Feb/March 2019

Every country has to produce food. Which form of agriculture would make the most effective use of the resources in developing and developed economies?

Differences in economic development between countries

The table indicates how three people (X, Y and Z) use their income. For these three people, what is the most probable sequence of income, from the lowest income to the highest income?

Households

The table gives the weekly figures for a number of items for the average person in each group. Which group has the greatest average saving?

Households

What type of business is always part of the public sector?

Mixed economic system

At what point will a firm maximise its profits?

Firms’ costs, revenue and objectives

The table presents a firm's costs. What amount are the firm's fixed costs?

Firms’ costs, revenue and objectives

The average revenue of a firm is $10. It sells 2000 units. Calculate the firm's total revenue and the product price.

Firms’ costs, revenue and objectives

What action could a government take to cut a current account deficit?

Current account of balance of payments

State one example of an expansionary fiscal policy.

Fiscal policy

A government cuts interest rates to make households borrow and spend more in order to raise economic growth. Why might this create a conflict with other government aims?

The macroeconomic aims of government

Which policy would be most likely to lower unemployment over the short run?

Employment and unemployment

A farmer cuts the area used for growing wheat from $80$ hectares to $60$ hectares and raises the area used for growing potatoes from $80$ to $100$ hectares. What is the opportunity cost of this change?

Opportunity cost

A country has the highest GDP per head in the world. What is this information most likely to indicate about the country?

Living standards

What components make up a country’s Human Development Index (HDI)?

Differences in economic development between countries

What is one example of a person who became unemployed due to structural unemployment?

Employment and unemployment

An economy went through deflation. Which combination indicates the most likely result of this?

Inflation and deflation

As a developing country begins to record higher economic growth, what is most likely to happen?

Economic growth

A country’s minister for agriculture stated that “the greatest difficulty facing the country is to expand irrigation so that we are not dependent on the weather for vital export earnings”. Which type of country is this most likely to be?

Differences in economic development between countries

The table presents the birth rate and death rate for four countries in one year. Assuming there is no migration, which country has the highest population growth rate?

Population

What typically falls when a country's foreign exchange rate depreciates?

Foreign exchange rates

A nation applies tariffs and quotas to goods brought in from abroad. What would the people in that nation notice?

Globalisation, free trade and protection

Here is a country’s balance of payments, and it has no secondary income (current transfers). Items (in $\$\text{ million}$): exports of goods $= 280$, imports of goods $= 350$, exports of services $= 110$, imports of services $= 60$, net primary income $= -40$. What is the balance on the country’s current account?

Current account of balance of payments

The diagram illustrates the change in an economy’s production possibility curve (PPC) from year $1$ to year $2$. What could account for the shift from year $1$ to year $2$?

Production possibility curve (PPC) diagrams

Skin creams that help to prevent sunburn and are produced in the European Union (EU) are more effective than those produced in the United States (US). US tourists buy large quantities of these creams while travelling in Europe. Production of such creams is banned in the US because of the chemicals they contain. In 2013, talks started to end this ban so that production in the US could be permitted. How is this free trade likely to affect manufacturers of skin creams in the US and the EU?

Globalisation, free trade and protection

What exists in a market economy?

Market economic system

A private sector firm is awarded a contract by the government to provide a country’s water supply. Which government directive would minimise the risk of market failure?

Market failure

What does the term equilibrium price mean in the market for a good?

Price determination

The table illustrates how a rise in market price from $\$5$ to $\$6$ affects the supply of mobile (cell) phones. Which of the following statements about the price elasticity of supply of mobile phones is correct?

Price elasticity of supply (PES)

What might put women off applying for jobs?

Workers

Which option would be the least likely to function as a store of value during a time of rapid inflation?

Money and banking

During 2016, India’s economy expanded by 7.5%, making it the fastest-growing large economy in the world. By comparison, China’s economy increased by 6.8%. India also recorded several other macroeconomic achievements. In 2016, the rise in its price level was smaller than in any year since 2004. Oil prices declined in 2016 and India imports a lot of oil. Government use of monetary policy helped to limit increases in the general price level. India’s manufacturing industry expanded quickly in 2016. One sector that did especially well was the vehicle industry. India was the world’s sixth biggest producer of vehicles and it employed 26 million workers. India was also the world’s largest producer of tractors. In 2015, tractor prices were raised. This caused demand to fall in the short run, but revenue increased. Expansion of the vehicle industry has allowed firms in the industry to hire more specialist workers and has made bank borrowing easier for these larger firms. It is expected that the industry will be able to take on additional workers in the future because India’s labour force is increasing. In 2014, India’s labour force was 500m and this rose by 4% between 2014 and 2016. Fig. 1.1 shows the economic growth rate and the population growth rate in recent years. The rate and steadiness of economic growth influence households’ choices about how much they spend and how much they save. Fig. 1.1 India’s economic growth rate and population growth rate 2010-2016. Growing optimism about how India’s economy is performing has raised total demand in the economy. Even so, the Reserve Bank of India, which is the country’s central bank, has been fairly effective at keeping the inflation rate close to the government’s target, which in 2016 was 4%. A factor affecting the country’s future macroeconomic performance will be changes in its population. By 2020, India is expected to have one of the youngest populations in the world, with an average age of just 29.

Economic growth

Ireland has drawn a substantial number of foreign multinational companies (MNCs) to establish production there. These firms provide jobs for about 10% of the country’s labour force and account for a large share of Ireland’s exports. In 2016, Ireland’s current account surplus in the balance of payments decreased, while government expenditure increased.

Current account of balance of payments

The economic problem means that people are forced to make choices. In Bulgaria, over the past few years, spending patterns have changed. The Bulgarian government wants people to spend more, and it is trying to prevent deflation from returning while also making sure the country continues to see output growth.

The nature of the economic problem

Average life expectancy for the poorest Americans is just as low as it is for the people of Sudan, a low-income African nation. People with low incomes are most likely to live longest in countries where the population is more educated. Economic growth can raise education levels and cut poverty. In 2017, the US President announced a reduction in the tax on firms’ profits. He said that this policy would boost employment.

Poverty

The mobile (cell) phone industry in Asia is expanding and employing more workers. In March 2017, two mobile phone producers merged, and both firms had relatively high fixed costs. The merger produced one of the largest mobile phone firms and pushed the Asian market further away from perfect competition and nearer to monopoly. It was anticipated that industry profits would rise because of the merger.

Market structure

Botswana runs a range of conservation projects. These are believed to bring social benefits to nearby communities. Botswana operates a mixed economic system, and tax revenue as a share of GDP was 27% in 2017. Some Botswanan economists argue that the country ought to shift towards a market economic system, while taking care to avoid market failure.

Market failure

Indian Railways is a state-owned enterprise that is owned and run by the Ministry of Railways. At present, India has only one railway line that is privately owned. The rail travel market is affected by movements in the markets for other types of transport. For example, shifts in the supply of oil and petrol affect the market for car travel.

Price determination