Oct/Nov 2018

Which factor of production is missing from the list below? bananas, a factory, goats, a risk taking investor

The factors of production

Which factors might influence the size of the labour force in an economy?

Workers

Petrol (fuel) retailers in one country have seen a steep rise in sales during August, when many people go on holiday. Why could this happen?

Demand

Which statement is correct for firms operating in perfect competition?

Market structure

A film production company buys a cinema chain. What is this an example of?

Firms

The table displays a firm’s average revenue and average cost at various output levels. If every unit produced is sold, at which output level is profit at its highest?

Firms' costs, revenue and objectives

Which statement regarding total fixed cost is correct?

Firms' costs, revenue and objectives

A government wants to lower unemployment by applying a supply-side policy. Which measure should it choose?

Supply-side policy

At what point is a government considered to have balanced its budget?

Fiscal policy

The table indicates how the tax paid changes as income increases in four countries, A-D. Which country uses a progressive tax?

Fiscal policy

In which situation is success for the government in meeting the first aim likely to create difficulties in meeting the second?

The macroeconomic aims of government

What do economies seek to accomplish when dealing with the economic problem of scarcity?

The nature of the economic problem

Economic growth is usually assessed by the yearly change in

Economic growth

Four groups affected by changes in economic conditions are creditors, debtors, exporters and importers. Which pair is most likely to be disadvantaged by a high inflation rate?

Inflation and deflation

The diagram illustrates the unemployment rate and the periods of recession in a country from 1978 to 2012. What conclusion can be drawn from the diagram?

Employment and unemployment

In one country, the unemployment rate rose in August as it normally does each year. This was then followed by job losses caused by the usual decline in global economic activity. Which types of unemployment occurred?

Employment and unemployment

Which factor will result in an ageing population if all other factors stay the same?

Population

What change is most likely to happen as an economy develops?

Differences in economic development between countries

Developing countries are occasionally supported with aid from charities and foreign governments. Which aid programme would be least likely to result in long-term economic growth?

Differences in economic development between countries

An estimate suggests that, in 2016, the Olympic Games held in Rio, Brazil drew more than 600 000 overseas visitors. What was likely to be the effect of this number of visitors?

Current account of balance of payments

What is the most probable outcome if South Korea establishes a factory in Switzerland and it makes a profit?

Globalisation, free trade and protection

A country has undergone a devaluation of its currency. What are the probable consequences of the devaluation?

Foreign exchange rates

The diagram illustrates a country’s production possibility curve (PPC). Which statement is correct?

Production possibility curve (PPC) diagrams

The table sets out the tariffs applied by the European Union (EU) to imported tropical fruit, depending on how much processing they have undergone. What could explain this tariff pattern?

Globalisation, free trade and protection

China, which is the world’s second-largest economy, is moving towards a more market-based economy. Which policy would contribute directly to this change?

Market economic system

The diagram represents the market for a clothing-producing firm, with the starting equilibrium at X. What would the new equilibrium be if a competitor carries out a successful advertising campaign and workers’ wages rise?

Price determination

Coal production in the UK has fallen in recent years. One explanation for this is that the social cost of producing coal is too large. Which option best explains the social cost of coal production?

Market failure

The table presents demand and supply data for spices in a market in Africa. If the price increases from US$20 to US$30 per kg, what is the price elasticity of demand (PED) for spices?

Price elasticity of demand (PED)

A central bank can serve as a lender of last resort, particularly during a financial crisis. Why is this function carried out?

Money and banking

What will lead to an increase in the level of savings in an economy?

Households

Which of the following is a correct example of a factor of production in the fishing industry?

The factors of production

What factors would give a trade union a strong bargaining position when negotiating higher wages for its members at a specific firm?

Trade unions

What is most likely to persuade someone to buy an expensive item such as a new car straight away?

Demand

The table presents features of a market. What are the characteristics of a perfectly competitive market?

Market structure

A computer chip manufacturer grows by acquiring a computer chip designer. What is this an example of?

Firms

The table presents a firm’s average revenue and average cost at various output levels. If all output is sold, which output level produces the highest profit?

Firms' costs, revenue and objectives

Which statement regarding total fixed cost is correct?

Firms' costs, revenue and objectives

Which of the following is most likely to be an example of a progressive tax?

Fiscal policy

At what point is a government said to have balanced its budget?

Fiscal policy

A government wants to raise output and expand steel sales by giving subsidies to private producers. Each tonne receives a subsidy of $W - Z$. Using the diagram, what is the value of sales of steel after the subsidy?

Price determination

In which situation is success by the government in reaching the first aim likely to create difficulties in reaching the second?

The macroeconomic aims of government

The government supplies hospital services, and taxation pays for them. Because waiting lists are often long, people are not always able to obtain the treatment they need. This is an example of what?

Market failure

At what point is a recession considered to occur?

Economic growth

Which country is experiencing the most severe deflation?

Inflation and deflation

The diagram indicates the unemployment rate and the recession periods in a country between 1978 and 2012. What conclusion can be drawn from the diagram?

Employment and unemployment

A country saw the normal August rise in its unemployment rate. Regrettably, this was then followed by job losses caused by the usual fall in worldwide economic activity. Which types of unemployment occurred?

Employment and unemployment

What is the most probable effect of increasing the retirement age in a country?

Employment and unemployment

What term is used to describe absolute and relative poverty?

Poverty

Charities and overseas governments sometimes provide aid to developing countries. Which aid programme would be least likely to result in long-term economic growth?

Differences in economic development between countries

A government places a limit of 2 million on the number of smartphones that may be imported into the country. What term is used for this restriction?

Globalisation, free trade and protection

What is most likely to happen if South Korea sets up a factory in Switzerland that starts making a profit?

Globalisation, free trade and protection

In July 2015, Australia’s balance of trade with the rest of the world was $-2809$ billion Australian dollars. In January 2016 it was $-3294$ billion Australian dollars. Which term describes Australia’s balance of trade over this period?

Current account of balance of payments

The diagram illustrates a production possibility curve (PPC) for an economy. Which shift on the diagram might show a rise in unemployment?

Production possibility curve (PPC) diagrams

The table sets out the tariffs levied by the European Union (EU) on imported tropical fruit, depending on the extent of processing. What could explain this tariff pattern?

Globalisation, free trade and protection

Who decides which goods and services are produced in a market economy?

Market economic system

The diagram illustrates the demand for, and the supply of, air travel. What might lead to the demand curve shifting from $D_1$ to $D_2$?

Demand

During 2015, the global oil price dropped sharply because demand and supply conditions changed. One of these changes was the introduction of a new extraction technique known as fracking. Which event would not have helped cause the price fall?

Price changes

The table presents the demand and supply for spices in a market in Africa. If the price increases from US$20 to US$30 per kg, what is the price elasticity of demand (PED) for spices?

Price elasticity of demand (PED)

What is one function of a country’s stock exchange?

Money and banking

What could lead to a rise in the income of a doctor working in a government health service?

Workers

Liberia is a country in west Africa that has encountered several serious difficulties in recent years. These have included a civil war and, in 2014, the outbreak of the Ebola epidemic. However, there have also been some improvements. The unemployment rate was 85% in 2004 but had fallen to 4% in 2016. This fall has affected both emigration and wages. Workers have been paid higher wages, although some economists believe that these higher wages have pushed up the country’s inflation rate, which in 2016 was 8%. The country has a plentiful supply of drinking water and a climate that is favourable for agriculture. More than 70% of the country’s labour force is now employed in agriculture. The country’s main exports are rubber, iron ore, timber and gold. A US multinational company (MNC) operates the world’s largest individual natural rubber farming operation in Liberia. The price of rubber dropped by 75% between 2011 and 2016. Global rubber supply had risen above demand because a number of countries introduced import restrictions on rubber. In reaction to the lower price, the US MNC reduced its production, but it still made a loss. The MNC does not want to close down and is trying to survive by cutting costs. In the long term it aims to maximise profits. When some of its 7000 workers retire, they will not be replaced. The MNC has adopted new production techniques and diversified into growing cocoa and coffee. The Liberian government is giving subsidies to local rubber farmers so that they can buy new equipment and introduce new farming methods. Even though the situation is difficult, some local Liberian rubber farmers are expanding the scale of their operations by purchasing more land. Others are diversifying by using wood from rubber trees to make furniture. While supporting its rubber farmers, the Liberian government is also promoting growth in the secondary and tertiary sectors. Between 2014 and 2016 it increased spending on healthcare, but this came at the cost of several public sector investment projects. Table 1 compares the infant mortality rate and healthcare expenditure per head in selected countries in 2015.

Employment and unemployment

Mexico has lately had fairly low inflation, and the Mexican government wants to preserve this price stability. Even so, its currency has weakened, so each Mexican peso now exchanges for less foreign currency. The government is also trying to cut pollution in the country. A major source of pollution in Mexico is car travel. Driving involves both private costs and external costs.

Market failure

In 2016, the Indonesian government stepped up spending on healthcare and education and also looked at increasing the school leaving age. It likewise intended to raise taxation. That decision could clash with its objective of cutting unemployment, at a moment when several countries were in danger of sliding into recession.

Fiscal policy

Many UK students work during the holidays, and some put aside part of what they earn to help meet their tuition fees. UK graduates earn, on average, £8500 more each year than non-graduates. In 2016, economics graduates had the second-highest average earnings of all UK graduates. The top 10% of economics graduates earned £115000 a year.

Workers

Productivity has recently declined in Finland, especially in the public sector. The country also has a comparatively large number of small firms. In recent years, the price elasticity of demand and the price elasticity of supply of the goods produced by Finnish firms have altered.

Firms and production

A fairly large share of people in the Philippines either work in call centres or go abroad for work. Call centres employ 1.2 million people in the Philippines and make up 8% of the country’s Gross Domestic Product. Because of the time difference with the US, which is the main market for call centre services, many Filipinos must work at night. These call centres are also bringing in new technology, including robots.

Workers

In 2016, the price of gold increased. This encouraged owners of gold mines to use more resources in order to raise the supply of gold. The degree of competition in gold production differs across the various gold-producing countries. Several countries, including India, place a tariff on imported gold.

The factors of production

In June 2016, Nigeria moved to a floating exchange rate after its central bank had spent several months trying to hold on to a fixed exchange rate. To support its currency, it had been using foreign currency reserves to buy it, imposing tariffs and restricting how much foreign currency Nigerians could purchase. Most economists believed that the Nigerian currency would depreciate. A lower value of the Nigerian naira could help to raise output and cut the deficit on the country’s current account of the balance of payments. In 2015, Nigeria recorded a current account deficit for the first time in 20 years. Countries with a current account deficit often have a higher inflation rate and a lower economic growth rate than countries with a current account surplus. Fig. 1 presents the inflation rate, economic growth rate and current account balance of selected countries in 2015. When there is a current account deficit, the exchange rate can fall and this may push up import prices. A higher price of imports, including imported food, can speed up inflation. In 2015, Nigeria not only had a current account deficit, but tax revenue also declined and was below government expenditure. Some economists forecast that the government would reduce spending on education and healthcare in 2016 in order to narrow the gap between tax revenue and government spending. The Nigerian government has been working to reduce poverty in the country. In 2015, over 60% of the population were living in poverty. One cause of the high level of absolute poverty was an unemployment rate of $9.5\%$. One policy suggested to reduce poverty in Nigeria is for the government to increase the wages of low-paid workers. The government also wants to diversify the economy because the oil industry provides almost $90\%$ of the country’s export earnings. The oil industry pays high wages to some workers and relatively high interest rate payments to local banks. It also causes water pollution and air pollution.

Foreign exchange rates

A United Arab Emirates (UAE) airport reported record profit of $\$1.9$ billion in $2016$, even though its total revenue fell. In $2016$, the UAE was considering the introduction of Value Added Tax (VAT). Bringing in an indirect tax could affect unemployment. The UAE has an extremely low unemployment rate, which is one of the reasons multinational companies (MNCs) choose to locate there.

Firms' costs, revenue and objectives

In many countries, the cost of dental treatment is rising. For instance, the average charge for filling a tooth is $\$180$ in the US. The number of dentists in the US is also rising. In the US, the tertiary sector employs the biggest share of the labour force. Changes in price affect the supply of products in the tertiary sector, and they also affect the primary and secondary sectors.

Price elasticity of supply (PES)

In $2015$, Spain recorded a death rate that was higher than its birth rate for the first time since $1939$. Forecasts suggest that its population will decrease by $5.6$ million during the next $50$ years. A fall of this kind would probably affect both the number and the size of firms in the country and also affect the environment. There are several different ways in which a country’s population can be increased.

Population

In 2016, a worldwide peanut shortage pushed up their price. China, which has long been a net exporter of peanuts, was close to becoming a net importer. South Africa, an exporter of premium, high-cost peanuts used in chocolate confectionery, suffered the worst drought on record. In that same year, a larger number of South African farmers applied for bank loans.

International specialisation

The United Nations (UN) has established development targets for countries to meet by 2050. These targets are to: conserve natural resources; ensure education for all; end poverty everywhere; promote sustained economic growth.

Living standards

High technology (hi-tech) firms make use of a variety of resources, including labour and land. One hi-tech firm in the US has developed a new price index, which it says is more precise than the Consumer Prices Index (CPI). Central banks aim to get the most precise measure of inflation because inflation has consequences for many groups, including savers and borrowers, as well as for the level of investment in a country.

Inflation and deflation