Oct/Nov 2022

An economy is moving from a planned economy to a market economy. Which action would you expect to occur during this change?

Resource allocation in different economic systems

The diagram illustrates the market for pineapples. X marks the initial equilibrium point. Pineapple producers gain from better technology. Meanwhile, a new diet book claims that eating pineapples aids weight loss. Which point shows the new equilibrium?

Income elasticity of demand

The diagram illustrates the effect of a decrease in the price of oil, which will cause energy costs to fall for many manufacturers. What impact will this change have on consumer surplus and producer surplus?

Cross elasticity of demand

At what point is the supply curve of a car manufacturing firm most likely to be price elastic?

Price elasticity of supply

The diagram depicts the market for electric steel-plated switches used in newly built houses. Which factor would not have been able to cause the market equilibrium position to move from X to Y?

Income elasticity of demand

In mixed economies, what accounts for the fact that the state keeps control over the supply of some goods and services?

Government intervention in markets

The diagram illustrates the percentages of people on low pay and on extremely low pay in a country between 1976 and 2012. A national minimum wage was introduced in 1999. Which conclusion agrees with the diagram?

Long-run costs and economies of scale

The government has chosen to set a guaranteed price OPa for manufacturers of a product and to offer a subsidy so that the market can clear. In the diagram, QePe shows the original equilibrium before the policy changes. Which area shows the government’s total cost of this subsidy?

Maximum and minimum prices

A concert arena has a fixed capacity, so it can sell 10 000 tickets for a concert. The present equilibrium ticket price is $10. The arena owners choose to impose a minimum ticket price. Under which conditions will the number of unsold tickets be greatest?

Income elasticity of demand

A government states that it plans to lower the amount of transfer payments in the economy. Which statement by the government is in line with this plan?

Fiscal policy

Given that the demand for oil is price-inelastic, how will an increase in the world price of oil affect demand-pull inflation and cost-push inflation in an oil-importing country?

Economic growth

A local council installs a tap supplying drinking water in a town. Would this mean that drinking water is a free good?

1.6

Suppose the Chinese monetary authorities want to keep the exchange rate of China’s currency, the Yuan, relative to the US$, within the range from P1 to P2 on the diagram. What action might they take if supply moved from S1 to S2?

6.4

The diagram illustrates the demand and supply curves for solar panels in the US. In 2018, the US imposed a tariff on imported solar panels. What is the quantity of imported solar panels after the tariff has been introduced?

Protectionism

The diagrams depict the starting equilibrium at Y1P1. Which diagram shows the effect on an economy of higher unit wage costs and an improvement in the balance of trade?

Economic growth

The table presents current-account balance of payments information for Canada and Singapore in 2019. What conclusion can be drawn from the table?

6.3

What does a country’s terms of trade index measure?

6.3

What is likely to lead to a rise in the exchange rate of an economy?

6.4

What is most likely to account for a rise in a country’s current account deficit on the balance of payments?

6.3

What does the Marshall–Lerner condition say must exist for a currency depreciation to lead to an improvement in the current account balance?

6.4

In order to motivate people to work, a government raises the minimum income threshold at which individuals begin paying income tax. Which kinds of macroeconomic policy are being used?

Fiscal policy

It is suggested that increasing interest rates could cut a balance of payments deficit. Which reason given for doing this is not valid?

Labour market

Food prices in a country rose by 20% over three months because of an infectious virus. Which statement about the reason for this increase in food prices is normative?

Economic methodology

Which combination of changes is most likely to cause a country’s inflation rate to fall?

Balance of payments

A doctor works very long hours and experiences a high level of stress. She could become a teacher rather than stay in medicine. What is the opportunity cost of deciding to remain a doctor?

Scarcity, choice and opportunity cost

In what circumstances will the demand curve for motorcycles move leftward?

Demand and supply curves

The diagram illustrates the demand curve for housing. Which factor is not assumed to stay unchanged when this curve is drawn?

Demand and supply curves

Which statement gives the definition of price elasticity of supply?

Price elasticity of supply

Which products are likely to show a positive cross-elasticity of demand with tea?

Price elasticity of demand

Which factor does not lead to a shift in the supply curve for cars?

Demand and supply curves

Identify one function of money.

Oligopoly

Health care in a country is supplied through the free market. It is then substituted by government provision of Sg free health care. What is the change in consumer surplus?

Maximum and minimum prices

State one example of a product that is in joint demand with a smartphone?

Demand and supply curves

A product has a high price elasticity of supply. What could account for this?

Price elasticity of supply

What is likely to shift the demand curve for tickets to pop concerts, but not the supply curve?

Demand and supply curves

The table presents Lee’s and Yim’s price elasticity of demand for restaurant meals and cinema tickets. The prices of both products increase. What can be concluded with certainty after these price changes?

Price elasticity of demand

A government sets a ceiling price on a product to try to raise how much of it is consumed. What is the most likely result of this policy?

Maximum and minimum prices

The diagram illustrates the demand and supply curves for a good. S1 is the initial supply curve, while S2 shows supply after a tax has been imposed. How much tax revenue does the government collect?

Maximum and minimum prices

What does the term transfer payment mean?

Short-run costs

Which example best demonstrates the process of privatisation?

Maximum and minimum prices

How is a progressive tax defined?

Short-run costs

In a planned economy, what determines how scarce resources are allocated?

Resource allocation in different economic systems

An increase in which factor will cause the aggregate demand curve in an economy to shift to the right?

Economic growth

Which effect of inflation is referred to as redistributive?

Short-run costs

Under which circumstance will a country’s terms of trade improve?

International trade and free trade

Country X becomes part of a customs union with country Y and will abolish the tariff on imports of good M from country Y. In which circumstances will trade creation in country X be greatest?

Protectionism

What is likely to occur if a country’s currency loses value in international markets?

6.4

Using the same amounts of factors of production, country X and country Y each generate the following output units. Which statement is correct?

Production possibility curves

After a 10% depreciation in the $ value of the £ sterling, a UK exporter keeps unchanged the $ price of the goods sold in the US market. If all other factors remain the same, what effect will this have on the revenue, measured in sterling, received by the manufacturer from its sales in the US?

6.4

The diagram illustrates the impact of imposing a tariff on a product. What factors determine the producer surplus created by the tariff for domestic producers?

Protectionism

Which government policy is most likely to trigger expenditure switching and improve a country's current account?

6.5

Which kind of economic policy is most likely to be judged the most effective by a government whose main objective is greater income equality?

Short-run costs

A central idea when classifying goods is whether a good is rival or non-rival. Which good is rival in consumption?

1.6

The diagram illustrates four possible aggregate supply curves and an equilibrium point X. A government introduces deflationary fiscal policy to bring down the inflation rate in its economy. This moves aggregate demand to AD2. Against which AS curve would this policy be most effective?

Economic growth

What does the term normative statement mean?

Economic methodology

The diagram illustrates an economy’s production possibility curve (PPC). The economy has shifted from X to Y. What can be inferred from the diagram?

Production possibility curves

An indirect tax is levied on a product, so consumers’ total expenditure rises. Which row identifies this situation?

Maximum and minimum prices

The price elasticity of supply for yoghurt is +1.5. If demand for yoghurt increases and the price increases by 20%, by how much will the quantity supplied to the market increase?

Price elasticity of supply

The diagram illustrates market demand for, and supply of, a good. Which statement is not correct?

Income elasticity of demand

The diagram illustrates two straight supply curves named S1 and S2, with S2 drawn as a 45° line. Which statement concerning the price elasticity of supply is correct?

Price elasticity of supply

Which action would not improve the quality of that specific factor of production?

Factors of production

The diagrams illustrate how a change in the market for good X affects the market for good Y, with the shifts indicated. What conclusion can be drawn about the goods?

Price elasticity of demand

The final match of a major sports event takes place in a stadium with a fixed capacity of 40 000. The price of one seat is set at PF, yet once the tickets are released, every ticket is bought very rapidly and many people are left disappointed. Which diagram most accurately shows this?

Income elasticity of demand

Which product shows the lowest price elasticity of demand? (table: price rises by (%) / quantity demanded falls by (%))

Price elasticity of demand

A product’s market is originally at equilibrium. Which pairing of changes would make the product’s price increase while the quantity sold decreases?

Income elasticity of demand

The diagram illustrates two demand curves and two supply curves. The starting equilibrium is at H and the later point is K. Which combinations of changes in demand and supply would produce a movement from H to K?

Income elasticity of demand

In 2009, the Australian Government paid $900 to people who earned under $100 000 per year. What term would most appropriately be used to describe this payment?

Fiscal policy

The market for good Z is in equilibrium, with 1000 units being sold at a price of $10. The government provides a subsidy of $2 per unit to producers of good Z. In which circumstances will the government’s total subsidy expenditure be the smallest?

Maximum and minimum prices

If an industry is owned by the state and run by the state, which of the following would not be a reason for privatising it?

Maximum and minimum prices

What is meant by the incidence of an indirect tax on a product?

Maximum and minimum prices

A government wants to affect the price of a good. It sets a maximum price Pmax and a minimum price Pmin. The diagram shows these prices in relation to the existing market price P. What conclusion can be drawn from the diagram?

Maximum and minimum prices

When deflation takes place, an economy’s aggregate monetary demand decreases. Which function of money accounts for this decline?

Oligopoly

A government abolishes the tariff on a product, as illustrated in the diagram showing domestic and world supply curves. What change will occur in domestic production?

Protectionism

Suppose an economy starts off in equilibrium. Which pair of events will certainly lead to a rise in the general price level and a fall in real output?

Economic growth

A country’s government moves from a balanced budget to a budget deficit. Starting from which point on the country’s long-run aggregate supply curve (LRAS) would this shift lead to the greatest rise in employment without causing inflationary pressure?

Economic growth

For year 2, the table shows a country’s import and export price and volume indices, with year 1 = 100: imports price index 110, exports price index 121, imports volume index 90, exports volume index 80. What is the country’s terms of trade index for year 2?

6.3

What is a definite consequence, on an aggregate demand and aggregate supply diagram, of an increase in factor productivity?

Economic growth

Trade in services is one element of the current account of the balance of payments. What is one example of trade in services?

6.3

Which statement concerning changes in price levels is correct?

Balance of payments

Which action would be most likely to lower inflation in an economy?

Balance of payments

Which alteration in economic conditions is most likely to cause the rate of domestic inflation in an economy to fall?

Economic growth

A country is presently experiencing deflation, and its national debt is very large and exceeds its annual real income. Which mix of policies is most likely to raise the general price level without increasing the national debt?

Monetary policy

What is likely to happen if production is split into separate processes and each process is allocated to a different person? (answers indicate: reduced output per worker / tasks becoming more repetitive / lower costs)

Factors of production

Which government measure would conflict with the named economic target?

Market failure

The diagram illustrates a production possibility curve for goods X and Y. Which combination is correct for the opportunity cost of producing more of good Y and for the opportunity cost of producing more of good X?

Production possibility curves

A government wants to make sure that sufficient flood defences are supplied in its coastal regions. Which action is most likely to be carried out only by the government?

Government intervention in markets

Consumer surplus is present in the rice market. What does this indicate?

Cross elasticity of demand

The diagram displays demand curve D and supply curve S for a product, with equilibrium and areas marked O, X, W, Z and Y. Which area shows producer surplus?

Cross elasticity of demand

The diagram illustrates the link between total expenditure and price for three products, 1, 2 and 3. Which curves show the products that have price-elastic and unitary price-elastic demand?

Price elasticity of demand

Why might the market supply curve for an agricultural crop like wheat be inelastic?

Price elasticity of supply

Explain how ‘a product’s price acts as a signal of its scarcity’.

Government intervention in markets

Explain two factors that determine the price elasticity of demand for a particular brand of car and how this price elasticity of demand may alter over time.

Price elasticity of demand

Explain, with the use of a diagram(s), how the production possibility curve of an economy could be affected by a decrease in the quantity of labour available, but an increase in its quality.

Production possibility curves

Explain, with the use of a diagram(s), two influences that could cause a depreciation in the value of a country’s exchange rate in a freely floating exchange rate system.

6.4

Identify one possible cause of the decline in world export prices of maize.

Income elasticity of demand

Explain what counts as money in a modern economy and how the use of contactless payments without using cash will influence the functions of money.

Oligopoly

Explain how a production possibility curve can be used to show scarcity, choice and opportunity cost.

Production possibility curves

Explain how this economy’s exchange rate is likely to be affected if its inflation rate is much higher than the inflation rates of its trading partners.

6.4

Explain what might be the opportunity cost if the Pakistan government agreed to pay subsidies to Pakistan’s farmers comparable to those paid to India’s farmers.

Maximum and minimum prices

Explain why demerit goods tend to be over-consumed and merit goods tend to be under-consumed.

Government intervention in markets

Explain the difference between a progressive direct tax and a regressive indirect tax, and give one example of each.

Fiscal policy

Explain how a higher rate of inflation in an economy compared to its trading partners and a decline in the exchange rate will each affect the terms of trade in an economy.

6.4

In an economy, nobody can be made better off unless this causes someone else to be worse off. What can be deduced from this?

Behavioural economics

What conditions allow price discrimination to occur? 1 The firm is able to divide the overall market into distinct sub-markets. 2 Each separate sub-market has a different price elasticity of demand (PED). 3 The marginal revenue curve is identical in each separate market.

7.6

The diagram indicates a firm operating at Q1 on short-run average cost SRAC1. Which strategy will bring about the largest fall in average costs at this output?

7.5

Which change would help a cartel work more effectively?

7.6

Some employees in a low-paid job choose to put in extra hours in order to raise their disposable income. However, this choice cuts state-provided benefits, so they end up worse off. What does this describe?

Long-run costs and economies of scale

Which sign shows that nationalisation has occurred?

Maximum and minimum prices

An excessive number of flights in the airline industry creates avoidable harm to the environment. Which policy is most likely to lead to the socially optimum number of flights?

7.4

A government is concerned about the growing monopsony power of employers in the wage bargaining process. Which combination of policies is most likely to raise workers’ wages and improve their employment prospects?

Long-run costs and economies of scale

The diagram illustrates the labour market for fruit pickers in country X. If the market began in equilibrium, how would wages and employment change if a minimum wage of W were introduced?

Long-run costs and economies of scale

Which of the following would not be considered an example of a possible negative effect of rapid economic growth?

Unemployment

If GDP at factor cost is known, how may GDP at market prices be worked out?

National income statistics

The diagram illustrates the costs and benefits involved in producing a good. This good creates negative externalities in production and positive externalities in consumption. The free market equilibrium is shown at point X. When these externalities are allowed for, what is the new equilibrium point?

7.4

Which combination suggests that GDP per capita is likely to be a reliable measure of living standards in a country over time?

National income statistics

Which of the following statements about unemployment is correct?

Price stability and inflation

The graph displays the percentage of people unemployed in a country during 2017–2021. What is the most likely reason for the change in unemployment?

Price stability and inflation

What does the term liquidity mean?

Oligopoly

What is likely to fall if an open economy has a positive output gap?

Price stability and inflation

Which statement does not accurately describe the Monetarist view of how the economy operates?

Monetary policy