Oct/Nov 2015

A business owner hires two workers to prepare sandwiches for sale in a cafe. Besides labour, which factors of production are used in this activity?

The factors of production

At what point would a trade union be less likely to succeed in securing a rise in wages for its members?

Trade unions

The table illustrates how three people allocate their income. Arrange the three people in the most probable sequence of their incomes, starting with the lowest income and ending with the highest income.

Households

A market moves from perfect competition to monopoly. What is likely to happen to output and price in this market?

Market structure

A company chose to lower the price of its product by $10\%$. What would happen?

Price changes

A small number of multinational companies dominate the world’s open-cast mining of mineral ores, and they use comparatively few workers. What does this show?

Market structure

The table presents the information available to a company’s managers from one week of trading. If there are no additional costs, what is the amount of the fixed costs?

Firms’ costs, revenue and objectives

The diagram illustrates the proportion of income collected by a tax at various income levels. What term is used to describe this tax?

Fiscal policy

Which statement correctly describes what is meant by government economic aims?

The macroeconomic aims of government

The diagram illustrates the introduction of a tax of UZ on a good. Which area represents the government’s tax revenue?

Fiscal policy

A government chose to raise its expenditure on constructing schools and hospitals. Which objective of government policy is most likely to be achieved by this rise?

Living standards

Why does choice form an important part of the basic economic problem?

The nature of the economic problem

To improve Gross Domestic Product as a measure for comparing living standards, it needs to be adjusted by

Living standards

What is not part of the process used to construct a retail price index?

Inflation and deflation

What is likely to decrease when a country’s unemployment rate decreases?

Employment and unemployment

The table gives the percentage change in earnings and consumer prices for four countries over a one-year period. Which country will have had an unchanged level of real income during that year?

Inflation and deflation

In what way would the shares of the various age groups in the population differ between low-income developing countries and high-income developed countries?

Population

Which feature would be most useful for identifying a typical developing country?

Differences in economic development between countries

In what ways might different oil-consuming countries view a sharp increase in the price of oil?

Current account of balance of payments

The diagram illustrates China’s trade with Brazil in 1999 and 2003, measured in billions of dollars. Using the diagram, what change occurred in China’s trade balance with Brazil from 1999 to 2003?

Current account of balance of payments

The diagram illustrates the market for imported cars. Which government action might be represented by the shift in the diagram?

Globalisation, free trade and protection

Which factor is most likely to promote international specialisation?

International specialisation

A power plant is constructed to supply electricity to a rural part of Botswana. What is the opportunity cost for the local economy of constructing the plant?

Opportunity cost

Turkey’s agricultural sector accounts for $48\%$ of the country’s workforce, whereas the figure is $17\%$ in the United States (US) and $3.9\%$ in France. What conclusion could be drawn from this?

Differences in economic development between countries

The diagram illustrates a production possibility curve for an economy that is able to produce financial services or agricultural products. The economy is currently at point $X$. Bad weather destroys some of the agricultural produce. At which point in the diagram will the economy be?

Production possibility curve (PPC) diagrams

Within a mixed economy, production is carried out by

Mixed economic system

The diagram illustrates a change in the demand curve for table-tennis balls. What is the most likely reason for this movement in the demand curve?

Demand

Air travel and rail travel are substitute methods of transport. The diagram illustrates the impact of new technology on the market for air travel. What would be the most likely consequence for the market for rail transport?

Demand

A developer constructed some large houses in a rural area that poorer people were unable to afford. The houses ruined an area of natural beauty. What type of market failure was caused by the development?

Market failure

A nation’s central bank increased the rate of interest from $1\%$ to $4\%$ per year. How would this change have influenced the amount saved and the cost of borrowing for individuals?

Monetary policy

Within a rural Southern African community, women carried out planting and hand-weeding of crops, whereas men controlled production and took the profits. Which combination of factors of production was being used?

The factors of production

A national trade union aims to raise the pay of its members without cutting the number of people employed. Which factor would assist the union in doing this?

Trade unions

A worker’s wage rate is cut. Which set of job characteristics is most likely to make the worker remain in the job?

Workers

What features are present in a monopoly?

Market structure

What must be declining if a firm is experiencing economies of scale?

Firms’ costs, revenue and objectives

A company that supplies water spent $\$470\text{ million}$ on building a pipe network to make water distribution more efficient. It hired local people and helped the local economy grow. It also improved facilities for the tourist industry. What cannot be concluded from this information?

Market failure

The table presents the information available to a company’s managers from one week of business activity: number of employees $=100$, average wage $=\$900$, value of output $=\$100\,000$, rent $=\$10\,000$, raw materials $=\$20\,000$. If there are no other costs, what is the amount of the fixed costs?

Firms’ costs, revenue and objectives

What is most likely to be one responsibility of a government?

The role of government

Which statement correctly describes the meaning of government economic aims?

The macroeconomic aims of government

A government wants to narrow the difference between the incomes of the wealthy and the poor. What action should it take to achieve this objective?

Poverty

A government chose to raise its expenditure on constructing schools and hospitals. Which aim of government policy is this increase most likely to help achieve?

The macroeconomic aims of government

The government in a wealthy country stated that it would provide free food to its citizens for one year. What would be the effect of this policy?

Price determination

Germany’s GDP growth was predicted to be $1.5\%$ in 2013. What could lead to economic growth?

Economic growth

The share of people in work differs across industries and also between developing and developed economies. Which row in the table is most likely to show the greatest percentage of workers employed?

Differences in economic development between countries

In $2009$, a country recorded an inflation rate of $2\%$. The table gives the inflation rates for the next years: $2010: 2\%$, $2011: 1\%$, $2012: 0\%$, $2013: -1\%$. In which year did deflation begin?

Inflation and deflation

Which other item is included in a country’s Human Development Index (HDI), apart from real GDP per head and life expectancy at birth?

Differences in economic development between countries

Why may real GDP per person not be a reliable indicator of living standards in developing countries?

Living standards

The wealthiest $60\%$ of the population in a developed economy experienced higher income. Which row is correct as a consequence of this rise?

Living standards

As stated by the United Nations, the proportion of the world’s population living in developing countries is expected to rise from 83% in 2003 to 88% in 2050. What is the most likely main reason for this forecast change?

Population

The diagram illustrates China’s trade with Brazil in 1999 and 2003, measured in billions of dollars. Using the diagram, what change took place in China’s trade balance with Brazil from 1999 to 2003?

Current account of balance of payments

A country places tariffs and quotas on goods brought in from abroad. What will the citizens of that country experience?

Globalisation, free trade and protection

Which factor is most likely to promote international specialisation?

International specialisation

The diagram illustrates a production possibility curve for an economy that is able to make rice or electronic equipment. The economy is located at point Q. A recession leads to unemployment in the electronics industries. At which point will the economy be shown on the diagram?

Production possibility curve (PPC) diagrams

48% of Turkey’s workforce is employed in the agricultural sector, whereas the figures are 17% in the United States (US) and 3.9% in France. What conclusion can be drawn from this?

Differences in economic development between countries

A person does his work at home producing table cloths. He works for 6 hours per day and produces 15 table cloths each hour. He sells each one for $\$10$. He then chooses to work for just 4 hours per day. What can be concluded from the information above?

Workers

What does the term equilibrium price mean?

Price determination

In August 2013, a prolonged strike in north-east India, where the finest and most expensive Darjeeling tea is grown, brought the tea industry to a standstill at harvest time. What would be the probable result of this situation on a demand and supply diagram for Darjeeling tea?

Supply

Air travel and rail travel are substitute types of transport. The diagram illustrates the impact of new technology on the market for air travel. What is the most likely result for the market for rail transport?

Demand

A developer constructed several large houses in a rural location that poorer people were unable to afford. The houses damaged a place of natural beauty. What sort of market failure did this development cause?

Market failure

In what way do high direct taxes influence spending, and how do high interest rates influence saving among wage-earners?

Households

Governments often attempt to affect the supply of factors of production in their economies. Which factor’s supply is a government least likely to be able to increase?

The factors of production

From the figures for the United States (US) in 2011, $7.6$ million public sector workers ($36\%$ of public sector workers) were in trade unions, whereas only $7.1$ million private sector workers ($8\%$ of private sector workers) were members of a trade union. What conclusion can be drawn from this information?

Trade unions

Workers in car assembly generally receive higher pay than agricultural workers. What could account for this?

Workers

In certain countries, previously nationalised utilities, such as electricity, have been replaced by a number of public limited companies. Which change has taken place in the electricity market?

Market structure

In developed economies, production has shifted from labour-intensive methods to capital-intensive methods. Which kind of activity is still labour-intensive?

The factors of production

In 2007, a large industrial mining company tried to take over another industrial mining company. This attempt was unsuccessful. In 2010, the same mining company put forward an offer to acquire a company that sells potash, which is used to improve agricultural soils. How can the mining company’s efforts to acquire these other companies be described?

Market structure

The table presents the data available to a company’s managers from one week of trading activity. employees: $100$ average pay: $\$900$ output value: $\$100\,000$ rental cost: $\$10\,000$ materials used in production: $\$20\,000$ If there are no other costs, what is the amount of the fixed costs?

Firms’ costs, revenue and objectives

Governments may use monetary policy, for example by raising the rate of interest. What is one effect of a rise in the rate of interest?

Monetary policy

Which statement correctly describes the meaning of government economic aims?

The macroeconomic aims of government

During 2013, a government aimed to keep inflation low and to reduce unemployment as well. It chose to subsidise consumers who wanted to buy a house so that houses would become more affordable for them. At the same time, there was a shortage of houses. What is most likely to have happened to inflation, housebuilding and unemployment?

Fiscal policy

A government chose to raise its expenditure on constructing schools and hospitals. Which objective of government policy is this increase most likely to help achieve?

The macroeconomic aims of government

There has been growing concern about how large firms exploit the environment. What is the principal cause of this concern?

Market failure

A consumer price index (CPI) is made up of four items. The table gives the percentage change in price for each item over one year and the weight assigned to each item. Which price change would have the greatest effect on the CPI level?

Inflation and deflation

GDP per head is often seen as a weak indicator of living standards because it leaves out

Living standards

A large economy records a high GDP growth rate. Which outcome is least likely to occur as a consequence of this growth?

Economic growth

During 2008, a country’s inflation rate was $4\%$. The table lists the inflation rate for the years that followed. 2009: $4\%$ 2010: $2\%$ 2011: $-2\%$ 2012: $-1\%$ In which year did deflation begin?

Inflation and deflation

In developed countries, an ageing population has led to changes in population structure. What outcome results from this change?

Population

If nothing else changes, the population is most likely to rise when there is a decrease in

Population

The diagram presents population data for Japan in 1950, 2005 and 2050. From the diagram, what conclusion can be drawn?

Population

The diagram presents China’s trade with Brazil in 1999 and 2003, measured in billions of dollars. Using the diagram, what change took place in China’s trade balance with Brazil from 1999 to 2003?

Current account of balance of payments

In August 2013, the Indian rupee fell to a lower value against the US dollar than it had in the previous month. What does this mean?

Foreign exchange rates

What is most likely to promote international specialisation?

International specialisation

The figure presents a production possibility curve for an economy able to produce agricultural products or financial services. It is presently located at point Q. A crop disease lowers agricultural production, while the financial services sector raises output because demand has increased. To which point is the economy most likely to shift?

Production possibility curve (PPC) diagrams

In Turkey, the agricultural sector provides jobs for $48\%$ of the workforce, whereas the figures are $17\%$ in the United States (US) and $3.9\%$ in France. What conclusion can be drawn from this?

Differences in economic development between countries

A woman makes small cakes from home. In one hour, she can produce 30 cakes, and she works for four hours each day. The ingredients cost a total of $\$50$, and each cake is sold for $\$2$. What is the opportunity cost if she chooses to take a working day as a holiday?

Opportunity cost

Many former planned economies in Eastern Europe have become market economies. What is most likely to be seen in these economies?

Market economic system

Give one instance of a public good.

Market failure

Air travel and rail travel are alternative modes of transport. The diagram illustrates how new technology affects the market for air travel. What would be the most likely effect on the market for rail transport?

Demand

A developer had some large houses constructed in a countryside location that poorer people could not buy. Building them damaged an area of natural beauty. What type of market failure was caused by this development?

Market failure

When low-income earners are compared with high-income earners, which statement is correct?

Living standards

At present, around 80% of Cambodia’s export earnings are generated from clothing sales. The Cambodian Government wants clothing producers to export more, although its immediate focus is to boost rice exports. In 2012 Cambodia ranked as the world’s seventh-largest rice exporter. The government wants the country to move into the top five. If export earnings rose above the 2012 figure of US$6 billion, the country’s current account deficit in its balance of payments would fall. To meet the government’s target, several changes are needed to raise Cambodia’s Gross Domestic Product (GDP). One is improving infrastructure, including the construction of additional roads and ports. Better transport infrastructure also has to be matched by greater investment in agriculture. In addition, farm workers’ skills need to be improved. Those who are already skilled should be encouraged to remain in the country rather than leave it. The Cambodian Government is also trying to increase investment in the manufacturing and service sectors. A variety of factors affect investment. Among the most significant is the rate of economic growth. Countries with rapid economic growth usually devote a large share of their income to capital goods. Cambodia is drawing investment from other countries, especially China. This investment is influenced by several factors, including a young population and progress in the country’s financial sector. In 2012 the population was 15 million, with the birth rate exceeding the death rate by 13 per thousand of the population. Emigration was greater than immigration, giving a net migration rate of minus 0.3 per thousand of the population. In 2012 Cambodia launched its first stock exchange, the Cambodian Securities Exchange (CSX). The first company listed on the CSX was the Phnom Penh Water Supply Authority. This Cambodian company is known as one of the most efficient water companies in Asia. It is a desirable employer partly because it offers relatively high wages.

Economic growth

Frequent electricity shortages often lead to power cuts in the Lebanon. If the Lebanese economy keeps expanding, the daily difference between supply and demand could widen. The Lebanese Government plans to construct more power stations, although there is a danger that the social costs of running them may exceed the social benefits.

Price determination

The average income in Mexico is increasing, yet many people in the country are still poor. Carlos Slim is a Mexican entrepreneur and one of the richest men in the world. His companies dominate the mobile (cell) phone and landline phone markets in the country and employ a large number of specialised workers. However, the Mexican Government is trying to increase competition in the communications market.

Market structure

China’s solar power industry contains the world’s largest solar panel firms. Their expansion has been supported by low labour costs and government subsidies. Solar panel firms are smaller in Europe, where some are sole proprietors. In 2013 the European Union was considering a tariff of 47% on Chinese solar panels.

Firms

Brazil’s economy faced problems in 2013. Its inflation rate moved above the Central Bank’s target. Over two-thirds of the items used to work out the inflation rate became more expensive. The rate of economic growth fell and fewer jobs were being created. As the labour force expands, additional jobs must be generated to prevent unemployment rising. As free trade expands, wider free trade could improve Brazil’s economic performance.

Employment and unemployment

In 2013, the Japanese Government adopted a range of policies, including monetary policy, to lift consumer spending and investment so as to avoid deflation. At the same time, some Japanese politicians were arguing that the government should raise the rate of the country’s sales tax from 5% to 10%. Sales tax is an indirect and regressive tax.

Monetary policy

The global population is projected to increase to 9 billion by 2050. It is expected that Nigeria, a developing country with a mixed economy, will rise from the seventh-largest population at 158 million in 2013 to the third-largest at 400 million in 2050. To slow population growth, some governments use a variety of government policy measures.

Population

It has been forecast that Mexico will be among the world’s top ten economies by 2020. The country’s industrial make-up has been changing for some time. In 2008, 12% of the labour force were employed in the primary sector (mainly agriculture), 26% in the secondary sector (mainly manufacturing) and 62% in the tertiary sector (services). By 2012, employment had dropped by 1% in the primary sector and by 2% in the secondary sector. During recent years, Mexico has been removing trade protection measures such as tariffs and quotas. The country now has free trade with more than 40 other countries. International trade has a major role in the Mexican economy, with a third of its output being exported and imports accounting for more than a third of the products bought in Mexico. Nearly 80% of Mexico’s exports go to the United States of America (US). Mexican firms have a wide range of sources for imported raw materials and a large international market in which to sell their products. The main destination for Mexico’s shrinking number of emigrants is the US. After an economic downturn in 2009, the Mexican economy has been expanding. Incomes have increased and life expectancy has risen. Table 1 shows the income levels and life expectancy for a number of countries. Although the standard of Mexico’s education is not very high, poverty is falling in the country as living standards rise. More people now have access to better-quality health care. In contrast to its neighbour the US, unemployment has been falling in Mexico. Costs of production in Mexico are rising more slowly than in China. Mexico imports products from China and also competes with China in a number of export markets. Some of Mexico’s leading exporting firms are monopolies within the country. One is Pemex, the state-owned oil and gas monopoly. The firm sells oil throughout the world. Some economists argue that Mexican consumers would gain if Pemex were sold to the private sector.

Globalisation, free trade and protection

The United Nations’ World Tourism Organisation has estimated that, by 2020, only 7% of the world’s population will have visited another country. If international travel rises, it may generate jobs and affect incomes. However, it would also place strain on finite resources and produce external costs.

Market failure

A heatwave in July 2013 in the United Kingdom caused ice cream sales to more than double. More workers were recruited to cope with the stronger demand. Over the last few years, changes in the demand and supply conditions for ice cream have made both demand and supply more elastic. The market has also been affected by government policies and by shifts in the country’s economic growth rate.

Price elasticity of demand (PED)

On average, people in Norway work just 27 hours each week. They also enjoy more holidays, and for longer periods, than workers in most other countries. In 2013, Norway had the world’s second-highest productivity. It was also placed first in the Human Development Index (HDI). Compared with many other countries, Norway has experienced almost full employment in recent years.

Living standards

In 2009, a digital currency named Bitcoin was created. From 2009 to 2014, more people and firms began to accept it as a medium of exchange and store of value. Financial experts have urged that digital money should be regulated by central banks. One concern is that it could raise the money supply and lead to inflation.

Money and banking

Capital goods account for more than half of Japanese exports. In 2013, even though Japan’s imports climbed faster than its exports, the current account of its balance of payments still showed a surplus. Globally, rising trade was prompting the opening of new airports to meet the need to transport goods.

Current account of balance of payments

Myanmar (Burma) is aiming to progress from a developing country to a developed one. Its savings ratio is lower than that of most other Asian economies, because its people spend most of their income. The Government is encouraging foreign investment to increase economic growth. It is also using fiscal policy in an effort to reduce poverty, which affects one third of its population.

Differences in economic development between countries