Oct/Nov 2019

Which statement concerning factors of production is correct?

The factors of production

The table below indicates how three people (X, Y and Z) allocate their income. food, clothing and housing: person X 35%, person Y 50%, person Z 20% entertainment and leisure: person X 25%, person Y 20%, person Z 40% luxury goods: person X 40%, person Y 30%, person Z 40% For X, Y and Z, what is the most likely income order, starting with the highest income and ending with the lowest income?

Households

A musician can choose to perform for an orchestra either in Germany or in England. Which mix of income and living costs is most likely to make her select the German orchestra? Income and cost of living in Germany as compared with those in England.

Workers

Which kind of business organisation is always part of the public sector of the economy?

Firms

Which pair of features accurately describes a monopoly? obstacles to entry; economies of scale

Market structure

The table presents a company’s sales of cold drinks in the UK during 2016 and 2017. Changes in temperature affect the demand for cold drinks. In 2016, sales matched the normal seasonal trend. Sales figures for 2016 and 2017 (thousand cans): April 300 and 290; May 400 and 350; June 550 and 270; July 570 and 490; August 620 and 590. In which month of 2017 did the usual pattern get interrupted?

Demand

A business making bicycles has these costs at different output levels. Output 10: total fixed costs $300$, total variable costs $800$. Output 20: total fixed costs $300$, total variable costs $1500$. Output 30: total fixed costs $300$, total variable costs $3300$. What happens to the average total cost over this range of output?

Firms' costs, revenue and objectives

Why are indirect taxes, such as VAT of $20\%$ on goods and services, considered regressive when high-income and low-income buyers are compared?

The role of government

In mixed economies, the government plays an important role. Which function would it not carry out?

The role of government

Which mix of policy measures would be effective at reducing the effects of a recession?

Fiscal policy

Under which type of policy would government expenditure on education fall? fiscal policy; monetary policy; supply-side policy

Supply-side policy

The diagram illustrates two production possibility curves. Which statement about the shift from point X to point Y is correct?

Production possibility curve (PPC) diagrams

Which increase is most likely to result in a rise in the output of an economy?

The factors of production

For what reason was the Human Development Index (HDI) brought in as a measure of standard of living?

Living standards

When unemployment is high throughout the labour force, the unemployment rate in an economy is often greatest among the $16$-$19$ year-old age group. Which statement explains why $16$-$19$ year-olds may have difficulty finding a job?

Employment and unemployment

Venezuela, one of the world’s major oil producers, has faced hyperinflation of more than $400\%$ per annum in recent years. In what ways does hyperinflation affect an economy?

Inflation and deflation

Which factor is most likely to rise as a country develops further?

Living standards

In Botswana, improvements in healthcare have caused birth rates to decrease more quickly than death rates. In addition, the average number of children born to each woman has fallen from $6.4$ to $3.2$. What can be concluded from this information?

Population

The table presents the percentage share of GDP belonging to the richest $20\%$ and the poorest $20\%$ of the population in each country. Which country showed the widest gap between income and poverty?

Poverty

What factor would lead to a favourable change in the Kenyan trade in services (invisible) account?

Current account of balance of payments

What is one disadvantage of protecting manufactured goods through trade protection?

Globalisation, free trade and protection

What might lead to an increase in the deficit on the current account of the balance of payments?

Current account of balance of payments

Sam made a list of the ways he would most like to spend his Saturday afternoon. Sadly, a thunderstorm led to the cricket match and the town parade being cancelled. Sam chose to go to the cinema. What was the opportunity cost of going to the cinema?

Opportunity cost

What could cause the volume of international trade in the world economy to fall?

Globalisation, free trade and protection

In a market economy, which pair of economic institutions can be found?

Market economic system

What indicates that market failure exists?

Market failure

Which factors can make the supply curve of a product move to the right?

Supply

A railway company raises ticket prices by 10% for journeys between 06:00 and 09:00, and demand falls by 2%. After 09:00 it cuts ticket prices by 5%, which leads to a 7% rise in demand. What is the price elasticity of demand in response to these price changes?

Price elasticity of demand (PED)

What is one drawback of being a specialist skilled worker?

Workers

Which of the following is not usually one of the functions of a country’s central bank?

Money and banking

What is used to identify a finite resource?

The nature of the economic problem

The table indicates how three individuals (X, Y and Z) use their income. For these three individuals, what is the most probable ranking of income, from the highest income to the lowest income?

Households

A musician must decide whether to perform with an orchestra in Germany or in England. Which pairing of income and cost of living is most likely to make her select the German orchestra?

Living standards

The shares of a public limited company are

Firms

During 2015, a major UK firm tried to buy a competing US medical firm so that it could become the world’s top supplier. The two firms both focused on producing medicines used to treat rare diseases. Which term would be used to describe the acquisition if it had succeeded?

Market structure

The table gives the UK company’s cold-drink sales in 2016 and 2017. Cold-drink demand is affected by temperature changes. During 2016, sales followed the normal seasonal trend. In which month of 2017 was the normal pattern disrupted?

Demand

A firm that makes bicycles has the following costs at various output levels. How does the average total cost change across this output range?

Firms' costs, revenue and objectives

A government plans to raise tax income from consumer spending. Which tax would it raise?

Fiscal policy

A government employs a blend of fiscal policy measures and supply-side policy measures to boost growth in the economy. Which mix of policy measures would bring this about?

Economic growth

The table presents tax paid at a range of income levels within an economy. Which description of the tax system in use is correct?

Fiscal policy

The government applies monetary policy and cuts the interest rate. What could be one result of this?

Monetary policy

Country X supplies computers to support teachers in the classroom. How could this technology raise the economic potential of country X?

Economic growth

What is the most probable outcome of a continued rise in Gross Domestic Product (GDP)?

Economic growth

Which indicator would be part of the Human Development Index (HDI) for a country?

Living standards

Which type of unemployment occurs when there is a permanent decline in demand for the products of an industry?

Employment and unemployment

The graph illustrates the rate of inflation in a country from 2000 to 2014. What conclusion can be drawn about average prices?

Inflation and deflation

Which change, expressed as a percentage of GDP, would be unlikely to occur in a country as it develops?

Differences in economic development between countries

In Botswana, improved healthcare has caused birth rates to decline more quickly than death rates. In addition, the average number of children born to each woman has dropped from 6.4 to 3.2. What can be concluded from this information?

Population

The table gives the percentage share of GDP owned by the richest 20% and the poorest 20% of the population in each country. Which country had the widest gap between income and poverty?

Poverty

What would lead to an improvement in the Kenyan trade in services (invisible) account?

Current account of balance of payments

A newspaper headline read ‘Free trade helps the world’s poorest’. Why could this be true?

Globalisation, free trade and protection

A trade union is able to increase the wages paid in an industry to a level higher than the prevailing equilibrium wage. How would the demand and supply of labour change?

Trade unions

Sam made a list showing how he would like to spend his Saturday afternoon. first choice: attend a cricket match second choice: see the annual town parade third choice: go to the cinema fourth choice: pay a visit to relatives Sadly, a thunderstorm led to both the cricket match and the town parade being cancelled. Sam went to the cinema. What was the opportunity cost of going to the cinema?

Opportunity cost

What factor would decrease the amount of international trade in the global economy?

Globalisation, free trade and protection

Which two economic institutions are present in a market economy?

Market economic system

In a private market system, some goods and services would not be provided unless the government stepped in. What term identifies this in a private market?

Market failure

A product has experienced an upward movement along its supply curve. What is the most likely reason for this?

Supply

Price elasticity of demand (PED) shows how responsive demand is when price changes. It may vary between different goods. According to the table, which good has the most elastic PED?

Price elasticity of demand (PED)

Which factor is most likely to raise the occupational mobility of labour?

Workers

Which organisations are able to provide firms with direct finance for expansion?

Firms

It is forecast that electric-powered driverless cars will be on the roads by 2030. Driverless cars have already been trialled on roads in some cities, including Pittsburgh in the USA. It is believed that driverless cars will cut accidents, have lower repair costs and produce less pollution. At the start, supply of driverless cars may be greater than demand, but they are expected to become popular quite quickly. As more driverless cars are used, demand for bus travel and petrol stations may fall, and some taxi drivers may lose their jobs. By contrast, because driverless cars will give more people, including the elderly, easier access to transport, demand for out of town restaurants and places of entertainment is likely to rise. It has been predicted that the technology being developed for driverless cars will make their supply elastic. A rise of $8\%$ in the price of driverless cars is predicted to lead to a $20\%$ increase in the quantity supplied. Technological progress and the substitution of workers by machines are expected to eliminate $80$ million jobs in the USA. Job losses are also forecast in other countries, and trade unions are likely to find it harder to resist this because membership is falling and governments are reducing the power of trade unions. Occupations thought to face risk include accountants, train drivers and financial advisers. Demand for workers in other jobs, including doctors and dentists, may rise, but unemployment may still increase. The better educated workers are, the more readily they can switch from one occupation to another. Table 1.1 shows education spending as a percentage ($\%$) of GDP and the unemployment rate in selected countries. Jobs selling houses and flats may fall, but demand for building workers is expected to rise. Some people approve of house building in their area, while others are against it.

Price elasticity of supply (PES)

It is forecast that the UK economy will not fall into another recession over the next two decades, and that by 2040 its population will rise sharply. Immigration is expected to account for most of this increase. By 2040, one in twelve people is also expected to be aged over $80$. A number of countries, including some low-income countries, may experience population growth more quickly than high-income countries.

Population

In $2015$, the Malaysian government announced objectives to raise productivity and savings. Consumer spending has increased, partly because higher wages have been earned mainly by older workers. Even so, low savings levels remain a concern. Savings supply funds for investment (spending on capital goods), helping economic growth and affecting inflation.

Economic growth

Mali is a developing country. Its Human Development Index (HDI) increased from $0.297$ in $2000$ to $0.442$ in $2016$. Most of Mali’s workers are employed in agriculture, and cotton is the country’s chief agricultural crop. However, gold is the country’s main export. Mali is the third largest exporter of gold in Africa.

Differences in economic development between countries

In May $2017$, olive oil prices increased by over $10\%$. This happened because a drought affected Greece, Italy, Spain and Tunisia, which are the main producing countries. World supply was predicted to drop by $14\%$ in $2017$. Demand for olive oil decreased in Europe, but it rose in several other countries, including Australia, Brazil and China. In some countries, certain staple foods, such as bread and rice, are taxed, while in other countries they are subsidised.

The role of government

The Indian government gives subsidies to the country’s cotton textile exports. The USA, the biggest purchaser of Indian cotton textiles, gained from this. India intended to end the subsidy by $2019$. Other cotton textile exporters welcomed this. The USA may be only slightly affected, partly because income in the country usually rises. The value of the Indian rupee against the US dollar was fairly steady during this period, though it increased a little in mid-$2017$.

Globalisation, free trade and protection

A greater proportion of agricultural markets are nearer to perfect competition than are markets for manufactured goods and services. Business organisations do not always pursue the same objectives, and these objectives can also differ between markets. In $2017$, the Nigerian government applied supply-side policy measures to shape firms’ goals and performance in a variety of markets, while also bringing down firms’ average production costs.

Firms' costs, revenue and objectives

Zambia is a middle-income nation, yet 60% of its population of 15 million live below the poverty line. In 2017, the Zambian government said that it was intending to shift the country’s capital away from Lusaka in the south of the country and to Ngabwe, a village in the centre of the country. Ngabwe at present has poor roads and other infrastructure. Moving to Ngabwe, however, could help the country deal with its rapid population growth and could also encourage entrepreneurs to establish new businesses there. In 2017, the country had a zero net migration rate, a birth rate of 41.8, a death rate of 12.4, and a life expectancy of 52.5 years. Zambia’s average economic growth rate was 6.8% between 2004 and 2014. After 2014, this rate declined, partly because of a depreciation in the kwacha, Zambia’s currency. The fall in the foreign exchange rate of the kwacha helped push the country’s inflation rate up from 10.1% in 2015 to 20.6% in 2016. In 2017, the labour force of 7.2 million made up 48% of the country’s population. People work in several industries including agriculture, banking, building, copper mining, and emerald mining. Fig. 1.1 shows the link between copper output and revenue from the sale of copper, with the index for 2010 set at 100. In 2017, Zambia’s central bank cut commercial bank lending. This reduced investment and household borrowing. Government spending increased more slowly and some cuts were made to government spending on training.

Population

From 2007 to 2017, average wages in China trebled, whereas they declined in Brazil. The increase in China was especially large in the tertiary sector. Farm workers saw a more modest increase. In June 2017, unemployment in China stood at only 4% compared with 13.5% in Brazil. Even though unemployment was lower, China’s inflation rate was below Brazil’s.

Employment and unemployment

Food choices can be influenced by taxes, subsidies and health reports. A report issued in 2017 set out the health benefits of eating tomatoes, including improved vision and a lower risk of heart disease. Egypt is a major tomato producer and it also makes a large quantity of cement. Cement is a product with price-inelastic demand. Egyptian cement producers have adopted more capital-intensive production methods.

Price elasticity of demand (PED)

Australia’s economic growth rate has declined in recent years. Its Human Development Index (HDI), by contrast, is high, and in 2016 Australia had the second highest HDI in the world. The Australian government wants the country’s birth rate to increase from a low level of 12.1 in 2016. A growing share of Australian children attend private sector schools. Their parents must pay a fee for them to go to these schools.

Living standards

Angola is an African nation that does not have a stock exchange. By comparison, South Africa has the busiest stock exchange in Africa. Companies in South Africa are also far larger than companies in Angola, and South African firms also borrow more from commercial banks. However, saving rates are low in both countries, and they could rise if the rate of interest were increased.

Money and banking

A king has recently been reported to work as a part-time pilot for a multinational airline. Some pilots and police officers have resigned from their jobs to become teachers, while others have left to become sole traders. The wages teachers receive differ with age.

Opportunity cost

In 2016, France recorded a deficit in trade in services. France is a wealthy, developed nation with a high standard of living. However, the country is facing several difficulties, including population-related issues. In addition, after the 2017 elections, politicians and economists debated whether the country ought to attempt a move towards freer international trade.

Globalisation, free trade and protection