Oct/Nov 2017

In 2015, an oil company said that it would begin drilling for oil deposits in the Arctic Ocean. What effect will this have?

Supply

Which diagram illustrates the usual pattern of income across a person’s entire lifetime?

Households

When deciding on an occupation, people often take into account matters other than the wage-rate. What would not be a suitable match for the kind of work preferred?

Workers

Which of the following is an internal diseconomy of scale?

Firms’ costs, revenue and objectives

Which of the following is least likely in an industry made up of many small firms?

Market structure

A large computer company announced that its profits had fallen below the forecasted figure. What could have led to this?

Firms’ costs, revenue and objectives

The diagram illustrates the fixed costs, variable costs and total costs of a firm. At output $Q$, which distance shows the firm’s variable cost?

Firms’ costs, revenue and objectives

What, if it increases, will help a government bring down the rate of inflation?

Monetary policy

An economy is running a deficit on its balance of trade in manufactured goods. Which government policy would reduce this deficit?

Current account of balance of payments

The graph illustrates the percentage of income paid as taxation. Which line shows a proportional tax?

Fiscal policy

What is most likely to fall as employment rises?

Employment and unemployment

A self-employed fortune teller makes a living by examining the palms of people’s hands. Which factors of production are needed for this activity?

The factors of production

Why is the Human Development Index (HDI) frequently viewed as a superior measure of living standards compared with Gross Domestic Product (GDP) per head?

Living standards

An economy is expected to expand by $3\%$ over the coming year. What is the most likely reason for this growth?

Economic growth

The diagrams illustrate the percentage of employment in different sectors in two countries. Which statement is correct when country X is compared with country Y?

Differences in economic development between countries

Which policy is intended to keep inflation low over time?

Monetary policy

Which measure gives the most accurate indication of a currency’s international purchasing power?

Foreign exchange rates

The charts illustrate a country’s population structure in 1960 and 2015. What fell between 1960 and 2015?

Population

The table provides details on four countries. Which country is most likely to be the most developed?

Differences in economic development between countries

What is one advantage gained from tariffs?

Globalisation, free trade and protection

What is a country said to have when the value of its exported goods is greater than the value of its imported goods?

Current account of balance of payments

At first, an Argentine product is sold in the US for $\$50$ when the exchange rate between the two countries is $5$ pesos to $1$ dollar. The exchange rate then changes to $10$ pesos to $1$ dollar, while the product’s price in Argentina stays the same. What is the product’s new price in the US?

Foreign exchange rates

The economy is currently at point X on its production possibility curve (PPC). A drought cuts agricultural output by a large amount. Which point shows the new position?

Production possibility curve (PPC) diagrams

The UK aims to raise exports to the US. Which action would make this happen?

Globalisation, free trade and protection

A government has to decide how large a fine to impose on firms that create the external costs of air pollution in industrial areas. Which external cost would be hardest to put a money value on?

Market failure

State one example of market failure.

Market failure

The table shows the demand and supply for coffee in a market in Africa. As the price increases from $20 to $30 per kg, what is the price elasticity of demand for coffee?

Price elasticity of demand (PED)

From 2005 to 2015, the number of late-night music clubs in the UK decreased from 3144 to 1733. It was claimed that this happened because planning regulations raised clubs’ costs and because social media provided more alternative ways of meeting people. How would the impact of these causes be represented on a demand and supply diagram for admission to late-night music clubs?

Price determination

A job provides employees with piecework, commission, paid holidays and a company pension. Which of these are non-wage factors?

Workers

At what point is a trade union most likely to achieve the objectives of its members?

Trade unions

Economists use the term factors of production. Which of the following is not a factor of production?

The factors of production

Even though office work pays more, many people continue in low-paid farm jobs. What could account for this in developing economies?

Workers

The diagram presents two curves: one represents labour demand and the other represents labour supply. The government sets a minimum wage $(M_w)$ that employers are required to pay. What effect will this minimum wage have?

Workers

Which option is an internal diseconomy of scale?

Firms’ costs, revenue and objectives

What sets a multinational company apart from other kinds of company?

Firms

A large computer company announced that its profits had fallen below the forecast level. What could have caused this?

Firms’ costs, revenue and objectives

The table gives a firm's variable costs. Each unit can be sold for $\$5$. Its fixed costs are $\$10$. How many units should the firm produce in order to maximise profits?

Firms’ costs, revenue and objectives

What, if it rises, will enable a government to lower the inflation rate?

Monetary policy

A government brings in a fresh tax. It increases the price of each $\$10$ good by $\$1$ and the price of each $\$20$ good by $\$2$. What conclusion can be drawn about the character of this tax?

Fiscal policy

The graph illustrates the percentage of income paid as tax. Which line indicates a proportional tax?

The role of government

A worker receives $\$40\,000$ per year and is charged $20\%$ income tax. He buys electrical goods worth $\$5000$ and a car for $\$10\,000$, with $20\%$ sales tax added to each purchase. What total indirect tax does he pay?

Fiscal policy

A government permitted a building company to construct new houses, and this damaged an area that had been designated as one of natural beauty. Which concepts can be applied to this statement?

Market failure

Why is the Human Development Index (HDI) often judged to be a superior measure of living standards compared with Gross Domestic Product (GDP) per head?

Living standards

A finance minister stated that the economy was going through inflation and economic growth. What would count as evidence that each of these had taken place?

The macroeconomic aims of government

The diagrams illustrate the percentage of employment in different sectors in two countries. Which statement is correct when country X is compared with country Y?

Differences in economic development between countries

What could lead to cost-push inflationary pressure in an industry that supplies mobile (cell) phones?

Inflation and deflation

Which factor is most likely to lead to an increase in population growth in a developing country?

Population

The charts illustrate the population structure of a country in 1960 and 2015. What went down between 1960 and 2015?

Population

At the beginning of the year, a developing country had a population of 1 000 000. Its birth rate was 16.0 per thousand per annum, and its death rate was 8.0 per thousand per annum. By the end of the year, the population had risen to 1 005 000. What might account for this change in population?

Population

What is one advantage of tariffs?

Globalisation, free trade and protection

What term is used for a currency’s external value when it is measured against another currency?

Foreign exchange rates

In 2011, it was said that the United States (US) needed to cut its current account deficit. What would assist this in the short run?

Current account of balance of payments

The diagram illustrates a production possibility curve. The country is fully employing all its resources to make both manufactured goods and services. Which movement would indicate a technological improvement in manufacturing?

Production possibility curve (PPC) diagrams

The table gives the number of units of foreign currency that the UK pound (UK£) was able to purchase in August 2012 and August 2013. What conclusion can be drawn from the table about how currency values changed between 2012 and 2013?

Foreign exchange rates

In a mixed economy, what is the government most likely to produce?

Mixed economic system

Which effect of economic development counts as an external cost?

Market failure

The table shows the demand for coffee and the supply of coffee in a market in Africa. If the price increases from $20$ to $30$ per kg, what is the price elasticity of demand for coffee?

Price elasticity of demand (PED)

The report stated that the supply of oil would be influenced by the discovery of new oil fields, and demand would be influenced by rapid worldwide economic growth. If point X is the original equilibrium point, which point might show the new equilibrium?

Price determination

Which factor is likely to reduce the amount saved in an economy?

Households

What change would cause a manufacturing company to substitute labour for machines in order to keep the most efficient mix of factors of production?

The factors of production

What is meant by the factor of production known as capital in economics?

The factors of production

A woman accountant employed by a private firm receives $80$ per hour, whereas a man who is Professor of Finance at a government university receives $40$ per hour. Both of them work the same number of hours. What might account for the gap in earnings?

Workers

Each of the four groups of descriptions in the table relates to a person who is applying for a job. Which person is most likely to be paid more?

Workers

Which option is an internal diseconomy of scale?

Firms’ costs, revenue and objectives

Private multinational clothing companies set up operations in developing countries in order to lower their average production costs. Which characteristic of developing countries makes them attractive for this purpose?

The factors of production

A large computer firm announced that its profits had dropped below the forecasted level. What could have led to this?

Firms’ costs, revenue and objectives

An entrepreneur purchases a workshop for $10000 in order to produce picture frames. During the first year, he spent $40000 on materials and hired two workers. He paid the workers according to each frame made, and this came to a total of $30000. He also bought a vehicle for $10000 to deliver the frames. What did his total variable costs amount to?

Firms’ costs, revenue and objectives

What, if it rises, will allow a government to cut the inflation rate?

Monetary policy

Which policy is most likely to raise the level of economic activity?

Fiscal policy

The graph illustrates the percentage of income that is paid as taxation. Which line is the proportional tax?

The role of government

In one year, a government raises the revenue shown below. customs duties: $100\,\text{m}$ taxes on goods: $200\,\text{m}$ taxes on income: $400\,\text{m}$ taxes on services: $300\,\text{m}$ What is the total indirect tax revenue?

Fiscal policy

A government chooses to increase spending on defence and is therefore unable to fund a new airport. Which concepts apply to the statement above?

Opportunity cost

Why is the Human Development Index (HDI) often viewed as a more useful measure of living standards than Gross Domestic Product (GDP) per head?

Living standards

What might bring about a rapid rise in the working population?

Workers

The diagrams illustrate the percentage of employment in different sectors in two countries. Which statement is correct when country X is compared with country Y?

Workers

What is likely to decrease when the unemployment rate falls?

Employment and unemployment

A country has equal birth rate and death rate. What is likely to happen if the birth rate falls, while the death rate and migration stay unchanged?

Population

The charts compare the population structure of a country in 1960 and 2015. What fell between 1960 and 2015?

Population

The table presents the Consumer Prices Index (CPI) for a selection of cities in August 2015, using New York, USA as the base of 100. What conclusions can be drawn from the table?

Inflation and deflation

What is one advantage of tariffs?

Globalisation, free trade and protection

What term is used for an increase in the value of a currency’s exchange rate in a floating system?

Foreign exchange rates

A developing economy records a surplus on its trade in goods of $\text{\$}75$ billion and a deficit on its trade in services of $\text{\$}25$ billion, with its current account balanced overall. Which amounts of net income (primary income) and net transfers (secondary income) would make the current account balance?

Current account of balance of payments

The illustration is a production possibility curve diagram. A country begins at position X. More efficient manufacturing methods are introduced, and the country also upgrades its tourist facilities. What would this be shown by?

Production possibility curve (PPC) diagrams

Which policy would promote greater international specialisation?

International specialisation

What could be an external cost of consuming alcohol?

Market failure

What is one advantage of the market system?

Market economic system

The table shows the demand and supply of coffee in an African market. When the price increases from $20$ to $30$ per kg, what is the price elasticity of demand for coffee?

Price elasticity of demand (PED)

Over the last few years, the world market price of crude oil has dropped sharply. One reason has been the rise in oil produced through the new extraction method of fracking. How would this be represented on a demand and supply diagram for the crude oil market?

Supply

Which option is the clearest example of specialisation?

International specialisation

Which workers are most likely to receive the largest increase in wages from a pay rise of $2\%$?

Workers

In 2015, the worldwide equilibrium price of milk decreased. As a result, the number of farms making milk fell. To cut costs, farms became larger and hired fewer but more specialised workers. Because there were fewer farms, competition became weaker, as some large farms gained monopoly power in local areas. Some farm workers moved into other jobs, while others who stayed agreed to lower pay.

Market structure

Qatar has a developing economy and has gained from the expansion of the insurance industry. At present, this industry is dominated by a single firm and remains far from perfect competition. The economy has also seen an overall rise in labour productivity. However, economists disagree about the exact link between free trade and economic growth.

Market structure

Indonesia has abundant resources, including raw materials such as copper, gold and coal. Indonesia is the second-largest coal exporter. In 2015, the Indonesian Government was thinking about raising subsidies for producers, farmers included. Subsidies may be used to bring inflation down. In recent years, direct taxes have been lower in Indonesia, whereas some other countries have raised indirect taxes.

Fiscal policy

In 2015, Venezuela was facing several difficulties. Even with government subsidies, rising demand meant that food shortages occurred. The drop in the global price of oil widened the deficit on the current account of the country’s balance of payments. Oil made up almost 90% of the country’s export earnings. In Venezuela, oil is produced by one large state-owned company, but the country also has many sole traders involved in other industries.

Current account of balance of payments

In 2008, Zimbabwe hit a peak inflation rate of 500 trillion per cent. By 2015, inflation had dropped so far that deflation was being discussed. Such deflation could be very serious because unemployment in the country was high. Raising government spending on training is one policy option that may be used to bring down both unemployment and inflation.

Inflation and deflation

Although central banks encouraged them, some commercial banks in 2015 were still unwilling to lend, particularly to the poor. If more lenders and borrowers had been attracted, commercial banks could have grown and hired extra workers. Higher employment would have made better use of a country’s labour force. In the long term, the size of a country’s labour force is likely to change.

Money and banking

For a period of time, many central banks have aimed for an inflation target of around 2%. A modest, steady increase in the general price level can create several advantages for an economy. For central banks and governments, the earlier challenge was to keep the inflation rate from moving above the target while also maintaining a low unemployment rate. The challenge has now shifted, with the danger being that inflation may drop below this target. By the end of 2014, China’s consumer prices index was 100.5. The inflation rate in the country during 2015 was 2%. In contrast, several European countries experienced deflation. This produced a number of effects, including a wider pay gap between skilled and unskilled workers. A key cause of the downward pressure on inflation was the fall in the world price of oil from US$120 to US$66 per barrel in 2015. This lowered energy and transport costs. Reduced transport costs had a clear effect on food prices. Fig. 1 shows the way the food market was influenced in 2015. Fig. 1 The market for food in 2015. The vertical axis is labelled 'price of food' and the horizontal axis is labelled 'quantity of food'. The origin is labelled O. The price levels are labelled $P_1$ and $P_2$. The quantities are labelled $Q_1$ and $Q_2$. There is a downward sloping demand curve labelled D. There are two upward sloping supply curves labelled $S_1$ and $S_2$. While inflation was falling, unemployment declined in some countries. However, other countries saw inflation fall alongside a rise in unemployment. For instance, unemployment in France increased between 2014 and 2015. This created upward pressure on French Government spending.

Inflation and deflation

Singapore is often placed among the top countries for doing business. It has an open economy that trades freely. It also has a track record of strong entrepreneurship, low unemployment, low average costs and relatively low tax rates. Its example could persuade other countries to cut back trade restrictions.

Firms’ costs, revenue and objectives

In a few countries, people with high incomes are now putting in more hours on average than those on low incomes. One explanation is that well-paid jobs are believed to offer greater job satisfaction. Enjoying work can result in high labour productivity.

Production possibility curve (PPC) diagrams

In Pakistan, the range of cars available to purchase is limited. The country has a population of approximately 190 million, yet only about 120 000 cars a year are made there. Car producers in Pakistan are shielded from overseas competition by several forms of trade protection.

Globalisation, free trade and protection

Nauru is among the world's smallest countries, with a population of only 10 000. Fifty years ago, its population was one of the richest per head in the world, mainly because it exported phosphate that had built up over many centuries from sea-bird droppings. This labour-intensive industry has shrunk sharply. Today, incomes are much lower and one third of workers are jobless.

Population

Moldova’s population stands at 3.5 million. It is among Europe’s poorest countries, with fairly low living standards. In 2015, the economy went into recession and its inflation rate doubled. Moldova’s central bank raised the interest rate from 8.5% to 15.5%.

Living standards

The Gulf states, several of which are highly specialised, bring in a large share of the food their people eat. For instance, the United Arab Emirates imports 83% of all the food it consumes. These countries are seeking to cut their dependence on food imports.

International specialisation

In 2014, global Gross Domestic Product (GDP) was US$78 000 billion. By the following year, this had climbed to US$80 730 billion. In earlier years, the USA and Germany might have been expected to make the biggest contribution to the rise in GDP. China made up 20% of the increase in world output in 2015. China is expected to become the largest economy. It is becoming a tougher rival in a range of markets. This greater price competitiveness comes from several factors, including keeping the exchange rate low, offering subsidies to several industries and raising labour productivity. Even so, in 2015 the Chinese Government was weighing up whether to shrink the country’s steel industry, perhaps by reducing the subsidy it received. Fig. 1 illustrates how the steel market could be influenced by this kind of change. Fig. 1 The market for steel in China in 2015 shows a vertical axis labelled "price of steel" and a horizontal axis labelled "quantity of steel". The origin is marked "O". Two equilibrium prices are shown, with "P2" above "P1" on the vertical axis. Two quantities are shown on the horizontal axis, with "Q2" to the left and "Q1" to the right. A downward-sloping demand curve is labelled "D1". Two upward-sloping supply curves are shown, labelled "S1" and "S2", with "S2" positioned to the left of "S1". Some developed countries have been facing difficulties recently. For example, Australia has experienced a falling economic growth rate. To stimulate domestic economic activity, the Reserve Bank of Australia has reduced interest rates. The economic growth rates of developing and emerging economies are rising. In Africa, this is partly due to the discovery and use of oil and mineral resources. These countries use different exchange rate systems and have had varying degrees of success in attracting multinational companies. Many African countries apply protectionist measures, though some are shifting towards free trade. In most developing and emerging economies the birth rate is declining. The effect of this change depends on how large the fall is relative to the original rate. For example, Nauru is one of the smallest countries in the world, with a population of only 10 000. Its birth rate dropped from 26 to 25 in 2015.

Supply

In Saudi Arabia, cement output has increased because the construction industry has demanded more cement for houses, schools, hospitals and roads. Cement prices, export bans and mergers between cement firms are also influencing the market.

Market structure

In June 2015, trade unions in Argentina were calling for higher wages and lower taxes. Alongside the push for wage increases, the economy was dealing with several further difficulties. It was also seeking to encourage the creation of public limited companies and stronger economic growth.

Fiscal policy

In August 2015, China lowered the value of its currency, the yuan. The Chinese Government wanted to raise output, including food output. It had faced a slowdown in economic growth. Yet some other countries had in fact seen output fall. One reason for the drop in economic growth in some countries was difficulties linked to their commercial banks. Some commercial banks were in danger of closing down.

Money and banking

In 2015, Puerto Rico said it was looking at ending some of its trade embargoes. At the same time, its government was also reconsidering how much it intended to spend. Incomes in Puerto Rico have been rising, with some workers benefiting more than others. There have also been microeconomic changes, as the price elasticities of demand and supply have shifted in some markets.

Globalisation, free trade and protection

Trade protection limits the opportunity for countries to specialise and affects the current account positions that countries record in their balance of payments. The extent and forms of trade protection used by developed and developing countries are different. Developed countries also generally have a lower death rate than developing countries.

Current account of balance of payments

In 2015, the UK economy saw output rise and unemployment remain fairly low. Even so, labour productivity and earnings increased only slightly. The government was still spending more than it took in tax revenue, and it was thinking about altering some monetary policy measures.

The macroeconomic aims of government