May/June 2017

Which combination of terms provides the general definition of the economic problem?

The nature of the economic problem

People made their own goods on their own. Later, they chose to specialise. They then joined together and exchanged their skills with one another, but no money was used. What is not likely to be the outcome for the group?

Money and banking

Tea is a widely enjoyed drink in Turkey and Morocco, whereas coffee is another beverage chosen by many people. In many cafés, a small biscuit is served with a cup of tea or coffee. Some people add sugar to these drinks to make them sweeter. What type of relationship would be used to classify these goods?

Demand

To carry out horizontal integration, a tyre-manufacturing firm could merge with another firm that makes

Market structure

Which cost would a bus company classify as variable?

Firms' costs, revenue and objectives

A monopoly comes to control an industry that was previously served by competitive firms. What would not usually be true of a monopoly when compared with a competitive firm?

Market structure

The table illustrates how a firm's output varies as it hires additional workers. number of workers: 10, 20, 30, 40 total production (kilos): 50, 100, 300, 600 What occurs to productivity as the number of workers employed increases?

Workers

In what circumstances is a tax progressive?

Fiscal policy

A government plans to raise skill levels by providing free training to young people leaving school from age 16 until they are 18 years old. It suggests funding this by taxing firms' profits. Which policies are described by these proposals?

Supply-side policy

While pursuing one of its aims, a government may make it harder to achieve a different aim. What is one example of this conflict?

The macroeconomic aims of government

The charts concern the Financial Statement of the government of New Zealand for 2014. What conclusion can be drawn?

Fiscal policy

Helium is a gas with a limited supply. It is formed over thousands of years from decaying radioactive rocks. The US government owns $35\%$ of the world’s supply and has been selling its stocks. Helium is vital in medical scanners. It is also used for party balloons, which some people regard as a wasteful use of a valuable good. Which concepts can be applied to the statement above?

Opportunity cost

A newspaper said that a country’s economy expanded by $3\%$ over the previous year. What must have gone up in that year?

Economic growth

A nation has a low GDP and a large population, yet it is ranked fairly highly on the HDI. Which combination could be present in the country?

Living standards

The details below relate to an economy for one financial year. government expenditure $=\;2866$ million government revenue $=\;1940$ million What was the government's budget balance in that year?

Fiscal policy

In a developing country, real incomes have gone up. Which situation would have caused this for certain?

Inflation and deflation

Which characteristic is shared by developed and developing economies?

Differences in economic development between countries

The diagram gives population projections up to the year 2075 for selected areas. If there is no migration, which condition must be true for the population to change in the way illustrated in the diagram?

Population

The table presents data for four countries. Which country is most likely to have the highest standard of living?

Living standards

Which government policy is most likely to lead to a higher volume of exports?

Foreign exchange rates

What must necessarily be included in international free trade?

Globalisation, free trade and protection

Over the past few years, the US has recorded a deficit on the total current account of its balance of payments. What might have caused the deficit to grow larger?

Current account of balance of payments

The diagram illustrates a production possibility curve for an economy. Which point on the diagram shows the most efficient point at which the economy can produce both consumer goods and capital goods?

Production possibility curve (PPC) diagrams

In 2015, China ranked as the world’s largest exporter of manufactured goods and was also a major importer of oil and minerals. China then devalued the yuan (renminbi) by $2\%$. According to economic theory, what would be a consequence of this devaluation?

Foreign exchange rates

The diagram illustrates the market for a product. Which of the following statements about the points shown on the diagram is correct?

Price determination

The diagram illustrates demand for chocolate. What might account for the shift from point X to point Y?

Demand

A football club increases every stadium seat price by $5\%$. The stadium is split into four zones. Seat demand decreases by $1\%$ in zone W, by $3\%$ in zone X, by $5\%$ in zone Y and by $6\%$ in zone Z. In which zone is the demand for seats elastic in response to the price change?

Price elasticity of demand (PED)

In Australia, there was a plan for a project to develop one of the world’s largest coal mines. The project was expected to cost $\text{US}\$12.5$ million. It would generate jobs but endanger species that are at risk, since large coal ships would harm the Great Barrier Reef. What effects would this project have on the following costs and benefits?

Market failure

What is likely to occur when the rate of interest rises?

Monetary policy

In which kind of job are employees most likely to receive their highest income when they are still relatively young?

Workers

Which one is not a factor of production?

The factors of production

The government lifts the rate of income tax and reduces the rate of a sales tax (VAT). Starting from the initial equilibrium point X, which letter shows the new equilibrium point in a market for normal goods?

Price determination

In South Africa, the supply of skilled workers is comparatively small. Nevertheless, average wages in South Africa are twice the average wage in Brazil and Turkey, and they are $1.6$ times greater than in Malaysia. What can be concluded from this information?

Workers

To obtain horizontal integration, a company making tyres could merge with another company producing

Market structure

Which costs are bound to decrease steadily as output rises?

Firms' costs, revenue and objectives

A monopoly replaces competitive firms in an industry. Which statement is least likely to be true of a monopoly when compared with a competitive firm?

Market structure

The table displays the costs of a firm. What is the amount of the firm’s fixed costs?

Firms' costs, revenue and objectives

At what point is a tax progressive?

Fiscal policy

A government wants to attempt to make income distribution in the country more even. Which policy is most likely to bring this about?

The role of government

When pursuing one of its aims, a government may make another aim harder to achieve. What is one example of this conflict?

The macroeconomic aims of government

Which policy mix would be the most effective if a government aims to increase the level of employment?

Employment and unemployment

Intense rainfall led to flooding in a region of a country. What could be an opportunity cost of carrying out repairs for the damage caused?

Opportunity cost

A newspaper stated that a country’s economy expanded by $3\%$ over the previous year. What had to rise during that year?

Economic growth

What does the term deflation mean?

Inflation and deflation

The details below relate to an economy over one financial year. Government expenditure = $2866$ million; government revenue = $1940$ million. What was the budget balance of the government in that year?

Fiscal policy

How large was the change in GDP per head, after allowing for price rises (real change), between $2000$ and $2013$?

Economic growth

Which statement about the poorest households in developing economies is least likely to be correct?

Poverty

The diagram gives population projections up to the year $2075$ for selected areas. If there is no migration, which condition must be present for the population to change in the way the diagram shows?

Population

The table presents data about four countries. Which country appears to have the lowest level of development?

Differences in economic development between countries

Which government policy is most likely to raise the volume of exports?

Globalisation, free trade and protection

Which factors could promote international specialisation among countries?

International specialisation

In 2015, Russia prohibited imports of food items, including milk, from the European Union (EU). Which results are most likely to occur because of this?

Globalisation, free trade and protection

The diagram illustrates a production possibility curve for cars and furniture. A recession leads to reduced output of both cars and furniture. Which movement would represent this change?

Production possibility curve (PPC) diagrams

In 2010, Vietnam had a deficit on the value of its trade in goods (visible) even though it exported more goods than it imported. What might account for this?

Current account of balance of payments

When the price rose from $5 per kilo to $6 per kilo, a chicken farmer raised supply from $400 kilos to $500 kilos each week. Calculate the price elasticity of supply.

Price elasticity of supply (PES)

The diagram presents chocolate demand. What could cause the shift from point X to point Y?

Demand

A beekeeper keeps hives of bees in order to produce honey. The bees may pollinate nearby fruit trees belonging to neighbours, but they can also inflict a painful sting on gardeners. If both of these events take place, what effect will they have on costs and benefits?

Market failure

In $2015$, the world price of petrol (gasoline) dropped sharply. Which of the following would not have caused this price decrease?

Price changes

Which of the following statements about financial matters is correct?

Money and banking

Which factor is most likely to be cited in support of a demand for higher wages in an industry?

Trade unions

During August 2015, the Egyptian Government opened a second Suez Canal beside the original canal so that more and larger ships could travel from the Mediterranean Sea to the Gulf of Suez. Building it cost over US$8 billion, and this involved buying land, obtaining capital equipment and paying wages to the workers constructing the canal. At the same time, there were demands for higher spending on healthcare, especially for better quality public hospitals, and on education, particularly adult literacy. The Egyptian Government thinks the canal will draw in more ships, including those carrying goods and those carrying people. A range of factors affects how many goods and people use sea transport. These factors include transport speed, the level of economic activity and the price of other transport methods. Some goods must be moved quickly, and recent years have shown that demand for sea transport is very responsive to recessions and booms. Fig. 1 illustrates how the market for sea transport has lately been influenced by a change in the market for air transport. The Egyptian Government also hopes that new industries linked to the shipping industry will be developed along the canal. Growth of infant industries may help to lower the country’s unemployment rate, which in 2015 stood at 12.5%. In 2015, the country had 90 million people, a population growth rate of 1.5% and a labour force of 28 million. Its death rate was declining. Government spending on healthcare was equal to 4% of Gross Domestic Product (GDP). In 2015, GDP was US$280 billion and the economic growth rate was 5%.

Opportunity cost

Bottled water sales in China were twice as high in 2015 as they had been in 2010. In 2013 China replaced the USA as the largest market for water by volume, although not by value because a bottle cost more in the USA. Rising global consumption of bottled water has enlarged the firms that make it, but it has also added to pollution.

Market failure

Money and banking are strongly connected. Money has several functions, one of which is acting as a standard for deferred payments, and it is used to pay workers, often paid straight into their bank accounts. Workers’ earnings vary according to the industry they are employed in. In some countries, lending by banks in both the private sector and the public sector (state-owned) has risen in recent years.

Money and banking

Oil was found in Kenya in 2012, yet by 2014 a US company had abandoned its plans to search for oil in the Arabuko Sokoke forest in the country. The proportions of Kenya’s primary, secondary and tertiary sectors are shifting. The quantity of capital goods in the country is also rising.

Market failure

In June 2015, the Swiss franc increased in value by 30% against the euro. Switzerland’s export markets are also shifting: exports to the USA, UK, India and South Korea are becoming more significant, whereas exports to Germany, Italy and France are losing importance. One likely consequence of an appreciation in the exchange rate is a lower inflation rate.

Foreign exchange rates

Japan’s birth rate is declining. Its population is getting older, and it is shrinking more quickly than the population of any other country. This affects how much the Japanese Government spends on pensions. The government is considering policies to raise the birth rate and to promote immigration.

Population

In recent years, prices in Mexico have risen. Indirect taxes have also been raised. Bus fares and food have become dearer. In 2015, the Mexican Government planned to reduce its spending by US$8.3 billion.

Fiscal policy

Botswana stands as the world’s biggest diamond producer. In 2015, diamonds made up one third of the nation’s Gross Domestic Product (GDP) of US$18 billion and 80% of its exports. At present, most of the country’s earnings come from mining and selling rough (uncut) diamonds. From a 1.5 carat rough diamond, it earns only US$700. After that, the diamond is cut, polished and finished, usually in another country. India leads the market for cutting and polishing diamonds. In India, the cost of cutting and polishing diamonds is only a quarter of the cost in Botswana. The worldwide average cost of finishing a 1.5 carat diamond is US$8000. The diamond is then sold to the customer with a 25% profit margin. Botswana is seeking to build industries linked to diamond mining, including cutting, polishing and jewellery production such as diamond rings. Fig. 1 illustrates how the global market for diamond rings changed in 2015. The Botswanan Government has also urged the world’s largest diamond company to establish itself in Gaborone, the capital of Botswana. Some government ministers, though, worry that Botswana relies too heavily on diamonds. They point out that diamonds exist in limited supply and encourage the government to promote diversification. Alongside diamonds, the country also has several other advantages. These include good infrastructure, a developed education system and free hospital treatment.

International specialisation

Indonesia’s output is shaped by its factors of production. A production possibility curve diagram can be used to illustrate the link between resources and output. Indonesia has extensive fishing waters, yet it does not actually catch many fish. Most of its fishing firms are small and they compete with much larger foreign firms. These bigger foreign firms have been drawn into Indonesia’s waters by rising demand for fish. The price elasticity of demand for different types of fish has changed over the last few years.

Production possibility curve (PPC) diagrams

In 2015, some German commercial banks cut the interest rates on deposit accounts, which were already extremely low. The German Government expected that this change would persuade more Germans to purchase shares in German firms. If German firms were able to sell more shares or borrow more from commercial banks, their capacity to buy capital goods would rise.

Money and banking

As more people become billionaires, others are still living in poverty. Some people enjoy luxuries while others do not even have the most basic necessities. To help more people reach a minimum standard of living, some economists favour the redistribution of income.

Living standards

From 2009 to 2014, Delaware was the sole US state to record a drop in earnings. Even so, over the same period it had an unemployment rate lower than the national average and a larger share of workers who were members of a trade union. Over the next twenty years, the state is predicted to have one of the quickest ageing populations of any state in the USA.

Trade unions

In 2015, the world experienced numerous shifts in demand alongside progress in technology. New methods of transferring money were being used, and the number of stock exchanges increased. In some countries, governments also increased the school-leaving age, meaning the lowest age at which children are legally permitted to leave school.

Money and banking

Spain has recorded one of Europe's highest unemployment rates. In addition, by 2015, $3.5$ million of the unemployed had been out of work for at least a year. The Spanish Government has put in place a variety of policy measures, such as higher government spending, to cut unemployment and poverty. It has also attempted to make firms' product supply more elastic.

Employment and unemployment