May/June 2023

What causes scarcity in an economy?

The nature of the economic problem

A government chooses to cut air pollution in city centres by providing financial support to bus companies, lowering their production costs and the fares paid by passengers. What type of policy measure is this?

Market failure

What would be least likely to function as a store of value during a period of rapid inflation?

Money and banking

A country’s central bank increased the rate of interest from $1\%$ to $4\%$ per year. In what way would this have influenced the amount saved and the cost of borrowing for individuals?

Monetary policy

Which factor would not improve a trade union’s bargaining power to secure higher wages?

Trade unions

Which conditions are most likely to draw small firms into entering a market?

Market structure

The diagram illustrates a firm’s total cost (TC) curve. What is the average variable cost when the firm makes $10$ units of output?

Firms' costs, revenue and objectives

The table sets out the quantities of factors of production that a firm must use at two different output levels. What situation is the firm facing?

Firms and production

Give one example of a government macroeconomic objective.

The macroeconomic aims of government

Government policy actions can influence economic activity in a country. Which pair of monetary policy measures would be likely to raise employment?

Monetary policy

What would be the most likely factor to encourage saving?

Money and banking

What does a point on a production possibility curve show for an economy?

Production possibility curve (PPC) diagrams

A government in a country that is already operating at full employment raises its expenditure on education and training. How does this alter the chance of achieving low inflation in the short run and the long run?

Supply-side policy

A government has imposed a tax on a necessity. Producers have shifted a large part of this tax onto consumers by charging higher prices. Which row is correct?

Price elasticity of demand (PED)

What is most likely to cause structural unemployment to rise in a country?

Employment and unemployment

Which citizens are most likely to gain during a period of rapid inflation?

Inflation and deflation

Which statement is true regarding the Human Development Index (HDI) and real GDP?

Living standards

If all other factors remain unchanged, what would lead a population to grow and also become older?

Population

Which change would be least likely to occur in a country as it develops?

Differences in economic development between countries

For developed economies, it costs less to import some cereals from developing economies than to grow them within the country. What could cause international trade in cereals to fall?

Globalisation, free trade and protection

A country places a quota on cars brought in from abroad. What is the most likely result of this measure?

Globalisation, free trade and protection

A product from Argentina is first sold in the US at $50 when the exchange rate between the two countries is 5 pesos to 1 dollar. The exchange rate then changes to 10 pesos to 1 dollar, while the product’s price in Argentina stays the same. What is the new price of the product in the US?

Foreign exchange rates

Which change is most likely to raise enterprise as a factor of production in an economy?

The factors of production

Which policy measure is most likely to decrease the current account deficit in an economy’s balance of payments?

Current account of balance of payments

Which economic activity would be regarded as macroeconomics?

Microeconomics and macroeconomics

The diagram illustrates the impact of a fall in price on demand for a product, as price drops from $P_1$ to $P_2$ and quantity demanded rises from $Q_1$ to $Q_2$ along the demand curve $D$. What is the arrow in the diagram showing?

Demand

Which formula should be used to calculate price elasticity of supply?

Price elasticity of supply (PES)

What is the most likely reason for a product to have a price elasticity of demand above one?

Price elasticity of demand (PED)

For certain illnesses, face masks are beneficial because they may stop people from becoming infected. However, not everyone is prepared to wear face masks. Using the statement above, why would face masks be allocated inefficiently in the free market?

Market failure

What factor would cause a rise in quantity supplied by moving up the supply curve for rice?

Supply

What forms one element of the economic definition of scarcity?

The nature of the economic problem

Setting a highest allowed price for a good is an example of what kind of government policy?

The role of government

Savers are hurt as inflation climbs to $4.4\%$. Which function of money is mainly involved in this statement?

Money and banking

One of the functions of money is to act as a measure of value. What is meant by this?

Money and banking

Which trade union activity is likely to benefit firms?

Trade unions

Which of the following is not a variable cost of production?

Firms' costs, revenue and objectives

What is meant by a firm’s revenue?

Firms' costs, revenue and objectives

What might lead to internal diseconomies of scale for a firm?

Firms' costs, revenue and objectives

A government chooses not to alter direct taxes but instead raises indirect taxes. What is this policy designed to achieve?

Fiscal policy

What is the most probable reason for increasing government subsidies?

Fiscal policy

Which groups of people are most likely to benefit during a period of inflation?

Inflation and deflation

A country’s production possibility curve (PPC) shifts from $\text{PPC}_1$ to $\text{PPC}_2$. What might have caused this shift in the PPC?

Production possibility curve (PPC) diagrams

The government of country Z announces increased spending on workplace training. What is the most likely effect of this supply-side policy?

Supply-side policy

The table gives real GDP in US$ billion for a country across a three-year period. What does the GDP data show for the country from year 1 to year 3?

Economic growth

What is a probable result of a declining unemployment rate?

Employment and unemployment

The diagrams display Italy’s unemployment rate and GDP per head. At what point do Italy’s unemployment rate and GDP per head increase at the same time?

Employment and unemployment

When a recession occurs, many people in a city lose their jobs and their incomes decrease. Some people can no longer afford to pay rent for their homes or to purchase the food they need. What is the effect of the recession in the city?

Poverty

The Peruvian government aimed to cut the proportion of its population living in poverty. Which change would not show that the Peruvian government had made progress towards this target?

Poverty

Which of the following is not a cause of the recent fall in manufacturing industries in developed economies?

Globalisation, free trade and protection

The table gives a country’s exports and imports. Exports of goods: $200\ \text{m}$ Imports of goods: $190\ \text{m}$ Exports of services: $35\ \text{m}$ Imports of services: $38\ \text{m}$ What was the country’s balance of trade in goods and services?

Current account of balance of payments

Country X sells steel to country Y at a price that is lower than the cost of producing it. As a result, demand for steel made in country Y has decreased. What is a trade protection method that country Y could use to cut the imports of steel from country X?

Globalisation, free trade and protection

What could raise the demand for a country’s currency in the foreign exchange market?

Foreign exchange rates

A government allocates $100\text{m}$ to subsidise the building of wind farms rather than using it to increase healthcare spending. Which economic concept is shown by this spending choice?

Opportunity cost

Country X is experiencing a continuing current account deficit in the balance of payments. Which policy measure is most likely to reduce this problem?

Current account of balance of payments

State one example of a macroeconomic indicator.

Microeconomics and macroeconomics

Good X is in demand in two markets, Y and Z. The table gives the quantity of X demanded in these markets at different prices. What conclusion can be drawn from the table?

Demand

Which price elasticity of demand (PED) would lead to total revenue rising if the price of the good increased?

Price elasticity of demand (PED)

The diagram illustrates the supply curve for coffee. The price of coffee rises from $P_1$ to $P_2$. In what way would this benefit firms in the coffee industry?

Price changes

What could be one external advantage of an increase in the number of university graduates in an economy?

Market failure

The price of a good rises. What might lead to this?

Price changes

Source text: Is there a future for Australian coal? Australia is one of the world’s major coal producers. Most coal is burned to generate electricity, and this releases carbon dioxide. In recent years, worldwide demand for coal has fallen as countries have tried to cut pollution. As a result, there has been a move towards, for example, gas, offshore wind and solar power. Coal is extracted in all six of Australia’s states, although most comes from Queensland and New South Wales. In Queensland, some firms are extremely large. They employ both low-paid, unskilled workers and highly paid specialist mining engineers, site managers and accountants. These firms also rely on the newest excavators, mining drills, crushing equipment, earth movers and drones to spot maintenance problems. Coal can be kept in storage to respond to changes in market conditions, but storage costs can be high. It may also take several years to build a new coal mine. Table 1.1 shows the output and consumption of the seven largest producers in 2020. Global coal output has declined in recent years as most countries have switched to renewable energy sources. Even so, there are some countries where coal output is expected to rise. For instance, Australia and India both have plans to open new coal mines. The Indonesian government places a maximum price on coal so that its power stations are encouraged to use it. Australia’s coal industry adds to the government’s tax revenue. However, Australia’s budget balance is also affected by other factors, including changes in tax rates and state support for some industries in the country.

The factors of production

In South Africa, living standards, including education, have improved for most people in recent years. Many households now have more money, and the government collects more tax revenue. Even so, income inequality is still very large. In 2020, $36\%$ of the population were living in poverty. Raising unemployment benefit payments could help to reduce this poverty.

Poverty

Germany has a higher death rate than several other countries, such as Sweden, Cuba and the Maldives. Between 2011 and 2021, Germany’s labour force grew in size and became more productive. The country has also recorded low inflation and a rising surplus on the current account of its balance of payments.

Current account of balance of payments

A large number of people from the Philippines are employed in other countries, often in sectors that supply merit goods and public goods. In 2020, the Philippine government collected greater tax revenue. Some of this was used for policies aimed at raising life expectancy and some for policies aimed at cutting unemployment. The country’s unemployment rate was also influenced by an increase in the country’s foreign exchange rate.

Fiscal policy

In Greece, wealthier households spend more than the typical household. The level of spending in an economy helps determine whether its production point lies on or inside its production possibility curve (PPC). In 2020, household spending in Greece decreased. That influenced some firms’ merger plans. It also raised unemployment. More than half of Greece’s unemployed had been out of work for over a year.

Households

Background: In what ways might oil transform Guyana? Guyana fact file (2020) In 2020, Guyana recorded the quickest economic growth worldwide. For a long period, sugar, gold and timber have made up a fairly large share of the nation’s output and exports. During 2020, the sugar industry was affected by adverse weather and weakening worldwide demand, whereas gold and timber output rose. The chief reason for the sharp rise in Guyana’s real GDP was higher oil production. A foreign multinational company (MNC) discovered offshore oil in 2015, and production began in 2019. It is forecast that by 2025 Guyana will be the world’s biggest oil producer per head. The Guyanese government plans to direct some of the tax revenue it expects from oil into education and upgrades to the country’s infrastructure. Planned schemes include fresh railway lines and stations. A larger and less expensive rail network may allow more people to work further from home and could affect the market for substitutes, such as car transport. The Guyanese government also intends to use some of the tax revenue to improve the country’s internet access. Table 1.1 presents GDP per head and internet access in seven countries in 2020. Guyana’s population size has risen only slowly in recent years. In 2020, its birth rate was $16.5$, its death rate was $6.8$ and its net migration rate was $-7.7$. As oil production expands, emigration may fall and the country may begin to record net immigration. A larger population could affect Guyana in several ways, including altering the size of its labour force and influencing the environment.

Economic growth

In 2020, Thailand’s largest commercial bank joined with a smaller Thai commercial bank. It was anticipated that this merger would change the price charged for bank services and the sum that would be lent. Thai commercial banks are part of the private sector. An expanding private sector can move an economy towards a market economic system.

Market economic system

In Canada, private sector firms have several different goals. The amount and the quality of land used by these firms, including farms, has risen. Investment has also grown, with firms purchasing more capital goods. In 2021, the Canadian government encouraged greater investment and wanted to stop unemployment from increasing.

Firms and production

In 2020, Australia’s national minimum wage (NMW) was high. Some workers on Australian dairy farms received the NMW. Australia produces milk and soft drinks. Some people buy milk instead of soft drinks. During 2020, some dairy farms and some small firms closed down. In the same year, the value of the country’s floating foreign exchange rate increased.

The role of government

In 2019, China’s economic growth rate stood at 6.1%, and Chinese households spent more. A greater number of Chinese people went to sports events, and the income of leading sportspeople rose. China exported more, even though tariffs on some of its products increased. For instance, the US raised tariffs on Chinese tea and coffee imports.

Current account of balance of payments