Oct/Nov 2023

What would assist in overcoming the basic economic problem?

Scarcity, choice and opportunity cost

The diagram shows the supply curve for the number of spaces in a car park, while the demand curves indicate demand for spaces on four separate days, D1, D2, D3 and D4. The owner wants to set a parking fee on each of these days so that the spaces are allocated by the market mechanism. Which pricing policy should the owner adopt?

Income elasticity of demand

The table presents the demand schedule for textbooks. What conclusion can be drawn from this information?

Demand and supply curves

Which event is most likely to allow firms to meet a rise in demand by expanding supply instead of increasing price?

Price elasticity of supply

On the diagram, S1 is the supply curve and D1 indicates the original demand for facemask X. A competing firm manufactures facemask Y, which is a close substitute. What would make the demand curve move to D2?

Demand and supply curves

A government imposes fees on vehicles travelling on the roads in its capital city. What characteristic must those roads possess if this measure is to succeed in cutting congestion?

7.4

The table presents the tax that a person would pay at different income levels. What is the average rate of taxation and the marginal rate of taxation for a person with an annual income of $50 000?

Maximum and minimum prices

A government has raised output without any change in the price level. What must the original level of aggregate demand (AD) have been?

Economic growth

What is excluded from the measurement of national income?

National income statistics

Four students must complete the missing words in the sentence shown. ‘A person is defined as unemployed if they are ......1...... to work at ......2...... wage rate, but cannot find a job despite an active search for work.’ Which student correctly completes gaps 1 and 2?

Price stability and inflation

Which statement provides the most accurate description of the consumer prices index (CPI)?

Balance of payments

Country Z operates using a production possibility curve (PPC). At present, output is at combination 1. Which movement involves zero opportunity cost in relation to the goods produced?

Production possibility curves

The diagram illustrates the production possibility curves (PPCs) for country X and country Y, which are the only two countries in the world. Each country produces only two goods, M and N. At what terms of trade would country X and country Y both gain from trading with one another?

International trade and free trade

Why would a rise in government spending on education be most likely to move the aggregate demand curve to the right?

Economic growth

Which item is excluded from the current account of a country’s balance of payments?

6.3

In which circumstances will nominal GDP and real GDP rise at the same pace in an economy?

National income statistics

General equilibrium in the macroeconomy occurs when total injections match total leakages. What is most likely to lead to disequilibrium in the macroeconomy in the short run?

Aggregate demand and aggregate supply

What would be the most probable cause of a fall in frictional unemployment?

Price stability and inflation

A Kenyan banker living and working in India remits 15% of their wage to Kenya every month. How would this affect the current account components of either country?

6.3

Across a one-year interval, the annual inflation rate becomes negative. Which statement must be true?

Balance of payments

A government plans to increase income tax rates in a country. The country’s original equilibrium is marked by point X on the diagram. Which new equilibrium point would an economist predict as the consequence?

Long-run costs and economies of scale

Which combination would indicate the most expansionary package of monetary policies?

Monetary policy

In a country, health care is paid for through taxation, yet patients can use it without paying. What type of good is health care in this country?

1.6

An economy is facing a faster rise in cost-push inflation. Which group is most likely to be least worried by this?

Balance of payments

Which of the following is least likely to rise when an economy shifts from a planned economy to a free market economy?

Resource allocation in different economic systems

Which statement gives the correct description of the producer surplus area on a demand and supply diagram?

Cross elasticity of demand

The diagram illustrates a demand curve for pineapples. What occurs to the value of price elasticity of demand (PED) when the movement is from point X to point Y, and how is the value of PED at point Y described?

Price elasticity of demand

Within a free market, a good is in excess supply. Which alteration would bring the market into equilibrium?

Income elasticity of demand

The cross-elasticity of demand between good P and good Q is –0.4. The cross-elasticity of demand between good P and good R is +0.6. Which pair of goods is most likely described by this information?

Price elasticity of demand

The supply, S, of a product is given by the equation S = 10 + 10P, where P represents the product’s price in $. What is the product’s price elasticity of supply when the price increases from $1 to $2?

Price elasticity of supply

PPC refers to the production possibility curve in country T. What happens to country T’s opportunity costs of producing X as it raises output of X?

Production possibility curves

In the diagram, D and S show the demand for smartphones and the supply of smartphones. A high proportion of the components used to manufacture smartphones are imported. The original equilibrium is at point X. The exchange rate has depreciated, while the price of a complementary good has fallen. Which point on the diagram could show the new equilibrium?

Income elasticity of demand

The diagrams illustrate the demand for and supply of houses. During the short run, the quantity of houses available for sale, S1, is fixed. A government chooses to permit some agricultural land to be used for house construction and gives subsidies to lower-income purchasers of the new houses. Which diagram represents the long-run situation?

Income elasticity of demand

For a product, the quantity demanded, QD, is defined by QD = 400 – 20P, where P = price in $. The quantity supplied, QS, is given by QS = 100 + 40P. Which change will take place if the price increases from $5 to $6?

Demand and supply curves

What is the most likely reason for the ongoing rise in the prices of famous paintings by artists who have already died?

Price elasticity of supply

Which is the most likely to be regressive?

Short-run costs

What condition must be met for an action to be classified as a transfer payment?

Short-run costs

The government levies a specific indirect tax of $1 on every unit of a good sold. In what way does the tax’s introduction shift the good’s demand or supply curve?

Maximum and minimum prices

Which term refers to a decrease in the domestic real value of a currency?

6.4

What is the effect on a country if its export prices increase relative to its import prices?

6.3

Country X is able to produce a product at a lower opportunity cost than country Y. Which term best describes this statement?

International trade and free trade

What is regarded as the essential requirement for all entrepreneurs?

Factors of production

During a given year, economy X reports these figures: GDP $100bn; factor income earned by residents of economy X working in foreign countries $10bn; factor income earned in economy X by non-residents $25bn. What is the size of the Gross National Income (GNI) for country X?

National income statistics

Which combination could occur in an economy with zero inflation?

Balance of payments

The graph illustrates Japan's inflation rate from April 2020 to February 2021. During which period did disinflation take place in Japan?

Balance of payments

The diagram presents three production possibility curves (PPC) for a country, numbered 3, 2 and 1. The country’s initial PPC is 2. The working population then declines, after which a prolonged recession occurs. If GDP subsequently rises, what increase in production will result?

Production possibility curves

A government raises the income tax rate. In the short run, what effect does this have on the aggregate demand curve or the aggregate supply curve?

Economic growth

A country’s current account deficit is greater this year than it was last year. What is the most probable explanation for this rise?

6.3

Which supply-side policy is most likely to lead to short-run growth in a country’s aggregate supply?

Supply-side policy

Which tax could a government introduce to lessen inequality?

Short-run costs

A foreign government pays a UK university to provide education for its students. How should this be shown in the UK balance of payments current account?

6.3

A government is trying to bring inflation down. It has chosen to reduce government spending by $1bn. The diagram illustrates several possible initial positions of the country’s aggregate demand (AD) curve. Which initial position of the aggregate demand curve would make this policy least effective?

Economic growth

The government supplies a new section of road without charging a toll. Which description best fits this good?

1.6

A government lowers the tax rate that firms pay on their land and buildings. What effect is this likely to have on the economy’s price level and real output?

Supply-side policy

Several Eastern European countries have shifted from planned economies to market economies. Which policy was least likely to have been introduced?

Resource allocation in different economic systems

Rice and pasta are both staple foods in a country. In what way would a health scare about rice influence the market for pasta?

Income elasticity of demand

In a market economy, some goods are consumed too much. What is likely to be the reason for this?

7.4

A family is prepared to pay up to $600, $500 and $400 for air tickets for the mother, father and daughter so they can travel to another city for a wedding. The airline offers a promotional air fare of $450 per ticket, on condition that at least three tickets are bought. If the family takes up this promotional offer, what consumer surplus will they gain?

Cross elasticity of demand

A consumer’s income falls by 10%, and demand for a good then rises from 100 to 105. Calculate the consumer’s income elasticity of demand for this good.

Price elasticity of demand

In 2010, lower harvests cut fruit crop output and furniture producers offered large discounts on furniture products. In what way could these changes have influenced the location of the supply curve for the products?

Demand and supply curves

A factory sets up an automated production line in order to benefit from division of labour. Which outcome is most likely to go up?

Factors of production

A product has a price elasticity of demand of –0.6. The supplier aims to sell off all excess stock of a product and cuts the price of a good by 50%. What effect will this price change have on the quantity purchased and the expenditure on the good?

Price elasticity of demand

At a price of $10, a firm produces 100 units. The price elasticity of supply is 0.5, and the price then rises to $12. What is the new level of output?

Price elasticity of supply

In one town, bus fares decrease by 50% and, as a result, bus use rises by 30%. The impact on car use is very small, with only a 1% fall. What is the value of the cross-elasticity of demand between car travel and bus travel?

Price elasticity of demand

The demand and supply curves for wheat in Australia are illustrated in the diagram. The starting equilibrium is at X. At the same time, the government introduces a sales tax on wheat and raises the income tax rate. Which point could show the new equilibrium?

Income elasticity of demand

A free market is at present facing excess supply at a price of P1. What will be the effect on the present market position if a maximum price is imposed above P1?

Income elasticity of demand

What is one possible drawback of a government providing transfer payments to people who are unemployed?

Maximum and minimum prices

Which set of policies would make the distribution of income and wealth more unequal?

Short-run costs

Which changes would expand the circular flow of income? greater imports / greater investment / greater taxation

Aggregate demand and aggregate supply

An economy that is in equilibrium records a trade deficit of $20bn and a budget surplus of $20bn. Investment spending stands at $50bn. Calculate the total saving.

National income statistics

A finance company suffers large losses and therefore makes an accountant redundant. The accountant then looks for another job by using an employment agency that specialises in accounting vacancies. What term describes the unemployment of the accountant who is searching for a new job?

Price stability and inflation

Consumers fail to consume enough of a product to maximise their own private benefit because they have imperfect information about it. How would an economist classify this product?

Government intervention in markets

The aggregate demand curve moves downward from left to right. One explanation is that a fall in the average price level will result in

Economic growth

Which items count as primary income in the current account of the balance of payments? (trade in goods; current transfers; employment income earned abroad)

6.3

What is excluded from the calculation of national income?

National income statistics

The graph presents the inflation rate for seven countries in 2015 and 2016. What conclusion can be drawn from this graph?

Balance of payments

Country R and country S are about to exchange 1 unit of product X for 2 1/2 unit of product Y. Using a fixed quantity of resources: - country R can make either 30 units of product X or 50 units of product Y - country S can make either 20 units of product X or 25 units of product Y. Which statement is correct, according to the theory of comparative advantage?

International trade and free trade

What is the most likely factor that causes a current account deficit in the balance of payments?

6.3

The diagram illustrates the long-run aggregate supply (LRAS) and aggregate demand (AD) curves for an economy. The starting equilibrium is at point X. Which pair of monetary policies will move the equilibrium to point Y?

Monetary policy

The government follows a policy of funding training and retraining for unemployed workers. Which terms would most likely be used to classify this policy?

Long-run costs and economies of scale

Which pairing of initial equilibrium and supply-side policy would be least likely to increase an economy’s real output?

Supply-side policy

A government seeks to cut unemployment by using expansionary fiscal policy and borrows more from commercial banks, which raises its borrowing requirement. What is the outcome?

Fiscal policy

The table below gives the different combinations of rings and bracelets that Luke and Zoe can produce in the same time period. Luke / Zoe rings bracelets / rings bracelets 18 0 / 20 0 12 6 / 16 8 6 12 / 12 16 0 18 / 8 24 Which statement is not correct?

Production possibility curves

A government intends to apply an expansionary monetary policy. What ought the government to raise?

Monetary policy

What is one example of a free good?

1.6

The diagram illustrates the market for computers in Pakistan. Which regions show consumer surplus and consumer expenditure?

Cross elasticity of demand

A firm's supply curve is shown as a horizontal straight line. What conclusion can be drawn from this statement?

Price elasticity of supply

If consumers’ incomes for good X decrease by 5%, in what circumstances will the demand curve move furthest to the right? type of good X / income elasticity of demand for good X

Price elasticity of demand

Good P and good Q function as substitutes. The supply of good P falls because of a shortage of materials. Which row shows what will happen to demand?

Income elasticity of demand

Pressure to cut the use of fossil fuels has caused oil companies to lower the amount they invest in looking for new reserves. What will be the long-run effect of such a policy on the market for oil?

Income elasticity of demand

Using the data in Table 1.1, calculate the expected growth in Taiwan’s real GDP in 2021, based on the latest forecast.

Unemployment

Using a diagram, explain the factors that might lead to a rise in demand for a product, and judge whether a rise in demand will affect the product’s price in the short run and the long run in the same way.

Income elasticity of demand

Explain why a government might choose to raise its direct provision of essential goods and services and assess whether such a policy is always likely to succeed.

Maximum and minimum prices

Explain the reasons governments levy taxes and consider if an increase in income tax is fairer than an increase in sales taxes.

Taxes and subsidies

Explain the distinction between an import tariff and an import quota and consider why a government might prefer an import tariff to an import quota as a tool of protection in international trade.

Protectionism

Using the data in Table 1.1, calculate the percentage change in the average real global price of oil between 2014 and 2020.

Trade unions

Using a formula, explain what is meant by the term price elasticity of demand for a product and assess the extent to which it helps an entrepreneur predict the effect of price changes on the total expenditure on their product.

Price elasticity of demand

With examples, explain the difference between free goods and public goods and consider the view that public goods can never be supplied in a market economy.

Behavioural economics

Explain the difference between the terms of trade and the balance of trade in goods and consider whether an economy should be more concerned about its terms of trade than its balance of trade in goods.

6.3

Using diagram(s), Explain one reason why aggregate demand may rise and one reason why aggregate supply may rise, and consider whether a rise in aggregate demand will always cause inflation.

Economic growth

Explain what is meant by ‘negative economic growth’.

Unemployment

Explain what these estimates show for producers and consumers of smartphones and consider why the estimates are different.

Price elasticity of supply

Explain why the supply of bus and local rail (mass transit) services in cities is judged to be a private good rather than a public good and consider why such services may be provided only by the private sector.

1.6

Using a country that is familiar to you, Explain the main causes of unemployment and judge which of these causes is most significant.

Price stability and inflation

Explain how import tariffs might bring the current account of the balance of payments back into balance and assess whether these tariffs are the most suitable method of correcting such an imbalance.

Protectionism

Economists usually assume that the marginal utility gained from consuming extra goods is positive but falls as consumption rises. What happens to total satisfaction when more units of the good are consumed?

Utility and rational consumer behaviour

Some multinational oil companies that extract oil in developing countries are now obliged to repair the environmental damage they cause. What term best describes the total costs borne by the oil companies in these circumstances?

7.4

Which statement is not an instance of government failure?

Maximum and minimum prices

The diagram illustrates labour demand and labour supply. The government introduces a minimum wage of W1. Which area shows the rise in the economic rent of workers who remain employed at this minimum wage?

Long-run costs and economies of scale

A firm is experiencing a shortage of labour. It chooses to set up its own training scheme for school leavers. Which effect is this most likely to have on the firm?

7.7

What effect is likely to follow if a government introduces a new regressive tax?

Taxes and subsidies

Which government policy for reducing the effects of income inequality is matched correctly with one advantage and one disadvantage?

Taxes and subsidies

In what circumstances will a government subsidy be most beneficial when producing good X creates externalities?

7.4

What could fall if a closed economy with a government sector chooses to permit international trade?

International trade and free trade

The diagram depicts a closed economy where the full employment level of income is YF. Which distance represents the deflationary gap?

Economic growth

Which policy used to counter climate change is regarded as regulatory rather than market-based?

Maximum and minimum prices

A budget line (b–b) illustrates the pairings of two goods, X and Y, that a consumer can purchase using a fixed weekly income of $60, when the price of Y = $1 and X = $2. If the price of X rises to $3, what will the new budget line be?

Indifference curves and budget lines

Which factor behind economic growth is most likely to make that growth sustainable?

Monopoly

Across all of a country’s major towns, the government introduces a policy of setting up centres where job vacancies are displayed. Which kind of unemployment is this policy intended to reduce?

Price stability and inflation

What fundamental assumption lies behind the accelerator theory?

Economic growth