May/June 2015

The following are four uses of factors of production. Which is most likely to need the greatest amount of the factor enterprise?

The factors of production

The table presents a country’s trade union membership, measured in millions, from 2008 to 2011. What conclusion can be drawn about the country’s trade union membership during 2008 to 2011?

Trade unions

A bus driver chooses to work for more hours when the wage rate goes up. As his income rises, there comes a point at which he would rather have more leisure than continue working. Which supply curve, $S$, shows this situation?

Workers

During 2013, a German medicines manufacturer acquired a UK business that operated a chain of pharmacies selling medicines. Which term best describes this takeover?

Globalisation, free trade and protection

At what point is one firm regarded as more capital-intensive than another firm?

The factors of production

During 2009, Gulf Airlines, which was operating at a loss, said that it planned to cut the number of new aircraft it had ordered. If it did so, which of its costs would be affected directly?

Firms' costs, revenue and objectives

The diagram illustrates a firm's costs. What is the firm's total variable cost when output is $100$ units?

Firms' costs, revenue and objectives

A government cuts the rate of interest. Which group is most likely to be negatively affected by this policy?

Monetary policy

Which supply-side policy would lead to higher output in the long run?

Supply-side policy

Russia is a wheat exporter. In 2010, a poor harvest led the Russian government to ban wheat exports in order to keep sufficient supplies for domestic use. What was the most likely result of the government’s decision?

Globalisation, free trade and protection

The government lowers the income tax rate and raises the tax rate on producers. Starting from the original equilibrium point $X$, which letter shows the new equilibrium point in the market?

Price determination

To lower the price of oil, extra supplies are required. Yet in 2013, objectors resisted efforts to search for new sites because they were concerned about the environmental harm that such exploration might create. How does this demonstrate the basic economic problem?

The nature of the economic problem

What is most likely to lead to economic growth?

Economic growth

A worker receives $250 per week, and this gives a disposable income of $175. What factor will influence the real value of the worker’s $250 earned income?

Inflation and deflation

The table displays the unemployment rate in three developed economies in June 2013. What is the principal reason for high unemployment rates in developed economies during recessionary periods?

Employment and unemployment

Between 2012 and 2013, European economies saw low economic growth. Using the table data for GDP, industrial production and unemployment, which economy had the poorest performance?

Economic growth

Which of the following is not a reason that the average family size is likely to be larger in developing countries than in developed countries?

Population

The table gives the share of GDP generated by each production sector in three imaginary countries. What conclusion can be drawn from the table?

Differences in economic development between countries

In the countryside of developing countries, farmers produce food mainly for themselves to eat. Why could this make GDP a poor indicator of the standard of living in those countries?

Living standards

The charts illustrate a country’s population structure in 1960 and 2010. In that time, how did the birth and death rates alter?

Population

What is one benefit of international specialisation?

International specialisation

Skin creams that help prevent sunburn and are produced in the European Union (EU) are more effective than those manufactured in the United States (US). US tourists buy large supplies of these creams when they travel to Europe. The production of such creams is banned in the US because of the chemicals they contain. In 2013, talks started to end this ban so that production could take place in the US. How is this free trade likely to affect skin cream manufacturers in the US and the EU?

Globalisation, free trade and protection

At a fixed quantity of resources, an economy that can make food or computers is located at point Q on its production possibility curve. An increase in population means that a larger share of resources must be directed towards food production. In the short term, which point on the diagram will the economy be at?

Production possibility curve (PPC) diagrams

The table presents the trade in goods balance and the current account balance of the balance of payments for four countries over one year. Which country recorded the largest surplus in trade in services, assuming there were no other transfers or income flows?

Current account of balance of payments

A person prepares sandwiches at home for five hours each day. She produces 20 sandwiches per hour, and each sandwich is sold for $2. What would the opportunity cost be if she takes a holiday on a day she would normally work?

Opportunity cost

What is present in a mixed economy but not in a market economy?

Mixed economic system

Newspaper reports have said that demand for beef has fallen, while its price per kilogram has risen. Beginning at the original equilibrium point X, which point on the diagram shows the updated market equilibrium?

Price determination

The diagram illustrates the market for fresh fish in the Caribbean, with equilibrium at point X. A new kind of fishing boat raises output, so costs fall. Which point shows the new equilibrium?

Supply

A large supermarket sought permission to develop land in an area of natural beauty. The local government approved the development, although the area's natural beauty would be destroyed, because many jobs would be created and much-needed revenue would be provided for the local community. Which economic ideas cannot be found in the passage above?

Opportunity cost

In exceptional situations, cigarettes have been used as money. What is the most likely reason why they are not suitable to act as money in normal circumstances?

Money and banking

What does the basic economic problem refer to?

The nature of the economic problem

A trade union and employers set a minimum wage ($W_1$) that lies above the market equilibrium wage ($W$) for that industry. What effect does paying the minimum wage ($W_1$) have?

Workers

When selecting an occupation, people often consider features of the job apart from pay. Which option would not be a suitable match for the features of employment a worker is seeking?

Workers

What can be present in monopoly but not in perfect competition?

Market structure

Which of the following is not a cause of the fall in manufacturing industries in developed economies in recent years?

Globalisation, free trade and protection

During 2013, Barclays Bank operated two branches in one city. It chose to shut both branches, relocate to another building and hire fewer staff paid by the hour. What is likely to have happened to the bank’s fixed and variable costs?

Firms' costs, revenue and objectives

The diagram illustrates a firm’s costs. What is the firm’s total variable cost when output is 100 units?

Firms' costs, revenue and objectives

What is most likely to lead to a decrease in the inflation rate?

Inflation and deflation

In recent years, governments have needed to deal with the impact of a global recession. Which supply-side policy could have been used to boost economic growth?

Supply-side policy

Russia exports wheat. In 2010, a poor harvest led the Russian government to stop wheat being exported, so that adequate supplies would stay available for domestic use. What was the most likely result of the government’s action?

Globalisation, free trade and protection

A government raises spending on infrastructure in order to boost an economy. Which other government aim for an economy could this clash with?

The macroeconomic aims of government

When new oil reserves are found, what has risen in supply?

Supply

Which group is most likely to gain during an inflationary period?

Inflation and deflation

The Human Development Index (HDI) measures more than average incomes alone. Which two other measures does it include?

Living standards

The table presents several economic indicators for four countries. What conclusion can be drawn from the table?

Differences in economic development between countries

Under what circumstances would a rise in aggregate demand be least likely to cause inflation in an economy?

Inflation and deflation

In 2013, subsistence farming, which engaged a high proportion of the population, was an important activity in the Philippines and Indonesia. What can be concluded about the Philippines and Indonesia from this information?

Differences in economic development between countries

Which feature is not usually a characteristic of a developed country?

Differences in economic development between countries

The diagrams illustrate the population structure of a country in 1960 and 2010. Across this period, in what way did the birth and death rates alter?

Population

Which combination of changes is most likely to cause a decline in living standards in a country?

Living standards

What is one benefit of international specialisation?

International specialisation

The table presents data about the trading position of four major economies in 2013. Which country had the most favourable trading position?

Current account of balance of payments

The diagram depicts production possibility curves (PPC) for a country able to make agricultural products or manufactured products. At present, its PPC goes through points Q and S, but the country is facing unemployment. If full employment now occurs and, at the same time, new agricultural techniques raise productivity, what change would be shown on the PPC diagram?

Production possibility curve (PPC) diagrams

The table presents the trade in goods balance and the current account balance of the balance of payments for four countries over one year. Which country recorded the greatest surplus on its trade in services, assuming there were no other income flows or transfers?

Current account of balance of payments

A person prepares sandwiches at home for five hours every day. She produces 20 sandwiches per hour, and each sandwich is sold for $2. What is the opportunity cost if she goes on holiday on a working day?

Opportunity cost

Which option would not count as an example of how a market system operates?

Market economic system

A product has a price elasticity of supply of +2. As a result of a price change, the quantity supplied increases from 100 units to 120 units. What is the change in price?

Price elasticity of supply (PES)

The diagram illustrates the market for fresh fish in the Caribbean and equilibrium point X. A new type of fishing boat increases output, which lowers costs. Which point shows the new equilibrium?

Supply

A large supermarket submitted an application to develop land in an area of natural beauty. The local authority approved the construction, although the area's natural beauty would be destroyed, because many jobs would be created and much needed income would be generated for the local community. Which economic ideas cannot be found in the above statement?

Opportunity cost

A businesswoman is applying to a bank for a 10-year loan. She has identified her four most valuable possessions, any of which could be pledged to the bank to help secure the loan. Which item would the bank be least likely to accept as security for the loan?

Money and banking

Sweden is a very advanced European nation with one of the world’s highest living standards. In 2012, its people had an average income of US$49000. The country’s labour force of five million is highly skilled. Around 70% of schoolchildren continue on to university. Over time, investment has been high in Sweden, so each worker has a large amount of capital goods to use. In 2012, however, the rate of economic growth slowed. The Swedish Government hoped that increasing the retirement age to 67 would lift the country’s economic growth rate. Sweden sells half of its output abroad. Its exports include a variety of products such as cars and capital goods. Its imports include petrol, cars and iron. Table 1 shows the current account balance of its balance of payments across the period 2008-2013. A country’s trade position is affected by its inflation rate. In fact, a lower inflation rate can make a country’s products more internationally competitive. The Swedish Government wants the annual inflation rate to be 2% or less. If there is a danger that inflation will go above the 2% target, the Swedish Central Bank will increase the interest rate. This change is likely to affect consumer spending, investment and the exchange rate. In recent years, Sweden’s inflation rate has stayed low, averaging 1.9% between 2008 and 2013. Low inflation gives Swedish firms certainty. The best known Swedish firm is probably IKEA, which makes furniture and household accessories. In 2012, it cut its prices which, as on earlier occasions, led to an increase in revenue. In 2013, its owners said that their chief aim was to enlarge the firm by opening new stores all over the world, including in its growing markets in China and Russia.

Current account of balance of payments

In 2013, an earthquake on the Iran/Pakistan border wrecked many factories and homes. Some officials believed the Governments ought to rebuild the factories and homes, even though this would involve an opportunity cost. Others suggested that some people should be encouraged to emigrate.

The nature of the economic problem

During 2013, house prices increased in China but declined in Greece. The Chinese Government attempted to slow the increase in house prices by discouraging borrowing. In Greece, the equilibrium price of houses dropped, mainly as a result of lower income. In some countries, governments provide subsidies to housebuilders in order to affect the market for houses.

Price determination

Trade union membership is falling in some countries, yet it is rising in China. Workers’ industrial action is becoming more frequent in China, as workers are pushing for higher wages. A strike was recently held at a car factory in South China, which was owned by a Japanese multinational company.

Trade unions

In January 2013, the Portuguese Government raised tax rates. Three months later, it reduced spending on health care and education. Unemployment in Portugal increased between those two periods.

Fiscal policy

Around 30% of Nigeria’s labour force works in agriculture, yet the nation still spends over US$12 billion each year bringing in food. The Nigerian Government wants to cut food imports, but a high birth rate and many small farms could make that hard to achieve.

Population

In 2013, the Singapore Government was worried that the economy could slip into recession. It was putting into place a set of supply-side policy measures to lift productivity, prevent a recession and meet its other economic objectives. It was also trying to reduce the international value of the Singapore dollar.

Supply-side policy

From 2005 to 2012, Peru and Panama recorded the quickest economic growth rates in the Americas. The two countries are different in both population size and the scale of their economies. In 2013, Peru had a population of 30 million and a Gross Domestic Product (GDP) of US$340 billion. By comparison, Panama had a population of 3.6 million and a GDP of US$60 billion. Life expectancy was greater in Panama, with the average person living three years longer than in Peru. From 2008 to 2013, Peru’s average yearly inflation rate was $2.7\%$. One reason for this was the Central Bank of Peru carefully managing the country’s interest rate and exchange rate. Panama has no central bank and recorded a different average yearly inflation rate (see Fig. 1). From 2008 to 2013, the unemployment rate declined more in Panama than in Peru. The drop in Panama’s unemployment rate was mainly the result of construction on a seven-year scheme to expand the Panama Canal. Panama’s lower unemployment rate was one factor behind its lower poverty level than Peru in 2013. Peru had a trade in goods surplus whereas Panama had a trade in goods deficit. Both countries export gold and fish and import oil and cars. For both countries, the USA, China and Japan are major trading partners. Roughly $75\%$ of workers in Peru are employed in the service (tertiary) sector, compared with $80\%$ in Panama. Panama’s important service industries include insurance and banking. It has the biggest insurance market in Central America. The number of firms in the market, including multinational companies, is rising. This is increasing competition in the market. Multinational companies also operate in the country’s banking sector. It has several private sector commercial banks. It does not have a central bank and, as a result, there is no direct government control of its banking sector. In recent years, the average size of the commercial banks has increased. There is some argument over whether larger banks are good for their customers.

Economic growth

Learners need to weigh up the opportunity cost of attending university. People who graduate from university generally receive higher earnings than those who do not attend university. A larger number of graduates affects a country’s production possibility curve. Some economists argue that students ought to cover the full expense of their university courses and accommodation. Others believe that the government should cover part or all of these costs.

Opportunity cost

China is the world’s biggest producer of gold, whereas India is the world’s biggest buyer of gold. Gold mining in China is becoming more capital-intensive, which is causing the supply of gold to be less price inelastic. Wages for workers in the industry are rising, but other production costs are falling.

Price elasticity of supply (PES)

Chile supplies one third of the world’s copper. Any shift in either demand for copper or the supply of copper influences Chile’s Gross Domestic Product (GDP) and the current account balance within its balance of payments.

Current account of balance of payments

Between 2012 and 2013 in Pakistan, both the annual inflation rate and the economic growth rate declined. A number of economists argued that the Government ought to cut government spending in order to push inflation down further. If inflation became lower, economic activity could rise and unemployment could fall.

Employment and unemployment

Poland is going through shifts in both its population and its economy. The country’s death rate is decreasing. Although Poland has a high unemployment rate, the number of people migrating there is rising, especially from Spain and Italy. Poland is becoming more like a market economy, with a growing share of the labour force working in the private sector.

Population

The Mexican economy has been performing strongly in recent times. Its monetary policy has reduced inflation, which has enabled money in the country to carry out its functions more efficiently. How efficiently a country’s industries operate depends on a variety of influences. These include the use of division of labour and the extent of the country’s trade protection.

Monetary policy