May/June 2023

What does the phrase ‘a produced means of further production’ mean?

Factors of production

Golf club membership fees in Singapore have increased because travel to cheaper golf courses in neighbouring countries has been restricted and several local courses have closed. The supply of golf club memberships depends on how many courses are currently available. If the initial equilibrium was at X, which point represents the outcome of these changes?

Income elasticity of demand

The diagram illustrates the demand and supply curves for solar energy in India. The starting equilibrium is at X. The Indian government raises the subsidy for solar energy producers. At the same time, the price of alternative energy sources increases. Which point shows the new equilibrium position?

Income elasticity of demand

A specific tax is levied on the sale of bottles of lemonade. In the diagram, S shows the supply curve before the tax is introduced and St shows the supply curve after the tax has been added. Which distance indicates the specific tax on each bottle?

Maximum and minimum prices

During a disease outbreak, the demand for medical face masks is greater than the supply. What is the most likely reason for this excess demand?

Income elasticity of demand

The diagram illustrates the demand and supply curves for a good. The government sets a maximum price at OP1. What would happen?

Maximum and minimum prices

Which option gives the correct description of absolute advantage?

International trade and free trade

The table gives Yasmin’s income and wealth. What is the value of Yasmin’s wealth?

National income statistics

Which group is most likely to be harmed by high inflation?

Balance of payments

Which statement accounts for the downward slope of the aggregate demand curve?

Economic growth

The diagram illustrates the aggregate demand (AD) and aggregate supply (AS) in an economy. Which alterations in subsidies and indirect taxes could have led to the shift from AS1 to AS2?

Economic growth

A hospital management board chooses to transfer $800 000 from its $1.2m budget for new buildings to cancer care. What opportunity cost does this decision involve?

Scarcity, choice and opportunity cost

The graph shows the unemployment percentage for everyone aged 16 and above, as well as for young people aged 16–24. What effect does this have on consumer expenditure on products purchased by the 16–24 age group over the period 2010–2020?

Price stability and inflation

In the diagram, where AD and LRAS meet at point X shows the present macroeconomic equilibrium. Which point might show the new equilibrium following the introduction of an increase in the retirement age?

Economic growth

The diagram illustrates production possibility curves for India and Japan. If each country specialised in the product in which it has a comparative advantage, which combination of outputs would be produced?

Production possibility curves

A country’s currency has fallen in value against the currencies of all its main trading partners. What effect will this depreciation have on its terms of trade?

6.4

A country operating under a floating exchange rate records a large surplus on the current account of its balance of payments. What is likely to fall as a result?

6.4

Which measure is intended specifically to encourage international trade?

6.5

What would count as a supply-side policy measure?

Supply-side policy

What is another name for a country’s national debt?

National income statistics

A country sees the value of its exports decline while the value of its imports of goods and services rises. What effects do these changes have?

6.3

The diagram illustrates the shift in a country’s production possibility curve from XX to YY. What might account for this change?

Production possibility curves

A factory produces chairs. The production process is split into several tasks. What is a likely drawback of this division of labour?

Factors of production

Which row gives the correct description of the relationship between two goods suggested by the value of the cross elasticity of demand?

Price elasticity of demand

What is consumer surplus measuring?

Cross elasticity of demand

At a price of $2.00 for good X, the quantity supplied is 100 000. The price elasticity of supply of good X is 0.8 in the short run and 1.4 in the long run. If the price of good X rises to $2.20, by how much does the quantity supplied of good X increase between the short run and the long run?

Price elasticity of supply

The diagram illustrates the European diesel fuel market, where the initial equilibrium is at M. Because Europeans prefer low-emission cars, demand for diesel fuel has fallen from D1 to D2. Which area shows the new producer surplus for firms that supply diesel fuel?

Cross elasticity of demand

Under what condition is the demand for a product described as price elastic?

Price elasticity of demand

Which factor of production is required first to establish a new business?

Factors of production

A specific tax is imposed on every bottle of perfume sold. In the diagram, S represents the supply curve before tax, and St shows the supply curve after tax. Which area indicates the share of the tax revenue borne by producers?

Maximum and minimum prices

The diagram illustrates the supply curve of a firm. Which statement about the price elasticity of supply (PES) on this curve is correct?

Price elasticity of supply

The diagram illustrates the market for electric cars, with X marking the original equilibrium. What would the new equilibrium be if the price of electric car batteries decreases and consumers become more environmentally conscious?

Income elasticity of demand

What would lead to market disequilibrium?

Income elasticity of demand

The diagram shows that area OP1M1Q1 has the same size as area OP2M2Q2. When the price is reduced by half, moving from P1 to P2, what is the price elasticity of demand?

Price elasticity of demand

The table sets out how a consumer’s spending on different goods changes when her income rises from $20 000 to $24 000. If everything else stays the same, which goods have an income elasticity of demand above 1.0?

Price elasticity of demand

Which pair of government measures is most likely to raise the consumption of a merit good?

Maximum and minimum prices

The table shows some data from the balance of payments account of the United States (US) for one year. Which conclusion about US trade cannot be drawn from the table?

6.3

Which change is illustrated directly through the use of aggregate demand and aggregate supply analysis?

Economic growth

Why could aggregate demand rise when a country’s price level decreases?

Economic growth

If all other factors remain unchanged, which change in an economy’s labour market would make the production possibility curve shift to the left?

Production possibility curves

What is employed to convert nominal GDP to real GDP?

National income statistics

The diagram illustrates a simple two-sector circular flow of income. What conclusion can be drawn about the direction of the flows?

Aggregate demand and aggregate supply

The table presents the different types of unemployment and their possible solutions. Which combination is incorrect?

Price stability and inflation

Which mix of policies would be most effective in cutting a balance of payments current account surplus?

Labour market

If a country is going through a period of high inflation, which groups will gain the most from this?

Balance of payments

Which of the following will certainly affect a country’s terms of trade? 1 a rise in the price of imported raw materials 2 a change in inflation rates 3 an appreciation of the exchange rate

6.4

There are two countries, M and N. The graphs illustrate their production possibility frontiers for wheat and rice. Both countries are operating on their production possibility curves and, before specialisation, country M produces 60 units of wheat while country N produces 30 units of wheat. What will be the change in the world output of rice if both countries choose to specialise according to comparative advantage?

Production possibility curves

The diagram illustrates the economy’s present equilibrium. The government then implements a contractionary monetary policy. What is the most likely result?

Monetary policy

A government aims to lessen the deficit in the secondary income component of its current account. Which policy would be the most effective?

Labour market

Supply-side policies may be used to reduce cost-push inflation. Which policy would be most effective in achieving this goal over the long run?

Supply-side policy

Which feature is not a characteristic of a mixed economy?

Resource allocation in different economic systems

Economic growth results in higher income and consumption per head for the adult population. Under what conditions does this need to occur in an economy?

Unemployment

Which outcome is not likely to arise from the use of division of labour?

7.7

Price has several functions in the allocation of resources. Which statement most clearly shows the function that depends on consumer choice (also called the incentivising function)?

Demand and supply curves

Which pair of products act as substitutes in both consumption and in production?

Price elasticity of demand

Oil is in short supply across the world. The diagram illustrates oil consumption and oil production (billion tonnes) for selected countries. What conclusion can be drawn from the diagram?

International trade and free trade

The cross elasticity of demand between bus travel and rail travel has a value of +2. If an increase in bus fares led to demand for rail travel rising by 10%, what change in bus fares would have brought this about?

Price elasticity of demand

A movement in the price of a good results in a rise in the quantity demanded of that good. What kind of good, and in which direction must the price move, for this to be certain to occur?

Demand and supply curves

Flowers are being planted by people in a local park. Which statement is correct?

7.4

If the price of a firm’s product decreases by 5%, total revenue also decreases by 5%. What does this indicate about the product’s price elasticity of demand?

Price elasticity of demand

The table indicates how one person’s weekly consumption of biscuits and coffee changes as income changes. Income $100: biscuits 0 packs, coffee 5 cups. Income $150: biscuits 5 packs, coffee 10 cups. Which statement about the income elasticity of demand across the income range shown is correct?

Price elasticity of demand

The diagram illustrates four supply curves W, X, Y and Z. Which statement about the price elasticity of these supply curves is accurate?

Price elasticity of supply

Product X has a price elasticity of supply (PES) of +2, whereas product Y has a PES of +0.2. Which statement about products X and Y is correct?

Price elasticity of supply

There are 10 000 tickets on sale for a sports final at a national stadium. The original market equilibrium price of each ticket is $20. The government chooses to set a binding minimum price for the tickets. Under which conditions will consumer surplus for the tickets fall by the greatest amount as a result of the minimum price?

Maximum and minimum prices

The diagram illustrates the effect of a government introducing a unit tax on a demerit good. S represents the supply curve before the tax, and S1 represents the supply curve after the tax. What is the after-tax revenue of the firm producing the demerit good?

Maximum and minimum prices

A government has a policy objective of reducing income inequality. It is considering three policies. Which combination of policies would be the most effective? (raise marginal tax rate 40%→50%, raise minimum wage, provide a subsidy for battery-powered cars costing over $40 000)

Taxes and subsidies

A citizen of Bangladesh works in Qatar as a construction worker. He transfers part of his wages to his family in Bangladesh. In Qatar’s balance of payments, how would this be shown?

6.3

The table shows information for an economy: in 2010, GDP at current prices was $200bn and the deflator was 100; in 2011, GDP was 220 and the deflator was 109; in 2012, GDP was 240 and the deflator was 125; in 2013, GDP was 300 and the deflator was 149; in 2014, GDP was 320 and the deflator was 154. For which year did real GDP fall compared with the year before?

National income statistics

Which policy is most likely to help reduce a deficit on the current account of the balance of payments?

6.5

A government rules that all non-essential businesses must shut down for three months because of a disease pandemic. What opportunity cost does this policy create?

Scarcity, choice and opportunity cost

During year 1, a country had a real GDP of $500 billion. By year 2, nominal GDP had increased to $577.5 billion, while prices rose by 5%. What is the real GDP in year 2?

National income statistics

The table provides information on national income statistics for an economy: consumption 2000, investment 500, government expenditure 600, net exports -100, net foreign factor income -200, depreciation 100 (US$bn). What is the net national income for this economy?

National income statistics

The table gives the relative price of exports in relation to imports, shown as an index number for an economy (2013 = 100): 2013 100, 2014 97, 2015 95. Which statement about the period 2013–2015 is correct?

6.3

Country X and country Y each devote half of their resources to producing shoes and half to producing t-shirts. With half of the resources in each case, the outputs are: X shoes 4000 t-shirts 12000; Y shoes 2000 t-shirts 8000. What can be concluded from the data?

Scarcity, choice and opportunity cost

Which government measure is least likely to stop economic growth from declining?

Externalities

Which factor is most likely to cause a country’s aggregate demand curve to shift outward?

Economic growth

The diagram illustrates macroeconomic equilibrium, with output and price level moving from Y and P to Y1 and P1. What might have caused this change?

Economic growth

A nation recorded a current account surplus of $141bn. Which policy might its government use to cut this surplus in the short term?

Labour market

The diagram illustrates aggregate demand (AD) together with aggregate supply in the short run (SRAS) and the long run (LRAS). Which row is correct in explaining the cause of a shift in short-run aggregate supply from SRAS to SRAS1 and in long-run aggregate supply from LRAS to LRAS1?

Economic growth

The diagram indicates that introducing a tariff increases the world price of the product from $10 to $14. By what amount did the income of domestic producers rise because of the tariff?

Protectionism

The diagram illustrates an economy’s production possibility curve. The economy is making combinations of goods and services by using all available resources. What does the production possibility curve indicate about goods and services?

Production possibility curves

Which policy would a government be most likely to adopt in order to end deflation?

Monetary policy

Which economic conditions are most likely to promote an increase in enterprise? (table showing interest rates, profit tax, consumer confidence and unemployment)

7.7

Under which circumstances is the price elasticity of demand for a product most likely to be price elastic?

Price elasticity of demand

Which factor is most likely to shift the supply curve for rice?

Demand and supply curves

When a free market is not in equilibrium because there is a shortage of a product, how will the price, the quantity demanded and the quantity supplied change as equilibrium is approached?

Income elasticity of demand

Which factor would not bring about a shift in a good’s demand curve?

Demand and supply curves

What is meant by joint supply?

Demand and supply curves

Using the data in Fig. 1.1, calculate how India’s unemployment rate changed between July 2020 and May 2021.

Monopolistic competition

Using a diagram, explain how the causes of a movement along a production possibility curve (PPC) differ from the causes of a shift of it, and judge which of the two is likely to affect an economy most quickly.

Production possibility curves

With the help of a formula, explain what cross elasticity of demand means and consider which determinants are most significant in determining the size and sign of its coefficient.

Price elasticity of demand

With the aid of AD/AS diagram(s), explain cost-push inflation and demand-pull inflation in an economy, and consider the circumstances in which one may be more harmful than the other.

Economic growth

With the aid of one or more diagrams, explain the likely causes of a depreciation in a floating exchange rate and consider whether such a depreciation is always advantageous for an economy.

6.4

Compare Nigeria's government budget balance in 2016 with that in 2020.

Supply-side policy

Using diagram(s), explain what is meant by consumer surplus and producer surplus and assess whether a rise in the price of a product caused by higher costs of production is likely always to reduce consumer surplus.

Cross elasticity of demand

Using a diagram or diagrams, explain what is meant by equilibrium in a market and assess how far the equilibrium price and equilibrium quantity are likely to alter for a product after a rise in wages for labour throughout the economy.

Income elasticity of demand

Two countries each produce two products and wish to trade with one another. Explain the distinction between absolute advantage and comparative advantage, and consider whether comparative advantage is always the more important influence when each country decides whether to trade with the other.

International trade and free trade

Explain the difference between cost‑push and demand‑pull inflation and judge which is more likely to occur if the exchange rate of a country with few natural resources depreciates.

Balance of payments

Using the data in Fig. 1.1, calculate the percentage change in the value of sales of doughnuts in the US from 2011 to 2019.

Maximum and minimum prices

Explain, using examples, how the size and sign of the coefficient of income elasticity of demand matter for classifying a good, and consider the extent to which you are confident in that classification.

Price elasticity of demand

Explain why government intervention may be needed to supply merit goods and consider why this intervention may not always work well.

Government intervention in markets

Explain, with the aid of a circular flow of income diagram, how equilibrium is established in an open economy, and consider whether a budget deficit or a trade deficit is more likely to create lasting disequilibrium.

Perfect competition

Explain how monetary policy may be able to lower the rate of inflation in an economy and assess how likely this policy is to succeed.

Monetary policy

What is illustrated by the marginal utility diagram?

Utility and rational consumer behaviour

The diagram illustrates the demand and supply for a good, together with the marginal social costs (MSC) of that good. If there are no external benefits, which area represents the net social benefit at output OQ?

7.4

What would inevitably occur as a result of the separation of ownership from control?

7.8

One cause of market failure is the presence of public goods. Which policy option would be suitable for dealing with this market failure?

Law of diminishing returns

In 2020, the governor of California made an order to prohibit the sale of new vehicles from 2035 that run on petrol or diesel fuel. What type of government policy is this?

Maximum and minimum prices

The diagram shows a monopsony labour market where the government has introduced a minimum wage. What is the gap between the wage the monopsonist wants to pay and the wage that labour receives?

Long-run costs and economies of scale

Economics textbooks explain that labour is a derived demand for a firm operating under imperfect competition. In what way is the demand curve for labour derived?

Long-run costs and economies of scale

The diagram presents the Lorenz curves for Norway (N) and India (I). What conclusions can be drawn by comparing the Lorenz curves?

Short-run costs

One motive for government intervention in the operation of the economy is to try to fix market failure. However, government failure can sometimes happen. Which of the following is not a possible cause of government failure?

Maximum and minimum prices

A government wants to encourage growth in the economy’s fishing industry. Which policy is most likely to lead to sustainable growth in the fishing industry?

Supply-side policy

Four citizens have each been without work for the last six months. Which citizen would not be described as structurally unemployed?

Price stability and inflation

The starting distribution of goods among three consumers is shown. Which row indicates a Pareto improvement in the distribution of goods among consumers?

Behavioural economics

In the diagram, OP shows the equilibrium level of income and OQ represents the full employment level of income in a closed economy. What is the deflationary gap?

Economic growth

Which policy would be the most effective for a government to introduce in order to reduce frictional unemployment?

Long-run costs and economies of scale

In a closed economy with no government sector, under what conditions will a rise in investment spending produce the largest increase in equilibrium national income?

Economic growth

Which combination of policies would be most likely to raise output?

Externalities

A country imports more oil than it exports. Over the past year, world oil prices have increased. If every other factor stays unchanged, what effect is this likely to have on inflation, the trade balance and unemployment in this country?

Balance of payments