Feb/March 2021

Sanjay, who is a risk taker, opens a restaurant in Chennai. He also works in the business as a chef. He leases the restaurant building from Raghav and employs him to serve the customers. Which income is earned by Sanjay and Raghav?

The factors of production

What could lead to an increase in wages?

Workers

A national trade union wants to raise the wages of its members without cutting the number employed. Which factor would make this possible for the union?

Trade unions

The diagram illustrates a firm’s total cost (TC) curve. What is the average variable cost when the firm produces an output of $OQ$?

Firms’ costs, revenue and objectives

What is likely to happen in a conglomerate merger?

Market structure

What does total revenue mean?

Firms’ costs, revenue and objectives

Into which category would a state-owned oil refining firm fall?

Mixed economic system

What does a government’s budget contain?

Fiscal policy

A country is experiencing inflation that is rising quickly. State one example of a monetary policy measure that could be used to reduce this problem?

Monetary policy

The diagram illustrates some chosen categories of government expenditure for a country. What was the total amount of government spending on merit goods?

The role of government

The table presents the Consumer Prices Index (CPI) for an economy. What conclusion can be drawn from the data?

Inflation and deflation

The government cuts social security expenditure by $10 \text{ bn}$ so that defence spending can be increased by $10 \text{ bn}$. What kind of example does this illustrate?

Opportunity cost

Deflation means a persistent decrease in the overall price level. What could lead to deflation?

Inflation and deflation

A tax of $1.45\%$ is levied on every wage earned to finance basic medical provision. How would this tax be described?

Fiscal policy

The table provides some information about an economy. What took place in year 1?

Economic growth

What is involved in constructing the Consumer Prices Index (CPI)?

Inflation and deflation

Which country is most likely to have the highest standard of living?

Living standards

Which statement about poverty is accurate?

Poverty

The United Nations (UN) forecasts that the population in low-income countries will rise. What is likely to be one reason for this?

Population

Which trade-protection method would allow domestic firms to reduce their prices and offer lower prices than imported goods?

Globalisation, free trade and protection

How could a multinational company (MNC) provide direct benefits to a host country?

Globalisation, free trade and protection

A country is recording a current account deficit in its balance of payments. Which measure is most likely to decrease the deficit?

Current account of balance of payments

The table gives the highest possible output of goods and services for a country. At first, the country made only goods, but it now produces $20$ million units of services. The country still operates at its maximum production possibility. What is the opportunity cost for this country?

Opportunity cost

A country recorded a deficit in each of its trade in goods, primary income and secondary income. Even so, it showed a surplus on the current account of its balance of payments. What does this imply?

Current account of balance of payments

What does macroeconomics cover?

Microeconomics and macroeconomics

What is one advantage of a market economy when resources are allocated?

The role of markets in allocating resources

What features of a product can lead to market failure?

Market failure

The diagram illustrates the market equilibrium $E$ for product $X$. Product $X$ has a demand curve that slopes downwards and a supply curve that slopes upwards. The price of a substitute good decreases. To which area of the diagram will the market equilibrium for product $X$ shift?

Price determination

The table presents the supply schedule for a good. What is the price elasticity of supply when price rises from $1$ to $3$?

Price elasticity of supply (PES)

What role does a central bank perform for the general public?

Money and banking

Carefully study the source before you attempt Question 1. Source material: Will Germany continue to be a strong economy? Germany is a country with a trade surplus and a high GDP per head. It also has a budget surplus (government tax revenue greater than expenditure), a high HDI and a low inflation rate. In recent years, German firms have exported a higher value of goods and services. This has contributed to the growth of world trade, caused partly by a fall in transport costs. A relatively large number of German firms produce both in Germany and in other countries, helped by better communications. Germany is a major producer and exporter of luxury cars. Demand for luxury cars was influenced in 2018 by increases in incomes in Germany and abroad, a rise in the price of US luxury cars and, in some countries, a fall in the price of petrol. Improvements in the quality of education and information on job vacancies have made it easier for workers to change jobs in Germany. This greater ability to change jobs has helped to reduce unemployment and increase the country’s output. Fewer workers in the German car industry are now members of a trade union. As shown in Table 1.1, trade union membership in Germany has declined in recent years. A challenge facing Germany is its ageing population. The effect of an older labour force is uncertain. It may mean firms become reluctant to invest in new technology, but a shortage of young workers may encourage firms to buy more capital goods. Germany’s population may fall and there will soon be fewer Germans aged under 30 than over 60 unless immigration continues at a relatively high rate. Immigration might increase both the country’s labour force and its government’s spending on education.

Globalisation, free trade and protection

India has recorded a fairly rapid rate of economic growth in recent years. That growth has been fuelled by rises in government spending and exports, including textile exports. However, India’s unemployment rate has risen. The government is worried that any attempt to cut unemployment may push up India’s inflation rate.

Economic growth

In 2018, the Netherlands had 1.3 bicycles per person, and the capital city built the world’s largest underground bicycle parking area. City centres, where most cycling takes place, have very little land available. Demand for bikes in the Netherlands is price-inelastic. Only a small number of people in the Netherlands take out loans to buy bikes. The government supports cycling by spending on both bike parking areas and leisure cycle parks.

Price elasticity of demand (PED)

It is thought that around half of Egyptian men smoke, a figure that is among the highest in the world. Over recent years, the Egyptian government has raised the cigarette tax. The government and the central bank have also attempted to bring inflation down and strengthen Egypt’s performance in international trade. The Egyptian government could use subsidies to cut its deficit on the current account of its balance of payments.

The role of government

Sweden uses a mixed economic system. During 2018, it was producing at a point inside its production possibility curve (PPC). In 2018, the country’s schools hired almost 2500 additional teachers. Some of them had earlier worked as actors. More of them had previously been government officials responsible for regulating Swedish monopolies.

Mixed economic system