Oct/Nov 2019

Which item is classified as one of the four economic resources?

The factors of production

The table illustrates how three people (X, Y and Z) spend their income. For these three people, what order of income is most likely, from the highest income to the lowest income?

Households

A musician must decide whether to perform with an orchestra in Germany or in England. Which pairing of income and cost of living would be most likely to make her select the German orchestra?

Workers

What has to happen as a consequence of an increase in output?

Firms’ costs, revenue and objectives

What feature is typical of a monopoly market structure?

Market structure

The table presents a company's sales of cold drinks in the UK in $2016$ and $2017$. The demand for cold drinks is affected by temperature changes. During $2016$ the sales matched the usual seasonal trend. In which month of $2017$ was this usual trend disturbed?

Demand

A bicycle-producing firm shows the following costs at various output levels. How does the average total cost change across this output range?

Firms’ costs, revenue and objectives

A purpose of government policy is to use taxation to redistribute income so that inequality is reduced. Which policy would accomplish this aim?

The role of government

Give one example of expansionary monetary policy.

Monetary policy

Which measures would be likely to raise government spending and cut tax revenue?

Fiscal policy

The diagram illustrates the effect of a government levying an indirect tax on a good. The initial demand curve is $D_1$ and the initial supply curve is $S_1$. What total tax revenue does the government obtain?

Fiscal policy

Countries X and Y possess the same resources. The diagram illustrates their production possibility curves. What conclusion can be drawn from the diagram?

Production possibility curve (PPC) diagrams

The chart illustrates Greece’s GDP annual growth rate (percentage), $2012$-$2016$. In which years did Greece have the longest stretch of positive economic growth?

Economic growth

Which components make up the Human Development Index (HDI)?

Differences in economic development between countries

Which government policy would be likely to slow economic growth?

Economic growth

Rates of inflation and deflation are tracked with a consumer prices index (CPI) across a span of time. The table gives the average CPI rates for Japan from 2010-2014. During which period did Japan go through deflation and then inflation?

Inflation and deflation

What is a common feature of a developing country?

Differences in economic development between countries

In Botswana, improvements in healthcare have caused birth rates to fall more quickly than death rates. In addition, the average number of children born to each woman has dropped from 6.4 to 3.2. What conclusion can be drawn from this information?

Population

The table displays the percentage share of GDP owned by the richest 20% and the poorest 20% of people in each country. Which country showed the widest gap between income and poverty?

Poverty

What would lead to an improvement in Kenya’s trade in services (invisible) account?

Current account of balance of payments

Protectionist policies can reduce global economic growth. What could be one explanation for this?

Globalisation, free trade and protection

The table presents the current account balance of four countries in 2016. It also gives each country’s exchange rate against the US dollar for 2015 and 2016. Which country recorded a trade surplus and also had a stronger currency against the US dollar?

Foreign exchange rates

Sam made a ranked list showing how he would like to spend his Saturday afternoon. 1st option: attend a cricket match 2nd option: watch the yearly town parade 3rd option: go to the cinema 4th option: pay a visit to relatives Sadly, a thunderstorm led to the cricket match and the town parade being cancelled. Sam chose to go to the cinema. What opportunity cost did Sam incur by going to the cinema?

Opportunity cost

What might cause the volume of international trade in the world economy to fall?

Globalisation, free trade and protection

In a market economy, which two economic institutions are present?

Market economic system

In a city, which good or service is least likely to be supplied by the private market system?

Market failure

The table gives the quantity demanded and the quantity supplied of a commodity at various prices. What would happen to the equilibrium price if the quantity supplied rose by 200 units at each price?

Price determination

The table presents the quantity suppliers are prepared to provide at different price levels. If the price rises from $120 to $180, what is the price elasticity of supply?

Price elasticity of supply (PES)

What is one example of a factor other than wages?

Workers

An African government has given up its own dollar and now uses the US dollar as its currency. Why might this policy have been needed?

Monetary policy

Which of the following statements about factors of production is correct?

The factors of production

The table sets out how three people (X, Y and Z) allocate their income. Housing, clothing and food: person X $35\%$, person Y $50\%$, person Z $20\%$. Leisure and entertainment: person X $25\%$, person Y $20\%$, person Z $40\%$. Luxury items: person X $40\%$, person Y $30\%$, person Z $40\%$. For these three people, what is the most probable ranking of income, from the highest to the lowest income?

Households

A musician must decide whether to perform with an orchestra in Germany or in England. Which mix of income and living costs is most likely to lead her to select the German orchestra? The incomes and cost of living in Germany, compared with those in England, are given for pre-tax (gross) income, after-tax (net) income and cost of living.

Workers

Which kind of business organisation must belong to the public sector of the economy?

Firms

Which set of characteristics accurately describes a monopoly?

Market structure

The table presents a company’s cold drink sales in the UK during 2016 and 2017. Cold drink demand is affected by variations in temperature. In 2016, sales followed the normal seasonal trend. In which month of 2017 was the normal pattern disrupted?

Demand

A business making bicycles has these costs at different output levels. Output $10$: total fixed costs $300$, total variable costs $800$. Output $20$: total fixed costs $300$, total variable costs $1500$. Output $30$: total fixed costs $300$, total variable costs $3300$. What happens to average total cost across this output range?

Firms’ costs, revenue and objectives

Why are indirect taxes, such as VAT of $20\%$ on goods and services, regarded as regressive when high-income and low-income purchasers are compared?

Fiscal policy

The government has a significant role in mixed economies. Which function would it not carry out?

Mixed economic system

Which mix of policy measures would be effective in lowering the impact of a recession?

Fiscal policy

Under which category would government spending on education be placed?

Fiscal policy

The diagram illustrates two production possibility curves. Which statement correctly describes the movement from point X to point Y?

Production possibility curve (PPC) diagrams

Which rise is most likely to result in higher output in an economy?

The factors of production

For what reason was the Human Development Index (HDI) introduced as a measure of the standard of living?

Living standards

When unemployment is high throughout the whole labour force, the unemployment rate in an economy is frequently greatest among people aged $16$-$19$. Which statement explains why $16$-$19$ year-olds may struggle to get a job?

Employment and unemployment

Venezuela, which is one of the world’s major oil producers, has in recent years suffered hyperinflation of over 400% per annum. How does hyperinflation influence an economy?

Inflation and deflation

What is most likely to rise as a country develops further?

Living standards

In Botswana, improvements in healthcare have caused birth rates to fall more quickly than death rates. In addition, the average number of children born to each woman has dropped from 6.4 to 3.2. What can be concluded from this information?

Population

The table indicates the percentage share of GDP owned by the richest 20% and the poorest 20% of the population in each country. Which country experienced the widest gap between income and poverty?

Poverty

What would bring about an improvement in the Kenyan trade in services (invisible) account?

Current account of balance of payments

What is one drawback of trade protection for manufactured goods?

Globalisation, free trade and protection

What might lead to a larger deficit on the current account of the balance of payments?

Current account of balance of payments

Sam made a list of the ways he would rather spend his Saturday afternoon. Sadly, a thunderstorm meant that both the cricket match and the town parade had to be cancelled. Sam then went to the cinema. What was the opportunity cost of going to the cinema?

Opportunity cost

What factor would cause the level of international trade in the world economy to fall?

Globalisation, free trade and protection

Which two economic institutions are present in a market economy?

Market economic system

What indicates that market failure exists?

Market failure

What factors can make the supply curve of a product move to the right?

Supply

A railway company raises ticket prices by $10\%$ for journeys between 06:00 and 09:00, which leads to a $2\%$ fall in demand. After 09:00 it cuts ticket prices by $5\%$, causing demand to rise by $7\%$. What is the price elasticity of demand in response to these price changes?

Price elasticity of demand (PED)

What is one drawback of working as a specialist skilled worker?

Workers

Which of the following is not usually a function of a country’s central bank?

Money and banking

What indicates that a finite resource is limited?

The nature of the economic problem

The table presents how three individuals (X, Y and Z) allocate their income. For these three individuals, what is the most probable ranking of income, from the highest earner to the lowest?

Households

A musician can choose to perform in an orchestra located in either Germany or England. Which pairing of income level and cost of living would be most likely to lead her to select the German orchestra?

Living standards

The shares of a public limited company are

Firms

In 2015, a major UK company tried to take over a rival US medical company in order to become the world’s leading supplier. Both companies were involved in the manufacture of medicines used to treat rare diseases. Which term would be used to describe the acquisition if it had been successful?

Market structure

The table presents a company’s cold drink sales in the UK for 2016 and 2017. Changes in temperature affect demand for cold drinks. During 2016, sales matched the normal seasonal trend. In which month of 2017 was the normal pattern disrupted?

Demand

A business that manufactures bicycles faces the following costs at different output levels. What does the average total cost do over this output range?

Firms’ costs, revenue and objectives

A government chooses to raise tax revenue from consumer spending. Which tax will it raise?

Fiscal policy

A government applies a combination of fiscal policy measures and supply-side policy measures to encourage economic growth. Which combination of policy measures would bring about this result?

Economic growth

The table gives the tax paid at different income levels in an economy. Which description of the tax system used is correct?

Fiscal policy

The government applies monetary policy and lowers the interest rate. What could be a result of this?

Monetary policy

Country X supplies computers to support teachers in the classroom. In what ways could this technology raise the economic potential of Country X?

Economic growth

What is the most probable outcome of a prolonged rise in Gross Domestic Product (GDP)?

Economic growth

Which indicator would be used in the Human Development Index (HDI) for a country?

Living standards

What type of unemployment arises when demand for the products of an industry falls permanently?

Employment and unemployment

The graph illustrates the inflation rate in a country from 2000 to 2014. What conclusion can be drawn about average prices?

Inflation and deflation

Which change, when measured as a percentage of GDP, would be unlikely to occur in a country as it develops?

Differences in economic development between countries

In Botswana, improvements in healthcare have caused birth rates to decrease more quickly than death rates. In addition, the average number of children born to each woman has fallen from 6.4 to 3.2. What conclusion can be drawn from this information?

Population

The table gives the percentage of GDP owned by the richest 20% and the poorest 20% of the population in each country. Which country showed the largest gap between income and poverty?

Poverty

Which factor would result in an improvement in the Kenyan trade in services (invisible) account?

Current account of balance of payments

A newspaper headline claimed ‘Free trade benefits the world’s poorest people’. Why could this be accurate?

Globalisation, free trade and protection

A trade union manages to push wages in an industry above the existing equilibrium wage. In what way would the demand for labour and the supply of labour alter?

Trade unions

Sam made a list of the ways he would rather spend his Saturday afternoon. Sadly, a thunderstorm meant that the cricket match and the town parade were cancelled. Sam then went to the cinema. What was the opportunity cost of going to the cinema?

Opportunity cost

What factor would cause the volume of international trade in the world economy to fall?

Globalisation, free trade and protection

Which two economic institutions are present in a market economy?

Market economic system

Under a private market system, some goods and services would not be provided unless the government stepped in. What does this indicate in a private market?

Market failure

There has been an upward movement along the supply curve for a product. What is the most likely reason for this?

Supply

Price elasticity of demand (PED) shows how sensitive demand is to a change in price. This can vary from one good to another. For which good does the table show the PED to be most elastic?

Price elasticity of demand (PED)

What is most likely to raise the occupational mobility of labour?

Workers

Which organisations provide direct finance for firms’ expansion?

Firms

According to the Global Financial Centres Index, New York ranks as the world’s leading city for human capital. Together with economic freedom that makes it easier for new business start-ups, this has helped to produce rapid economic growth. In fact, the city’s growth rate is above the GDP growth rate for the whole of the USA. Overall, New York’s economy expanded by 3.4% in 2015, which was quicker than the 2.4% seen nationally. Even so, land is in short supply, particularly in Manhattan, where most economic activity is located. The financial sector is the city’s key economic sector - New York contains the first and second largest stock exchanges in the world and 3 of the top 10 largest banks in the USA have their headquarters in New York. Better education also supports New York’s strong growth rates, as the city keeps drawing students from many countries and from a wide range of subjects. Unemployment in the city keeps falling. Also, average weekly wages in New York are regularly higher than in the rest of the USA. Table 1.1 gives the average weekly hours worked and average weekly wages in New York from 2011 to 2017. The jobs being created now are mainly middle- and low-paid rather than high-paid. Finance industry workers make up 20% of the workforce in the city, yet they receive more than half of all wages paid in New York. The earnings gap between finance workers and the other 1.6 million workers in the city continues to grow. This is often because lower-paid workers lack skills and because the finance industry is male-dominated. Alongside income inequality, the city’s ongoing economic development has also damaged the environment. The continually growing finance industry is also raising the danger of another 2007-08 Global Recession, including the risk of bank failures. Growing trade protection by the US government may harm American cities such as New York, particularly while Asian cities such as Singapore, Hong Kong, and Shanghai continue to move towards free trade.

Economic growth

In 2017, two companies in China's chemical sector merged. This produced the world's largest chemical group, with revenue of roughly US$100 billion. The chief purpose of this merger was to dominate the domestic chemicals and fertilisers market by setting up a monopoly. The resulting business is a multinational company (MNC) because it also manufactures in other countries, including Italy and Switzerland.

Market structure

Estonia has among the world's fastest internet speeds. The government permits both direct and indirect taxes to be paid online. According to the World Bank, it is very easy for a firm to obtain construction permits and register property in Estonia. A low level of government regulation influences how easy it is to start up and run a firm. Many new firms are labour-intensive, although some become more capital-intensive as they expand.

The role of government

In 2016, Argentina's annual inflation stood at 20%, having dropped from 40% in 2015. Inflation had stayed high since 2003. Wages were regularly increased. In addition, some employees pressed for more non-wage benefits. Industrial action, often taking the form of strikes called by trade unions, became more frequent in Argentina.

Trade unions

The Monetary Authority of Singapore (MAS), the state institution that oversees the country's monetary policy, has permitted the Singapore dollar to appreciate. Yet the elevated value of the Singapore dollar has meant that firms need fresh incentives, including tax cuts and subsidies.

Current account of balance of payments

A medicines manufacturer in Nigeria is planning to expand, and this should raise the industry’s contribution to the country’s Gross Domestic Product (GDP). If this firm grows, Nigeria may become less reliant on imported medicines and medicines may also become more affordable. However, to achieve success, the firm will need to increase what it spends on research and development.

Living standards

In 2017, the UK added bicycle helmets to its consumer prices index (CPI) calculation for the first time. Many bicycle retailers now give customers a choice of bicycle helmets. Estimates suggest that 25 million bicycle helmets are sold worldwide each year, and the number sold is increasing steadily.

Demand

It is forecast that electric driverless cars will be on the roads by 2030. They have already been trialled on roads in some cities, including Pittsburgh in the USA. It is believed that driverless cars will cut accidents, bring lower repair costs and produce less pollution. Initially, supply of driverless cars may be greater than demand, but they are expected to become popular quickly. As more driverless cars are used, demand for bus travel and petrol stations may fall, and some taxi drivers may become redundant. By contrast, driverless cars will give more people, including the elderly, access to transport, so demand for out of town restaurants and entertainment venues is likely to rise. It has been predicted that the technology being developed for driverless cars will make their supply elastic. It is forecast that an 8% rise in the price of driverless cars would lead to a 20% rise in quantity supplied. Technological progress and the substitution of workers by machines are forecast to eliminate 80 million jobs in the USA. Job losses are also expected in other countries, and trade unions are likely to be less able to resist because membership is falling and governments are reducing the power of trade unions. Jobs thought to be at risk include accountants, train drivers and financial advisers. Demand for workers in other occupations, including doctors and dentists, may rise, but there is a danger that unemployment could increase. The better educated workers are, the easier it is for them to move from one occupation to another. Table 1.1 shows education spending as a percentage (%) of GDP and the unemployment rate in selected countries. Jobs selling houses and flats may fall, but the demand for building workers is expected to increase. Some people welcome house building in their area, while others oppose it.

Price elasticity of supply (PES)

It is forecast that the UK economy will not slip into another recession over the next two decades, and that the population will rise sharply by 2040. Most of this projected growth is expected to result from immigration. By 2040, it is also forecast that one in twelve people will be aged over 80. Several countries, including some low-income countries, may experience population growth at a faster rate than high-income countries.

Population

In 2015, the Malaysian government stated its aims of boosting productivity and savings. Consumer spending has risen, partly because wages have increased, mainly for older workers. Even so, savings remain low, which is still a worry. Savings supply funds for investment (spending on capital goods), helping economic growth and also affecting inflation.

Economic growth

Mali is classed as a developing country. Its Human Development Index (HDI) increased from 0.297 in 2000 to 0.442 in 2016. Most workers in Mali are employed in agriculture, and cotton is the main agricultural crop. However, the country’s largest export is gold. Mali ranks as Africa’s third-largest exporter of gold.

Differences in economic development between countries

During May 2017, the price of olive oil climbed by more than 10%. This happened because drought affected Greece, Italy, Spain and Tunisia, the main producing nations. Worldwide supply was predicted to drop by 14% in 2017. Demand for olive oil decreased in Europe, but increased in several other countries, including Australia, Brazil and China. In some countries, some staple foods such as bread and rice are taxed, whereas in other countries they are subsidised.

Price elasticity of supply (PES)

The Indian government provides a subsidy for the country’s cotton textile exports. The USA, the biggest buyer of Indian cotton textiles, gained from this. India intended to end the subsidy by 2019. Other cotton textile exporters welcomed this decision. The USA may not be affected much, partly because income in the country usually rises. The value of the Indian rupee against the US dollar was fairly steady over this period, although it rose slightly in mid-2017.

Globalisation, free trade and protection

Compared with markets for manufactured goods and services, agricultural markets are nearer to perfect competition. The aims of business organisations can differ from one market to another, and also within the same market. In 2017, the Nigerian government used supply-side policy measures to affect the aims and performance of firms in a variety of markets and to reduce firms’ average production costs.

Market structure

Zambia is classified as a middle-income country, yet 60% of its population of 15 million live below the poverty line. In 2017, the Zambian government said that it planned to shift the country’s capital from Lusaka in the south of the country to Ngabwe, a village in the centre of the country. Ngabwe at present has poor roads and other infrastructure. A move to Ngabwe, however, could help the country deal with its rapid rate of population growth and could encourage entrepreneurs to establish new businesses in that area. In 2017, the country had a zero net migration rate, a birth rate of 41.8, a death rate of 12.4, and a life expectancy of 52.5 years. Zambia’s economic growth rate averaged 6.8% between 2004 and 2014. This rate declined after 2014 partly because the kwacha, Zambia’s currency, depreciated. The drop in the foreign exchange rate of the kwacha helped push the country’s inflation rate up from 10.1% in 2015 to 20.6% in 2016. In 2017, the labour force of 7.2 million represented 48% of the country’s population. Workers are employed in a variety of industries including agriculture, banking, building, copper mining, and emerald mining. Fig. 1.1 shows the link between copper output and revenue from the sale of copper, with 2010 as the index base of 100. Fig. 1.1 Copper output and revenue from the sale of copper 2010-17 (index numbers). The vertical axis is labelled "index" and ranges from 60 to 140. The horizontal axis shows years 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017. A solid line is labelled "Copper output". A dashed line is labelled "Revenue from the sale of copper". In 2017, Zambia’s central bank cut commercial bank lending. This reduced investment and household borrowing. Government spending increased more slowly and some reductions were made to government spending on training.

Population

From 2007 to 2017, average wages in China tripled, whereas they declined in Brazil. The increase in average wage in China was especially strong in the tertiary sector. Farm workers experienced a more modest rise. In June 2017, unemployment in China was only 4% compared with 3.5% in Brazil. Although unemployment was lower, China’s inflation rate was below that of Brazil.

Employment and unemployment

What people choose to purchase as food may be affected by taxes, subsidies and health reports. A report issued in 2017 described the health advantages of eating tomatoes, such as better vision and a lower risk of heart disease. Egypt is a significant producer of tomatoes and it also makes a very large amount of cement. Cement is a product with price-inelastic demand. Cement producers in Egypt have adopted production methods that are more capital-intensive.

Price elasticity of demand (PED)

Australia’s economic growth rate has declined in recent years. Its Human Development Index (HDI), however, is high, and in 2016 Australia had the second highest HDI in the world. The Australian government hopes that the country’s birth rate will increase from a low of 12.1 in 2016. A rising share of Australian children attend private sector schools. Their parents must pay a fee for them to go to these schools.

Living standards

Angola is an African nation that does not have a stock exchange. By contrast, South Africa has the busiest stock exchange in Africa. Companies in South Africa are also far bigger than companies in Angola, and South African companies borrow more from commercial banks. However, both countries have a low saving rate, which could rise if the rate of interest were increased.

Money and banking

It has recently been made public that a king works part-time as a pilot for a multinational airline. Some pilots and police officers have moved out of their jobs to become teachers, while others have left to work as sole traders. The pay teachers receive changes with age.

Workers

In 2016, France recorded a trade in services deficit. France is a wealthy, developed country with a high standard of living. However, the country faces a number of difficulties, including population issues. Also, after the 2017 elections, politicians and economists debated whether the country ought to shift towards freer international trade.

Globalisation, free trade and protection