Feb/March 2023

A good is most appropriately supplied through the market if it is

1.6

Why does the basic economic problem of scarcity apply to people who are wealthy as well as those who are not?

Scarcity, choice and opportunity cost

Butter and buttermilk are products in joint supply. In each market, the supply curves slope upwards to the right. Due to health concerns, consumers reduce their consumption of butter. What are the initial effects of this on supply in the butter market and the buttermilk market?

Income elasticity of demand

The diagram illustrates the demand and supply of a good. At market equilibrium, which area represents the gap between the amount consumers are willing and able to pay and the amount producers receive at that level of output?

Cross elasticity of demand

Why do some local governments offer subsidies for bicycles in order to encourage people to use them?

7.4

The table presents Gini coefficients for income and wealth in two countries. Which statement is correct?

Taxes and subsidies

A government is confronting increasing inflation. It wants to bring down inflationary pressure without causing output to decline. Which action is most likely to satisfy its requirements?

Supply-side policy

The table presents some information taken from a country’s national accounts. What is the net national income of the country?

National income statistics

The graphs illustrate how the exchange rates of the pound sterling (£) changed relative to the US dollar (US$) and the euro (€) from 2001 to 2003. What happened to the value of the £ from 2001 to 2003?

6.4

Which statement concerning the circular flow of income is correct?

Aggregate demand and aggregate supply

The graph presents a country’s average yearly inflation rate across a five-year period. What conclusion can be drawn about the overall price level during those five years?

Balance of payments

How is long run defined?

7.5

Within an economy, both wages and prices are increasing, but wages are increasing more quickly. Which characteristics are likely to be present in this economy?

Long-run costs and economies of scale

The diagram illustrates the aggregate demand (AD) and long-run aggregate supply (LRAS) curves for a country, with X marking the initial equilibrium point. During one year, more than one million foreign workers departed from the country, and at the same time the country’s currency appreciated against the currencies of its major trading partners. Which new equilibrium position is most likely for this country?

Economic growth

Which factor is most likely to lead to an increase in a country’s exchange rate?

6.4

What change in the foreign exchange market for the US$ would be most likely to cause the demand curve to shift to the right and result in movement along the supply curve?

6.4

What can be understood most clearly from knowing a country’s terms of trade?

6.3

A company makes goods solely for export. Which change could lead to an increase in the price of its goods, while the quantity sold remains the same?

Income elasticity of demand

In what present economic circumstances are supply-side policy measures most likely to help a country meet its main macroeconomic objectives?

Supply-side policy

For what reasons could a government choose to adopt floating exchange rates?

6.4

Which item is least likely to increase because expansionary fiscal policy is used?

Fiscal policy

The table presents GDP indices for a country across a three-year span. Inflation and economic growth are two macroeconomic policy objectives. Which row gives a correct judgement of the country’s success in meeting these two objectives over the period?

Efficiency

The table shows the effects of two macroeconomic policies. Which option correctly classifies the statements as normative or positive?

Economic methodology

A government increases interest rates in order to improve the current account of the balance of payments. What could make this policy less effective?

6.5

The diagram illustrates the production possibility curve for wheat and corn. What may be inferred from the diagram?

Production possibility curves

The supply curve is described by quantity supplied = 10 + 5P, where P denotes the price of the product. Which increase in price would make the quantity supplied double?

Demand and supply curves

Which diagram shows unitary elasticity of supply?

Price elasticity of supply

In which situation is the price system not a possible way of allocating resources?

Resource allocation in different economic systems

A sports stadium charges for two categories of seats. The lower-priced seats cost $10, while the higher-priced seats cost $20. If every seat price rises by 10%, demand changes by falling 5% for the lower-priced seats and falling 12% for the higher-priced seats. What term describes how demand responds to the price change?

Price elasticity of demand

Which statement accurately describes the shape of the demand curve for a normal good?

Demand and supply curves

Using Fig. 1.1, compare the US inflation rate from July to December 2020 with that from January to June 2021.

Economic growth

Explain the functions of price in resource allocation and consider how important these functions are for the possible effectiveness of a market economy.

Resource allocation in different economic systems

Explain the likely economic causes of income inequality and assess whether inequality of income can benefit an economy.

Taxes and subsidies

Explain the circular flow of income in a closed economy and consider the extent to which the circular flow of income changes as an economy becomes an open economy.

Perfect competition

With the aid of a diagram, Explain what is meant by an appreciation of a floating exchange rate and consider whether a country can benefit only from an appreciation of its currency.

6.4

Utility theory is founded on the assumption of the ‘rational consumer’. What must be done to act as a ‘rational consumer’?

Utility and rational consumer behaviour

When the marginal cost of a good is below its price, allocative efficiency has not been reached. What is likely to correct this?

Behavioural economics

The diagram illustrates an industry’s demand for labour and supply of labour. At first, the labour market is at equilibrium. The government sets a minimum wage of OW0. What effect will this have on employment in the industry?

Long-run costs and economies of scale

The diagram illustrates the labour supply curve for two distinct markets, X and Y. What accounts for the variation in the slopes of the labour supply curves?

Long-run costs and economies of scale

The table displays the key features of employment in two occupations. What can be concluded with certainty from the table?

Monopolistic competition

Which alterations in direct and indirect tax are likely to widen inequality in the distribution of income in a developed economy?

Taxes and subsidies

A government wants to cut down car use in cities. Which policy ought to be used?

Maximum and minimum prices

In one country, the highest-earning 20% pay 45% in income tax and 25% in sales taxes, and they receive 5% in cash benefits. What percentage of disposable income does this group have?

Short-run costs

Which set of conditions is most likely to cause a rise in a country’s budget deficit?

Fiscal policy

Which statement is true of both a central bank and a commercial bank?

Oligopoly

Which factor is most likely to make the greatest contribution to sustainable economic growth in a developed economy?

Monopoly

Good S costs $6 and good T costs $8. The consumer’s marginal utility for each good is shown. If this consumer aims to maximise total utility, which combination of goods should be consumed?

Utility and rational consumer behaviour

Which policy is likely to lead to higher unemployment?

Fiscal policy

What does the accelerator principle say?

Unemployment

Which government objective is least likely to be achieved by using macroeconomic monetary policy measures?

Externalities

A government introduces an expansionary fiscal policy in order to raise the economic growth rate. Which other main macroeconomic aim is this policy most likely to support?

Government macroeconomic policy objectives

Country X opts to devalue its currency in order to remove a balance of payments deficit. Why could devaluation have a beneficial impact on its macroeconomy?

6.5

Which source of economic growth would create the lowest cost for both the current and the future generations of a country’s population?

Unemployment

Which extra components might be taken into account when assessing economic development but are not part of measures of economic growth?

Trade unions

Which curve is displayed in the diagram?

Demand and supply curves

Which indicator is least likely to be used when comparing the economic development of one economy with another?

Trade unions

Give one example of an expenditure-switching policy?

Labour market

The diagram illustrates how a price change affects the equilibrium of a single consumer, shifting from E1 to E2. What can be deduced from the diagram about the price change, the substitution effect and the income effect?

Indifference curves and budget lines

Workers from low-income countries frequently move to high-income countries and obtain employment. In what way would this labour movement be expected to influence economic growth and the pressure for wage increases in the high-income country?

Long-run costs and economies of scale

What is most likely to encourage dynamic efficiency?

Behavioural economics

At what output level is sales maximisation reached while still making normal profit?

7.8

What outcome is reached in monopolistic competition in the long run?

7.6

The world’s biggest pharmaceutical firms created and supplied an effective vaccine to fight a dangerous virus. What may be linked to this vaccine programme?

7.4

A landlord owns a house that is let to tenants. The tenants must pay the electricity and water bills. The landlord must decorate and repair any damage to the house and its gardens. What is not an illustration of the principal-agent problem?

Behavioural economics

A cost-benefit analysis of a proposed government road-building project shows a positive net social benefit of $50 million. Why could the government still decide not to carry out the project?

Scarcity, choice and opportunity cost

State what is meant by ‘a recession’ in economics.

Fiscal policy

Using a diagram, assess how far government intervention can be used to correct this market failure.

7.4

Evaluate the statement below.

7.6

Evaluate the claim.

Labour market

Assess the effect of globalisation on the standard of living in low-income countries.

11.6