Oct/Nov 2018

Which factor of production includes risk-taking?

The factors of production

What factor would make it more difficult for a trade union to raise the wage rate for its members without lowering employment?

Trade unions

What is likely to support a government policy that aims to reduce inflation?

Monetary policy

Which international market comes nearest to the model of perfect competition?

Market structure

Which type of production would be least likely to benefit from economies of scale?

Firms and production

The table sets out a firm’s average revenue and average cost at different output levels. If every unit produced is sold, at which level of output is profit greatest?

Firms’ costs, revenue and objectives

Which statement about total fixed cost is accurate?

Firms’ costs, revenue and objectives

State one disadvantage of direct taxes.

Fiscal policy

At what point is a government said to have balanced its budget?

Fiscal policy

In the diagram, what level of subsidy per kilo would a government need to provide to producers to persuade them to expand production from $20$ kilos per week to $30$ kilos per week?

Supply-side policy

In which case is the government’s success in achieving the first aim likely to create problems when trying to achieve the second?

The macroeconomic aims of government

What is the fundamental problem confronting all economies?

The nature of the economic problem

An increase in which economic indicator is commonly used to measure a country’s economic growth?

Economic growth

Which measure is used to track inflation?

Inflation and deflation

The diagram illustrates the unemployment rate and the intervals of recession in a country from $1978$ to $2012$. What conclusion can be drawn from the diagram?

Employment and unemployment

A country saw its normal rise in the unemployment rate in August. Sadly, this was then followed by job losses caused by the usual fall in world economic activity. Which types of unemployment were present?

Employment and unemployment

Iran has recently experienced a natural increase in population. What is the most likely reason for this increase?

Population

The table presents some economic indicators. Which set of indicators is most likely to describe a developed country?

Differences in economic development between countries

Aid is sometimes provided to developing countries by charities and foreign governments. Which type of aid programme would be least likely to result in long-term economic growth?

Differences in economic development between countries

What is one valid economic reason for trade protection?

Globalisation, free trade and protection

If South Korea sets up a factory in Switzerland that turns a profit, what is the most likely outcome?

Globalisation, free trade and protection

Which government policy is most likely to improve a country's balance of trade?

Current account of balance of payments

The diagram illustrates the production possibility curve (PPC) of an economy. What happens to the opportunity cost of making additional consumer goods, measured in capital goods, as the economy moves down its PPC from point X to point Z?

Production possibility curve (PPC) diagrams

The table sets out the tariffs levied by the European Union (EU) on imported tropical fruit, based on how much processing they have undergone. What could explain this tariff pattern?

Globalisation, free trade and protection

An economy functions wholly as a market system. Which kind of service would not be supplied in such an economy?

Market economic system

The diagram illustrates the equilibrium market price $P_E$ and quantity $Q_E$ for rice in a country. Which government action could make the market price of rice rise or fall to $P_1$?

Price changes

A major highway was constructed for US$175 million linking Nairobi, Kenya, with its suburbs. It cuts journey times and improves safety, although it creates environmental difficulties for small enterprises located along the route. Who is affected by the external costs of this project?

Market failure

The table presents demand and supply for spices in a market in Africa. If the price increases from US$20 to US$30 per kg, what is the price elasticity of demand (PED) for spices?

Price elasticity of demand (PED)

What does a central bank do?

Money and banking

Which factor is most likely to raise a firm’s total output in the short run?

Firms and production

Which factor of production is missing from the list below? bananas; a factory; goats; a risk taking investor

The factors of production

What factors could influence the size of the labour force in an economy?

Workers

Petrol (fuel) retailers in a country have observed a steep rise in sales during August, when many people go on holiday. Why could this happen?

Demand

Which statement is correct for firms in perfect competition?

Market structure

A film production company buys a chain of cinemas. What is this an example of?

Market structure

The table presents a firm’s average revenue and average cost at various output levels. If every unit produced is sold, which output level results in the greatest profit?

Firms’ costs, revenue and objectives

Which statement about total fixed cost is accurate?

Firms’ costs, revenue and objectives

A government wants to cut unemployment by using a supply-side policy measure. Which measure should it adopt?

Supply-side policy

At what point is a government said to balance its budget?

Fiscal policy

The table compares how much tax is paid as income increases in four countries, A-D. Which country has a progressive tax?

Fiscal policy

In which case is the government’s success in meeting the first aim likely to create difficulties in meeting the second?

The macroeconomic aims of government

What do economies seek to achieve when they address the economic problem of scarcity?

The nature of the economic problem

Economic growth is normally measured through the year-on-year change in

Economic growth

The four groups affected by shifts in economic conditions are creditors, debtors, exporters and importers. Which two are most likely to suffer from a high inflation rate?

Inflation and deflation

The diagram illustrates the unemployment rate and the recession periods in a country from 1978 to 2012. What can be concluded from the diagram?

Employment and unemployment

A country saw the normal August rise in its unemployment rate. Sadly, this was then followed by job losses caused by the usual decline in worldwide economic activity. Which types of unemployment occurred?

Employment and unemployment

Which factor will result in an ageing population if all other factors stay the same?

Population

Which change would be most likely to occur as an economy develops?

Differences in economic development between countries

Charities and foreign governments sometimes provide aid to developing countries. Which aid programme is least likely to result in long-term economic growth?

Differences in economic development between countries

It is estimated that the 2016 Olympic Games in Rio, Brazil drew more than $600\,000$ overseas visitors. What outcome was this number of visitors likely to produce?

Current account of balance of payments

What is most likely to occur if South Korea establishes a factory in Switzerland and it becomes profitable?

Globalisation, free trade and protection

A country has suffered a devaluation of its currency. What are the probable consequences of the devaluation?

Foreign exchange rates

The diagram illustrates a country’s production possibility curve (PPC). Which statement is correct?

Production possibility curve (PPC) diagrams

The table presents the tariffs charged on imported tropical fruit in the European Union (EU), based on the extent of processing. What could account for this tariff pattern?

Globalisation, free trade and protection

China, which is the world’s second-largest economy, is moving closer to a market economy. Which policy would directly help to bring about this change?

Market economic system

The diagram illustrates the market for a firm producing clothing, with the starting equilibrium at X. What would the new equilibrium be if a rival firm runs a successful advertising campaign and workers’ wages rise?

Price determination

UK coal production has fallen in recent years. One explanation for this is that the social cost of coal production is too great. What best describes the social cost of coal production?

Market failure

The table presents the demand and supply for spices in a market in Africa. When the price increases from $\$20$ to $\$30$ per kg, what is the price elasticity of demand (PED) for spices?

Price elasticity of demand (PED)

A central bank operates as a lender of last resort, particularly during financial crises. What is the purpose of this role?

Money and banking

What factors will lead to an increase in the level of savings in an economy?

Households

Which of the following is the correct example of a factor of production in the fishing industry?

The factors of production

What factors would help a trade union gain a strong bargaining position when it negotiates higher wages for its members in a certain firm?

Trade unions

Which factor is most likely to persuade a person to make an immediate purchase of an expensive item such as a new car?

Money and banking

The table presents the features of a market. What characteristics does a perfectly competitive market have?

Market structure

A computer chip manufacturer grows by acquiring a computer chip designer. What example is this?

Firms

The table presents a firm’s average revenue and average cost at various output levels. Assuming every unit produced is sold, which output level results in the greatest profit?

Firms’ costs, revenue and objectives

Which statement concerning total fixed cost is correct?

Firms’ costs, revenue and objectives

Which of the following is most likely to be an example of a progressive tax?

Fiscal policy

At what point is a government said to balance its budget?

Fiscal policy

A government wants to raise steel production and expand steel sales by providing subsidies to private producers. A subsidy of $W - Z per tonne is given. Using the diagram, what would the sales value of steel be after the subsidy?

Supply

In which situation would the government’s success in meeting the first aim probably create difficulties in achieving the second?

The macroeconomic aims of government

The government supplies hospital services, with taxation used to pay for them. Long waiting lists mean that people are not always able to receive the treatment they need. What is this an example of?

Market failure

At what point is a recession said to occur?

Economic growth

Which country is experiencing the most severe deflation?

Inflation and deflation

The diagram illustrates the unemployment rate and the recession periods in a country from 1978 to 2012. What can be concluded from the diagram?

Employment and unemployment

A country recorded its usual rise in the unemployment rate in August. This was then, regrettably, followed by job losses caused by the regular fall in global economic activity. Which types of unemployment occurred?

Employment and unemployment

What is the most likely consequence of increasing the retirement age in a country?

Employment and unemployment

How are absolute poverty and relative poverty described?

Poverty

Charities and foreign governments sometimes provide aid to developing countries. Which type of aid programme would be least likely to result in long-term economic growth?

Differences in economic development between countries

A government places a cap of 2 million on the number of smartphones imported into the country. What term is used for this restriction?

Globalisation, free trade and protection

What is most likely to happen if South Korea sets up a factory in Switzerland that makes a profit?

Current account of balance of payments

In July 2015, Australia’s balance of trade with the rest of the world was $-2809$ billion Australian dollars. By January 2016, it had changed to $-3294$ billion Australian dollars. What term describes Australia’s balance of trade over this period?

Current account of balance of payments

The diagram illustrates a production possibility curve (PPC) for an economy. Which movement on the diagram might show an increase in unemployment?

Production possibility curve (PPC) diagrams

The table illustrates the tariffs levied on imported tropical fruit in the European Union (EU), grouped by how much processing has taken place. Fresh tropical fruit: $8.0\%$ Canned tropical fruit: $11.3\%$ Bottled tropical fruit drinks: $23.6\%$ What could explain this tariff pattern?

Globalisation, free trade and protection

Who decides which goods and services are produced in a market economy?

The role of markets in allocating resources

The diagram illustrates the demand for and the supply of air travel. What might bring about a movement of the demand curve from $D_1$ to $D_2$?

Demand

During 2015, the world price of oil dropped sharply because demand and supply conditions changed. One of the changes was the introduction of a new extraction technique called fracking. Which event would not have helped to bring about the price fall?

Price changes

The table gives the demand and supply for spices in a market in Africa. If the price increases from US$20 to US$30 per kg, what is the price elasticity of demand (PED) for spices?

Price elasticity of demand (PED)

What does a country’s stock exchange do?

Money and banking

What could lead to a rise in the income of a doctor employed by a government health service?

Workers

Soon after the 2014 Winter Olympic Games in Sochi, Russia, the Russian currency, the rouble, lost value sharply against the US$. At the same time, Russian Gross Domestic Product (GDP) growth rates turned negative. These shifts were helped by political and economic instability in the region. To prevent more financial capital leaving the Russian economy and to limit further weakening of the Russian rouble, the central bank of Russia raised the official interest rate to 17%. By 2016, the rouble had fallen even further, and the central bank was thinking about selling foreign reserves to lift the exchange rate against the US$. On the whole, the Russian economy looked weak in 2016. Export values dropped and overseas investors had little confidence in the Russian economy. This affected unemployment rates and economic growth, and it also influenced poverty rates, which were predicted to rise back to pre-2007 levels. Demographic patterns made matters worse because Russia’s population fell as a result of a high death rate, a low fertility rate, and a high level of emigration. However, domestic consumption and investment did show some encouraging signs. Consumers purchased more domestic goods and domestic investment rose. Even so, inflation increased and the central bank introduced policy measures to stop prices rising quickly. As an oil producer, Russia’s economy was influenced by falling international oil prices. Saudi Arabia, the world’s second largest oil producer, kept raising oil production despite pressure from other producers to cut output. Also, worldwide demand for oil was weak. Table 1 gives the oil price from 2010 to 2016. In 2016, domestic Russian oil producers found it difficult to make a profit because of economic uncertainty and competition from renewable energy. They also worried that making a profit might become even harder in future. This was because the government wanted to raise more revenue by increasing tax on oil producers. The government thought that such an extra tax would not really damage the large oil producers.

Monetary policy

In 2016, the steel market had a worldwide surplus, which drove steel prices down. That prompted calls for protectionist measures from other steel producers, including those in the EU and the USA. Car producers did not support such measures, because about 22% of a car manufacturer’s costs are linked to steel prices.

Globalisation, free trade and protection

Drought conditions in the Pacific Coast region of the US, together with rules that cap how much salmon may be taken from the wild, have cut the supply of wild salmon. These restrictions were introduced to prevent market failure in the salmon market. Even so, the effect of this on salmon producers’ revenue is unclear. Also, producers of farmed salmon in the US states of Washington and Alaska have been given subsidies by the US government.

Price elasticity of demand (PED)

Malaysia’s Vision 2020 policy was introduced with the goal of turning Malaysia into a developed country by the year 2020. In addition, the National Privatisation Policy was also put into effect, under which a number of firms, including those in telecommunications, were transferred into private ownership. Poverty has dropped substantially since these policy measures were introduced.

Poverty

Pakistan’s biggest airline began when a state-owned airline and a private airline were merged. In April 2016, the Pakistan government converted this merged business into a public limited company. The aim was to raise the productivity of this loss-making airline and to help improve the wider economy of Pakistan.

Firms and production

Teachers in many countries object to government cuts in education spending. They fear that this may lower the standard of education and also damage the welfare of teachers employed in the state sector. Some teachers focus on one subject, while others teach several subjects.

Workers

In a recent recession across Europe, Spain's unemployment rate rose above 25%. As a result, many people left Spain for better-paid European economies such as Germany and the UK. This produced both opportunities and difficulties in countries where immigration exceeded emigration.

Employment and unemployment

Liberia, a country in West Africa, has encountered several major difficulties in recent years. These have included a civil war and, in 2014, the Ebola epidemic breaking out. There have also been gains. Unemployment stood at 85% in 2004 but had dropped to 4% by 2016. This fall has affected both emigration and wages. Workers have been paid more, although some economists believe the higher pay has pushed up the country’s inflation rate, which was 8% in 2016. The country has a reliable supply of drinking water and a climate that is suitable for agriculture. More than 70% of the labour force is now employed in agriculture. The country’s main exports are rubber, iron ore, timber and gold. A US multinational company (MNC) operates the world’s largest single natural rubber farming business in Liberia. Rubber prices fell by 75% between 2011 and 2016. Global supply of rubber was greater than demand because several countries brought in import restrictions on rubber. Faced with the lower price, the US MNC reduced output, yet it still recorded a loss. The MNC does not wish to fail and is attempting to stay in business by cutting costs. In the long term it aims to maximise profits. When some of its 7000 workers retire, they will not be replaced. The MNC has adopted new production methods and diversified into cocoa and coffee growing. The Liberian government is giving subsidies to local rubber farmers so that they can purchase new equipment and use improved farming methods. Even though the situation is difficult, some local Liberian rubber farmers are expanding their operations by buying more land. Others are diversifying by using timber from the rubber trees to produce furniture. Alongside support for its rubber farmers, the Liberian government is also promoting growth in the secondary and tertiary sectors. Between 2014 and 2016 it raised spending on healthcare, but this came at the expense of a number of public sector investment projects. Table 1 shows a comparison of infant mortality rate and healthcare spending per person in selected countries in 2015.

Employment and unemployment

Mexico has recently had relatively low inflation, and the Mexican government wants to keep this price stability. Even so, its currency has lost value, so each Mexican peso now exchanges for less foreign currency. The government is also aiming to cut pollution across the country. One major source of pollution in Mexico is car travel. Driving involves both private and external costs.

Market failure

In 2016, the Indonesian government raised its spending on healthcare and education and was considering an increase in the school leaving age. It also intended to raise taxation. This policy could run against its aim of lowering unemployment at a time when several countries were at risk of moving into a recession.

Fiscal policy

Many UK students work during their holidays, and some set aside part of what they earn to cover tuition fees. On average, UK graduates receive £8500 more per year than non-graduates. In 2016, economics graduates had the second-highest average earnings among all UK graduates. The top 10% of economics graduates earned £115000 a year.

Workers

Productivity has declined recently in Finland, especially in the public sector. The country also has a fairly large number of small firms. In recent years, the price elasticity of demand and the price elasticity of supply for the products made by Finnish firms have altered.

Firms and production

A comparatively large share of people from the Philippines either are employed in call centres or work overseas. Call centres employ 1.2 million people in the Philippines and make up 8% of the country’s Gross Domestic Product. Because of the time difference with the US, the main market for call centre services, many Filipinos must work during the night. The call centres are adopting new technology, including robots.

Workers

Gold prices climbed in 2016. As a result, owners of gold mines were encouraged to use more resources so that gold supply could be increased. The extent of competition in gold production is not the same in the various gold-producing countries. A number of countries, including India, levy a tariff on gold imports.

Globalisation, free trade and protection

In June 2016, Nigeria moved to a floating exchange rate after the country’s central bank had spent months trying to preserve its fixed exchange rate. It had been using foreign currency reserves to support its currency, imposing tariffs and limiting how much foreign currency Nigerians could buy. Most economists expected the Nigerian currency to fall in value. A lower value of the Nigerian naira could help raise output and reduce the deficit on the current account of the country’s balance of payments. In 2015, Nigeria recorded a current account deficit for the first time in 20 years. Countries with a current account deficit often have a higher inflation rate and a lower economic growth rate than countries with a current account surplus. Fig. 1 shows the inflation rate, economic growth rate and the current account balance of selected countries in 2015. Fig. 1: The inflation rate, economic growth rate and current account balance of selected countries in 2015. The countries shown are China, Colombia, Germany, Nigeria and Turkey. The key indicates: Inflation rate; Economic growth rate; Current account balance (% of GDP). The horizontal scale runs from -8 to 10. When there is a current account deficit, the exchange rate can fall, which may push up import prices. A higher cost of imports, including imported food, can speed up inflation. In 2015, in addition to having a current account deficit, tax revenue fell in Nigeria and was below government expenditure. Some economists predicted that the government would cut spending on education and healthcare in 2016 to reduce the difference between tax revenue and government spending. The Nigerian government has been trying to reduce poverty in the country. In 2015, more than 60% of the population were living in poverty. One cause of the high level of absolute poverty was an unemployment rate of 9.5%. One policy measure suggested to reduce poverty in Nigeria is for the government to increase the wages of low-paid workers. The government also wants to diversify the economy because the oil industry provides almost 90% of the country’s export earnings. The oil industry pays high wages to some of its workers and relatively high interest rate payments to local banks. It also creates water pollution and air pollution.

Foreign exchange rates

A United Arab Emirates (UAE) airport reported a record profit of $1.9 billion in 2016, even though its total revenue had fallen. In 2016, the UAE was considering the introduction of Value Added Tax (VAT). Bringing in an indirect tax could affect unemployment. The UAE has a very low unemployment rate, which is one reason multinational companies (MNCs) choose to establish themselves in the UAE.

Firms’ costs, revenue and objectives

The cost of dental care is rising in most countries. For instance, the average cost of filling a tooth is $180 in the US. The number of dentists is also rising in the US. The biggest share of the US labour force works in the tertiary sector. Price changes affect the supply of products in the tertiary sector, and also in the primary and secondary sectors.

Workers

In 2015, Spain had a higher death rate than birth rate for the first time since 1939. It is predicted that its population will decrease by 5.6 million over the next 50 years. A fall of this size would probably affect both the number and size of the country’s firms and also influence the environment. There are several different ways of increasing a country’s population.

Population

In 2016, a global peanut shortage pushed up their price. China, which had usually been a net exporter of peanuts, was on the point of becoming a net importer. South Africa, an exporter of premium, high-priced peanuts used in chocolate confectionery, suffered the worst drought on record. In the same year, more South African farmers applied for bank loans.

Monetary policy

The United Nations (UN) has outlined development goals for countries to reach by 2050. These goals are to: • conserve natural resources • provide education for everyone • eliminate poverty everywhere • encourage sustained economic growth

Living standards

High-technology (hi-tech) firms rely on a mix of resources, including labour and land. A hi-tech firm in the US has developed a new price index that it says gives a more accurate reading than the Consumer Prices Index (CPI). Central banks seek the most accurate inflation measure because inflation affects many groups, such as savers and borrowers, as well as a country’s level of investment.

Inflation and deflation