Oct/Nov 2021

To bring down the price of oil, extra supplies must be found. However, those who object are against exploring new locations because of the environmental harm this could lead to. Explain why this statement illustrates the basic economic problem?

The nature of the economic problem

The diagrams illustrate the wage rates for cleaners (OWc) and nurses (OWn). What will happen if a national minimum wage of OM is introduced?

Workers

Which outcome of greater specialisation in a firm is an advantage to the firm, but a disadvantage to some of the workers in the firm?

Firms and production

The diagram illustrates a subsidy being applied to a product supplied by a firm. Which area shows the firm’s total revenue, including the subsidy?

Firms' costs, revenue and objectives

The diagram illustrates the total cost curve for a firm. What conclusion can be drawn about the firm?

Firms' costs, revenue and objectives

The table gives a firm’s average total cost at different output levels. What occurs after 4 units have been produced?

Firms' costs, revenue and objectives

Two car manufacturers agree to merge. Which result would be a drawback for customers?

Market structure

An economy experienced deflation for a second consecutive month. What does this mean?

Inflation and deflation

What can lead to demand-pull inflation?

Inflation and deflation

What impact does economic growth have on people and on the economy?

Economic growth

The table sets out a government’s receipts from taxation. What is the total amount of revenue raised through indirect taxes?

Fiscal policy

What does opportunity cost mean for a consumer who spends money on a holiday?

Opportunity cost

Which supply-side policy measure would help align workers' skills with job vacancies?

Supply-side policy

In what way is the inflation rate measured?

Inflation and deflation

Which set of policy measures is most likely to boost employment levels?

Employment and unemployment

Poverty in households can be described using relative terms. What shows relative poverty?

Poverty

What impact does the net emigration of people aged 20-40 have on an economy?

Population

The table gives statistics for four countries, A-D. Which country has the lowest standard of living?

Living standards

A country concentrates on the production of steel, toys and textiles. What is one disadvantage of specialisation for the country’s workers?

International specialisation

The diagram illustrates China’s trade with Brazil over two years. What change occurred in China’s trade balance with Brazil from year 1 to year 2?

Current account of balance of payments

The US placed tariffs on cars and motorcycles imported from Germany. What effect do these tariffs have?

Globalisation, free trade and protection

Helium is a gas in short supply because it takes thousands of years to form. The US government owns $35\%$ of the world’s helium supply and has been selling its stocks. Helium is needed in medical scanners. It is also used for party balloons, which is an inefficient alternative use of a valuable good. Which two concepts apply to this statement?

The nature of the economic problem

What immediate effect does a fall in a country's foreign exchange rate have on that country?

Foreign exchange rates

Which combination of features is used to describe a public good?

Market failure

What is one benefit of a market economy?

Market economic system

What does the term macroeconomic aim of a government mean?

The macroeconomic aims of government

An economy depends on potash for producing fertiliser. A new potash deposit is found. Which diagram illustrates this change in the market for potash?

Supply

The table gives the quantity demanded at different prices. Prices with quantities demanded: - price $\$6$, quantity demanded $3$ - price $\$5$, quantity demanded $4$ - price $\$4$, quantity demanded $5$ - price $\$3$, quantity demanded $7$ - price $\$2$, quantity demanded $9$ For which decrease in price is demand price-inelastic?

Price elasticity of demand (PED)

Which government policy would raise productivity?

Supply-side policy

In order to bring down the price of oil, more supplies are required. Yet those who object oppose exploring new sites because of the environmental damage that could result. Why does this statement illustrate the basic economic problem?

The nature of the economic problem

What is one benefit of labour-intensive production and what is one benefit of capital-intensive production?

Firms and production

The market equilibrium wage rate stands at $\$10$ per hour. What accounts for the fact that the wage rate actually paid is $\$12$ per hour?

Workers

A company imports $20$ high quality bicycles into the US, paying $\$3000$ for each bicycle. It sells all of them and makes a profit of $\$1000$ on every bicycle. What is the firm’s average revenue?

Firms' costs, revenue and objectives

The diagram illustrates total cost (TC), total fixed cost (TFC) and total variable cost (TVC). Which costs are represented by W, X and Y?

Firms' costs, revenue and objectives

The table gives the output and total cost for a firm using four production methods, A-D. Which method results in diseconomies of scale when the firm increases production from $1000$ to $3000$ units?

Firms' costs, revenue and objectives

A clothing manufacturer grows by acquiring a clothing retailer. What type of merger is this?

Market structure

What economic condition is present when negative economic growth continues for two successive quarters (six months)?

Economic growth

Why could policies designed to lower unemployment also lead to higher inflation?

Employment and unemployment

Which labour-market change in an economy encourages economic growth?

Economic growth

The table presents a government’s tax receipts. What is the total revenue generated by indirect taxes?

Fiscal policy

Which diagram illustrates an opportunity cost through movement from point X to point Y?

Opportunity cost

Which statement about supply-side policies is correct?

Supply-side policy

What is always shown by a rise in the Consumer Prices Index (CPI)?

Inflation and deflation

Which mix of policy measures is most likely to raise the level of employment?

Employment and unemployment

What might help to lessen poverty?

Poverty

The table gives information on four countries, A-D. Which country is most likely to experience a declining population?

Population

The table presents data for four countries, A-D. Which country has the lowest standard of living?

Living standards

Malaysia and Indonesia focus on producing palm oil. What is one disadvantage of specialisation?

International specialisation

The diagram illustrates China’s trade with Brazil over two years. How did China’s trade balance with Brazil change from year 1 to year 2?

Current account of balance of payments

State one reason for trade protection.

Globalisation, free trade and protection

Helium is a gas whose supply is restricted because its formation takes thousands of years. The US government owns $35\%$ of the global supply of helium and has been selling its reserves. Helium is vital in medical scanners. It is also used in party balloons, which is an inefficient alternative use of a valuable good. Which two concepts apply to this statement?

The nature of the economic problem

What immediate effect can a country experience when its foreign exchange rate falls?

Foreign exchange rates

Can you give one example of a public good?

Market failure

What is the reason a government supplies some goods and services in a mixed economic system?

Mixed economic system

What does the term microeconomic decision mean?

Microeconomics and macroeconomics

The diagram illustrates a movement of the supply curve for New Zealand’s airlines from $S_1$ to $S_2$. What has caused this change?

Supply

The diagram illustrates the demand curve for rice. What is the price elasticity of demand (PED) for rice when the price rises from $\$1.0$ to $\$1.5$ per kilo?

Price elasticity of demand (PED)

The table gives the cake output for four bakeries, A-D. Which bakery has the greatest labour productivity?

Firms and production

Read the source material closely before answering Question 1. Source material: India’s airline industry Air India is government-owned in India. As fresh firms have entered India’s air transport market, Air India’s power to choose prices has weakened. The state-owned airline competes not just with rival airlines but also with other transport modes such as trains and ships. In 2017, the Indian government made an unsuccessful attempt to sell Air India to the private sector. If that sale had succeeded, the Indian government would have gained revenue and the airline might have become more efficient. Forecasts suggest that by 2025 India will have the third largest airline industry. Growth in the industry may influence India’s current account position in its balance of payments. Table 1.1 shows the current account position in India and four other countries. More routes and a better passenger experience may lead to more tourists travelling to India. A larger Indian airline industry is likely to make it easier for people and goods to move into and out of India. This could draw in more multinational companies (MNCs) and lower firms’ production costs. India’s air transport market has several difficulties. India has the highest airline fuel tax in Asia. Some economists argue that this should be raised further to boost tax revenue and cut market failure. Other airline costs are rising, yet it is difficult for airlines to increase fares because Indian air passengers are among the world’s most price-sensitive. Some airlines prevent costs from rising further by improving staff training, adopting new technology and improving pilots’ working conditions. The ability of airlines to recruit pilots depends, among other things, on the quality of education and the availability of other jobs.

Current account of balance of payments

Several countries, Morocco among them, collect water from fog. Water is used in the primary, secondary and tertiary sectors. Over recent years, Morocco has expanded the amount and improved the quality of its resources, and has shifted more of them into the tertiary sector. The amount, quality and composition of a country’s resources are affected by several influences, such as its birth rate. Morocco’s birth rate decreased from 19.9 in 2016 to 18.7 in 2018.

The factors of production

Uzbekistan's cotton and gas are two of its leading industries. In cotton production, Uzbekistan ranks seventh in the world and fifth for exports. The Uzbek government has tried to alter the cotton industry's price elasticity of supply, and it has almost removed child labour from cotton production. Gas output in the country rose by 7% in 2018, while the average cost of gas production fell.

Price elasticity of supply (PES)

In Tunisia, decisions about resource allocation are taken by both the public sector and the private sector. From 2014 to 2018, Tunisia’s GDP rose, yet households put aside less. Income levels can be influenced by shifts in trade union activity and the foreign exchange rate. Between 2014 and 2018, Tunisia saw several strikes organised by its biggest trade union, the Tunisian General Labour Union. Its foreign exchange rate also fell sharply.

Mixed economic system

The US has a largely market-based economic system. US life expectancy declined in 2017, marking the third consecutive year of fall. Although GDP per head is high in the US, income inequality is also high. The poor have gained from the US’s low and stable inflation rate. The government’s supply-side policy measures were partly responsible for cutting inflationary pressure.

Market economic system

Study the source material closely before you answer Question 1. Source material: Changes in eating habits In high income countries, worries about health, obesity and animal welfare have grown. This has contributed to a rise in vegetarianism (not eating meat) and veganism (not eating meat, eggs or dairy) in high income countries. In 2017, veganism rose by 20% in the UK. As incomes rise in the UK, people are more likely to eat vegan food. Promotion of vegan food has also helped to increase consumption. It is claimed that eating vegan food can improve people’s health. Healthier workers can produce more, and better quality, products. Eating less meat and dairy products can also benefit the environment. Farm animals release greenhouse gases and their waste adds to water pollution. Although meat consumption per person is falling in high income countries, it is increasing in low income countries. Fig. 1.1 shows the average daily calorie intake in Senegal, a west African country, and the US, by food groups in 2015. The recommended daily calorie intake is 2880. To react to changes in the kinds of food people eat, it helps if workers are mobile. In general, the higher labour mobility is, the more efficiently the labour market adapts to shifts in demand and in the supply of workers. This improves a country’s international performance in trade of goods. Because some people in Africa are malnourished, eating more food of any type, including meat, may improve their health. A rise in meat consumption will raise demand for vets (for animal welfare) and transport firms. It can also increase the number of meat processing firms. Senegal has a high unemployment rate and low income per head. It has recently seen a drop in consumer expenditure. New industries and new jobs would help prevent Senegal experiencing a recession. A rise in government spending may also be necessary. The high birth rate and growing population also put pressure on the government to spend more. However, emigration is reducing tax revenue while giving some Senegalese useful employment experience.

Demand

In 2018, 54% of Russia’s population was female and the government set out plans to increase the state retirement age. In Russia, the importance of the price mechanism in answering the key resource allocation questions is rising. However, the Russian government raised indirect taxes, partly to reduce market failure.

Market failure

South Africa has a large pool of unemployed workers. In recent years, South Africa’s inflation rate has been steady, partly because wages have been relatively stable. When wages rise, this can lead to inflation and can increase the quantity of consumer goods that are bought and produced. To raise employment and reduce the deficit on the current account of South Africa’s balance of payments, some economists argue that more foreign multinational companies (MNCs) should be encouraged to produce in South Africa.

Current account of balance of payments

In recent years, Norway has taken part in free trade to a larger degree. The country uses a floating foreign exchange rate. The pattern of employment in Norway has altered. For example, more Norwegians now work in jobs that require a university degree. Some of these graduates are economists and lawyers who deal with mergers between firms. In 2017, there were 332 mergers, which was 23% higher than in the previous year.

Globalisation, free trade and protection

Vietnam’s industries and markets are undergoing change. Division of labour is being used more widely across a number of industries. A growing number of markets are becoming more competitive, which is causing some firms to record losses. In 2018, manufacturing was Vietnam’s strongest sector, and manufacturing output rose by 13%.

Market structure