May/June 2018

The Norwegian government decided to invest the profits from oil in stocks, bonds and property. As a result, the chance to improve domestic infrastructure was not taken up. Which economic concept is this most clearly showing?

Opportunity cost

In what circumstances is a trade union likely to have greater power to raise its members’ wages?

Trade unions

The table gives the percentage (\%) of income saved by different age groups. What can be inferred from the table?

Households

Which characteristic may be present in both monopoly and perfect competition?

Market structure

An industry is facing diseconomies of scale. What change is taking place in long run average cost and total cost?

Firms' costs, revenue and objectives

A company that sells its product at $\$6$ per unit has the following total costs. Which statement is correct?

Firms' costs, revenue and objectives

Which of the statements about fixed costs is correct?

Firms' costs, revenue and objectives

What would a government cut back on when using an expansionary monetary policy to raise employment?

Monetary policy

What is one objective of government policy?

The macroeconomic aims of government

The table gives the tax payable at different weekly income levels. Which statement describes the income tax system as income increases over this range?

Fiscal policy

Which circumstance in the building industry would be most likely to be examined by a government authority created to regulate restrictive practices?

Market failure

Which item would an economist categorise as the factor of production called land?

The factors of production

An economy goes through negative economic growth over two quarters in succession. What is this economy experiencing?

Economic growth

What does the calculation of a consumer prices index (CPI) include?

Inflation and deflation

Business investment spending declined in the third quarter of $2015$. What would probably happen as a result?

Economic growth

The table presents units of output, the value of output and the number of people employed in an industry across three years. What conclusion can be drawn from the table?

Firms and production

What can be found in a typical developed country?

Living standards

Which feature indicates that a country experiences significant absolute poverty?

Poverty

A developing-country government permits a multinational mining company to extract minerals so that the living standards of the local population can be raised. Which action taken by the multinational company (MNC) would not result in an improvement in the living standards of the local people?

Living standards

A country has decided to expand free trade with the nations it trades with. Which measure would assist it in achieving this objective?

Globalisation, free trade and protection

During 2012, the UK hosted the Olympic Games, and this drew a very large number of visitors from overseas. Which item in the UK’s current account balance would have gained directly from this event?

Current account of balance of payments

The Mexican currency (the peso) has lost value relative to the US dollar. What will be the impact of this on the Mexican economy?

Foreign exchange rates

What causes the economic problem that all countries face?

The nature of the economic problem

The table presents the rice yield for four countries. Country and rice yield (kilos per hectare): Japan 64, China 53, Bangladesh 20, Thailand 20. What conclusion may be drawn from this information?

International specialisation

Which kind of activity is carried out in the tertiary sector?

Firms and production

From the diagram, suppliers have fixed the price of a product at $P_S$. Economic theory suggests that the equilibrium price of the product will increase to $P_E$. What is the reason for this change in price?

Price determination

A government gave approval for a new railway line to be constructed between major cities. A private company would build it, although part of the financing would come from taxation. It would generate many jobs. Residents along the route were concerned about damage to their environment. Which concepts are directly involved in this statement?

The role of government

The diagram illustrates the supply curve for a good. What is the price elasticity of supply when the price rises from $\$2$ to $\$4$?

Price elasticity of supply (PES)

What does a central bank do?

Money and banking

What is most likely to cause university lecturers’ wages to rise?

Workers

In economics, natural sunlight is regarded as a free good. Why is this the case?

The nature of the economic problem

Which factor is most likely to strengthen a trade union’s case for higher wages in an industry?

Trade unions

The table presents some details for a computer engineer in 2015. salary amount: $40000$ consultancy fees earned: $15000$ credit card repayment: $5000$ Income tax is fixed at $20\%$. The engineer put aside $10\%$ of the disposable income. What amount was saved?

Households

Which feature is typical of a perfectly competitive firm?

Market structure

State one possible cause of diseconomies of scale.

Firms' costs, revenue and objectives

A business that charges $\$6$ for each unit of its product has these total costs. output level (units): $0,\;10,\;20,\;30$ overall costs ($\$$): $40,\;100,\;120,\;150$ Which statement is correct?

Firms' costs, revenue and objectives

Which of the following statements about fixed costs is correct?

Firms' costs, revenue and objectives

Which one is a supply-side policy?

Supply-side policy

What is one aim of government policy?

The macroeconomic aims of government

A government’s revenue is given below. corporation profits tax: $20$ ($\$m$) inheritance tax: $30$ ($\$m$) duty on imports: $40$ ($\$m$) income tax: $50$ ($\$m$) sales tax (VAT): $200$ ($\$m$) Calculate the total indirect tax revenue.

Fiscal policy

Which scenario in the building industry would be most likely to be examined by a government body established to regulate restrictive practices?

Market failure

Which item would be regarded as the factor of production capital for an airline?

The factors of production

The table presents the quarterly change in Gross Domestic Product (GDP) for four countries. Quarterly percentage change in GDP: A: $-6.0,\;1.0,\;-2.0,\;1.0$ B: $0.0,\;-1.0,\;0.0,\;-0.1$ C: $0.1,\;0.1,\;0.1,\;-3.0$ D: $1.0,\;1.0,\;-0.5,\;-0.5$ Which country has been in recession?

Economic growth

What decides the weights used in the consumer prices index (CPI)?

Inflation and deflation

Business investment expenditure decreased in the third quarter of 2015. What is the most likely consequence of this?

Economic growth

The table presents units produced, value of output and the number of workers employed in an industry across three years. year 1: output $10$ (units, millions), output value $10$ ($\$ millions$), number employed $5$ (000) year 2: output $21$, output value $25$, number employed $7$ year 3: output $32$, output value $40$, number employed $8$ What conclusion can be drawn from the table?

Workers

Which characteristic is present in a developed country instead of a developing country?

Differences in economic development between countries

More than two-thirds of the world's poorest people live in rural locations. Most of them work in subsistence agriculture. What accounts for poverty staying at a high level among subsistence farming families?

Poverty

A government in a developing country permits a multinational mining company to extract minerals so that the local population’s standard of living can be raised. Which measure taken by the multinational company (MNC) would not result in a higher standard of living for the local people?

Living standards

A country wants to adopt a policy of trade protection. Which measure would it use?

Globalisation, free trade and protection

In 2012, the UK hosted the Olympic Games, which drew a large number of visitors from other countries. Which part of the UK’s current account balance would have gained a direct benefit from this event?

Current account of balance of payments

During 2015, the South African currency (the rand) lost value against the US dollar. What impact did this have on the US economy?

Foreign exchange rates

The diagram illustrates a production possibility curve (PPC). Which location is most likely to cause the greatest outward movement of the PPC?

Production possibility curve (PPC) diagrams

The table presents rice yield figures for four countries. Country and rice yield (kilos per hectare): Japan: 64, China: 53, Bangladesh: 20, Thailand: 20. What can be inferred from this information?

Differences in economic development between countries

Compared with a mixed economic system, what is one major advantage of a market economic system?

Market economic system

The diagram illustrates the market for beef in the US, with the initial equilibrium at X. If incomes in the US increase, where will the new equilibrium be located?

Demand

The table presents government estimates of the private and external benefits and costs of constructing a new dam. What is the difference between the social benefits and social costs of constructing the dam?

Market failure

The diagram displays the supply curve for a good. What is the price elasticity of supply when the price increases from $2$ to $4$?

Price elasticity of supply (PES)

What service is not offered by a commercial bank?

Money and banking

What is likely to raise the wages of airline pilots?

Workers

Morocco’s banking sector has been described as among the strongest in Africa. It contains some of Africa’s biggest commercial banks, yet 3 out of 19 of them dominate over two-thirds of the market. These 3 have expanded mainly by merging, and more mergers among Moroccan banks are likely in future. Banks trade under brand names, choose their own loan interest rates and offer some different services. The biggest banks usually provide loans to large firms. Small and medium sized firms find borrowing harder. More than 60% of the population now use commercial bank services. The share of families opening savings accounts with commercial banks is rising. Moroccan banks now operate branches in 22 African countries and also in several European countries. They are expanding within Morocco too, which is creating more jobs. Morocco has a comparatively high unemployment rate. Fig. 1 shows the unemployment rate in 2015 for several African countries, including Benin, which is relatively poor. Benin has a large labour-intensive, subsistence farming sector. Fig. 1 also includes youth unemployment and population growth. Unemployment levels differ across groups. Youth unemployment is often twice the overall unemployment rate. In Morocco, population is growing faster than new jobs are being created. The increasing unemployment rate is influencing wage rates in the country. As with unemployment, wage rates differ across groups. Older workers, for example, usually receive higher pay than younger workers.

Market structure

In England, football stadiums are generally constructed and paid for by the private sector, whereas in some countries the state builds and funds them. On match days, many football stadiums in the English Premier League are full. In the short run, the supply of seats is perfectly inelastic. The clubs could, in fact, increase prices, still sell their tickets and therefore increase their profits. Premier League footballers currently earn very high wages.

Price elasticity of supply (PES)

In 2014, Kazakhstan's government devalued the tenge, its currency. One year later, the country still had a current account deficit. So, in 2016 it considered switching to a floating exchange rate, which might help eliminate the deficit. However, it was worried that this could affect the country's inflation rate, which was already high at 17%.

Foreign exchange rates

The Tripartite Free Trade Area (TFTA) was created in 2015. It brings together 26 countries and is the largest free trade area in Africa. When trade barriers are removed, economies can benefit more from economies of scale. Some economists, however, believe that upgrading Africa’s roads would yield greater gains and would reduce a current account deficit on the balance of payments more effectively, while also improving living standards.

Globalisation, free trade and protection

The government of Slovenia has put in place several supply-side policy measures to affect the country’s inflation rate. Another factor influencing the economy is a shift in trade union membership and strength.

Supply-side policy

Over $80\%$ of Qatar’s population are immigrants. Net immigration has helped satisfy the country’s demand for labour. Alongside the shortage of workers, the country also lacks drinking water. The government has launched public campaigns to stop people using their free supply of drinking water to fill swimming pools and water their gardens. In 2016, government spending was raised in order to increase the country’s economic growth rate.

Workers

An increasing number of governments are levying taxes on unhealthy food and drinks. These taxes are generally regressive. Some of those governments are also boosting their healthcare spending. In other countries, healthcare is supplied by the private sector. The number of state-owned enterprises is falling in several countries because of privatisation.

The role of government

Vanilla is an input in making soft drinks, cakes and perfumes. Even so, its chief application is in ice cream production. Fig. 1 displays the varied costs involved in producing ice cream for one firm. Madagascar is the world’s biggest supplier of vanilla, with Mexico and Tahiti next. At the beginning of 2016, economists anticipated that ice cream prices would rise because the price of vanilla had increased by 130% in 2015. This was mainly the result of poor harvests in Madagascar, which lowered vanilla output in 2015. In most countries, ice cream is regarded as a luxury item. It has many substitutes, and this is one reason producers do not always fully pass higher costs on to customers. In 2015, several other changes also affected ice cream production, including an increase in worker productivity. Besides vanilla, Madagascar produces various other primary products, including coffee and sugar. Nearly 80% of the country’s labour force works in the primary sector. The country has a relatively low Gross Domestic Product (GDP) per head and a relatively low Human Development Index (HDI) value, as shown in Table 1. This restricts the amount people in Madagascar are able to save. Half of Madagascar’s population lives in poverty. The government is attempting to cut poverty by introducing a programme of cash benefits. It is hoped that one outcome will be higher school enrolment and attendance among children from poor families. To raise economic growth, the government has sold several state-owned enterprises and is shifting the economy towards a market system.

Supply

Swaziland is a small African nation in which six in ten people live in poverty, and most businesses are small and use very little capital equipment. In October 2015, it opened a new airport. Some economists argue that constructing the airport carried a large opportunity cost and created several external costs. The airport project forms part of the government’s strategy to change the country from developing to developed.

Differences in economic development between countries

US farms are becoming larger. In Indiana, one dairy farm has more than 38 000 cows. Farms in the USA face competition from farms in both developed and developing countries. The value of the milk exports from these farms is recorded in the trade in goods part of the current account in the USA’s balance of payments.

Current account of balance of payments

In the UK, bus trips outside London have dropped by almost 40% since 1980. This weakening in demand has mainly resulted from higher bus fares, rising incomes, and shifts in the price and quality of substitute products. On certain routes, monopolies operate, and the absence of competition can drive the price up.

Price elasticity of demand (PED)

In October 2015, the Chinese government moved from a one child policy to a two child policy in part because of the difficulties linked to an ageing population. The birth rate was already declining as a result of more women entering the labour force, improved education, later marriages and the sharply rising cost of housing.

Population

During February 2016, share prices on stock exchanges declined worldwide. This was linked to several factors, including concern over a slowdown in world growth, the risk of deflation and unemployment, and worries that certain commercial banks might fail.

Inflation and deflation

World output has risen in recent years, yet several countries have gone through recession. The easing of trade barriers, including import tariffs, has slowed, which has reduced the pace at which world trade is growing.

Globalisation, free trade and protection