May/June 2025

What is likely to raise the occupational mobility of labour?

Workers

Which of the following is not a type of money?

Money and banking

If interest rates decline, what is the most likely impact on saving and borrowing?

Monetary policy

At first, a bus driver is prepared to work longer hours when the wage rate rises. But as his earnings grow, a point is reached where he chooses more leisure rather than extra work. Which supply curve, $S$, shows this situation?

Workers

What is one role of a trade union?

Trade unions

An improvement in the transport infrastructure in India has lowered farming costs. What example does this illustrate?

Supply-side policy

A firm decides to become more capital-intensive. What is least likely to have risen?

The factors of production

The diagram illustrates the average total costs (ATC) and average fixed costs (AFC) for a firm. Which statement is correct?

Firms’ costs, revenue and objectives

What is one macroeconomic objective of a government?

The macroeconomic aims of government

What does the term principle of taxation mean?

Fiscal policy

Which variables are often altered as part of monetary policy?

Monetary policy

Sonia runs a takeaway food delivery business. She plans to grow the firm by purchasing more vans and employing extra drivers. Which factors of production did this change?

The factors of production

Which supply-side policy measure is most likely to help a government achieve its goal of full employment?

Supply-side policy

Which policy choice is most likely to bring about economic growth?

Economic growth

A government uses the labour force survey method to measure unemployment. What must a person satisfy under this method in order to be classed as unemployed?

Employment and unemployment

What is most likely to increase when employment levels decline in a high-income economy?

Employment and unemployment

A Consumer Prices Index (CPI) is made up of four items. The table gives the percentage change in price for each item over one year, together with the weight assigned to each item. Which price change would have the greatest effect on the CPI level?

Inflation and deflation

The table presents the Human Development Index (HDI) value for a country in two years. Which of the following would not account for the change in the HDI value?

Living standards

Which pair of statistics is used to work out a country's natural population growth?

Population

What would raise the degree of specialisation in an economy?

International specialisation

What would an economist understand by the term dumping?

Globalisation, free trade and protection

In the diagram, D shows the demand curve for the Chinese yuan and S shows the supply curve of the Chinese yuan. The Chinese central bank wants to fix the price of the yuan at $P_1$. What action would it need to take?

Foreign exchange rates

The diagram illustrates a production possibility curve (PPC). The economy is making full use of all its available resources. A government chooses to promote greater output of manufactured goods rather than agricultural goods. Which movement indicates this policy change?

Production possibility curve (PPC) diagrams

The table gives the values of a country's current account items in two years. How did the value of net secondary income change from year 1 to year 2?

Current account of balance of payments

During 2020, in order to stop a pandemic from spreading, many governments shut restaurants and cafés for a limited period. What macroeconomic effect could result from such a policy?

Employment and unemployment

Favourable weather causes both demand for and supply of peaches to rise. What effect will this have on the price and quantity traded in the market for peaches?

Price determination

The diagram illustrates the demand and supply curves for a product at its equilibrium price $P$. How would the introduction of a subsidy be represented?

Supply

The table gives the quantity demanded at a range of prices. For which decrease in price is demand price-inelastic?

Price elasticity of demand (PED)

The price elasticity of supply (PES) of coffee is measured as $+0.2$ in the current year and $+2.0$ over the long run. Why is the PES of coffee greater in the long run?

Price elasticity of supply (PES)

What opinion would someone hold who wanted to promote the use of the market system?

Market economic system

A university turns down 2000 qualified applicants who want to study there. Which factor of production might have led the university to make this decision?

The factors of production

The table gives the mean wage in four countries, A, B, C and D. In which country is relative wage discrimination against female employees the greatest?

Workers

The diagram illustrates the average total cost curve (ATC) for a firm following a merger. Why is the shift from X to Y likely to be caused by this merger?

Firms’ costs, revenue and objectives

A restaurant has two chefs who prepare every meal served to customers. What is most likely to raise the productivity of the chefs?

Firms and production

What are fixed expenses?

Firms’ costs, revenue and objectives

The table presents the daily output and costs for four firms that produce chairs. Which firm has the greatest average cost of production?

Firms’ costs, revenue and objectives

The only details known about a firm are the price it sets for its product and the quantity it sells. What further conclusion can be drawn from this?

Firms’ costs, revenue and objectives

If a highly competitive market changes into a monopoly, what is likely to rise and what is likely to fall?

Market structure

A number of central banks across the world cut interest rates during a recession caused by a pandemic. What macroeconomic objective was this policy most likely intended to achieve?

The macroeconomic aims of government

The diagram illustrates the proportion of income collected by a tax at various income levels. Which term is used to name the tax?

Fiscal policy

Which of the following is not a probable result of an increase in the budget deficit in a year?

Fiscal policy

Sanjay worked as a coal miner, but he lost his job when the only mine in the area shut down. He lives in a village close to his family and friends and wants to remain in that village. What is the reason for Sanjay’s occupational immobility?

Workers

If a government wants to promote economic growth, it may use supply-side policies. Which policy counts as a supply-side policy?

Supply-side policy

An economy operating at full employment is predicted to experience a rise in aggregate demand. What is most likely to rise?

Inflation and deflation

A government carried out a labour force survey. Only people of working age were included. The findings are shown in the table. Number of people: - of working age: $10\,000\,000$ - employed: $7\,000\,000$ - unemployed: $1\,000\,000$ - not seeking work: $2\,000\,000$ What percentage of working-age people are in the labour force?

Workers

A school leaver cannot get a job straight away after finishing education. What kind of unemployment is this?

Employment and unemployment

Which alterations are most likely to produce the greatest increase in inflation in country X?

Inflation and deflation

In rural parts of developing countries, farmers produce food for their own use. Why could this make GDP a poor indicator of the standard of living in those countries?

Living standards

Japan’s population contains a rising share of elderly people. What is the probable effect of this on the Japanese economy?

Population

An Argentine product is first sold in the US at $50$ when the exchange rate between the two countries is $5$ pesos for $1$ dollar ($\$$). The exchange rate then changes to $10$ pesos for $1$ dollar, while the product’s price in Argentina stays the same. What is the product’s new US price?

Foreign exchange rates

Mining undertaken by multinational companies (MNCs) may create both advantages and disadvantages for the host nation. Which activity is least likely to provide a benefit to the host nation?

Globalisation, free trade and protection

The table gives the retail price for which the same book may be purchased in four countries. Australia: $14.99$ Australian dollars Canada: $11.99$ Canadian dollars New Zealand: $20.95$ New Zealand dollars United Kingdom: £$6.99$ GB pound What extra information is needed in order to compare the book’s price across the countries in a meaningful way?

Foreign exchange rates

The diagram illustrates the production possibility curve (PPC) for an economy located at point X. Which change in the economy’s labour market would enable it to move to point Y?

Production possibility curve (PPC) diagrams

What is an effect of a surplus on the current account of the balance of payments?

Current account of balance of payments

Which two decisions are macroeconomic?

Microeconomics and macroeconomics

The table shows the quantity of coffee demanded each day and the quantity supplied each day. At the equilibrium price, what is the total expenditure on coffee?

Price determination

The diagrams display the demand curves for the only two consumers in a market. What shape will the market demand curve for the good take?

Demand

The diagram illustrates the market for ice cream and the impact of very hot weather. If prices had stayed at $P_1$ even throughout the hot weather, what was likely to have occurred in the market for ice cream?

Price determination

Which good is likely to have the supply that is most price elastic?

Price elasticity of supply (PES)

What is one feature of a demerit good?

Market failure

Which item is not a factor of production?

The factors of production

A country's central bank increased the rate of interest from $1\%$ to $4\%$ per year. How would this alteration have influenced the amount saved and the cost of borrowing for individuals?

Monetary policy

What is one non-wage factor that affects a person's choice of occupation?

Workers

Employees in the secondary sector of an economy have a higher average income than employees in the tertiary sector. Which combination would be most likely to widen the gap in wages between workers in the secondary and tertiary sectors of an economy?

Workers

A manufacturing company expands the size of its output. Its long-run average total cost (ATC) curve is shown below. At which point on the ATC curve is the company facing diseconomies of scale?

Firms’ costs, revenue and objectives

Which change is most likely to raise the demand for labour in an industry?

Workers

A firm incurs fixed costs of $\$100$ in producing its daily output. The table sets out its daily total variable costs. What can be concluded about the firm’s average total cost?

Firms’ costs, revenue and objectives

A market shifts from intense competition into a monopoly. What is likely to happen to output and price in this market?

Market structure

What is the most likely reason for a government to seek price stability?

The macroeconomic aims of government

A country's unemployment rate rose from $3.6\%$ to $4.2\%$ over one year. What could the effects be on tax revenues and welfare payments?

Employment and unemployment

In a country, some well-paid workers cut back their working hours because income tax rates are very high at higher income levels. What is one disadvantage of this income tax?

Fiscal policy

A woman makes small cakes at home. She is able to produce 30 cakes per hour and works for four hours each day. The ingredients cost $50 in total and each cake is sold for $2. What is the opportunity cost if she uses one working day for a holiday?

Opportunity cost

What is the most likely explanation for placing a tax on oil?

Market failure

Brazil’s real GDP decreased by $3.8\%$ over one year. What factors could have led to this?

Economic growth

Factory owners put money into technologically advanced industrial production by constructing new large-scale, energy-efficient factories. What is one negative consequence of this for people living nearby?

Employment and unemployment

Country X calculates unemployment by using the number of people who are claiming unemployment benefit. Why could this approach lead to an underestimate of unemployment?

Employment and unemployment

What is likely to bring about deflation?

Inflation and deflation

What is the most probable explanation for why a higher standard of education will reduce poverty?

Poverty

What factor will raise a country’s population, assuming everything else remains unchanged?

Population

Country Y chooses to specialise in the domestic extraction of rare metals needed to make electric-car batteries. What is one likely advantage of this for country Y?

International specialisation

The UK government raises the price of steel brought in from Germany by increasing an existing tariff. If steel has price-inelastic demand, what effect would this have on the revenues of German steel producers and the UK government?

Globalisation, free trade and protection

The table gives the value of the UK pound (£) relative to the US dollar ($) in June and September. June: $£1 = \$1.48$ September: $£1 = \$1.32$ What is the most likely short-run effect on the UK economy of this exchange rate change?

Foreign exchange rates

An economy uses its limited resources to produce different kinds of goods. This may be represented by a production possibility curve (PPC). What does point X on the PPC indicate?

Production possibility curve (PPC) diagrams

The table gives a set of economic figures for a country. Primary income: $1000$m Secondary income: $-500$m Total value of exported goods: $1000$m Total value of imported goods: $2000$m Total value of exported services: $800$m Total value of imported services: $200$m What is the current account balance in the balance of payments of this country?

Current account of balance of payments

In a market economy, what role does the price mechanism play?

The role of markets in allocating resources

The table presents the demand and supply schedules for rice. The present price is $2.00 per kilo. What will happen if the price falls to $1.00 per kilo?

Price changes

The diagram illustrates the market for cherries in Chile. What would lead to the market equilibrium shifting from $E_1$ to $E_2$?

Price determination

A German car manufacturer estimates that the price elasticity of demand (PED) for its cars is $-2.0$. What may be inferred from this information?

Price elasticity of demand (PED)

The diagrams illustrate the supply curves for four firms. Which firm has a price elasticity of supply that is more than zero but less than one?

Price elasticity of supply (PES)

Which combination accurately identifies characteristics of a market economic system?

Market economic system

Read the source information carefully before you answer Question 1. Source information: Gabon’s industries and labour force Gabon is a small country in western Africa. Its rainforests cut air pollution, supply wood for timber production, help to protect against floods and lessen soil erosion. The Gabonese Government wants to protect the country’s rainforests. It has set up some national parks, which has boosted tourism and affected the current account of the balance of payments. The Gabonese Government wants to lower the country’s dependence on timber production, oil production and agriculture. The country is Africa’s fifth-largest oil producer, but its oil reserves are being used up. The oil industry creates water pollution. The country has other natural resources, including gold. In 2022, new gold deposits were discovered in Gabon. A large proportion of Gabon’s labour force works in agriculture. Fig. 1.1 shows the literacy rate and the percentage of the labour force employed in agriculture in six selected countries in 2022. Fig. 1.1 The literacy rate and the percentage of the labour force employed in agriculture in selected countries in 2022. The vertical axis is labelled: "% of labour force employed in agriculture". The horizontal axis is labelled: "literacy rate (% of those aged 15 and over who can read and write)". Countries shown on the figure include: Mali, Sierra Leone, Gabon, Mauritania, Tunisia and South Africa. In recent years, Gabon has had a high unemployment rate among 15-24 year olds. High youth unemployment can mean that young people do not acquire the skills and experience needed to reach high productivity. It can also damage their confidence. Some governments pay private sector firms to provide unemployed young people with work experience. The quality of this experience may vary. The Gabonese Government wants to expand its textile industry by encouraging firms to become larger. Industry output will be influenced not only by possible government support, but also by the use of technology and the specialisation of workers.

Workers

Colombia’s population pyramid is taking on a different shape. However, the way income is distributed in this South American country is not changing much. Colombia has one of the most unequal income distributions in the world. Some Colombians are employed in its footwear industry, which makes shoes, sandals and boots. Even though footwear is produced by private firms, Colombia has a mixed economic system.

Population

Over the last few years, the amount of Latvia’s factors of production has altered. Since 2008, capital has risen and land has stayed broadly unchanged, whereas the labour force and enterprise have both fallen. Enterprise and supply conditions can influence the prices firms charge. In 2022, the Latvian Government raised the country’s national minimum wage (NMW). Even so, its NMW still remained among the lowest in the European Union.

The factors of production

In 2023, India became the most populous country. This could influence the government’s macroeconomic objectives. In 2018, the Indian Government reduced the corporation (corporate income) tax rate from 35% to 25%. From 2019 to 2022, India’s inflation rate averaged 6%. Some economists argued that, if the government wanted to meet its central inflation target, it ought to reduce its spending.

The macroeconomic aims of government

Australia contains a range of firms that carry out business in other countries. These multinational companies (MNCs) offer a number of advantages to Australia, their home country. The Australian Government applies relatively low import tariffs, and the country operates a floating exchange rate. In recent years, Australia has seen more investment and a higher Human Development Index (HDI) value.

Globalisation, free trade and protection

Study the source material thoroughly before you answer Question 1. Source material: The future of the economy of St. Kitts and Nevis St. Kitts and Nevis is a small Caribbean nation made up of two islands. The country’s three key industries are tourism, financial services and agriculture. Visitors are drawn by the country’s beaches, coral reefs, forts, rainforests and shipwrecks. However, if rainforests keep being cleared and soil erosion keeps contaminating the coral reefs, causing marine life to die, tourism may be put off. The St. Kitts and Nevis Government is also worried that the social costs of tourism are greater than the private costs. St. Kitts and Nevis’s financial services include a growing banking sector. Among the country’s commercial banks are a few foreign multinational companies (MNCs). These MNCs are attracted by the country’s relatively high incomes, the absence of personal income tax and a relatively high literacy rate. Some of the country’s main agricultural products are carrots, onions, peanuts and sweet potatoes. In 2017, the St. Kitts and Nevis Government introduced a training scheme to raise the productivity of onion farmers. Other important industries in St Kitts and Nevis include healthcare and fishing. Table 1.1 shows healthcare spending as a percentage of GDP and life expectancy in six selected countries in 2022. The small scale of St. Kitts and Nevis’s fishing industry means that it imports large quantities of fish. The country’s fishing boats are small and some lack up-to-date equipment. A larger fishing industry, with bigger boats, may bring a number of benefits to the country. Changes in the structure and performance of industries in St. Kitts and Nevis may alter the country’s price level. Between 2018 and 2020, the country experienced deflation. This affected people’s purchasing power, saving and debts. It also affected the country’s exports and firms’ investment decisions. Answer all parts of Question 1. Refer to the source material in your answers.

Market failure

At the beginning of 2023, the four biggest accountancy firms in the world saw demand for their services fall. One reason for this weaker demand was that mergers in other sectors, including the chocolate industry, also dropped. Three of the accountancy firms cut back the number of new employees they recruited, while the remaining accountancy firm announced redundancies. The ease with which workers can secure new jobs depends on their mobility.

Workers

In 2022, Paraguay’s production possibility curve (PPC) moved to the right. Paraguay operates a mixed economic system. Its government supplies merit goods and public goods. The country’s private sector is a major producer of shampoo. Firms in the shampoo industry use division of labour. There are several firms in the industry, but their number is falling. It may soon be the case that only one firm remains in the industry.

Market structure

In 2022, over 250,000 workers, doctors among them, moved out of Sri Lanka to take jobs overseas. This mainly stemmed from economic difficulties, such as inflation reaching 50% and worries that unemployment could increase. The Sri Lankan Government raised direct taxation, and it also urged some public-sector employees to go overseas for a temporary period. Workers abroad often transfer money back to their family members at home.

Employment and unemployment

In 2023, the Chinese Government stated that it wanted economic growth of 5% and a gradual rise in both exports and imports. It was anticipated that stronger output would come mainly from higher household spending, although this might also create inflation. A further objective of the Chinese Government was to hold unemployment at about 5.5%. China has an ageing population and an ageing labour force.

The macroeconomic aims of government

Section A Before you answer Question 1, read the source material closely. Source material: The Egyptian economy Egypt fact file (2022): GDP $469.1bn; Population 110.0m; Poverty rate 27.9%; Unemployment rate 7.2%. Tourists have long been drawn to Egypt because of the pyramids and other ancient sights. Even so, the tertiary sector is not the only driver of economic growth; the primary and secondary sectors also add to growth. Egypt’s exports include personal travel, oil, citrus fruits, gold and textiles. Recently, Egypt has experienced a construction boom. A new city is under construction and needs finance, raw materials and labour. Businesses are taking a large risk on this scheme because houses are being built before demand has been confirmed. For instance, if incomes fall, the housing market could fail to make a profit. Tourism provides Egypt with a strong source of economic growth. The country offers attractions that date back thousands of years as well as natural attractions such as attractive beaches and a warm climate. It also has good infrastructure and is regarded as a safe and secure country, which further draws tourists. Free market reforms have increased investment in Egypt. Fig. 1.1 presents investment (as a percentage of GDP) and economic growth rates in Egypt, 2015-2021. Fig. 1.1 description: The vertical axis is labelled "Percentage (%)" with markings from 0 to 20. The horizontal axis is labelled "Year" and shows 2015, 2016, 2017, 2018, 2019, 2020 and 2021. The dotted line is labelled "Investment (as a % of GDP)" and the solid line is labelled "Economic growth rates (%)". Deregulation in education has resulted in a higher number of schools and universities in Egypt. Greater access to education and training should lead to future rises in living standards. However, the establishment of more private schools and universities may widen inequality because private education may still be too costly for some income groups. In 2022, the Egyptian currency fell to half its previous value against the US dollar. This decline in the currency’s value affected inflation and Egyptians’ purchasing power. On the other hand, some industries, including tourism, gained from this because holidays in Egypt became more affordable for non-Egyptians.

Economic growth

A road in Montenegro that opened in 2022 was among the world’s costliest. Its construction was supported by a foreign commercial bank and another multinational company (MNC). This road may help the Montenegro Government achieve its macroeconomic aims and expand Montenegro’s international trade. MNCs can have a major effect on the host countries where they operate.

Globalisation, free trade and protection

Andorra’s public sector is concentrating on expanding the healthcare, biotechnology and sports industries. The country has the natural benefit of being mountainous. A number of winter sports businesses in Andorra have recently joined together. This will alter the degree of competition in Andorra’s winter sports market.

Differences in economic development between countries

As cities develop economically, the buildings within them tend to grow taller. This is caused by consumers becoming more prepared and able to live in high-rise buildings. Changes in supply conditions have also raised the number of tall buildings being built. Even so, there is a ceiling to building height - once a building passes a certain height, its total construction cost will be greater than the total revenue it produces.

Economic growth

Space missions beyond Earth confront the same fundamental economic problem as those on Earth. The African Space Agency was set up to strengthen science and technology across Africa. It also seeks to coordinate trade among African countries so as to support technological development. This could improve domestic markets. In 2021, total government spending on this agency exceeded $500 million.

The nature of the economic problem