Feb/March 2016

An economy that has limited resources is encouraged to enhance the quality of its human resources. Which policy would bring about this improvement?

Supply-side policy

The table shows how incomes changed for several occupations between $2003$ and $2013$. What conclusion can be drawn from the table?

Workers

The table gives data for two workers. Annual income ($): doctor $60000$, window cleaner $24000$. Total deductions ($): doctor $10000$, window cleaner $8000$. Each worker puts aside $10\%$ of their disposable income. What amount does this represent in each case?

Households

Which factor is most likely to raise a firm’s profits?

Firms’ costs, revenue and objectives

Sohrab purchased shares in a French telecommunications company that trades in many countries. Joel owns and manages a shop that sells mobile telephone accessories and carries out repairs. What is not identified above?

Workers

A company’s average revenue comes to $20$. It sells $1000$ units. What are the firm’s total revenue and the price of the product?

Firms’ costs, revenue and objectives

The table presents the daily output and costs for four firms that produce chairs. Which firm has the greatest average cost of production?

Firms’ costs, revenue and objectives

Assuming everything else remains unchanged, what is likely to reduce public spending?

Fiscal policy

At what point does a tax become regressive?

Fiscal policy

The Government of India wants to assist the very poorest people. Which policy would be most likely to achieve this?

Poverty

Assume the Indian Government increases the rate of interest. What is likely to be the immediate effect on the economy?

Monetary policy

The diagram illustrates a country’s production possibility curve for rice and wheat. A major flood destroys a large area of agricultural land. Which movement might show the change in output that results?

Production possibility curve (PPC) diagrams

What does the construction of a retail price index involve?

Inflation and deflation

What indicates a recession?

Economic growth

The table gives the percentage changes in earnings and consumer prices in four countries over a one-year period. Which country is most likely to have seen the largest rise in real income during the year?

Inflation and deflation

Within the US Consumer Price Index (CPI), food carries a weighting of $13.7\%$. In India, food is given a weighting of $46.2\%$ in the CPI. What conclusion can be drawn from this?

Inflation and deflation

In many developing economies, population growth is rapid. What is one reason for this?

Population

In a country, the birth rate is $30$ per $1000$ while the death rate is $35$ per $1000$, and there is no migration. What is the most likely cause of the population decline?

Population

The diagram illustrates how the population age structure varies across three regions of the world. Assuming all other factors remain the same, what can be inferred from the diagram?

Population

What is likely to lead to an increase in a country's foreign exchange rate?

Foreign exchange rates

Drinks producers in India are opposing proposals to abolish tariffs on imported drinks. They argue that cutting tariffs would wipe out the developing drinks industry because of mass imports of low-cost drinks. Which protectionism argument are they using?

Globalisation, free trade and protection

Who would be most likely to gain if India prohibited all steel imports?

Globalisation, free trade and protection

In a country, the school leaving age is increased from 15 to 17 years. What is the opportunity cost of this longer period of school education for the young people affected?

Opportunity cost

What is guaranteed to stimulate a greater level of international trade?

Globalisation, free trade and protection

If a market is experiencing a shortage of a good. What change would bring the market into equilibrium?

Price determination

The price elasticity of demand for a product is perfectly inelastic. What would happen to total revenue if the product’s price were reduced by $25\%$?

Price elasticity of demand (PED)

During 2014, an announcement was made about a large new rail link to be financed by central and regional government. The project would require redevelopment of an urban district, create $14\,000$ jobs, and make possible the construction of $2000$ homes and office space for private firms. What economic concepts are shown directly in the statement above?

Employment and unemployment

How are social costs worked out?

Market failure

What drawback does a trade union face when representing workers in a company where specialisation has increased?

Trade unions

A government finance minister stated that the purchasing power of most people’s incomes had gone up over the previous year. What would have had to increase for purchasing power to rise?

Inflation and deflation

Agriculture made up 17% of India’s Gross Domestic Product (GDP) of US$1890 billion in 2013. GDP had risen from US$1769 billion in the previous year. The country’s population went up from 1.22 billion in 2012 to 1.26 billion in 2013. In 2013, India and the US were both among the world’s top ten wheat producers. India came third with output of 95 million tonnes, whereas the US was fourth with output of 62 million tonnes. In 2013, just 1.6% of the US labour force worked in agriculture, compared with 45% in India. Agricultural subsidies have fallen in the US, but they are still high in India. The Indian Government believes support for farmers matters for national security and that food subsidies help to cut poverty. From 2010 to 2013, the Indian Government spent US$15 billion subsidising fertilisers to improve soil fertility. Fertiliser subsidies have raised wheat output, but they have also polluted rivers. The Indian Government believes that, over time, its agricultural sector will become more efficient and that subsidies will be needed less. It expects workers to become better educated and the quantity of capital equipment used in agriculture to increase. Some US economists have challenged this optimism. They note that the state-owned Food Corporation of India had to purchase 30% of the country’s yearly wheat harvest and that India had a huge stockpile of unsold wheat in 2014. Trade between India and the US is growing. US citizens are purchasing a larger amount of goods and services from India. For example, because life expectancy in the US, which had already reached 79 years in 2014, is rising, imports of Indian medicines into the US are increasing. Several factors will shape the pattern of trade between the two countries. These include the exchange rate between the US dollar and the Indian rupee. The value of the US dollar is set by market forces, so the long-term trend may fluctuate.

Market failure

In 2014, the share price of a major UK supermarket company dropped on the London Stock Exchange after it announced that profits were expected to decline. Stronger competition from German supermarket firms led the UK supermarket to look at several ways of lowering costs, such as cutting some workers’ wage rates and lengthening some workers’ working hours.

Firms’ costs, revenue and objectives

A lower death rate is changing the size of China’s population, which in turn is altering demand for a range of products including table salt. The Chinese Government has recently thought about ending the state salt monopoly. However, an online survey showed that most Chinese people oppose bringing more competition into the market, believing that this would push up the price of salt.

Market structure

From 2008 to 2014, Greece’s Gross Domestic Product decreased by 25%. Many sole proprietors and other businesses closed down. As a result, unemployment climbed to 28%. The Government cut its spending and was being urged by the International Monetary Fund to lower its corporation tax (the tax on firms’ profits).

Employment and unemployment

In 2014, the inflation rate in the United States of America (US) stood at 2.0%. US unemployment was 6.1%, which was the lowest level for six years. The economy had still not reached full employment, although not every job vacancy had been filled. A larger share of US students was entering university. Investment, meaning expenditure on capital goods, was rising.

Employment and unemployment

In 2014, the World Trade Organisation required China to remove its export quotas on rare earth metals, which are used in smartphones, laptops, tablets and other electronic equipment. China provides 90% of the world’s rare earth metals and is also the world’s biggest user. The supply of these metals is inelastic, so any change in their price alters the cost of producing a range of products.

Price elasticity of supply (PES)

Foreign tourism has grown. Increasing numbers of people from both developed and developing countries are going on holidays overseas. Foreign tourism brings advantages as well as disadvantages. It creates employment, although some of the jobs are poorly paid and require few skills. The quality of employment can vary between developed and developing countries, as can the problems they face, including population problems.

Current account of balance of payments