Oct/Nov 2024

In consumption, what counts as the opportunity cost?

Opportunity cost

Which of the following is not a function of money?

Money and banking

Bus drivers are paid a wage of $ $15\,000 $ per year. The government brings in a national minimum wage. Under which circumstances will the greatest number of bus drivers lose their jobs because of the minimum wage?

Employment and unemployment

A clothes retailer takes out a loan to pay for the launch of another clothes shop. Which kind of growth is this?

Firms

What does the term internal diseconomies of scale mean?

Firms’ costs, revenue and objectives

A food-processing company chooses to switch from a labour-intensive production method to a capital-intensive production method. What is likely to fall as a result of this change?

Workers

Give one example of a fixed cost.

Firms’ costs, revenue and objectives

What does profit maximisation mean?

Firms’ costs, revenue and objectives

The central bank of Mexico adjusts its interest rate in an effort to limit the increase in the general price level to only $3\%$. Which government aim was it directly trying to achieve?

Inflation and deflation

The table presents a government budget forecast for year 1 and year 2. What does the forecast government budget for year 2 indicate?

Fiscal policy

The graph illustrates the effect of a tax on the supply of petrol (gas). What conclusion can be drawn from this graph?

Supply

For which case can the level of reward be fixed before production begins for the first factor of production but not for the second factor?

The factors of production

What is the most likely outcome of a successful supply-side policy?

Supply-side policy

The table gives the unemployment rates and real GDP growth figures for an economy in year 1 and year 2. Which mix of policy measures would be most effective in bringing the economy back to the year 1 level of activity?

Fiscal policy

The table presents a selection of labour-market indicators for an economy in year 1 and year 2. From the table, which type of unemployment is most likely in year 2?

Employment and unemployment

The table presents the percentage changes in earnings and consumer prices for four countries over a single year. Which country has had the largest rise in real income over the year?

Inflation and deflation

The table presents the distribution of income, as measured by GDP, for three countries in one year. What conclusion can be drawn from the table?

Living standards

The number of people living in relative poverty in a country is falling. What is the most probable reason for this?

Poverty

African economies could experience strong economic growth due to a substantial rise in their working-age population. On the basis of this idea, which factor of production is most likely to increase greatly?

The factors of production

Which statement identifies two advantages for consumers of specialisation at a national level?

International specialisation

A multinational company (MNC) sets up a new factory in a host country. What is one possible negative impact of this new factory on the host country?

Globalisation, free trade and protection

The diagram illustrates how the exchange rate market for country X’s $ has changed. Which change in country X could have brought this about?

Foreign exchange rates

The diagram illustrates the production possibility curve (PPC) for an economy. Which cost can be measured as the economy moves along its PPC from point X to point Y?

Opportunity cost

What is the most likely reason for an increase in a country’s current account surplus?

Current account of balance of payments

Which individual is most likely to make a microeconomic decision in their role?

Microeconomics and macroeconomics

What necessarily characterises the market system?

Market economic system

The diagram represents the demand for and supply of a product. The initial equilibrium is at X. Which point shows the new equilibrium position if the price of a close substitute for the product rises while all other factors stay unchanged?

Demand

A firm is provided with the following supply schedule. What is the price elasticity of supply of the good when the price rises from $5 to $10?

Price elasticity of supply (PES)

For what reason does a government supply some goods and services in a mixed economic system?

Mixed economic system

A government plans to subsidise bus fares and raise taxes on private motoring. What effect would this have on the private cost of transport?

The role of government

Which economic question is least likely to arise because of scarcity?

The nature of the economic problem

What is one significant function of a central bank?

Money and banking

In what way would a shift in demand for labour influence the labour market in an occupation?

Workers

A multinational fast-food company acquired a food-ordering website so that its customers could download menus and make payments ahead of time. Which term is the most suitable description of this merger?

Market structure

The diagram illustrates a firm’s average total cost (ATC) in the long run. What would lead to the movement from $ATC_1$ to $ATC_2$?

Firms’ costs, revenue and objectives

Which factor is most likely to promote capital-intensive production methods in a low-income economy?

Firms and production

The average revenue of a firm is $20$. It sells $1000$ units. What are the firm’s total revenue and the product price?

Firms’ costs, revenue and objectives

An industry that is competitive turns into a monopoly. What is the most likely benefit for consumers?

Market structure

What factors will lead to an increase in real GDP in a country?

Economic growth

What does the term money supply mean?

Money and banking

Which macroeconomic policy is most likely to deliver economic growth and price stability simultaneously?

Supply-side policy

What does the term opportunity cost mean?

Opportunity cost

How is economic growth defined?

Economic growth

Why does cyclical unemployment occur in a recession?

Employment and unemployment

The table compares government expenditure and revenue across selected years. What factors could account for the changes in the government’s budget during this period?

Fiscal policy

The table indicates changes in economic policies for four countries, A, B, C and D. Which country is most likely to be pursuing a policy of preventing deflation?

Inflation and deflation

Employees in Switzerland receive higher average pay than employees in Mexico. What is one likely reason for this?

Differences in economic development between countries

The table gives information about birth rate, death rate and net migration for a number of countries in one year. What conclusion can be drawn from the table?

Population

Which combination most accurately describes the characteristics of a high-income economy?

Differences in economic development between countries

What factors might promote international specialisation among countries?

International specialisation

A government wants to prevent a particular imported good from being dumped at an extremely low price. Which form of protection would be the most effective?

Globalisation, free trade and protection

The value of the US dollar against other currencies is determined by demand and supply. What is this statement describing?

Foreign exchange rates

The diagram illustrates a production possibility curve (PPC) for an economy that makes two goods, X and Y. At which point is the opportunity cost of producing one additional unit of good X the highest?

Production possibility curve (PPC) diagrams

The diagram presents the value of a country’s exports and imports of goods across five years. Between which two years did the country experience a rise in the value of imports and an improvement in its balance of trade in goods?

Current account of balance of payments

A spell of severe weather causes the rice crop to fail. What happens in the market for rice?

Supply

The diagram illustrates a shift in demand for coffee. What would lead the demand for coffee to move from $D_1$ to $D_2$?

Demand

The table gives the supply of a product at different prices. If the price rises from $12$ to $14$, what change will occur in supply?

Supply

What changes would cause the equilibrium shown in the diagram to shift from point X to point Z?

Price determination

As the price of shirts increases from $8$ to $10$, demand for shirts decreases from $1000$ to $500$. Calculate the price elasticity of demand for shirts.

Price elasticity of demand (PED)

A government plans to construct a new international airport in a region of outstanding natural beauty. What would be one external cost of this decision?

Market failure

What is causing the economic problem in the global gold market?

The nature of the economic problem

What is one role of a commercial bank?

Money and banking

In which situations are households more likely to save?

Households

A country wants to raise the number of nurses in the workforce. What is the most effective method of doing this?

Workers

Firms situated in big cities often provide workers with extra allowances on top of ordinary pay rates. What is the most likely explanation for this?

Workers

Employees in a country have been worried that their pay is failing to rise as quickly as inflation. In what ways can trade unions help workers secure an increase in pay?

Trade unions

How do you calculate total revenue?

Firms’ costs, revenue and objectives

In the centre of a city, several cafés sell snacks and drinks. Some of these cafés close because their owners retire. What is the likely effect on the prices and profits of the cafés that stay open?

Price determination

What does the term macroeconomic aim of government mean?

The macroeconomic aims of government

The table sets out annual earnings and the amount of income tax paid each year. Which type of tax system is being shown here?

Fiscal policy

What is a possible example of monetary policy?

Monetary policy

An airline’s management chose to swap its aeroplanes for more technologically advanced aircraft. At the same time, the firm retrained its pilots. Which factors of production has the airline improved?

The factors of production

What is Gross Domestic Product (GDP) divided by to work out GDP per head?

Living standards

What effect does economic growth have on individuals and on the economy?

Economic growth

What is measured by the labour force survey (LFS)?

Employment and unemployment

The table presents the weights assigned to the three items in a Consumer Prices Index (CPI) across two years. What conclusion can be drawn from this data?

Inflation and deflation

If a government raises the rate of progressive income tax and also increases its expenditure on hospitals, what is likely to happen to income distribution and to living standards?

Living standards

The population pyramids for country 1 and country 2 in a particular year are shown. What can be concluded from these population pyramids?

Population

From the data in the table, which country would be regarded as the most developed?

Differences in economic development between countries

Which factors promote international specialisation?

International specialisation

A country aims to restrict the annual number of imported cars to no more than $100\,000$. Which measure is most likely to achieve this aim?

Globalisation, free trade and protection

The diagram illustrates a shift in the exchange rate of the Indian rupee relative to the US$. What might have led to this change in the exchange rate?

Foreign exchange rates

The diagram illustrates an individual’s options between leisure and earnings. When moving from position X to position Y, what is the individual’s opportunity cost of the additional earnings?

Opportunity cost

The current account of country X’s balance of payments includes these selected entries. • Country X exports $\$200\,\text{m}$ of goods. • Country X imports $\$50\,\text{m}$ of services. • Citizens of country Y who work in country X remit $\$25\,\text{m}$ to relatives at home. • Country X provides country Y with $\$75\,\text{m}$ in aid. By how much did country X’s current account balance rise?

Current account of balance of payments

The global price of cocoa has been decreasing, whereas the prices of goods produced from cocoa have been increasing. Which combination could account for this?

Price changes

The table lists the quantities of tomatoes demanded and supplied at various prices. The starting equilibrium occurs at a price of $40$. In the next year, improved harvesting raises supply by $50\%$ at every price. What will happen to the suppliers’ total revenue?

Price determination

A decrease in which variable would help to remove a market shortage?

Demand

As the price of meat rose from $5$ to $6$ per kg, Joe cut his meat purchases from $40$ kg each month to $20$ kg each month. What was Joe’s price elasticity of demand for meat?

Price elasticity of demand (PED)

In the diagram, which line indicates perfectly inelastic supply?

Price elasticity of supply (PES)

What does the term external benefit mean?

Market failure

Read the source material thoroughly before you answer Question 1. Source material on The United Arab Emirates (UAE) UAE fact file (2021): Population 10m; Foreign nationals living in the UAE 8.9m; Number of people unemployed 0.2m; Economic growth rate 3.8%. There are more foreign nationals living in the UAE than citizens of the UAE. Labour mobility between the UAE and other countries is high, with many daily flights, for instance, arriving in the UAE from India and Pakistan. The UAE hosted the World Expo in 2021-2022, when countries from every part of the world displayed their economic achievements. A major feature of the World Expo was the stronger links between people through migration, the exchange of goods and services, and the sharing of ideas. Another repeated theme at the World Expo was technological progress, which has raised global living standards. In the UAE, technological development has increased both the quality and the quantity of the factors of production. This technological progress was backed by a very large amount of finance obtained from oil production and oil exports. Oil is a necessity and its price inelasticity of demand has created both benefits and drawbacks for the economy. Figure 1.1 shows the annual percentage change in the oil price and the annual percentage change in the UAE’s balance on the current account of the balance of payments. Figure 1.1 text: Vertical axis labelled “% change” with scale at 150, 100, 50, 0, -50, -100. Horizontal axis labelled “Year” with years 2016, 2017, 2018, 2019, 2020, 2021 and 2022. A solid line represents “annual % change in the price of oil”. A dashed line represents “annual % change in the UAE’s balance on the current account of the balance of payments”. Caption: “Figure 1.1 Annual percentage change in the price of oil and the annual percentage change in the UAE’s balance on the current account of the balance of payments 2016-2022”. Dubai, which is one of the cities in the UAE, does not rely on oil because 95% of its economy is non-oil based. Dubai has an international reputation for luxury tourism and financial services, and these affect employment, tax revenues and export revenues. However, there are worries about sustainable water use in a desert environment and about the size of income inequality. Even though the economy has changed rapidly, the value of the domestic currency, the dirham, has remained very steady because the government has kept a fixed exchange rate system since 1980. This has supported confidence among investors in the economy. However, a fixed exchange rate influences the government’s capacity to achieve other macroeconomic objectives. Answer every part of Question 1. Use the source material in your answers.

The factors of production

In December 2021, unemployment in the United Kingdom (UK) dropped to 4.1%. Under normal market forces, this lower unemployment would usually be expected to push wages up. Even so, workers’ living standards did not rise. New international trade deals were not arranged quickly enough to make up for the fall in trade between the UK and the European Union.

Employment and unemployment

Roughly 95% of students in Macao, a special administrative region of China, go to a private school. Around the world, private schools face strong competition for students. They often use technologically advanced teaching methods. Even so, some argue that private schools make the government’s aim of redistributing income harder to achieve.

The macroeconomic aims of government

The World Trade Organization (WTO) estimates that India has the highest degree of trade protection among the major economies. The steepest tariffs are levied on primary-sector goods. For instance, in 2018 India applied a tariff of about 90% to coffee imports in order to protect its coffee farmers. By contrast, the markets for coffee substitutes and complements are not subject to that level of government intervention.

Globalisation, free trade and protection

Hawaii's economy has expanded because of tourism, but this sector's growth has also driven up inflation in this US island state. It is estimated that 9% of Hawaii's population were living in poverty in 2022. Many families found it hard to save. Young workers were able to move away because labour mobility between US states is high. However, Hawaii is now dealing with an ageing population, including many more retired people.

Inflation and deflation

Study the source material closely before you answer Question 1. Source text: Developments in Jordan’s economy and population In 2020, Jordan recorded a deficit on the current account of its balance of payments. This deficit helped to reduce Jordan’s total demand in that year. This weaker total demand was the main reason that the number of workers exceeded the number of jobs available. Employment declined in most of Jordan’s industries. Tourism is one of Jordan’s key industries. In recent years, some Jordanian tourism firms have merged. These mergers pushed down the prices of some holidays and improved their quality. Jordan’s population keeps rising. The main cause is net immigration, although the birth rate is also higher than the death rate. Table 1.1 presents the birth rate and average age in six countries in 2020. Changes in a country’s population size influence the market for many products, including clothing. A rise in population also increases pressure on the country’s energy sources. The Jordanian government has several major renewable energy projects and intends to spend even more on these projects. Greater dependence on renewable energy, such as wind and solar power, can cut environmental harm and may be comparatively inexpensive in the long term. However, most renewable energy generators, including hydroelectric power stations, are costly to construct. In addition, wind turbines and solar panels depend on suitable weather conditions. Some of the Jordanian government’s spending is paid for by borrowing. At the start of 2021, the Jordanian central bank was expected to increase the rate of interest. This was because total demand was forecast to rise and positive economic growth was expected to return. A higher interest rate could influence Jordan’s foreign exchange rate and investment.

Current account of balance of payments

During 2021, the production point on the UK’s production possibility curve (PPC) shifted. Average wages rose. The mean yearly wage for a waiter was $23,580, whereas the average annual pay of a chief executive of a large commercial bank was $1,617,000. When wages rise, people can afford to eat out in restaurants more frequently. Some food sold by UK restaurants is brought in from abroad. In 2021, the UK government concluded free trade agreements, which removed import restrictions, with several countries.

Production possibility curve (PPC) diagrams

Madagascar’s central bank steps in within the country’s foreign exchange market. Even so, Madagascar operates mainly as a market economic system. About 70% of Madagascar’s population live in poverty. Most of the nation’s industries are labour-intensive. In 2020, Madagascar recorded economic growth of 6% and a deficit on the current account of its balance of payments of $0.6bn.

Current account of balance of payments

During 2021, demand for several South African products both expanded and contracted. In that same year, a South African court prevented a multinational company (MNC) from carrying out oil exploration along the South African coastline. South Africa also saw output rise, mainly because of growth in its tertiary sector. Even so, unemployment stood at 35%, far short of full employment.

Living standards

Peru’s industries are pressing the government to upgrade the nation’s transport network. Tourism is Peru’s third-largest industry. The Peruvian tourism industry includes many firms. Fruit farming is another major industry in Peru. In recent years, trade union membership in Peru’s fruit-farming industry has risen.

Trade unions

Read the source material carefully before you answer Question 1. Source material: The Belarus economy Belarus fact file (2021): Cars produced: 32 000. Total cost of cars produced: $340.8m. Labour force employed in the tertiary sector: 52%. Labour force employed in the public sector: 49%. Share of output produced by state-owned firms: 70%. Inflation rate: 9.9%. Unemployment rate: 5.7%. Belarus, which has a mixed economy, was among the poorest countries in Europe in the 1990s. Since then, GDP per head has risen and poverty has fallen. The country has also seen an increase in life expectancy. Table 1.1 compares life expectancy and Human Development Index (HDI) value in six selected countries in 2019. From 2011 to 2021, the price level in Belarus increased. Higher energy prices raised firms’ production costs in both the public sector and the private sector. Over the same period, investment in Belarus rose, the size of the country’s labour force declined, and fewer students went to university. Belarus produces a variety of goods. Milk is one agricultural product made in Belarus. The country is the fifth largest producer of milk in the world. The Belarus government is unwilling to subsidise milk production, although it has supplied large loans to mechanise the dairy industry. The Belarus government wants to stimulate the production and purchase of electric vehicles. It intends to construct 1300 electric vehicle charging stations by 2030. Electric vehicles can bring environmental benefits. However, some other types of transport may offer greater benefits, and some people and firms may be unwilling to switch to electric vehicles. A less popular government policy introduced in 2015 was a law that fined anyone unemployed for six months or more. Anyone who failed to pay the amount owed to the government for breaking the law was jailed. If suitable jobs were available, this may have reduced frictional unemployment. However, some of the unemployment may have been structural or cyclical. The law was abolished in 2018.

Inflation and deflation

Luxembourg is a nation with a high degree of economic development. Its government steps in to try to reduce some of the drawbacks that may arise in a market economic system. Some firms in the country sell in competitive markets, whereas others are monopolies. Households in the country save a large share of their income. The chief reason for the country’s population growth is immigration.

Mixed economic system

A number of people in Indonesia play tennis, yet badminton is the nation’s most popular sport. The gear required to play it, such as badminton racquets, is comparatively inexpensive. Athletes from Indonesia also win a large share of international tournaments. Leading Indonesian players receive ten times the average wage and over thirty times the pay of a cleaner.

Demand

Davos, a ski resort in Switzerland, is well known for hosting a world economic conference where leaders from the private and public sectors meet. The issues discussed are usually connected with global economic development. In Davos, hospitality firms rely on seasonal migrant labour, especially when they need to expand the supply of goods and services rapidly.

Differences in economic development between countries

In 2021, Turkey’s central bank reduced the interest rate on four separate occasions. This happened even though inflation climbed from 15% at the beginning of the year to 36% by year end. Turkish commercial banks gained more customers, causing bank deposits to rise by 10%. Later in that year, the Turkish lira dropped to a record low against the US dollar.

Monetary policy