May/June 2015

The four examples below show how factors of production may be used. Which one is most likely to make the greatest use of the factor enterprise?

The factors of production

The table gives the figures for a country’s trade union membership, in millions, from 2008 to 2011. What conclusion can be drawn about the country’s trade union membership over the period 2008 to 2011?

Trade unions

If the wage rate rises, a bus driver will work for more hours. However, as his income rises, there comes a point at which he values extra leisure more than additional work. Which supply curve, S, shows this situation?

Workers

During 2013, a German medicines manufacturer acquired a UK company that operated a chain of pharmacies selling medicines. Which term most accurately describes this takeover?

Market structure

At what point is one firm judged to be more capital-intensive than another firm?

The factors of production

In 2009, Gulf Airlines, which was making a loss, said that it would cut the number of new aircraft it had ordered. If it did so, which of its costs would be directly influenced?

Firms’ costs, revenue and objectives

The diagram illustrates the costs of a firm. At an output of 100 units, what is the firm's total variable cost?

Firms’ costs, revenue and objectives

When a government reduces the interest rate, who is most likely to be put at a disadvantage by this policy?

Monetary policy

Which supply-side policy would raise output in the long-run?

Supply-side policy

Russia is a wheat exporter. In 2010, a poor harvest caused the Russian government to stop wheat exports so that sufficient supplies would remain for home use. What was the most probable result of the government’s decision?

Globalisation, free trade and protection

The government lowers the income tax rate and raises the tax rate on producers. Starting from the original equilibrium point X, which letter shows the new equilibrium position in the market?

Price determination

If the price of oil is to be lowered, extra supplies are required. However, in 2013, opponents resisted efforts to investigate new sites because exploration could lead to environmental damage. How does this demonstrate the basic economic problem?

The nature of the economic problem

Which factor is most likely to lead to economic growth?

Economic growth

A worker receives $250 per week, and this gives a disposable income of $175. What factor will affect the real value of the worker’s $250 earned income?

Inflation and deflation

The table presents the unemployment rate in three developed economies in June 2013. What is the main cause of high unemployment rates in developed economies during periods of recession?

Employment and unemployment

During 2012 to 2013, European economies saw weak economic growth. Using the GDP, industrial production and unemployment data in the table, which economy performed most poorly?

Economic growth

Which of the following is not a reason why average family size is likely to be larger in developing countries than in developed countries?

Population

The table indicates the share of GDP generated by each production sector in three imaginary countries. What conclusion can be drawn from the table?

Differences in economic development between countries

In rural parts of developing countries, farmers produce food mainly for their own use. Why could this make GDP a poor indicator of the standard of living in those countries?

Living standards

The charts illustrate the population structure of a country in 1960 and 2010. Over this interval, how did the birth and death rates change?

Population

What is one benefit of international specialisation?

International specialisation

Sunburn-preventing skin creams produced in the European Union (EU) are more effective than those made in the United States (US). When US tourists travel to Europe, they often buy large quantities of these creams. Production of such creams is prohibited in the US because of the chemicals they contain. In 2013, talks started to lift this prohibition so that production could take place in the US. What effect is this freer trade likely to have on manufacturers of skin creams in the US and the EU?

Globalisation, free trade and protection

For an economy with a fixed quantity of resources, if it can make food or computers, it is located at point Q on its production possibility curve. Because the population increases, a larger share of resources must now be used for food production. In the short term, which point will the economy move to on the diagram?

Production possibility curve (PPC) diagrams

The table presents the trade in goods balance and the current account balance of the balance of payments for four countries over one year. Which country recorded the greatest surplus on its trade in services, assuming there were no other transfers or income flows?

Current account of balance of payments

Each day, a person prepares sandwiches at home for five hours. She produces 20 sandwiches per hour, and each sandwich is sold for $2$ each. What is the opportunity cost if she takes a day off on a working day?

Opportunity cost

What is present in a mixed economy but not in a market economy?

Mixed economic system

Recent newspaper reports stated that demand for beef had fallen and that the price per kilogram had risen. Starting from the original equilibrium at X, which point on the diagram shows the new market equilibrium?

Price determination

The diagram illustrates the market for fresh fish in the Caribbean, with equilibrium at point X. A new kind of fishing boat raises output, which lowers costs. Which point shows the new equilibrium?

Supply

A large supermarket sought permission to construct on land that formed part of an area of natural beauty. The local government approved the construction, although the area’s natural beauty would be destroyed, because many jobs would be created and much-needed revenue would be provided to the local community. Which economic ideas are not present in the statement above?

Opportunity cost

Cigarettes have been used as money in exceptional situations. What is the most likely explanation for why they are not acceptable as money in normal circumstances?

Money and banking

What does the basic economic problem mean?

The nature of the economic problem

A trade union and employers set a minimum wage $(W_1)$ that lies above the market equilibrium wage $(W)$ in that industry. What effect does paying the minimum wage $(W_1)$ have?

Trade unions

When selecting a job, people often consider features of the work apart from salary. Which option would not fit the features of employment that a worker is seeking?

Workers

What can arise in monopoly that does not exist in perfect competition?

Market structure

Which of the following is not a cause of the decline of manufacturing industries in developed economies in recent years?

Differences in economic development between countries

In 2013, Barclays Bank operated two branches in one city. It chose to shut both of them, relocate to another building and hire fewer staff paid by the hour. What is likely to have happened to the bank’s fixed and variable costs?

Firms’ costs, revenue and objectives

The diagram illustrates a firm’s costs. At an output of $100$ units, what is the firm’s total variable cost?

Firms’ costs, revenue and objectives

What is most likely to bring about a decrease in the rate of inflation?

Inflation and deflation

During recent years, governments have needed to deal with the consequences of a global recession. Which supply-side policy might have been used to encourage economic growth?

Supply-side policy

Russia sells wheat overseas. In $2010$, a poor harvest caused the Russian government to stop wheat exports, so that adequate supplies would remain for use within the country. What was the most likely result of the government’s decision?

Globalisation, free trade and protection

A government raises spending on infrastructure in order to stimulate the economy. Which other economic aim of government could this create a conflict with?

The macroeconomic aims of government

When new oil reserves are found, what has risen in supply?

Supply

Which person is most likely to gain during an inflationary period?

Inflation and deflation

The Human Development Index (HDI) measures more than average incomes alone. Which two other measures does it also include?

Living standards

The table presents several economic indicators for four countries. What conclusion can be drawn from the table?

Differences in economic development between countries

In an economy, when would a rise in aggregate demand be least likely to lead to inflation?

Inflation and deflation

In $2013$, subsistence farming, which engaged a large proportion of the population, was an important activity in the Philippines and Indonesia. What conclusion can be drawn about the Philippines and Indonesia from this information?

Differences in economic development between countries

Which feature is not usually a typical characteristic of a developed country?

Differences in economic development between countries

The charts illustrate the population structure of a country in 1960 and 2010. Over this period, how did the birth rate and death rate change?

Population

Which combination of changes is most likely to cause living standards in a country to fall?

Living standards

What is one benefit of international specialisation?

International specialisation

The table presents data about the trading position of four major economies in 2013. Which country had the most favourable trading position?

Current account of balance of payments

The diagram presents production possibility curves (PPC) for a country able to make agricultural products or manufactured products. The country's present PPC goes through points Q and S, although it is currently facing unemployment. If full employment now occurs while new agricultural techniques also raise productivity, what movement would be shown on the PPC diagram?

Production possibility curve (PPC) diagrams

The table sets out the trade in goods balance and the current account balance of the balance of payments for four countries during one year. Which country had the largest surplus on its trade in services, assuming that there were no other income or transfer flows?

Current account of balance of payments

A person prepares sandwiches at home for five hours each day. She produces $20$ sandwiches per hour, and each sandwich is sold for $\$2$. What is the opportunity cost if she goes on holiday on a working day?

Opportunity cost

What would not count as an example of how a market system works?

Market economic system

A product has a price elasticity of supply of $+2$. A change in price causes the quantity supplied to rise from $100$ units to $120$ units. What change in price occurred?

Price elasticity of supply (PES)

In the diagram, the market for fresh fish in the Caribbean is shown, with the starting equilibrium at point X. A new type of fishing boat raises output, so costs fall. Which point shows the new equilibrium?

Supply

A large supermarket submitted an application to construct on land located in an area of natural beauty. The local government approved the construction, despite the fact that the area's natural beauty would disappear, because many jobs would be created and much needed income would be brought into the local community. Which economic ideas cannot be found in the above statement?

Opportunity cost

A businesswoman is applying to a bank for a $10$-year loan. She has identified her four most valuable possessions, any of which could be offered to the bank to secure the loan. Which item would the bank be least likely to accept as security for the loan?

Money and banking

Every factor of production receives an income. What income is paid to capital and to enterprise?

The factors of production

After older people retire from work, they may receive pension income that is less than what they earned before. How is the share of their income spent on healthcare and leisure likely to change?

Households

A bus company wants to appoint a qualified senior manager who will coordinate bus timetables and oversee staff. Because the company also runs bus services during the night, some of the work will need to be done at night. A good salary is being offered. Which applicant would be most likely to be given the job?

Workers

Which of the following is not normally linked to the presence of a monopoly?

Market structure

Several farmers set up a partnership. They purchase extra machinery, which they use jointly to produce cereals. What is one advantage of using more machinery?

The factors of production

In large-scale organisations, coordination difficulties between departments may arise and this can create diseconomies of scale over the long-run. What shows that diseconomies of scale have begun?

Firms’ costs, revenue and objectives

The diagram illustrates the costs of a firm. What is the firm's total variable cost when output is 100 units?

Firms’ costs, revenue and objectives

Which policy combination will have the biggest effect on raising the amount of total spending in the economy?

Fiscal policy

A toy manufacturer purchased a $750\,000 consignment of raw plastic from a local supplier and turned it into toys. The toys generated total revenue of $1\,000\,000. The government required the company to pay tax on this transaction. Which tax is the company most likely to have to pay?

Fiscal policy

Russia exports wheat. In 2010, a poor harvest caused the Russian government to stop wheat exports so that sufficient supplies would remain for domestic consumption. What was the most likely result of the government's decision?

Globalisation, free trade and protection

The table gives the harmful carbon dioxide emissions for a country in selected years, measured in millions of tonnes. Which action would probably have the biggest impact on cutting carbon dioxide emissions?

Market failure

Malaysia has a mixed economy. Which statement about a mixed economy is definitely correct?

Mixed economic system

By what measure is economic growth assessed?

Economic growth

Domestic consumption in an economy decreased. What could have lessened the effect of this decline on the economy?

Fiscal policy

During 2014, farmers' crops were ruined by two months of poor weather. As a consequence, they hired fewer people for harvest work in that year. What type of unemployment would this lead to?

Employment and unemployment

The following information was released by a central bank in an economy. In which case was real GDP growth the highest?

Economic growth

The Human Development Index is used to measure human development in countries. Which measure would not be included when it is calculated?

Differences in economic development between countries

In Russia, the ratio of males to females is $90$ to $100$. What might account for this imbalance?

Population

The table shows the percentage of employment in the primary, secondary and service sectors for four countries. Which country is most likely to be a developed country?

Differences in economic development between countries

The charts illustrate a country’s population structure in 1960 and 2010. Over this period, how did the birth and death rates alter?

Population

What is one benefit of international specialisation?

International specialisation

Which pair of changes would increase the price of the Pakistani rupee in the foreign exchange market?

Foreign exchange rates

Water is a scarce resource in Singapore because the island’s limited geographical area leaves very little land from which to gather water for its $4.8$ million people. Which method would be least successful in dealing with its water scarcity?

The nature of the economic problem

The table presents the trade in goods balance and the current account balance of the balance of payments for four countries over one year. Which country recorded the biggest surplus on its trade in services, assuming there were no other transfers or income flows?

Current account of balance of payments

A person prepares sandwiches at home for five hours every day. She produces $20$ sandwiches per hour, and each sandwich is sold for $\$2$. What is the opportunity cost if she chooses to go on holiday on a day when she would normally work?

Opportunity cost

In 2011, China’s steel mills purchased more coal so that they could raise their output. China is the world’s largest consumer of coal. How would this change be illustrated on a demand and supply diagram for coal?

Price determination

Over the last few years, demand for cars in Indonesia has become less price elastic, whereas the supply of cars has become more price elastic. Which pair of events could have led to these changes?

Price elasticity of demand (PED)

The diagram illustrates the market for fresh fish in the Caribbean, with the original equilibrium at point $X$. A new type of fishing boat raises output, thereby lowering costs. Which point shows the new equilibrium?

Supply

A major supermarket chain sought permission to construct on land situated in an area of natural beauty. The local authority approved the development, although the area’s natural beauty would be damaged, because many jobs would be created and much-needed income would be provided to the local community. Which economic ideas cannot be found in the above statement?

Opportunity cost

Which of the following is not a function of a trade union?

Trade unions

Sweden is a very advanced European nation that enjoys one of the world’s highest standards of living. In 2012, its citizens had an average income of US$49000. The country has a labour force of five million and this workforce is highly skilled. Around 70% of schoolchildren continue on to university. Over time, Sweden has attracted substantial investment and, as a result, each worker has a high value of capital goods to use. In 2012, though, its economic growth rate weakened. The Swedish Government hoped that increasing the retirement age to 67 would raise the country’s economic growth rate. Sweden sells half of its output abroad. Its exports include a range of products such as cars and capital goods. Its imports include petrol, cars and iron. Table 1 shows the balance on the current account of its balance of payments for the period 2008-2013. A country’s trade position is affected by its inflation rate. In fact, if a country’s inflation rate falls, the international competitiveness of its products may improve. The Swedish Government wants the annual inflation rate to stay at 2% or below. If there is a danger that inflation will go above the 2% target, the Swedish Central Bank will increase the interest rate. This change is likely to affect consumer expenditure, investment and the exchange rate. In recent years, Sweden’s inflation rate has stayed low, averaging 1.9% between 2008 and 2013. This low inflation rate gives Swedish firms certainty. Sweden’s best-known firm is probably IKEA, which makes furniture and household accessories. In 2012, it cut its prices which, as had happened before, led to a rise in its revenue. In 2013, its owners said that their chief aim was to make the firm larger by opening new stores all over the world, including in its growing markets in China and Russia.

Current account of balance of payments

During 2013, an earthquake at the Iran/Pakistan border ruined many factories and homes. Some officials argued that the Governments ought to rebuild the factories and homes, despite the opportunity cost. Others suggested that some people should be encouraged to emigrate.

Production possibility curve (PPC) diagrams

In 2013, house prices climbed in China but declined in Greece. The Chinese Government tried to slow the increase in house prices by discouraging borrowing. In Greece, the equilibrium price of houses dropped, mainly because income fell. In some countries, governments provide subsidies to housebuilders in order to shape the market for houses.

Price determination

In some countries, trade union membership is falling, yet in China it is rising. Workers’ industrial action is becoming more frequent in China as workers seek higher wages. A recent strike took place at a car factory in South China, owned by a Japanese multinational company.

Trade unions

In January 2013, the Portuguese Government raised tax rates. After three months, it reduced spending on health care and education. In the period between these two changes, unemployment in Portugal increased.

Fiscal policy

Around 30% of Nigeria’s labour force works in agriculture, yet the country still spends more than US$12 billion each year on food imports. The Nigerian Government wants to cut back on food imports. However, a high birth rate and many small farms may make this hard to achieve.

Population

During 2013, the Singapore Government was worried that the economy could slip into recession. It was putting in place a set of supply-side policy measures to raise productivity, prevent a recession and meet its other economic objectives. It was also trying to lower the international value of the Singapore dollar.

Foreign exchange rates

From 2005 to 2012, Peru and Panama recorded the quickest economic growth rates in the Americas. The two countries vary in population size and in the scale of their economies. In 2013, Peru had a population of 30 million and a Gross Domestic Product (GDP) of US$340 billion. By comparison, Panama had a population of 3.6 million and a GDP of US$60 billion. Life expectancy was greater in Panama, with people living, on average, three years longer than in Peru. During 2008 to 2013, Peru had an average annual inflation rate of 2.7%. This was due partly to the careful control of the country's interest rate and exchange rate by Peru's Central Bank. Panama does not have a central bank and recorded a different average annual inflation rate (see Fig. 1). Fig. 1: Panama's inflation rate, 2008-2013. The vertical axis is labelled "inflation rate (%)" and the horizontal axis is labelled "years". The years shown are 2008, 2009, 2010, 2011, 2012 and 2013. From 2008 to 2013, the unemployment rate fell by more in Panama than in Peru. The drop in Panama's unemployment rate was mainly caused by construction work on a seven-year project to widen the Panama Canal. Panama's lower unemployment rate was one reason why poverty was lower there than in Peru in 2013. Peru had a trade in goods surplus whereas Panama had a trade in goods deficit. Both countries export gold and fish and import oil and cars. For each country, the USA, China and Japan are important trading partners. Around 75% of workers in Peru are employed in the service (tertiary) sector compared with 80% in Panama. Key service industries in Panama include insurance and banking. Panama has the largest insurance market in Central America. The number of companies in the market, including multinational companies, is rising, which is making the market more competitive. Multinational companies also operate in the country's banking sector. It has several private sector commercial banks. It does not have a central bank and, therefore, does not have direct government regulation of its banking sector. In recent years the average size of the commercial banks has grown. There is some debate about whether larger banks benefit their customers.

Monetary policy

When deciding about university, students need to weigh the opportunity cost. People who complete university normally earn more than those who do not attend university. A larger number of graduates affects a country’s production possibility curve. Some economists argue that students ought to cover the entire expense of their university courses and accommodation. Others believe the government should meet part or all of the expense.

Production possibility curve (PPC) diagrams

China is the world’s biggest producer of gold, while India is the world’s biggest buyer of gold. Gold mining in China is becoming more capital-intensive, which is lowering how price inelastic the supply of gold is. Workers’ wages in the industry are rising, although other production costs are falling.

Firms’ costs, revenue and objectives

Chile accounts for one third of the world’s copper supply. Any shift in demand for, or supply of, copper influences Chile’s Gross Domestic Product (GDP) and its current account position in the balance of payments.

Economic growth

Pakistan’s annual inflation rate and economic growth rate both declined from 2012 to 2013. Some economists argued that the Government ought to reduce government spending in order to push inflation lower still. If inflation fell, economic activity might rise and unemployment could drop.

Employment and unemployment

Poland is undergoing shifts in both its population and its economy. The country’s death rate is falling. Even though unemployment remains high in Poland, more people are moving there, especially from Spain and Italy. Poland is becoming more like a market economy, with a rising share of the labour force working in the private sector.

Population

The Mexican economy has been doing well recently. Its monetary policy has reduced inflation, which has helped money in the country carry out its functions more efficiently. The efficiency of a country’s industries is affected by many factors. These include whether division of labour is used and how much trade protection the country has.

Monetary policy