demand

What conclusion can be drawn about the roles of demand and supply in a free market?

Income elasticity of demand

A business runs an effective advertising campaign for a product. Which combination indicates the effect on demand or supply together with the reason?

Demand and supply curves

Why would a business most probably choose to calculate the price elasticity of demand for its product?

Price elasticity of demand

Which statement relating to money is correct?

Oligopoly

Goods X, Y and Z each have downward-sloping demand curves and upward-sloping supply curves. Good X is in joint supply with good Y and in joint demand with good Z. Demand for good X increases. What changes will occur in the prices and sales of goods Y and Z?

Income elasticity of demand

What does consumer surplus mean?

Cross elasticity of demand

What is meant by the assumption ‘ceteris paribus’ when economists examine how the quantity demanded of a good changes?

Demand and supply curves

The diagram illustrates the demand curve for a normal product. Which two points show a shift from a more price inelastic point to a less price inelastic point?

Price elasticity of demand

The diagram illustrates the impact on the market for rice of a change in government policy which shifts the supply curve from S1 to S2. What does the area JKLM represent?

Cross elasticity of demand

The table sets out four categories of government spending in two different periods. By how much did transfer payments change from period 1 to period 2?

Fiscal policy

In different countries, which kind of tax is classified as a direct tax?

Fiscal policy

A government sets a ceiling price for medical face masks that is lower than the market equilibrium price. What is the most likely result of this?

Maximum and minimum prices

What is not a subsidy to producers?

Maximum and minimum prices

The diagram illustrates an aggregate demand (AD) curve. What does the horizontal (X) axis measure, and what does the vertical (Y) axis measure?

Economic growth

The table presents the amount of direct taxes paid by different households in the UK in 2017–2018. Which positive economic statement could be drawn from the table?

Short-run costs

What might account for a rise in a country’s terms of trade?

6.3

Which statement gives the correct description of an aggregate demand (AD) curve?

Economic growth

The table data has been taken from the Singapore Balance of Payments for 2019. What was the value ($m) of the trade balance on the current account in 2019?

6.3

A household’s income rose by 3%. During the same period, the inflation rate was also 3%. Which statement is correct?

Balance of payments

A country has a fixed exchange rate system. There is a major loss of international confidence in the government’s economic policies. What is likely to be the outcome?

6.4

During 2018, the inflation rate in Argentina was over 100%. Which pairing correctly shows the winners and losers in this period?

Balance of payments

The diagram illustrates aggregate demand (AD) and aggregate supply (AS) for a country. The starting equilibrium is located at point E. The combined price elasticities of demand for imports and exports in this country are greater than one. A devaluation of the country’s exchange rate will lead to a change in aggregate demand. What will be the new equilibrium?

Economic growth

In 2000, Japan was Asia’s largest exporter of electrical components, but by 2018 it had fallen to 8th place. What might explain this change?

International trade and free trade

Which policy measure used to correct a balance of payments current account deficit would be classified as an expenditure-reducing policy?

Labour market

The diagram illustrates the AD / AS curves for an economy. Which government action is most likely to make the equilibrium move from X to Y?

Economic growth

What is measured by opportunity cost?

Scarcity, choice and opportunity cost

A country is experiencing severe deflation. What is most likely to stop the deflation from getting worse?

Monetary policy

Which term presupposes the existence of ‘qualities, knowledge and skills’ that enable an individual to become more productive?

Factors of production

The diagrams show the markets for four different products. In which market would a 10% fall in demand and, at the same time, a 10% rise in supply definitely cause both a lower equilibrium price and a higher equilibrium quantity?

Income elasticity of demand

Over a short time span, the supply of a new drug used to relieve muscle pain is highly inelastic. By contrast, the supply of printed newspapers is far more elastic over that same period. What might account for the difference in supply elasticity between the drug and printed newspapers during this time period?

Price elasticity of supply

Which change would cause the supply curve for sugar-sweetened drinks to move to the right?

Demand and supply curves

If the demand for tablets rises, while the cost of making them falls, what will be the effect on the price of tablets and the quantity supplied?

Income elasticity of demand

What is required in order to achieve the optimum allocation of resources through the price mechanism?

Behavioural economics

Describe the pattern in the annual inflation rate of Bangladesh from 2009 to 2019.

Balance of payments

Explain, using examples, why merit goods are classified as private goods rather than public goods.

Resource allocation in different economic systems

Explain two factors that determine the price elasticity of supply of a manufactured product.

Price elasticity of supply

Explain why a fixed exchange rate could create difficulties for a country that has one.

6.4

With reference to Fig. 1.1

Economic growth

Using a production possibility curve diagram(s), compare growth in the productive capacity of an economy with growth that occurs when the amount of unused resources in an economy falls. Explain one reason that could lead to each one.

Production possibility curves

Using diagrams, use the concept of income elasticity of demand to Explain the effect of a fall in incomes on the equilibrium price and equilibrium quantity of a normal good and an inferior good.

Price elasticity of demand

An economy changes from a deficit to a surplus on the current account of the balance of payments. Explain what is meant by a surplus on the current account of the balance of payments and consider the possible impact on the level of employment and prices when there is a shift from a deficit to a surplus current account balance in an economy.

6.3

Describe how the level and source countries of the US’s avocado imports changed from 2013 to 2018.

Income elasticity of demand

Explain why this flood defence barrier is likely to satisfy the characteristics of a public good.

Government intervention in markets

Explain the difference between cost-push inflation and demand-pull inflation.

Balance of payments

Explain why some countries repeatedly run a deficit on the current account of the balance of payments.

6.3

Which statement shows the condition required to achieve Pareto optimality?

Behavioural economics

In which situation would the government be least likely to provide a product directly?

Maximum and minimum prices

The table gives a firm’s total costs at various output levels. If the market price is $8, in what output range would a profit-maximising firm operating in a perfectly competitive industry choose to produce in the short run?

7.6

Which factor would support an increase in the number of small firms?

7.7

Which of the following is not considered a source of market failure?

Behavioural economics

A government gives firms free pollution permits that are non-tradeable. These permits state the highest quantity of polluting gases that the firms may release. A legal change then allows the permits to be traded between firms. If all other revenues and costs stay unchanged, what effect will this have on the profits of firms that now purchase or sell the permits?

Maximum and minimum prices

What is one example of how ‘nudge’ theory can be used to encourage healthy eating?

Maximum and minimum prices

What does the term transfer earnings mean?

Long-run costs and economies of scale

The chart shows details of the average daily wage rate across all industries in India. What might have led to this pattern in wage rates?

Long-run costs and economies of scale

The table presents the yearly percentage rates of economic growth for three countries between 2012 and 2018. What conclusion can be drawn from the table?

Unemployment

Which factors could make the official statistics for the national income per head of a developing country overstate the actual level of economic well-being of its inhabitants?

National income statistics

The diagram illustrates a production possibility curve (LM) for an economy that makes agricultural goods and manufacturing goods. What conclusion can be drawn from the diagram?

Production possibility curves

What does the Kuznets curve illustrate?

Trade unions

Which type of unemployment is linked to a shortfall in aggregate demand?

Price stability and inflation

Demand has shifted away from goods made by labour-intensive production methods towards similar goods made with high-technology production methods. As a result, overall unemployment has risen. What is the best policy to reduce this type of unemployment?

Long-run costs and economies of scale

What would be absent in a free-market, open economy?

Resource allocation in different economic systems

What is most likely to be present in an economy with a positive output gap?

Economic growth

Which of the following statements about the Keynesian liquidity preference demand for money model is correct?

Oligopoly