May/June 2024

A worker is paid $40 per hour. Instead of working, she spends three hours at a museum. The museum trip costs $40 in all. What is the opportunity cost of the museum visit?

Scarcity, choice and opportunity cost

A firm finds that the income elasticity of demand for its product is –3.0. What may be deduced from this information?

Price elasticity of demand

The diagram illustrates the demand and supply curves for the global air cargo market. The starting equilibrium is at point X. What would the revised equilibrium be if a global recession occurs and fuel costs increase?

Income elasticity of demand

A government supplies free food to low-income households in a community. What type of food is this an example of?

1.6

A government wants to increase farmers’ incomes without increasing the price of food for consumers. Which policy ought it to adopt?

Maximum and minimum prices

In market economies, governments put forward different reasons for intervening in the way an economy works. Which of the reasons given is a normative statement?

Government intervention in markets

The table shows macroeconomic data for an economy. All figures are measured in $ billions. What is the equilibrium real output?

Economic growth

A country’s net national income (NNI) is lower than its gross national income (GNI). What is indicated by this?

National income statistics

Asha is unemployed at present. She has been offered a job, but she has chosen not to accept it and instead look for a better-paid job. What type of unemployment is this?

Price stability and inflation

A large trading country, country X, is initially in equilibrium at the full-employment level of real output. It then experiences a recession in its main overseas markets. What are the most likely consequences of this change for country X?

Economic growth

Why would a decrease in a country’s average price level make its aggregate demand curve slope downward?

Economic growth

The character of a typical car assembly plant has altered. There are now fewer firms in the industry, production takes place on bigger sites and more machinery is automated. How would this change be most likely to have influenced the relative use of factors of production in the industry?

Factors of production

To reduce deflation, a central bank applies expansionary monetary policy. What is likely to happen?

Monetary policy

Which statement concerning government budget surpluses and deficits is the most accurate?

Fiscal policy

What is most likely to fall if a government adopts expansionary fiscal policy?

Fiscal policy

Sweden recorded a Consumer Prices Index (CPI) movement of –0.6%. Which mix of policies could its government adopt to bring back price stability?

Monetary policy

State one disadvantage of operating a floating exchange rate system?

6.4

Which of the following would not be an example of protectionism?

Protectionism

Countries X and Y each make goods M and N. They choose to specialise and then trade these goods without restrictions. In which circumstances would the gains from specialisation and free trade be expected to be smallest?

International trade and free trade

A country’s terms of trade rose from 100 to 120. Which statements are correct? 1 The terms of trade have worsened. 2 A smaller quantity of exports is needed to buy the same quantity of imports. 3 The balance of payments must improve.

6.3

The table gives the number of Turkish lira (TRY) that could be exchanged for 1 US dollar (USD) in 2016 and 2021. What is the most likely reason for the change in the price of Turkish lira between 2016 and 2021?

6.4

The table presents the current account in a balance of payments for January 2021. What does the current account balance equal?

6.3

Which item would be the least likely to be classified as land?

Factors of production

Which policy would not support the introduction of import tariffs?

Protectionism

Why is the idea of scarcity relevant to the use of fossil fuels?

Scarcity, choice and opportunity cost

An economist is aware of the economy’s present position on its production possibility curve. What conclusion can the economist draw about this economy?

Production possibility curves

An increase in which factor is likely to cause the demand curve for cinema films to shift to the left?

Demand and supply curves

There are four firms supplying the market. Market supply is 50 units at $20 and 100 units at $40. The table lists the market share of each firm at the two prices. Which firm does not show a normal upward-sloping supply curve?

Demand and supply curves

Which of the following statements is correct?

Economic methodology

Which row contains two correct statements?

Economic methodology

Which item is not an example of a public good?

Behavioural economics

Which description best fits a market supply curve?

Demand and supply curves

In the diagram, D1 represents an individual’s original demand curve for public transport. What might lead the demand curve to move to D2?

Demand and supply curves

A government sets an effective minimum price for a product and does not intervene further in the market. This policy indicates that the government’s objective is

Government intervention in markets

The diagram illustrates the impact of an indirect tax levied on cigarettes. At first, the market is in equilibrium at point X. Which area shows the tax incidence borne by consumers?

Maximum and minimum prices

The diagram illustrates the supply curve for a product. The government levies a specific indirect tax of $5 on the product. How will the price elasticity of supply of the product change?

Price elasticity of supply

The diagrams illustrate a country’s aggregate demand (AD1) curve and aggregate supply (AS1) curve. Following the world economic downturn (2007–2008), some governments have lowered labour costs and kept interest rates constant. In what way would this probably be represented on a diagram?

Economic growth

The diagram illustrates what happens to the average price level when aggregate demand (AD) rises from AD1 to AD2. Which statement about this change in aggregate demand is correct?

Economic growth

The table gives the amounts for the components of an economy’s circular flow of income. component value $m government spending 6 exports 8 investment 9 imports 7 saving 10 tax 5 What conclusion can be drawn about the economy from these figures?

Aggregate demand and aggregate supply

What is one cost of negative economic growth?

Unemployment

A government statistical office recorded changes in income from employment, pensions and benefits, then deducted income tax and welfare contributions and made an inflation adjustment. What did the resulting figure represent?

National income statistics

The diagram illustrates a production possibility curve for an economy producing two goods, X and Y. At which point would the opportunity cost of increasing output of good X be greatest?

Production possibility curves

In a closed economy, which mix of fiscal and monetary policies is most likely to work effectively in the short run to stop deflation?

Fiscal policy

Which macroeconomic objective is most likely to be met by raising income tax?

Government macroeconomic policy objectives

Which option is not a supply-side policy?

Supply-side policy

At what point is a policy regarded as macroeconomic?

Government macroeconomic policy objectives

Demand for a country’s exports is price elastic. If it has a deficit on the current account of its balance of payments, which policy mix is most likely to remove the deficit?

Labour market

What is one unintended result of the US government limiting imports of low-cost Chinese steel?

Protectionism

What does export of services mean in Jamaica’s current account?

6.3

A country brings in natural gas, and its demand for it is price-inelastic. What happens if that country places an import duty on the gas?

Protectionism

The table displays the output of goods X and Y in China and the United States (US) before specialisation. If both China and the US allocate 50% of their resources to producing each product, what would the combined total output be once specialisation has taken place?

International trade and free trade

Economists argue that trade involving many countries is better than trade between only two countries. Why is this the case?

International trade and free trade

Which activity demonstrates the consumption of a ‘free’ good?

1.6

A country sees an improvement in its terms of trade. What is the most likely reason?

6.3

What is necessary in order to remove scarcity?

Scarcity, choice and opportunity cost

What factor would promote a greater degree of division of labour?

Factors of production

Which business is most likely to be the slowest to change its output when demand for its product rises and remains high?

Price elasticity of supply

A company consumes large quantities of gas when making steel. Gas supplies fall at the same time that the steel market is affected by a recession. What can be said about the likely changes in the market for steel?

Income elasticity of demand

A firm is setting a price of $12 for its product and is operating at 80% of its production capacity of 10 000 units per month. If the product has unitary price elastic demand, what price should the firm set in order to use its full capacity?

Price elasticity of demand

The diagram illustrates the demand for and supply of hotel accommodation. The market equilibrium is shown at point E. The hotel gets a very large number of bad reviews about the quality of its accommodation. Which point on the diagram would represent the new market equilibrium?

Income elasticity of demand

From Table 1.1:

International trade and free trade

With the use of examples, explain how public goods differ from merit goods and assess whether markets will always supply sufficient amounts of both goods.

Government intervention in markets

Using a formula, explain what is meant by the income elasticity of demand for a product and assess the extent to which demand for the product will always rise at the same rate as the income of its consumers.

Price elasticity of demand

Explain three of the components of aggregate demand and assess the extent to which they may be increased without leading to inflation.

Economic growth

Explain three causes of unemployment and judge which cause is likely to be most damaging to a high-income economy.

Price stability and inflation

Describe what has happened to consumer prices in the Eurozone between March 2021 and February 2022.

Economic growth

Explain how the Gini coefficient is used to measure income inequality and consider the relative strength of two economic reasons that could account for this in a low-income country.

Taxes and subsidies

With the help of one example of each, Explain the difference between a merit good and a demerit good and consider whether a subsidy given to a merit good will always be effective in increasing its consumption.

Maximum and minimum prices

Using a diagram, explain what is meant by the circular flow of income in an open economy and consider the extent to which it can explain economic growth in such an economy.

Perfect competition

Explain what is meant by protectionism and consider how effective tariffs are as a means of protectionism.

Protectionism

Using the information given, calculate Turkey’s real interest rate in January 2022.

Monetary policy

Starting in 2030, most new car production in the United Kingdom (UK) is expected to be electric cars. Leaving aside the price of electric cars, explain the determinants of demand for electric cars and consider which of these determinants is likely to be the most significant at present.

Price elasticity of demand

Use a production possibility curve (PPC) diagram to show how a government in a mixed economy might direct more resources towards consumption and fewer towards investment, and consider one limitation of this way of allocating resources.

Production possibility curves

Using a diagram, explain how rises in aggregate demand change the level of real output and the price level in an economy, and assess when such rises could become problematic.

Economic growth

Explain two possible causes of a change in the terms of trade in an economy and assess which of these causes is likely to matter more for low-income countries.

Protectionism

Which statement concerning the concept of utility is correct?

Utility and rational consumer behaviour

Which statement is true of a firm that is classified as a natural monopoly?

7.6

The government may use policies to attempt to cut the environmental harm caused by the quantity of rubbish (garbage) produced by firms and households. Which policy for reducing rubbish is most likely to result in government failure?

Maximum and minimum prices

What outcome would supporters of a nationalised public transport service be most likely to anticipate from the privatisation of train and bus services?

Government intervention in markets

What factors can lead a household to fall into the poverty trap?

Trade unions

What would lead to an outward shift in the labour demand curve?

Long-run costs and economies of scale

The diagram illustrates the outcome when the employees of a profit-maximising monopsonist employer join a trade union and successfully bargain for a wage rate of OWT. What effect does this new wage rate have on employment?

Long-run costs and economies of scale

A global financial crisis was partly caused by what commercial banks did. Which actions taken by commercial banks could have caused the financial crisis?

Oligopoly

What is most likely to happen if the natural rate of unemployment falls?

Price stability and inflation

The table shows the percentage (%) rates of youth unemployment and overall unemployment in France and the UK in 2001 and 2005. What conclusion can be drawn from the table?

Price stability and inflation

What assumption must hold for the Keynesian multiplier model?

Economic growth

The diagram illustrates indifference curves I1, I2 and a budget line T. Which combination of X and Y provides the consumer with the highest satisfaction?

Indifference curves and budget lines

The table illustrates the link between inflation and unemployment in Germany from 2019 to 2022. Some theories suggest that inflation rates are lowest when unemployment is low. Which year goes against this prediction the most?

Price stability and inflation

The diagram shows the short-run Phillips curves SRPC1 and SRPC2 together with the long-run Phillips curve for an economy, in which NRU is the natural rate of unemployment. At the start, the economy is in equilibrium with no inflation. When the government uses a fiscal stimulus to cut unemployment, monetarists predict that there will be a sequence of movements before long-run equilibrium is restored. Which set of movements shows this prediction?

Externalities

An economy experiences a sharp rise in inflation because energy prices increase substantially. It also falls into a recession, with unemployment increasing. A fall in which policy lever is most likely to lessen the recession’s effects without pushing the price level up further?

Externalities

What is not regarded as a threat to globalisation?

11.6

Singapore is among the countries with the greatest population densities in the world. It reduces car use by imposing a high tax on second cars. Which further policy would be likely to ease road congestion in the short run?

7.4

Which option is not an example of an expenditure-reducing policy?

Labour market

What is shown by the J-curve effect?

6.4

Which outcome is most likely if the number of multinational companies increases?

11.6

The table presents the GDP and population figures for four countries. Which country is most likely to have the lowest standard of living?

National income statistics

What would cause a country’s optimum population to become larger?

Unemployment

A medical team administers vaccinations to children in order to stop an infectious disease from spreading. Why would this be called a positive externality?

7.4

The table presents the Gini coefficient values for several countries in a particular year. On the basis of this information, which statement is correct?

Taxes and subsidies

The diagram illustrates a firm's cost and revenue curves. Which output level would allow the firm to attain its objective of maximising its revenue?

7.5

Oligopoly firms aim to maximise profits. How will this influence the pricing behaviour of oligopoly firms operating in a non-collusive market?

7.6

A net social benefit is definitely created by an economic activity when the value of social benefit minus

7.4

What assumption is required for a market to be contestable?

7.6

A company that secures capital by issuing shares must meet both shareholders’ expectations and the aims of management. Management wants to achieve maximum output at no profit. Which strategy would definitely stop this aim?

7.8

A major UK chemical firm was acquired by its rival, a Dutch chemical firm. What must have happened when the Dutch firm acquired the UK firm?

7.7

The table sets out the total utility a consumer obtains from drinking water. quantity consumed (bottles); total utility: 0->0, 1->30, 2->40, 3->48, 4->54, 5->58. What conclusion can be drawn from this table?

Utility and rational consumer behaviour

Can you give one example of backward vertical integration?

7.7

A government is planning to bring in a policy to cut the pollution created by producing a good. Which policy would not rely on market forces?

Maximum and minimum prices

The table gives the yearly percentage change in output per worker employed for four nationalised industries both before and after privatisation (railways: -4 -> 2; electricity: 7 -> 9; shipbuilding: 4 -> -1; telecommunications: 6 -> 6). What conclusion can be drawn about the impact of privatisation?

Law of diminishing returns

In a country, most workers are employed in the manufacturing sector and are paid a fixed hourly wage. Which change would raise the net benefit of workers who are already employed in the manufacturing sector?

Long-run costs and economies of scale

At what stage does a profit-maximising firm employ the optimum number of workers?

Long-run costs and economies of scale

The diagram illustrates the labour market for farm workers in New Zealand, using supply and demand with wage O-F-J etc. Which areas show the economic rent and the transfer earnings of the farm workers?

Long-run costs and economies of scale

Which of the following is not a function of a commercial bank?

Oligopoly

For 2020 in a country, the unemployment rate for the 16–64 age group who were seeking work was 4.0%. Over the same period, the employment rate for this group was 76.6%. What conclusion can be drawn from this?

Monopolistic competition

Which statement about unemployment benefits provided by a government is not valid?

Long-run costs and economies of scale

Country X’s marginal propensity to consume (MPC) is 0.7. Its marginal propensity to save (MPS), marginal rate of taxation (MRT) and marginal propensity to import (MPM) are all 0.1. Which change would be most likely to produce the largest rise in the national income multiplier?

Aggregate demand and aggregate supply

A consumer has $100 available to spend on two products, X and Y. The budget line indicates the various combinations of products X and Y that can be bought when the consumer spends all of their income. If the price of product Y rises to $10, what is the largest number of units of product X and product Y that the consumer can now buy?

Indifference curves and budget lines

The diagrams illustrate an economy’s performance measured in different ways (three diagrams with point X). If the economy is currently located at point X on each diagram, what is the most likely conclusion that can be drawn from this evidence?

Economic growth

Which row correctly identifies the characteristics of an economy in a liquidity trap? (rate of economic growth, rate of inflation, rate of interest)

Monetary policy

Which mix of policies would be most likely to help a country recover from recession?

Fiscal policy