Oct/Nov 2017

Economists use the term factors of production. Which of the following is not a factor of production?

The factors of production

Even though office-based work often offers higher pay, many workers remain in low-paid farm jobs. What could account for this in developing economies?

Workers

The diagram presents two curves. One represents labour demand and the other represents labour supply. A government sets a minimum wage ($M_w$) that employers are required to pay. What effect will this minimum wage have?

Workers

Which of the following is an internal diseconomy of scale?

Firms' costs, revenue and objectives

How is a multinational company different from other kinds of company?

Firms

A large computer company announced that its profits had dropped below the forecast level. What could have led to this?

Firms' costs, revenue and objectives

The table gives a firm’s variable costs. It can sell each unit for $\\$5$. Its fixed costs are $\\$10$. How many units should the firm make in order to maximise profits?

Firms' costs, revenue and objectives

What will assist a government in lowering the inflation rate when it is increased?

Monetary policy

A new tax is imposed by the government. It raises the price of every $\$10$ good by $\$1$ and the price of every $\$20$ good by $\$2$. What inference can be made about the type of this tax?

Fiscal policy

The graph illustrates the percentage of income paid as tax. Which line shows a proportional tax?

The role of government

A worker has an annual income of $\$40{,}000$ and is charged $20\%$ income tax. He buys electrical goods costing $\$5{,}000$ and a car costing $\$10{,}000$, with $20\%$ sales tax paid on both purchases. What total indirect tax does he pay?

Fiscal policy

A government permitted a building company to construct new houses, which led to the destruction of an area that had been designated as an area of natural beauty. Which concepts could be applied to this statement?

Market failure

What makes the Human Development Index (HDI) generally regarded as a better indicator of living standards than Gross Domestic Product (GDP) per head?

Living standards

A finance minister stated that the economy was undergoing inflation and economic growth. What evidence would show that both had taken place?

The macroeconomic aims of government

The diagrams illustrate percentage employment across different sectors in two countries. Which statement is correct when country X is compared with country Y?

Differences in economic development between countries

What might be a cause of cost-push inflationary pressure in an industry that supplies mobile (cell) phones?

Inflation and deflation

Which factor is most likely to lead to an increase in the population growth of a developing country?

Population

The charts illustrate a country’s population structure in 1960 and 2015. What fell between 1960 and 2015?

Population

At the beginning of the year, a developing country had a population of $1\,000\,000$, with a birth rate of $16.0$ per thousand per annum and a death rate of $8.0$ per thousand per annum. By the end of the year, the population had risen to $1\,005\,000$. What might account for this change in the population?

Population

What is one advantage of tariffs?

Globalisation, free trade and protection

What is the term used for the external value of one currency expressed in another currency?

Foreign exchange rates

In 2011, it was reported that the United States (US) needed to reduce its current account deficit. Which policy would assist with this in the short run?

Current account of balance of payments

The diagram illustrates a production possibility curve. The country is fully utilising all of its resources to make both manufactured goods and services. Which movement would show an improvement in technology in manufacturing?

Production possibility curve (PPC) diagrams

The table indicates the number of units of foreign currency that the UK pound (UK£) was able to purchase in August 2012 and August 2013. What conclusion can be drawn from the table about how currency values changed between 2012 and 2013?

Foreign exchange rates

In a mixed economy, what is the government most likely to produce?

Mixed economic system

Which effect of economic development counts as an external cost?

Market failure

The table shows the demand and supply of coffee in a market in Africa. As the price increases from $20 to $30 per kg, what is the price elasticity of demand for coffee?

Price elasticity of demand (PED)

A report stated that oil supply would be influenced by the discovery of new oil fields, while demand would be influenced by fast worldwide economic expansion. If point X is the starting equilibrium, which point might show the revised equilibrium?

Price determination

What is likely to cause the level of saving in an economy to fall?

Households

Which change would cause a manufacturing company to substitute labour for machines in order to keep the most efficient mix of factors of production?

The factors of production

In economics, what is meant by the factor of production called capital?

The factors of production

A female accountant employed by a private firm is paid $80 per hour, whereas a male Professor of Finance at a government university is paid $40 per hour. Both of them work for the same number of hours. What might account for the gap in earnings?

Workers

Every one of the four groups of descriptions in the table concerns an individual who is applying for a job. Which individual is most likely to be paid more?

Workers

Which of the following is an internal diseconomy of scale?

Firms' costs, revenue and objectives

Private multinational clothing companies run businesses in developing countries in order to lower their average production costs. Which characteristic of developing countries draws them for this reason?

The factors of production

A large computer company reported that its profits had fallen to a level lower than expected. What could have led to this?

Firms' costs, revenue and objectives

An entrepreneur purchases a workshop for $\$10000$ to produce picture frames. In the first year, he spent $\$40000$ on materials and hired two workers. He paid the workers for each frame made, with the total cost coming to $\$30000$. He also bought a vehicle for $\$10000$ to deliver the frames. Calculate his total variable costs.

Firms' costs, revenue and objectives

What, if it rises, will enable a government to bring down the inflation rate?

Monetary policy

Which policy is most likely to raise the level of economic activity?

Fiscal policy

The graph illustrates the percentage of income that is paid as taxation. Which line shows a proportional tax?

Fiscal policy

In one year, a government receives the following revenue. customs duties: $100\text{ m}$ taxes on goods: $200\text{ m}$ taxes on income: $400\text{ m}$ taxes on services: $300\text{ m}$ What is the total amount of indirect tax revenue?

Fiscal policy

A government chooses to increase spending on defence and, as a result, cannot use the money for a new airport. Which concepts can be applied to the statement above?

Opportunity cost

Why is the Human Development Index (HDI) often regarded as a better indicator of living standards than Gross Domestic Product (GDP) per head?

Living standards

What might lead to an immediate rise in the working population?

Workers

The diagrams illustrate the percentage of employment across different sectors in two countries. Which statement is accurate when country X is compared with country Y?

Differences in economic development between countries

What is likely to decrease when the unemployment rate drops?

Employment and unemployment

A country has equal birth rate and death rate. What is likely to happen if the birth rate falls, while the death rate and migration stay the same?

Population

The graphs illustrate a country's population structure in 1960 and 2015. What had a lower value in 2015 than in 1960?

Population

The table gives the Consumer Prices Index (CPI) for selected cities in August 2015, using New York, USA as 100. What conclusion can be drawn from the table?

Living standards

State one advantage of tariffs.

Globalisation, free trade and protection

What is called an increase in a currency’s exchange rate value under a floating exchange rate system?

Foreign exchange rates

A developing economy records a $75 billion surplus on trade in goods and a $25 billion deficit on trade in services, and its current account is balanced overall. Which values of net income (primary income) and net transfers (secondary income) are needed for the current account to remain in balance?

Current account of balance of payments

The diagram is a production possibility curve diagram. The country begins at position X. New and improved manufacturing methods are adopted, and the country also upgrades its tourist facilities. What would this be shown by?

Production possibility curve (PPC) diagrams

Which policy would promote a higher level of international specialisation?

International specialisation

What could be an external cost of drinking alcohol?

Market failure

What is one advantage of the market system?

Market economic system

The table shows the demand and supply for coffee in a market in Africa. If the price increases from $20 to $30 per kg, what is the price elasticity of demand for coffee?

Price elasticity of demand (PED)

Over the last few years, the world market price of crude oil has dropped sharply. One reason is the rise in oil produced through the new extraction method of fracking. How is this represented on a demand and supply diagram of the market for crude oil?

Supply

Which is the most suitable example of specialisation?

International specialisation

Which workers are most likely to receive the largest increase in wages from a pay rise of $2$%?

Workers

For a period of time, many central banks have aimed for an inflation target of around 2%. A modest, regular increase in the general price level can generate several advantages for an economy. For central banks and governments, the earlier challenge was preventing inflation from rising above the target while still keeping unemployment low. The issue has now altered, and the danger is that inflation may drop below the target rate. By the end of 2014, China’s consumer prices index was 100.5. The country’s inflation rate in 2015 was 2%. At the same time, several European countries experienced deflation. This produced a number of effects, including a wider wage gap between skilled and unskilled workers. A key cause of the downward pressure on inflation was the global price of oil falling from US$120 to US$66 a barrel in 2015. This lowered the cost of energy and transport. Reduced transport costs also had a clear effect on food prices. Fig. 1 shows the way the food market was influenced in 2015. As inflation fell, some countries also saw unemployment fall. Other countries, however, faced both lower inflation and higher unemployment. For instance, France experienced rising unemployment between 2014 and 2015. This created upward pressure on French Government spending.

Inflation and deflation

Singapore is often placed among the top countries in which to do business. It has an open economy based on free trade. It has a record of strong entrepreneurship, low unemployment, low average costs and relatively low tax rates. Its example may prompt other countries to remove trade barriers.

Firms' costs, revenue and objectives

In some countries, richer people are now working longer hours on average than poorer people. One explanation is that well-paid jobs are believed to give greater job satisfaction. Finding work enjoyable can result in high labour productivity.

Production possibility curve (PPC) diagrams

In Pakistan, the range of cars available to purchase is small. The country has a population of around 190 million, yet it produces only about 120 000 cars each year. Car producers in Pakistan are shielded from overseas competition by several trade-protection measures.

Globalisation, free trade and protection

Nauru is among the world’s tiniest countries, with a population of just $10\,000$. Half a century ago, it had one of the highest incomes per person in the world, mainly because it exported phosphate that had built up over many centuries from sea-bird droppings. This labour-intensive sector has now shrunk sharply. Today, incomes are much lower and one third of workers are unemployed.

Employment and unemployment

With a population of $3.5$ million, Moldova is one of Europe’s poorest countries and living standards are relatively low. In $2015$, the economy entered recession and inflation doubled. Moldova’s central bank lifted its interest rate from $8.5\%$ to $15.5\%$.

Monetary policy

The Gulf countries, several of which are highly specialised, bring in a large share of the food eaten by their people. For instance, the United Arab Emirates imports $83\%$ of all the food that it consumes. The Gulf countries are attempting to cut their dependence on imported food.

International specialisation

In 2014, world Gross Domestic Product (GDP) amounted to US$78000 billion. One year later, it had risen to US$80730 billion. In earlier years, countries such as the USA and Germany may have been thought likely to make the biggest contribution to growth in GDP. China represented 20% of the rise in world output in 2015. China is expected to become the largest economy. It is becoming a more powerful rival in several markets. This stronger price competitiveness results from a range of factors, including keeping the exchange rate low, giving subsidies to a number of industries and improving labour productivity. However, in 2015 the Chinese Government was thinking about whether to shrink the country’s steel industry, perhaps by reducing the subsidy it received. Fig. 1 illustrates how the steel market could be influenced by such a change. Some developed countries have recently been facing difficulties. For instance, Australia has experienced a decline in its economic growth rate. In an attempt to raise domestic economic activity, the Reserve Bank of Australia has lowered interest rates. The economic growth rates of developing and emerging economies are rising. In Africa, this is partly due to the discovery and use of oil and mineral resources. These countries use different exchange rate systems and have different levels of success in attracting multinational companies. Many African countries use protectionist policies, although some are shifting towards free trade. In most developing and emerging economies, the birth rate is falling. The effect of this shift depends on how large the decline is. For example, Nauru is one of the smallest countries in the world and has a population of only 10000. Its birth rate dropped from 26 to 25 in 2015.

Supply

In Saudi Arabia, cement output has increased because construction demand has grown for houses, schools, hospitals and roads. The cement market is also being influenced by price movements, export bans and mergers among cement producers.

Price elasticity of demand (PED)

In June 2015, trade unions in Argentina pushed for higher wages and lower taxes. In addition to the pressure for bigger wages, the economy was also dealing with several other problems. It was trying to encourage the creation of public limited companies and economic growth.

Trade unions

In August 2015, China lowered the value of its currency, the yuan. The Chinese Government was aiming to boost output, including food output. It had seen a slowdown in its economic growth. By contrast, some other countries had in fact experienced a fall in output. One reason for the weakening of economic growth in some countries was problems linked to their commercial banks. Some commercial banks were at risk of closing down.

Foreign exchange rates

In 2015, Puerto Rico said it was thinking about removing some of its trade embargoes. At the same time, its government was re-examining how much it intended to spend. Incomes have been rising in Puerto Rico, although some workers have improved their position more than others. There have also been changes at the micro level, with the price elasticities of demand and supply shifting in some markets.

The role of government

Trade protection narrows the scope for countries to specialise and affects the current account balances that countries record in their balance of payments. Developed countries and developing countries also differ in how much trade protection they apply and in the forms it takes. Developed countries usually have a lower death rate than developing countries too.

Globalisation, free trade and protection

In 2015, the UK economy saw output rise and unemployment remain relatively low. Even so, labour productivity and earnings increased only a little. The government was still spending more than it collected in tax revenue and was thinking about altering some of its monetary policy measures.

The macroeconomic aims of government