Oct/Nov 2023

Which statement is the correct one?

Microeconomics and macroeconomics

What factors lead to a change in the price of a product in a free market economy?

Price changes

Ways of making and taking payments keep evolving. Today, people can pay by using smartphones, as well as cash, debit cards and credit cards. Which payment method for buying products gives sellers no information about their customers?

Money and banking

In most countries, which organisation is in charge of the banking system?

Money and banking

Which of the following is not a reason for the variation in airline pilots’ earnings in a particular country?

Workers

An airline acquires an online clothing company. What is one advantage of this move for the airline?

Firms' costs, revenue and objectives

In what type of industry is a firm most likely to earn a large profit in both the short run and the long run?

Market structure

A company makes five units of output at an average cost of $20 per unit. The cost of producing the sixth unit is $26. What is the average cost of six units?

Firms' costs, revenue and objectives

What is one example of a government macroeconomic policy?

Fiscal policy

How would lowering the international value of an economy’s currency help to reduce unemployment?

Foreign exchange rates

What is likely to happen if the rate of interest rises?

Monetary policy

The economy of country X is always operating on its production possibility curve (PPC). At what point will the goods and services produced by country X become scarcer?

Production possibility curve (PPC) diagrams

Which of the following is not a supply-side policy measure?

Supply-side policy

The table gives the real GDP per head for a country in 2021 and 2022. 2021: $20\,000 2022: $21\,000 What is the most likely change between 2021 and 2022?

Living standards

Which alteration to fiscal policy is most likely to lower cyclical unemployment in an economy?

Fiscal policy

What must have taken place in a country if it recorded an annual inflation rate of $100\%$?

Inflation and deflation

The Human Development Index (HDI) is used to assess human development in countries. Which measure would not be included when it is calculated?

Differences in economic development between countries

What is the most probable effect of an ageing population on a high-income economy?

Population

In some developing countries, a high proportion of the population works in subsistence farming. What conclusion can be drawn from this?

Differences in economic development between countries

A small country, with oil as its sole export, chooses to cut the speed at which it removes its finite oil reserves quite substantially. What is the most likely explanation for this choice?

The nature of the economic problem

Country X thinks that country Y is exporting steel at a price lower than the average cost of production. As a result, country X places a higher tariff on steel imports from country Y. What is country X hoping to achieve by introducing this higher tariff?

Globalisation, free trade and protection

What factor would lead to a country’s exchange rate falling?

Foreign exchange rates

What does capital mean?

The factors of production

A number of European companies hire workers from the Philippines. Those workers remit some of their earnings to family members in the Philippines. In which section of the Philippines’ balance of payments current account would these transactions be entered?

Current account of balance of payments

Which features characterize a market economy?

Market economic system

Cars and public transport are substitute goods. If the price of public transport goes up. How will the demand for cars be affected?

Demand

The markets for four products are each in equilibrium. The table shows the price elasticity of supply (PES) for every product. Demand for each product moves rightward by 5000 units at all prices. Which product will experience the greatest rise in price?

Price elasticity of supply (PES)

What is the price elasticity of demand (PED) for a product if total revenue stays unchanged when the price is lowered?

Price elasticity of demand (PED)

A hotel owner in Malaysia discovers that the price elasticity of demand (PED) for accommodation in the locality is $-1.7$. If the hotel owner lowers the price of a room by $5\%$, what change would occur in the demand for a room?

Price elasticity of demand (PED)

When the weather is favourable, the demand for tomatoes rises, and the supply of tomatoes rises as well. What is certain to happen as a result?

Price determination

Honduras is a lower middle-income country and depends heavily on trade with the US. Over half of Honduran exports are sold to the US, while 40% of its imports are bought from the US. A large number of Hondurans are employed in the US and remit money to relatives at home. In the past, Honduras focused on banana and coffee production, which helped it build expertise and a strong reputation in those markets. Today, Honduras makes a wider variety of goods, such as clothes, chemicals and paper. This diversification has lessened the uncertainty caused by sudden shifts in demand and supply. For instance, tariffs might be placed on Honduran coffee, or a report might claim that bananas are beneficial to health. Employment in agriculture is falling, whereas jobs in the clothes industry in Honduras are rising. Workers in the clothes industry are expected to receive more training and experience better working conditions. Firms are also making greater use of capital goods. However, it is not clear what will happen to the prices of cotton, wool and the other raw materials needed to make clothes. A thriving clothes industry could help reduce poverty in Honduras. The Honduran government seeks to cut poverty by, for example, paying unemployment benefit. One important reason for the government wanting to reduce poverty is to raise life expectancy. If the Honduran economy became stronger, incomes would rise. Because the country uses a progressive income tax system, tax revenue could rise significantly. A stronger economy would also probably encourage more investment. Unemployment would be expected to decrease, which in turn might affect consumer spending.

Differences in economic development between countries

Botswana combines capital goods and labour in its diamond mining industry. From 2015 to 2019, its average economic growth rate was $3.8\%$, compared with a world average of $2.8\%$. During this period, inflation remained low and the economy shifted away from protectionism towards free international trade.

Economic growth

In 2020, several firms in Suriname, a country in South America, ceased production. This happened because the firms were unable to meet their variable costs and also some fixed costs. The fall in the country’s output caused its unemployment rate to rise. The government introduced supply-side policy measures to bring unemployment down. In 2021, firm numbers in some markets dropped again, but output was increasing this time.

Employment and unemployment

In the US, meat supply from emus, a large bird, is price-elastic. Recently, US farmers have shifted to other livestock and crop production, which has altered their demand for labour. Their choices are also shaped by government subsidies for producing selected food items. Some people are unwilling to work as farm labourers because they believe living standards in rural areas are low.

Price elasticity of supply (PES)

In 2020, Singapore saw both its population size and labour force fall. 2020 was a year of significant change across several Singaporean markets. Some shifted from disequilibrium to equilibrium. Even with all of these changes, Singapore still succeeded in raising its exports of goods and services.

Production possibility curve (PPC) diagrams

Before you answer Question 1, study the source material carefully. Source material: Economic changes in Montenegro Montenegro is a European country where the private sector has become more important. By 2020, 90% of state-owned firms had been privatised. All commercial banking, telecommunications and aluminium production has moved into private ownership. The country’s banks now use more computers, employ more workers and have more office buildings. In most years, Montenegro receives three times as many tourists as the number of people living there. Tourism is a highly competitive market. Demand for holidays is price-elastic, which affects the pricing strategy used by firms in the industry. The share of workers employed in tourism and other tertiary sector industries has risen. In 2020, 75% of Montenegro’s labour force were employed in the tertiary sector. Some workers in the primary sector help to produce and export oranges. It has been proposed that a minimum price should be fixed for oranges and some other crops. Changes in the price of a country’s exports can influence both the trade in goods and services balance and the current account balance of its balance of payments. Table 1.1 shows selected details of six East European countries’ balance of payments in 2020. The amount and pattern of consumer spending affect a country’s international trade position. Privatisation has influenced consumer spending. Moving into the private sector has changed investment, the number of workers employed and competition in these industries. It has also affected firms’ objectives, prices and how quickly they respond to changes in consumer demand. In 2020, Montenegro had very low inflation. It was expected that this might become deflation. A fall in the price level could affect the country’s output, employment and balance of payments.

Market economic system

In 2019, Mozambique was struck by a severe storm that ruined bridges, factories, roads and electricity lines. Nearly 60% of Mozambique’s population live in absolute poverty. The country’s citizens are eager to raise Mozambique’s economic development. Government intervention in Mozambique’s economy is high. Although Mozambique does not set import quotas, it does apply a variety of import tariffs.

Differences in economic development between countries

Saudi Arabia’s economic structure could alter in the years ahead. Its central bank is now dealing with a larger number of private-sector banks. In 2020, the population’s average age was 31.8, only a little above the world average of 31.2. In that year, plans were announced for a city in which cars would neither be needed nor permitted. A project like this could make Saudi Arabia more appealing to younger migrants.

Money and banking

In Ecuador, people purchase goods using different kinds of money. The Ecuadorian government transfers public sector workers’ wages straight into their bank accounts. In 2019, advances in technology affected the profits of some Ecuadorian firms. In that year, the Ecuadorian government shortened public sector workers’ hours and, in 2020, cut its spending. Economists were unsure how the fall in government spending would affect unemployment.

Money and banking

In 2020, Paraguay’s Consumer Prices Index increased by 3% and its foreign exchange rate moved about. Each year Paraguay records net emigration. People leave a country for a range of reasons. These include a low rate of economic growth and a high level of market failure. The Paraguayan government does intervene in the economy in an attempt to reduce market failure.

Market failure