Feb/March 2020

What does not count as a factor of production?

The factors of production

Which statement best explains why doctors are usually paid more than hospital cleaners?

Workers

Banks reduce interest rates. What effect is this likely to have on borrowing and saving?

Money and banking

The table gives a firm's costs. Variable cost for each good = $\$2$ Fixed cost = $\$40$ What is the average total cost when the firm makes $20$ goods?

Firms’ costs, revenue and objectives

At what point is profit maximisation achieved?

Firms’ costs, revenue and objectives

In certain industries, one monopoly determines output and prices. What effect is this most likely to have on consumers?

Market structure

One mining company acquired a different mining company. What kind of integration would this be described as?

Market structure

Which factor is most likely to lead to a more even distribution of income?

The role of government

What does the term monetary policy measure mean?

Monetary policy

Why does placing greater emphasis on education and training result in an increase in national output?

Supply-side policy

In earlier periods, governments have introduced policies intended to bring a recession in their country to an end and raise economic growth. Which mix of policies is most likely to do this?

The macroeconomic aims of government

The diagram illustrates a country's production possibility curve (PPC) while it is operating at point $T$. The country has an ageing population and chooses to direct more resources towards the production of health services. Which movement illustrates this change in resource allocation?

Production possibility curve (PPC) diagrams

The table gives details of a country’s labour market. Population size: $2\,000\,000$ Labour force size: $1\,200\,000$ Number of employed: $900\,000$ Number of full-time students: $100\,000$ What is the unemployment rate in this country?

Employment and unemployment

How is ‘a reduction in gross domestic product (GDP) for more than two successive quarters’ defined?

Economic growth

A person earns annual interest of $4\%$ on their savings. Inflation is $5\%$ each year. By approximately how much does the real value of their savings change?

Inflation and deflation

An increase in which of the following is least likely to lead to inflation?

Inflation and deflation

In a country where the population is falling, the population structure is also changing, with the $15\text{-}64$ age group getting smaller. How could this reduce labour supply shortages straight away?

Workers

The Human Development Index (HDI) measures human development in countries on a scale from $0$ (lowest) to $1$ (highest). What is not included when HDI is calculated?

Differences in economic development between countries

Which set of changes is most likely to cause living standards in a country to fall?

Living standards

What is the most likely consequence of a reduction in tariffs?

Globalisation, free trade and protection

What could raise the demand for a country’s currency in the foreign exchange market?

Foreign exchange rates

The table lists a set of economic data for a country. Primary income (net income transfers): $1000\,\text{m}$ Secondary income (net current transfers): $-500\,\text{m}$ Total value of exported goods: $1000\,\text{m}$ Total value of imported goods: $2000\,\text{m}$ Total value of exported services: $800\,\text{m}$ Total value of imported services: $200\,\text{m}$ Calculate the current account balance for this country.

Current account of balance of payments

A shale oil deposit is found in a farming area. For the next ten years, the following estimates are given. If the land were used only for farming, it would generate income after tax of $\$10$ billion. If the land were used only for shale oil extraction, it would generate income after tax of $\$40$ billion. The government would collect $\$5$ billion in taxes from farming and $\$10$ billion in taxes from shale oil extraction. What is the opportunity cost of using the land only for farming?

Opportunity cost

A country adopts a policy of agricultural self-sufficiency rather than depending on supplies from other countries. What is likely to occur in the country as a result?

Globalisation, free trade and protection

A country goes through a prolonged strike by railway workers. What macroeconomic effect would such a strike have?

Economic growth

What description is necessarily given of the market system?

Market economic system

In 2018, the UK government brought in a tax on the production of sugary drinks. How would this change the market for sugary drinks, as illustrated on a demand and supply diagram?

Price determination

What does not remain constant when a firm's supply curve is being constructed?

Supply

What does the term trade union mean?

Trade unions

Which characteristic of money is the most important?

Money and banking

Study the source material carefully before you answer Question 1. Source material: Air pollution in India As India expands output, pollution rises. The government supports economic growth by encouraging investment and free trade. It is thinking about reducing taxes, increasing spending on education, cutting import tariffs and abolishing some import quotas. The Indian government intervenes in the economy for several reasons, including reducing pollution. Pollution is caused by vehicles and by factories in the private and public sectors that release harmful gases. Because the cost of making cars has fallen and incomes are rising, more cars are now being produced and bought in India. Producers and car users make choices using only their private costs and benefits. After harvesting, some farmers burn their fields to improve the growth of the next crop, even though this creates pollution. Also, some mine owners do not take enough care to stop minerals and metals from leaking into local water supplies. In addition to its effect on pollution, the relative size of the primary sector can also affect average income, as shown in Table 1. To cut pollution, the Indian government subsidises bus travel. It also insists that buses operate on natural gas instead of the more polluting diesel and petrol. Lower pollution may attract more foreign tourists. Foreign tourism and movements in the foreign exchange rate influence a country’s current account in the balance of payments. It has been forecast that India’s foreign exchange rate is likely to increase in the future.

Market failure

The main sectors in the Seychelles, an island nation in the Indian ocean, are tourism and fishing. The price elasticity of supply of fish is influenced by the relatively short period for which fish can be kept. Economic goods and free goods are important in both fishing and tourism. As workers have become more skilled and enterprise has increased, GDP per head has risen by more than seven times over the last fifty years.

Production possibility curve (PPC) diagrams

Throughout 2017, the Brazilian paper industry was flourishing. Its total revenue went up, and it employed a larger quantity of better-quality factors of production. By the end of 2017, Brazil’s biggest paper producer merged with an Indonesian paper-making company. The pattern in Brazil’s coffee industry was not the same as that of paper. Brazilian coffee saw demand drop and total revenue decline.

Market structure

African countries are forecast to see growth in their output. It is also predicted that Africa’s population will rise from 1.1 bn in 2017 to 4.2 bn by 2100, when Nigeria will make up one in twelve of the world’s births. Nigeria and South Africa are expected to have the largest increase in investment (spending on capital goods) over this period, together with a change in their gender distribution.

Population

In 2016, the Chinese government overhauled the Chinese tax system. It broadened VAT (sales tax) from sales of goods to sales of services, which allowed the corporation tax rate to be cut. Taxes on goods and services are usually regressive. The Chinese government aimed to improve living standards and expected that lowering the tax rate paid by firms would make the country more attractive to multinational companies (MNCs).

Fiscal policy