Oct/Nov 2016

Every factor of production receives an income. Which option correctly identifies the income for labour and capital?

The factors of production

Nazmin Uddin is employed as a secretary in a local office for three days each week. She shares a small apartment with her parents. Meer Ali is the owner of a profitable fitness centre that employs about twenty people. He lives in a large house. Which statement is most likely to be true?

Households

The table illustrates how household spending varies as income rises. Which is the first income level shown at which savings are above zero?

Households

A survey of managers in the USA found that most businessmen believe a company’s duty is ‘to serve the interests of owners, employees, customers and the public’. By contrast, the concept of profit maximisation suggests that a company’s chief responsibility should be to the

Firms' costs, revenue and objectives

Some agricultural co-operatives have moved away from labour-intensive methods of production to capital-intensive ones. What could be one reason for this shift?

The factors of production

A firm has fixed costs of $200$ for its daily output. The table shows the firm’s daily total variable costs. What can be concluded about the firm’s average total cost?

Firms' costs, revenue and objectives

The table presents the growth rate of output $(\%)$ for four sectors of an economy. Which two sectors recorded a rise in the growth rate during the first half of $2014$?

Economic growth

A government chooses to transfer the monopoly supply of gas to households to a private firm. How might the government safeguard the interests of households after selling a large company to the private sector?

The role of government

During $2015$, $70\,000$ additional people became unemployed, but total employment increased by $75\,000$. What might account for this?

Employment and unemployment

The table gives taxes as a percentage of Gross Domestic Product (GDP) for four countries. Using this information, which country had the largest percentage of direct taxation as a percentage of GDP?

Fiscal policy

A government provides farmers with a subsidy of $5$ per kilo in order to supply food in the open market, where $X$ marks the original equilibrium position. The outcome is shown in the diagram. What will be the new equilibrium price and the quantity supplied after the subsidy?

Supply

What might the opportunity cost of a nuclear power station be?

Opportunity cost

What does the construction of a Retail Price Index involve?

Inflation and deflation

Why is nominal Gross Domestic Product not a suitable measure for comparing the standard of living in a country across two years?

Living standards

In $2010$ there was a rise in net emigration from Ireland. What is the most likely reason for this rise?

Population

Some goods make up a larger proportion of an average household’s total expenditure than others. How is this allowed for when a Retail Price Index is built?

Inflation and deflation

Which result is least likely to occur alongside greater economic development?

Living standards

A government provides state benefits for unemployed people and raises the top rate of income tax in order to fund these benefits. What impact will these changes have on poverty and the tax system?

Fiscal policy

The graph displays total global carbon emissions in 1995 and the projected emissions for 2035. If the graph is accurate, what will have occurred by 2035?

Market failure

What factors encourage international specialisation?

International specialisation

A Japanese car manufacturer chose to make its cars in a factory located in Europe. What would not be a reason for making this choice?

Globalisation, free trade and protection

A government abolished the quota on goods brought into the country. What is the most likely effect of this?

Globalisation, free trade and protection

The diagram illustrates a production possibility curve for maize and cotton. Bad weather leads to a poor harvest for both crops. Which movement could be used to show this change?

Production possibility curve (PPC) diagrams

The table presents the components of Japan’s current account balance in trillion Yen for 2011 and 2012. Which balance improved from 2011 to 2012?

Current account of balance of payments

The market for a good was initially in equilibrium. Then a change led to a new equilibrium where the price of the good was higher and the quantity traded was lower. What change could have brought this about?

Price determination

A demand curve illustrates the link between the quantity demanded and

Demand

When a government gives a subsidy for pineapple production, this is likely to

Supply

What shows that external costs are present in an economy?

Market failure

What could be one disadvantage for a trade union when it is negotiating a rise in its members’ pay?

Trade unions

Which option shows the correct examples of income and wealth?

Households

Which of the following is not a factor of production?

The factors of production

What might the opportunity cost of a nuclear power station be?

Opportunity cost

The table presents some economic indicators. Which rise in the first indicator is most likely to cause a rise in the second indicator?

Economic growth

Which change would be most likely to make the population decrease if all other factors stayed constant?

Population

In developed countries, the share of people aged over 65 is high and continues to rise. Which economic consequence is most likely to arise from this type of population change?

Population

The chart compares total global carbon emissions in 1995 with emissions predicted for 2035. If the chart turns out to be accurate, what will have occurred by 2035?

Market failure

What causes international specialisation?

International specialisation

A Japanese car manufacturer chose to make its cars in a factory in Europe. Which of the following would not explain why it may have made this choice?

Globalisation, free trade and protection

A government abolished the quota on goods brought into the country. What is the most likely outcome of this?

Globalisation, free trade and protection

In 2014, private companies started drilling in parts of the country in order to exploit natural gas supplies that were already known to be there. How could this decision be shown on the diagram that illustrates a production possibility curve for the country?

Production possibility curve (PPC) diagrams

During 2009, the exchange rate for the Singapore dollar shifted from $1.49 = 1$ US dollar to $1.43$ Singapore dollars $= 1$ US dollar. What effect would this have on Singapore's import prices and export prices?

Foreign exchange rates

The market for a product had been in equilibrium. Then a change took place, leading to a new equilibrium with a higher price for the product and a smaller quantity traded. What change could have brought this about?

Price determination

The demand for cocoa beans is price-inelastic. What is most likely to fall if demand for cocoa beans rises?

Price elasticity of demand (PED)

A government gives a subsidy to pineapple production. This is likely to

Supply

The use of cars in many cities gives rise to negative externalities. The diagram illustrates the free market equilibrium $X_1$ and the socially efficient market equilibrium $X_2$. Using the diagram, which statement is correct?

Market failure

What factor could strengthen a trade union’s ability to secure a wage increase for its members in a coat factory?

Trade unions

What is meant by net income?

Households

Mexico, Indonesia, Nigeria and Turkey, collectively called the Mints, are four emerging economies forecast to expand quickly. In 2014, the four nations had fairly large populations, ranging from 75 million in Turkey to 242 million in Indonesia. Their birth rates were also high, from 17 in Turkey to 41.5 in Nigeria per 1000 people. Both income per head and the countries’ Human Development Index ranking are getting better. However, these changes do not mean that everyone in the four countries is content. As incomes rise, so do people’s wants, and what people would like to consume is greater than the maximum output that countries are able to produce. Output and consumption are rising in each of the four countries. Nigeria, for instance, is expected to become one of the world’s 20 largest economies by 2020. Productivity is increasing in most sectors of the Nigerian economy although it is still low in agriculture. Even with some security worries, more multinational companies are establishing themselves in the country because they are attracted by its expanding markets. Nigeria and Turkey both recorded annual inflation rates above 8% in 2014. Indonesia’s rate was 5.7% and Mexico’s 5.2%. In that year, the Mexican Government had used monetary policy measures to hold inflation down. In August 2014 it opened up its energy market, allowing private sector firms to compete with the country’s state-owned petroleum firm. It also raised spending on state-provided health care, which runs alongside private medical care. The four countries experienced exchange-rate movements in 2014. Indonesia’s currency, the rupiah, moved from 10\thinspace685 per US$ in the previous year to 11\thinspace450 per US$ in 2014. Turkey’s currency, the Turkish Lira, showed a similar pattern. Movements in the exchange rate can influence firms’ production costs, as can industrial action. In June 2014 Turkish trade unions organised several strikes in an attempt to secure better wages and working conditions for their members. However, Turkish trade unions have limited power because of restrictive trade union legislation and a low membership level, with only 9% of workers belonging to trade unions. This means that collective bargaining is not a major feature of Turkish labour markets and Turkish trade unions do not have much impact on economic policy.

The nature of the economic problem

Several producers compete in the jeans market. They are also now up against new sportswear that has been designed so it can be used as leisurewear too. As competition has intensified, demand for jeans has become more price-elastic. For example, a government report estimated the price elasticity of demand for one of the oldest firm's jeans in Asia at $-2.5$.

Price elasticity of demand (PED)

During recent years, productivity growth in Brazil has been weak, so average costs have remained relatively high. Some economists argue that this sluggish rise in productivity is caused by protectionism. The Brazilian Government applies high tariffs to a range of imports, including smartphones, and says that this protectionism protects Brazilian jobs.

Globalisation, free trade and protection

In 2014, South Korea's household debt was climbing toward record highs. Households were borrowing more and setting aside less. The savings ratio dropped from 19% in 1985 to 4% in 2014. Even with such low saving, there was very little demand-pull or cost-push inflation. In fact, the country was close to deflation in 2014.

Inflation and deflation

Wales’ unemployment rate decreased from 8.2% in March 2013 to 6.8% in March 2014. One in four workers in Wales works in the public sector. A relatively large share of workers is employed by multinational companies, including a Japanese car producer and a South Korean electronics firm.

Employment and unemployment

Indonesia’s biggest aviation company is a state-owned corporation that began manufacturing in 1976. It makes intensive use of capital goods and holds a monopoly over aircraft production in Indonesia. Although it has long produced components for overseas firms, it is now attempting to market aircraft to other countries. As a result, it must compete in a market where most firms are public limited companies.

Market structure

In Germany, tax revenue collected from direct and indirect taxes climbed to US$860 billion in 2013. This rise was mainly caused by lower unemployment. Germany operates a progressive tax system. During 2014, German politicians debated whether tax rates ought to be raised. Any change in tax rates affects how much tax revenue is collected and also the structure of the tax system.

Fiscal policy

A large share of Mauritania’s territory is desert, and repeated droughts create pressure on the nation’s food supply. Even so, the African country has one major advantage: coastal waters that are among the most abundant fishing grounds in the world. Roughly $95\%$ of the fish landed by Mauritania’s small-scale fishing boats is sent abroad. The money earned from selling fish overseas adds to the current account in the country’s balance of payments. In 2013, Mauritania recorded a surplus on trade in goods and also a surplus on current transfers. Very little of the catch is processed in Mauritania into products with higher value, apart from a few factories in Nouakchott, the capital city. This lack of processing is affecting both the income earned from the fish caught and the country’s economic growth. Total output did rise from US$8 billion in 2012 to US$8.5 billion in 2013. That same year also brought a shift in population figures. The birth rate stood at $31.83$, the death rate at $8.35$, and the migration rate at $-0.85$ per thousand of the population. Some Mauritanian economists criticise the government for allowing other countries, such as Algeria, Morocco, Japan and Russia, to take large amounts of fish from Mauritania’s waters. They have recently objected to the government’s agreement with the European Union (EU), which permits more than one hundred large EU vessels to fish in Mauritania’s waters in exchange for US$105 million each year. These EU vessels, with their highly trained workers, are catching very large quantities of fish, including highly valuable squid, and are believed to be endangering the long-term sustainability of Mauritania’s fishing industry. Mauritanian economists expect fish stocks to fall sharply over the next twenty years. At present, the country’s economy depends very heavily on the primary sector. If both the fishing industry and agriculture became more productive, that would help to lower unemployment and reduce poverty in the country.

Current account of balance of payments

In March 2014, teachers in Argentina went on strike because their unions could not agree wage rates. The government proposed a $25\%$ pay rise, but the unions wanted an increase that was above the country’s $32\%$ inflation rate. The government argued that very large pay rises would lead to unemployment. It also said the economy’s outlook would shortly strengthen because it had devalued the country’s exchange rate at the beginning of the year.

Trade unions

In 2014, the second-largest cigarette producer in the US put forward an offer to buy the country’s third-largest cigarette producer. If the merger had gone ahead, cigarette prices were expected to rise. The size of the resulting change in quantity demanded would depend on the price elasticity of demand.

Market failure

Over recent years, Peru has been shifting away from a mixed economic system and moving nearer to a market economic system. One sign of this change is that more small firms have been started. For some of these firms, the short-run objective is profit maximisation, whereas others are aiming to expand. In the long run, both of these aims can be achieved. Some small firms grow into large firms that are quoted on their country’s stock exchange.

Mixed economic system

In the 48 countries with the lowest Human Development Index (HDI) scores, 28 million people work overseas. A portion of what they earn is saved and then sent to relatives back home. Studies indicate that families mainly spend most of this transferred money on food and housing, which improves their living standards. In 2013, the total value of these remittances was twice the amount of foreign direct investment received by these countries.

Living standards

Microfinance means providing poor people with small loans at a low interest rate. These people are usually unable to obtain loans from commercial banks. It is intended to encourage development and originated in Bangladesh. A World Bank study in 2014 showed that microfinance raises consumer expenditure, the value of household assets, the size of the labour force and spending on children’s education.

Money and banking

Mozambique is a developing economy with a fairly high rate of economic growth. Over recent years, the metical has depreciated against the US dollar. This has influenced the country’s unemployment rate. Some economists in Mozambique have argued for higher tariffs on imports as a way of lowering unemployment.

Globalisation, free trade and protection