May/June 2021

Which statement concerning the factors of production is correct?

The factors of production

In low-income countries, why do fewer girls than boys become skilled design engineers? What could account for this?

Workers

The diagram illustrates the demand for labour and the supply of labour in an industry. The initial equilibrium is X. A trade union then secures a wage rate of $W$. What shows the resulting change in employment?

Trade unions

A cobalt-mining company spends money on machinery so that some employees can be replaced. In time, diseconomies of scale arise. What might lead to this situation?

Firms’ costs, revenue and objectives

What enables many hairdressers to run as small businesses?

Firms

Dimitry is the owner of a business that manufactures and sells lemonade in bottles. He sells just one bottle size. How could Dimitry calculate the business's total revenue?

Firms’ costs, revenue and objectives

In which market is competition likely to be strongest?

Market structure

An economy is experiencing a high inflation rate. In reaction to this, the government raises income tax. What is the most likely reason for this rise?

Fiscal policy

Interest rates are sometimes increased in order to reduce inflation. Why could this policy be effective?

Monetary policy

A government’s revenue rose by $8\%$ to $\$3.25$ trillion, while its expenditure was cut to $\$3.69$ trillion. What conclusion can be drawn from this?

Fiscal policy

A country’s inflation rate, as measured using the Consumer Prices Index (CPI), stood at $3\%$ in year 1. Three years later, it had fallen to $0.8\%$. What conclusion can be drawn from this information?

Inflation and deflation

A builder uses one hour each day to travel between home and work. He works 40 hours per week for $\$200$. He is offered the option of working 50 hours a week for an additional $\$75$. What is the opportunity cost to the builder of taking the extra hours?

Opportunity cost

Which outcome is deflation most likely to cause?

Inflation and deflation

Economic growth refers to

Economic growth

The table shows how employment was distributed across selected industries in two years. In what way did the distribution of employment alter from year 1 to year 2?

Workers

Within one year, a company experienced two changes. The salaries of the company directors rose by $15\%$. The wages of office workers rose by $5\%$. The inflation rate was $3.4\%$. What happened to real income?

Inflation and deflation

The diagrams illustrate birth rate (BR) and death rate (DR) in three countries, X, Y and Z, across two years, 1 and 2. There was no migration. In which country did the population rise in year 1 and fall in year 2?

Population

In a high-income economy, the top 60% of the population experienced a rise in income. The income of everyone else remained unchanged. What happened to absolute and relative poverty?

Poverty

Gross Domestic Product (GDP) is a more reliable way to compare living standards when it is adjusted to allow for the impact of

Living standards

What is one drawback of greater international specialisation?

International specialisation

Which protection method always cuts the supply of an imported good down to zero?

Globalisation, free trade and protection

A car dealer in the US agrees to pay an import price of US$25000 for a Japanese car at the prevailing exchange rate. The US dollar then rises by 10% against the Japanese yen. What is the revised import price that will be paid for the Japanese car?

Foreign exchange rates

A natural disaster damaged a country’s infrastructure. Before the disaster, the country was operating at point Y on the production possibility curve (PPC). Which point indicates the country’s production straight after the disaster?

Production possibility curve (PPC) diagrams

A country is running a deficit on the current account of its balance of payments. What might make that deficit larger?

Current account of balance of payments

What does microeconomics cover?

Microeconomics and macroeconomics

How does an economist define a market?

The role of markets in allocating resources

What is one example of an external benefit gained when a person cycles, instead of driving, to work?

Market failure

A tailor has four customers for her suit range. The table gives the annual demand for the suits she produces. Which price should be set to maximise the tailor’s annual revenue?

Price elasticity of demand (PED)

As the price rose from $\$5$ per kilo to $\$6$ per kilo, a farmer raised supply from $400$ kilos to $500$ kilos per week. What is the price elasticity of supply?

Price elasticity of supply (PES)

It is anticipated that consumers will rely less on paper money. What is the most likely explanation for this?

Money and banking

What is one benefit of competitive markets?

Market structure

What might be one disadvantage of specialisation for a worker?

Workers

The diagram illustrates a labour market. $X$ represents the original equilibrium. A trade union secures a minimum wage of $W$, and the government limits the supply of immigrant labour. What is the new equilibrium?

Workers

Which production cost keeps falling as output rises?

Firms’ costs, revenue and objectives

A Swedish furniture manufacturer purchased a Romanian company that owned 83000 hectares of trees. What kind of merger is this most likely to be?

Firms

What quantity is found by multiplying price by the quantity demanded of a product?

Firms’ costs, revenue and objectives

A company in the private sector is the sole provider of rail services linking two cities. What would prevent the company from setting very high ticket prices?

Market structure

What does the term fiscal policy measure mean?

Fiscal policy

A government applies expansionary monetary policy. What does the government reduce?

Monetary policy

A nation is dealing with unemployment. It has a progressive income tax policy and benefits for the poor. The government wants to raise employment and cut income inequality. Which fiscal policy measures are most likely to meet these aims?

Fiscal policy

The table gives the changes in the Consumer Prices Index (CPI) from the base year, 1, and over the following three years. Which statement is correct?

Inflation and deflation

A multinational company (MNC) wants to invest in a low-income country so as to increase its palm oil production. What factor is most likely to enable this investment?

Globalisation, free trade and protection

What is likely to occur when a country is experiencing deflation?

Inflation and deflation

Economic growth is understood as

Economic growth

The table shows how employment was distributed across selected industries in two years. In what way did the distribution of employment change from year 1 to year 2?

Workers

Over the course of a year, two changes took place in a company. The salaries of the company directors rose by 15%. The wages of office workers rose by 5%. The inflation rate was 3.4%. What happened to real income?

Inflation and deflation

The diagrams illustrate birth rate (BR) and death rate (DR) for three countries, X, Y and Z, across two years, 1 and 2. There was no migration. In which country did population increase in year 1 and decrease in year 2?

Population

The top 60% of people in a high-income economy saw their income rise. The incomes of everyone else stayed unchanged. How were absolute poverty and relative poverty affected?

Poverty

Gross Domestic Product (GDP) is a more appropriate indicator of comparative living standards when it has been adjusted to allow for the effects of

Living standards

Which benefit is most likely for a low-income economy if it abolishes tariffs on imported goods and services?

Globalisation, free trade and protection

Economies have become increasingly interconnected through globalisation. What might discourage this?

Globalisation, free trade and protection

What might be caused by a balance of payments trade surplus?

Current account of balance of payments

A farmer sells farmland that had been used for growing crops to a company that will use the land for wind turbines to generate electric power. What is the opportunity cost of this choice made by the farmer?

Opportunity cost

A country is in current account deficit on its balance of payments. What might cause that deficit to become larger?

Current account of balance of payments

What does microeconomics not include?

Microeconomics and macroeconomics

Which factors affect a consumer’s demand for a product?

Demand

Which problem would be reduced by a government subsidy to a firm?

Market failure

The diagram illustrates the market for information technology (IT) graduates. The initial equilibrium was $X$. Afterwards, more IT students completed university and the wider use of artificial intelligence (AI) raised the demand for IT staff. What will the new equilibrium be?

Price determination

When the price rises from $5\ \text{per kilo}$ to $6\ \text{per kilo}$, a farmer raises supply from $400$ kilos each week to $500$ kilos each week. Calculate the price elasticity of supply.

Price elasticity of supply (PES)

What factors could lead consumers in a high-income economy to increase both their saving and their spending?

Households

When the output of one good rises, the production of another good falls. Which economic concept is being shown by this change?

Opportunity cost

Which firm operates in the tertiary sector?

Firms and production

What advantage does a worker gain from joining a trade union?

Trade unions

A company has $10$ workers. Every worker earns a weekly wage of $\$200$ and turns out $50$ goods per week. What is the mean labour cost per good made?

Firms’ costs, revenue and objectives

In what way could advertising a product lead to a retail firm increasing its market share?

Demand

Which term refers to the total revenue of a firm?

Firms’ costs, revenue and objectives

The diagram illustrates a firm’s total revenue (TR) and total cost (TC) in a market. At what output level will the firm maximise profits?

Firms’ costs, revenue and objectives

What does fiscal policy mean?

Fiscal policy

What does the term money supply mean?

Money and banking

The table presents the sources of government revenue for an economy. What is the total tax revenue collected from direct taxes?

Fiscal policy

The table presents the Consumer Prices Index (CPI) for a country over five years. Which statement about the country is correct?

Inflation and deflation

What economic condition would attract labour immigration?

Workers

What can lead to deflation?

Inflation and deflation

Economic growth may be defined as

Economic growth

The table shows how employment was split across chosen industries in two years. How did the employment distribution change from year 1 to year 2?

Workers

During a one-year period, two adjustments were made in a company. The salaries of company directors rose by $15\%$. The wages of office workers increased by $5\%$. The inflation rate was $3.4\%$. What happened to real income?

Inflation and deflation

The diagrams illustrate birth rate (BR) and death rate (DR) in three countries, X, Y and Z, over two years, 1 and 2. There was no migration. In which country did the population rise in year 1 and then fall in year 2?

Population

The top 60% of people in a high-income economy experienced a rise in income. The income of everyone else stayed the same. What happened to absolute and relative poverty?

Poverty

Gross Domestic Product (GDP) provides a more accurate indicator of comparative living standards if it is adjusted to allow for the effects of

Living standards

What is one advantage of a multinational company (MNC) for the host country?

Globalisation, free trade and protection

Globalisation refers to the way domestic firms get involved in international markets. What factors encourage globalisation?

Globalisation, free trade and protection

What is measured by the foreign exchange rate between Malaysia and the US?

Foreign exchange rates

The production possibility curve (PPC) illustrates the number of hours per day that a person can allocate to either work or leisure. A person works $6$ hours a day, but later chooses to work $9$ hours a day. Which movement represents this change?

Production possibility curve (PPC) diagrams

A country is running a deficit on the current account of its balance of payments. What might make this deficit larger?

Current account of balance of payments

Who would be described as a microeconomic decision maker?

Microeconomics and macroeconomics

What is one essential characteristic of a market economy?

Market economic system

How is market failure defined?

Market failure

The diagram illustrates the market for oil. The initial equilibrium is X. Oil producers find a new source of oil at the same time as economic growth occurs. What is the new equilibrium?

Price determination

As a result of price rising from $\$5$ per kilo to $\$6$ per kilo, a farmer increased supply from $400$ kilos to $500$ kilos per week. What is the price elasticity of supply?

Price elasticity of supply (PES)

Average incomes increased by $5\%$, yet savings did not increase. What could account for this?

Households

Overview of changes in the Nigerian economy Nigeria fact file (2017) Government spending: $19.5bn Tax revenue: $12.9bn Balance of trade in goods: $10.4bn Imports of goods: $32.7bn Nigeria makes a wide mix of products, including delivery vehicles, footwear, machines, maize and office equipment. Even so, its export earnings are still strongly tied to oil. The government is aiming to stimulate a rise in the production and export of other products. To do this, it applies a variety of policy tools, including changes to taxation and government spending, for example by subsidising training for construction workers. If training is effective, job prospects and wages can rise. The government wants to improve Nigeria’s macroeconomic performance and lift living standards. Table 1.1 gives data on living standards in Nigeria and Ethiopia in 2017. Table 1.1 Selected data on living standards in Nigeria and Ethiopia in 2017 Country: Nigeria, GDP per head ($): 5900, Life expectancy at birth (years): 59, Average years spent at school: 9, % of children aged under 5 who are underweight: 31.5 Country: Ethiopia, GDP per head ($): 2200, Life expectancy at birth (years): 63, Average years spent at school: 8, % of children aged under 5 who are underweight: 23.6 Investment in Nigeria has been increasing only gradually. Some firms are put off spending on capital goods because interest rates are relatively high, corporation tax is high and the economy is uncertain. Nigeria’s population is rising rapidly. The birth rate is high and the death rate is falling, although there is net emigration. Nigeria’s population was 191 million in 2017 and is forecast to reach 402 million by 2050. A bigger population will bring both opportunities and problems. It will influence the level of demand in the economy, may damage the environment and will require more food. In 2016, the Nigerian government raised the tariff on imported rice to encourage a rise in its own rice production. Nigeria is Africa’s largest rice producer, but it is also the continent’s biggest importer. In 2018, Nigeria imported almost 50% of the rice it consumed. Nigerian farmers produce less rice for each unit of land used than Asian farmers, and production costs for Nigerian farmers are high.

Supply-side policy

An expanse of litter in the Pacific Ocean, known as the Great Pacific Garbage Patch, covers an area three times the size of France. It contains waste such as old fishing nets, although most of it is plastic waste. By 2050, it is predicted that there will be more plastic than fish in the Pacific Ocean. Several islands in the Pacific Ocean depend on fishing. More pollution will raise the social cost of the fishing industry.

Market failure

In 2018, the US recorded its lowest unemployment rate for 18 years. Cyclical unemployment was very low, and inflation was low too. The US also saw labour productivity rise. Even so, it was less successful at reducing poverty. In 2018, about 12% of Americans were living in poverty.

Employment and unemployment

The Canadian government has put in place several policy measures to encourage more women to join the labour force. Canada’s labour force has shrunk as the population has aged. The numbers of workers and their output are affected by movements in the country’s foreign exchange rate and by consumer expenditure. In 2018, the Canadian dollar lost value while Canadian consumer expenditure rose.

Current account of balance of payments

Australia suffered a drought in 2018, which led to a fall in agricultural output. In 2018, Australia’s secondary and tertiary sectors performed more strongly than its primary sector. The central bank measures used to prevent deflation affected all three sectors. Some firms gained from these measures and increased output.

Monetary policy

Section B In Cairo, the capital city of Egypt, close to one million people live in crowded and unhealthy housing. Unemployment is one reason that many people are missing basic necessities, including adequate housing. In 2019, almost 10% of Cairo’s workers did not have a job. By contrast, some other people in Cairo live in luxury, in houses worth more than $1 million. Many of Cairo’s rich adults were brought up in rich families.

Living standards

Consumers in Uruguay are consuming more processed food. Factors of production, including enterprise, have adjusted to this shift. Firms in the processed food industry have become more capital-intensive. All of Uruguay's industries were influenced by the rise in its inflation rate, from 6.2% in 2017 to 7.7% in 2018.

The factors of production

Turkey’s birth rate is declining, so the supply of labour is likely to shrink. Even so, better labour quality and the growing number of foreign multinational companies (MNCs) operating in Turkey (the host country to the MNCs) may enable the economy to avoid a recession. Economists are also concerned that a recession could happen because interest rates are expected to rise.

Population

Bangladesh’s money supply rose each year between 2010 and 2018. Variations in the money supply and the foreign exchange rate may influence a government’s macroeconomic objectives, such as full employment. Mergers among commercial banks in Bangladesh have been uncommon, even though its banks are larger than many of its other firms.

Money and banking

Study the source material thoroughly before you answer Question 1. Source Material: Morocco’s blue economy The World Bank says a ‘blue economy’ is one that makes sustainable use of ocean resources to drive economic growth and to create jobs that raise people’s living standards. Using the blue economy to the full could lower poverty levels among fishermen. Across the world, many fishermen remain poor because pay is low and unemployment is both seasonal and structural. Morocco is Africa’s main supplier of fish. Even with its long coastline, the fishing industry now adds only a very small amount to Morocco’s GDP. The government therefore wants the industry to expand further. Policy measures such as subsidies for fishermen could enable Moroccan fishermen to raise productivity and cut competition from overseas. The United Nations’ Food and Agricultural Organisation (FAO) predicts that Moroccan fisheries’ output could increase to almost 2 million tonnes of fish each year by 2030. Worldwide demand for fish is also rising sharply as more people view fish as healthier than meat. Growth of this kind could help to shrink Morocco’s current account deficit in its balance of payments. A greater reliance on the primary sector may not raise living standards in Morocco because some other countries that have pursued the same route have produced disappointing results. Fig. 1.1 shows the GDP per head ($) and percentage (%) contribution of the primary sector to GDP of selected countries. Environmentalists are concerned that fishing in Morocco is not properly regulated. If overfishing takes place, fish stocks would fall for future generations. However, if fish stocks are preserved, the economy can keep its rapid economic growth rate. At a time when African countries are reducing trade protection, a sustainable fishing industry could be very beneficial for Morocco’s future.

The role of government

Latvia ranks among the most rapidly expanding economies in Europe. Even though GDP per head remains under the European average, it is closing the gap fast. Living standards are rising. Meanwhile, lower borrowing has lessened the risk of high inflation. The labour market is improving too, with unemployment falling. However, there are worries that balance of payments stability may be weaker.

Living standards

In some large Canadian cities such as Toronto, Vancouver and Montreal, cyclical unemployment sits below the national average. This may stem from higher government spending and tax cuts in those cities. Even so, productivity is low. There are also worries that structural unemployment could rise because some industries cannot compete with more efficient foreign firms.

Employment and unemployment

Worldwide spending on the health sector, from both private and public sectors, is greater than that of all other sectors, including education and defence. Money invested in education and the health sector has led to the introduction of new life-saving technology. Nevertheless, the demand for some vaccinations has fallen over time, causing the demand curve for vaccinations to move left.

Production possibility curve (PPC) diagrams

As the range of smartphone functions has expanded, demand has become more price-inelastic. In low-income countries, smartphones are a key aid to economic development because they open access to education and banking services that were once unavailable in rural areas. They have also made it simpler for people to save and borrow their money.

Differences in economic development between countries