Feb/March 2018

Which option best explains the problem of scarcity?

The nature of the economic problem

If a trade union manages to push wages in an industry above the equilibrium wage, how would the demand for labour and the supply of labour be affected?

Trade unions

Which outcome is most likely to follow an increase in income tax?

Fiscal policy

Which statement accounts for why firms under perfect competition cannot exploit consumers?

Market structure

A company that operates a chain of restaurants acquired a different restaurant chain. What type of purchase is this most likely to be classified as?

Market structure

The table below lists several costs involved in operating a retail shop over one week. rent of shop: $200$ insurance premium: $40$ purchase of stock: $700$ delivery of goods: $50$ What is the total of the fixed costs for this week?

Firms’ costs, revenue and objectives

The company’s annual report indicated that it had gained from several changes. Which change is an internal economy of scale for this company?

Firms’ costs, revenue and objectives

A government thinks that consuming a particular good will benefit society. Which policy is most likely to persuade producers to raise the output of that good?

Market failure

Which statement best defines a progressive tax?

Fiscal policy

Which pairing of government policies would be most likely to cut unemployment?

Employment and unemployment

Which pair of government measures combines one fiscal policy with one supply-side policy?

Fiscal policy

What is one example of buying a capital good?

The factors of production

What does recession mean?

Economic growth

The economy is going through a phase of deflation. What does this indicate for the economy?

Inflation and deflation

The table presents the percentage change in employment over a period in a country that has three economic sectors. agriculture: $-6\%$ manufacturing: $+2\%$ services: $+4\%$ What conclusion can be drawn from this information?

Differences in economic development between countries

In 2010, official figures indicated that South Africa’s unemployment rate was very high, at about $25\%$, even though wages were twice the level in Brazil. What could explain South Africa’s high wages during a period of high unemployment compared with Brazil?

Workers

Which characteristic is commonly found in developed countries?

Differences in economic development between countries

Which combination of changes in a government budget will result in higher income inequality?

Fiscal policy

The table gives the percentage distribution of the working population across different sectors in three countries. Iran: agriculture $38\%$, manufacturing $33\%$, services $29\%$ Nepal: agriculture $93\%$, manufacturing $2\%$, services $5\%$ UK: agriculture $2\%$, manufacturing $42\%$, services $56\%$ What conclusion can be drawn from the table?

Differences in economic development between countries

Which trade protection method has the most predictable impact on controlling the volume of imports?

Globalisation, free trade and protection

What factors would result in an improvement in the Indian trade in services (invisible) account?

Current account of balance of payments

In October 2015, 1 UK pound could be exchanged for 100 Indian rupees. By October 2016, 1 UK pound could be exchanged for 80 Indian rupees. What would be a short-term consequence of this change?

Foreign exchange rates

A student chooses to purchase a ticket for a concert rather than a new shirt. What is the opportunity cost of purchasing the ticket?

Opportunity cost

A country brings in oil from abroad, and this oil is then used to produce and distribute goods. The country has also seen higher incomes, causing a substantial rise in the demand for goods, some of which are imported. What is likely to occur to the country’s balance of trade in goods (visible) and to the price of oil?

Current account of balance of payments

In a market system, which group plays the most significant role in determining how resources are allocated?

The role of markets in allocating resources

The diagram illustrates the market for oil. The starting equilibrium is $X$. If the amount of oil sold rose by two million barrels a day, which point indicates the new equilibrium?

Price determination

What does the term external cost mean in relation to mining coal?

Market failure

The table gives the quantity of chocolates demanded at two different prices. What is the price elasticity of demand when the price drops from $\$0.50$ to $\$0.45$?

Price elasticity of demand (PED)

State one function of a stock exchange.

The role of markets in allocating resources

What direct advantage does specialisation give to a worker?

Workers

India contains several fast-growing industries, among them construction, engineering, healthcare and retail. Its high-technology industry, often called ‘hi-tech’, is the quickest expanding of all, creating more than 200 000 jobs each year. It now provides employment for over 10 million people and generates exports valued at US$90 billion annually. Businesses in this industry focus on research and development, electronics and software production. Software production covers applications (apps) for smartphones and tablets. One Indian hi-tech firm has created an app that enables users to view menus from a range of restaurants, reserve a table and place food orders. The firm now offers the app in several countries, including the Philippines, Turkey and the USA. This Indian hi-tech firm also manufactures electronic equipment in these countries. One reason for expanding overseas is the relatively weak demand for restaurant meals in India. That could soon alter as incomes rise and restaurants step up their advertising, including on the firm’s app. India’s hi-tech industry is centred in Bengaluru (Bangalore). The city has close connections with universities and multinational companies (MNCs), and it is home to some of India’s most innovative entrepreneurs. Some of these entrepreneurs originate from other countries. Immigrants have an important part in the formation and expansion of hi-tech firms across the world. Several factors can persuade entrepreneurs to relocate to another country, including a low tax rate on profits. Growth in an economy may affect how many new firms are established. In turn, economic growth is affected by the amount firms spend on capital goods (investment). Fig. 1 shows India’s economic growth rate and the percentage change in investment in India between 2008 and 2014. India’s economic growth rate reached its highest point in 2010. It then declined in 2011 and 2012, partly because interest rates rose and there were worries about future economic prospects. Fig. 1 Economic growth rate and percentage change in investment in India 2008-14. The vertical axis is marked ‘%’. The horizontal axis lists the years 2008, 2009, 2010, 2011, 2012, 2013 and 2014. A dashed line shows ‘Economic growth rate (%)’. A solid line shows ‘Change in investment (%)’.

Globalisation, free trade and protection

It is predicted that by 2022 India will pass China to become the world’s most populous country. China’s birth rate is lower than India’s, and a larger share of China’s population is aged over 65. By 2050, it is estimated that 500 million Chinese people and 330 million Indian people will be over 65. Shifts in population size and age composition affect the amount and the standard of a country’s resources.

Population

Taxi drivers normally need to purchase a licence before they can carry passengers. Because the licence has a fairly high fixed cost, some potential drivers are put off entering the market. If more people became taxi drivers, taxi fares and unemployment would probably fall. However, traffic congestion could rise.

Firms’ costs, revenue and objectives

In March 2016, the Canadian government said it would raise government spending, including a larger subsidy for environmentally friendly technology. It also stated that the highest income-tax rate for high-income earners would rise from 29% to 33%. Changes in government spending and taxation affect a country’s inflation rate.

Fiscal policy

South Africa has over 700 state-owned enterprises, and some of them have carried out vertical integration and horizontal integration. A few of these state-owned enterprises are monopolies, such as a railway monopoly. A prominent South African economist has suggested that a larger share of the country’s resources should be used to construct and operate new railway lines and stations.

Market structure

The consequences of a currency’s depreciation depend on the price elasticity of demand for exports and imports. Across the world, trade barriers such as tariffs have fallen. In addition, the exchange of goods and services between countries has grown, and the movement of people has increased to a smaller degree. In some countries, net emigration occurs, with more people leaving than arriving.

Foreign exchange rates

France operates as a mixed economy. Over the last few years, its labour market has undergone several changes. A larger share of workers are now employed in the tertiary sector, while fewer work in the primary sector. Average working hours have gone up and employees in the public sector have had pay increases.

Mixed economic system