Oct/Nov 2015

In a rural area of Southern Africa, women carried out the planting and hand-weeding of crops, whereas men controlled production and took the profits. Which combination of factors of production was at work?

The factors of production

A national trade union wants to raise the pay of its members without causing employment levels to fall. Which factor would assist the union in achieving this?

Trade unions

A worker’s wage rate is cut. Which set of job features is most likely to make the worker remain in the job?

Workers

What characteristics are associated with a monopoly?

Market structure

What must be decreasing if a firm is experiencing economies of scale?

Firms' costs, revenue and objectives

A company that supplies water spent $470\text{ million}$ building a system of pipes to distribute water more efficiently. It used local workers and improved the local economy. It also gave the tourist industry better facilities. What cannot be concluded from the information above?

Economic growth

The table presents the information that managers of a company obtained from one week of business activity. Assuming there are no other costs, what is the value of the fixed costs?

Firms' costs, revenue and objectives

Which of the following is most likely to be a responsibility of a government?

The role of government

Which statement correctly describes what is meant by government economic aims?

The macroeconomic aims of government

A government wants to reduce the difference between the incomes of the rich and the poor. What should it do in order to achieve this aim?

The role of government

A government chose to raise its expenditure on constructing schools and hospitals. Which government policy aim is this increase most likely to help achieve?

Living standards

The government of a wealthy country announced that it would provide its citizens with free food for one year. What effect would this policy have?

The role of government

Germany’s GDP growth was forecast to be $1.5\%$ in 2013. What could lead to economic growth?

Economic growth

The share of workers in employment differs across industries and also between developing and developed economies. Which option in the table is most likely to show the highest percentage of workers employed?

Workers

In 2009, a country recorded an inflation rate of $2\%$. The table gives the inflation rate in the years that followed. In which year did deflation begin?

Inflation and deflation

Which component is included in a country’s Human Development Index (HDI), alongside real GDP per head and life expectancy at birth?

Living standards

Why may real GDP per head fail to be a useful indicator of living standards in developing countries?

Living standards

In a developed economy, the wealthiest $60\%$ of the population saw their incomes rise. Which row is correct as a consequence of this increase?

Living standards

The United Nations projects that the proportion of the global population living in developing countries will rise from 83% in 2003 to 88% in 2050. What is the most likely main reason for this forecast change?

Population

The diagram illustrates China’s trade with Brazil in 1999 and 2003, measured in billions of dollars. Using the diagram, what change took place in China’s trade balance with Brazil between 1999 and 2003?

Current account of balance of payments

A nation places tariffs and quotas on goods brought in from abroad. What effect will this have on the country’s citizens?

Globalisation, free trade and protection

Which factor is most likely to promote international specialisation?

International specialisation

The diagram illustrates a production possibility curve for an economy capable of producing rice or electronic equipment. The economy currently lies at point Q. A recession leads to unemployment in the electronics industries. At which point would the economy be shown in the diagram?

Production possibility curve (PPC) diagrams

Turkey’s agricultural sector provides jobs for 48% of the country’s workforce, whereas this figure is 17% in the United States (US) and 3.9% in France. What inference could be drawn from this?

Differences in economic development between countries

A man works from home making table cloths. Each day, he works for 6 hours and produces 15 table cloths per hour. He sells each one for $\$10$. He then chooses to work for just 4 hours each day. What conclusion can be drawn from the information above?

Firms and production

What does the term equilibrium price mean?

Price determination

During August 2013, a prolonged strike in north-east India, the region where the best and most costly Darjeeling tea is produced, brought the tea industry to a halt at the time of harvest. On a demand and supply diagram for Darjeeling tea, what is the most probable effect of this situation?

Supply

Air travel and rail travel are substitute methods of transport. The diagram illustrates how new technology affects the market for air travel. What would be the most likely effect on the market for rail transport?

Demand

A developer constructed several large houses in a countryside location that poorer people were unable to buy. The building work damaged an area of natural beauty. What type of market failure was caused by the development?

Market failure

In what ways do high direct taxes influence spending, and how do high interest rates influence saving by wage-earners?

Households

Governments frequently attempt to affect the supply of factors of production within their economies. Which factor is a government least likely to be able to raise the supply of?

The factors of production

In the United States (US) in 2011, 7.6 million public sector workers (36% of public sector workers) were members of trade unions, whereas only 7.1 million private sector workers (8% of private sector workers) were in a trade union. What conclusion can be drawn from this information?

Trade unions

Workers in car assembly generally receive higher pay than people working in agriculture. What could account for this?

Workers

In some countries, utilities that were previously nationalised, such as electricity, have been replaced by a number of public limited companies. Which change has taken place in the electricity market?

Market structure

In developed economies, production has shifted from labour-intensive methods towards capital-intensive methods. Which category of activity is still labour-intensive?

The factors of production

In 2007, a very large industrial mining company tried to take over another industrial mining company. This bid was unsuccessful. In 2010, the same mining company put forward an offer to acquire a company that sells potash, which is used to improve agricultural soils. How may the mining company’s attempts to buy these other companies be described?

Firms

The table presents the data that managers of a company obtained from one week of business activity. If there are no additional costs, what is the value of the fixed costs?

Firms' costs, revenue and objectives

Governments make use of monetary policy, for example by raising the rate of interest. What is one effect of raising the rate of interest?

Monetary policy

Which statement correctly describes what is meant by government economic aims?

The macroeconomic aims of government

During 2013, a government aimed to hold inflation down while also reducing unemployment. It chose to subsidise consumers who wanted to buy a house, so that houses would be more affordable for them. At that time, there was a shortage of houses. What is most likely to have happened to inflation, housebuilding and unemployment?

Fiscal policy

A government chose to raise the amount it spends on constructing schools and hospitals. Which government policy aim is most likely to be achieved by this rise?

Living standards

There is growing concern about the manner in which large firms exploit the environment. What is the principal reason for this concern?

Market failure

A consumer price 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 will have the greatest effect on the CPI level?

Inflation and deflation

GDP per head is seen as an unreliable indicator of living standards because it leaves out

Living standards

A large economy has a high rate of GDP growth. Which of the following is least likely to result from this growth?

Economic growth

During 2008, a country’s inflation rate was $4\%$. The table presents the inflation rate for the years that follow. In what year did deflation begin?

Inflation and deflation

In developed countries, an ageing population has brought about changes in the population structure. What is the effect of this change?

Population

If nothing else changes, the population is most likely to rise when there is a decrease in

Population

The diagram presents population data for Japan in 1950, 2005 and 2050. What conclusion can be drawn from the diagram?

Population

The diagram presents China’s trade with Brazil in 1999 and 2003, shown in billions of dollars. Using the diagram, what change occurred in China’s trade balance with Brazil between 1999 and 2003?

Current account of balance of payments

During August 2013, the Indian rupee fell to a lower level against the US dollar than it had been in the previous month. What is the meaning of this?

Foreign exchange rates

What is most likely to promote international specialisation?

International specialisation

The diagram illustrates a production possibility curve for an economy able to produce agricultural products or financial services. It is presently at point Q. A crop disease reduces agricultural production, whereas the financial services sector raises output because demand has increased. To which point is the economy likely to move?

Production possibility curve (PPC) diagrams

Turkey’s agricultural sector accounts for 48% of the nation’s workforce, whereas the figures are 17% in the United States (US) and 3.9% in France. What conclusion could be drawn from this?

Differences in economic development between countries

A woman does baking at home, producing small cakes. In one hour, she is able to make 30 cakes, and she spends four hours working each day. The ingredients cost a total of $50, and each cake is sold for $2. What is the opportunity cost if she takes a working day for a holiday?

Opportunity cost

The economies of Eastern Europe that were once planned have now become market economies. What is most likely to be seen in these economies?

Market economic system

Give one example of a public good.

Market failure

Air travel and rail travel are alternative forms of transport. The diagram illustrates how new technology affects the market for air travel. What would be the most likely impact on the market for rail transport?

Demand

A developer constructed several large houses in a countryside location that poorer people were unable to buy. The houses damaged a place of natural beauty. What type of market failure resulted from the development?

Market failure

When comparing low-income earners with high-income earners, which statement is correct?

Households

Forecasts suggest that Mexico will rank among the world’s ten largest economies by 2020. The country’s industrial structure has been changing for a long time. In 2008, 12% of the labour force were employed in the primary sector (mainly agriculture), 26% in the secondary sector (mainly manufacturing) and 62% in the tertiary sector (services). By 2012, employment had dropped by 1% in the primary sector and by 2% in the secondary sector. Over recent years, Mexico has been dismantling trade protection policies such as tariffs and quotas. It now has free trade with more than 40 other countries. International trade is central to the Mexican economy, with one third of output exported and imports making up more than a third of the goods bought in Mexico. Nearly 80% of Mexico’s exports are sent to the United States of America (US). Mexican firms can choose from many sources of imported raw materials and also have a large international market in which to sell their products. The main destination for Mexico’s shrinking number of emigrants is the US. Following an economic downturn in 2009, the Mexican economy has expanded. Incomes have increased and life expectancy has risen. Table 1 shows income levels and life expectancy for several countries. Although the standard of Mexico’s education is not very high, poverty is falling in the country as living standards rise. More people now have access to better quality health care. Unlike its neighbour the US, unemployment has been falling in Mexico. Production costs in Mexico are rising more slowly than in China. Mexico imports goods from China and also competes with China in several export markets. Some of Mexico’s leading exporting firms are monopolies inside the country. One example is Pemex, the state-owned oil and gas monopoly. The firm sells oil worldwide. Some economists argue that Mexican consumers would gain if Pemex were sold to the private sector.

Globalisation, free trade and protection

The United Nations’ World Tourism Organisation estimates that by 2020, only 7% of the world’s population will have travelled to another country. A rise in international travel could generate employment and affect incomes. On the other hand, it would also place strain on limited resources and would produce external costs.

Market failure

A heatwave in July 2013 in the United Kingdom caused sales of ice cream to more than double. Extra workers were hired to cope with the stronger demand. Over recent years, the demand and supply conditions for ice cream have altered, so that demand and supply have become more elastic. The market has also been affected by government policies and by changes in the nation’s economic growth rate.

Price elasticity of demand (PED)

On average, Norwegians work just 27 hours each week. They also enjoy more holidays, and for longer periods, than workers in most other countries. In 2013, Norway recorded the second highest productivity in the world. It was also placed first in the Human Development Index (HDI). In contrast with many other countries, Norway has experienced almost full employment in recent years.

Living standards

Bitcoin, a digital currency, was created in 2009. From 2009 to 2014, more people and businesses began to accept it as a medium of exchange and store of value. Financial experts have urged that digital money should be controlled by central banks. One concern is that it could expand the money supply and lead to inflation.

Money and banking

Capital goods account for more than half of Japanese exports. In 2013, Japan’s imports increased more quickly than its exports, yet the current account of its balance of payments still recorded a surplus. Around the world, stronger trade was prompting the opening of new airports to satisfy demand for moving goods.

Current account of balance of payments

Myanmar (Burma) wants to progress from a developing country into a developed one. Relative to most other Asian economies, its savings ratio is lower because people spend much of what they earn. The Government is promoting overseas investment to help raise economic growth. It is also using fiscal policy in an effort to cut poverty, which still affects one third of the population.

Differences in economic development between countries

Rwanda is a small African country without a coastline. Its economic performance has improved a lot in recent years. For example, in 2012 it recorded GDP growth of 7.5%, inflation stayed stable and unemployment fell. Most strikingly, poverty is being cut. From 2006 to 2012, more than 1 million people were lifted out of poverty and, by 2012, 58% of the 12 million population were not poor. The government is using several policies to reduce poverty. One measure is to increase government spending on education and healthcare. More than 90% of children now go to primary school and the proportion progressing to secondary school is rising. Child mortality has dropped and the overall health of the population has improved. Half of the population is under 25 years of age. The country is very densely populated, with 430 people per square kilometre. In 2013 it had net immigration, so the migration rate was positive, with more people arriving than leaving. Migration is one factor affecting a country’s economic growth rate (see Table 1). Productivity is another factor affecting the economic growth rate. The Rwandan Government wants to increase productivity in agriculture, which provides 80% of employment. Investment in this sector has been limited. Many farms do not have equipment such as ploughs and tractors. Domestic agricultural output does not always equal domestic demand. As a result, the country often has to bring in food from abroad. The government is trying to persuade farmers to use sustainable methods and to focus on products with price-inelastic demand. Rwanda is dealing with a range of difficulties. The Rwandan Government has removed import tariffs on some products, including certain food items. Energy costs are fairly high and the banking sector is not well developed. In 2012 only one fifth of Rwandan adults had a bank account, but falling poverty and growth in banking are likely to alter saving and borrowing in Rwanda in the future.

Poverty

In China, demand for luxury goods, such as costly perfume, rose sharply from 2007 to 2012. The mean revenue earned from selling these goods also increased. Many luxury goods have elastic demand. At present, a high share of the luxury goods sold in China is imported. Some firms are now thinking about making products in China instead of exporting to China.

Firms' costs, revenue and objectives

A rising share of people in both market and mixed economies are becoming overweight. In 2013 the Dubai Government gave residents a gram of gold for each kilogram of weight lost over a 30-day period. This policy step was intended to cut the external costs created by overeating, including eating too much chocolate. To lessen market failure, governments provide subsidies to consumers and producers.

Market failure

One Finnish mobile (cell) phone manufacturing firm produces around 20% of the total output of all goods made in Finland. This public limited company employs more workers and purchases more capital goods than most other Finnish firms. It also provides a large share of the country’s exports.

Firms and production

From 2011 to 2012, the number of workers employed in Egypt’s public sector rose sharply. Egyptian trade unions that speak for public-sector labour welcomed the rise. However, stronger trade unions could create inflation, which might then lead to unemployment.

Trade unions

In 2013, the Argentinian Government was attempting to halt the decline in the international value of the Argentinian peso by introducing quotas. The peso's depreciation was not anticipated because the country was recording a growing current account surplus on its balance of payments. Normally, a shift like this in the current account would cause an appreciation.

Foreign exchange rates

The Netherlands has a very high Human Development Index (HDI) score and a high Gross Domestic Product (GDP). A recession in 2012 led consumer expenditure to decline. This created a gap between government spending and tax revenue. To eliminate the gap, the Netherlands’ Government reduced its spending. It might have used monetary policy to boost economic growth and increase tax revenue.

Fiscal policy