May/June 2024

What does the term free good mean?

The nature of the economic problem

In one firm, a worker receives a higher wage than another worker. Which possible reason for this wage difference could count as discrimination?

Workers

The diagram illustrates the labour demand and supply curves for a firm. The starting wage rate is shown as $W_0$, and the equilibrium quantity of labour employed is $L_0$. A trade union representing all workers secures a higher wage rate of $W_1$. What is the size of the unemployment created by this rise in wages?

Workers

A farmer brings in machinery to assist workers during the harvest period. The farmer also cuts the number of workers by $50\%$. As a result, the total harvest rises by $25\%$. What has taken place?

Firms and production

A firm has fixed costs of $20 and the total variable costs shown below. How does average total cost change across this output range?

Firms' costs, revenue and objectives

The table sets out the firm's costs and output. What is the firm's average fixed cost?

Firms' costs, revenue and objectives

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

Market structure

What is likely to occur if a market that was previously competitive turns into a monopoly?

Market structure

Which macroeconomic aim, if achieved, would be most likely to raise a government budget surplus?

The macroeconomic aims of government

The table gives the income tax rate paid by workers at different income levels in selected years for a developed economy. Which economic objective was the government most likely aiming to achieve when it changed the tax rates between year 1 and year 2?

Fiscal policy

A government is trying to increase economic growth by using a lower interest rate policy. In the short run, which other government objective is most likely to benefit?

The macroeconomic aims of government

A firm is choosing between producing good X and good Y over the next five years. The forecast revenue for good X is $20000 per year, while for good Y it is $18000 per year. What is the opportunity cost of producing good X?

Opportunity cost

How would you define a supply-side policy?

Supply-side policy

Subsistence farming means producing crops and rearing livestock only to satisfy one’s own needs, with no excess left for trade. Why would it be hard for a government to assess economic growth in an economy that relies on subsistence farming?

Economic growth

What condition must a worker meet to be counted as unemployed?

Employment and unemployment

Which factor is most likely to rise as the inflation rate increases gradually from $2\%$ to $8\%$ during one year?

Inflation and deflation

Introducing a minimum hourly wage in an industry is meant to lower poverty among workers on low pay. What benefit would workers get from an effective national minimum wage?

Workers

The chart shows the population pyramid for a country. Which factor is most likely to make the population pyramid look like this?

Population

The table gives information about four countries. Which country is most likely to be the most developed?

Differences in economic development between countries

What is one benefit to a firm of specialisation at a national level?

International specialisation

What is one intended result of shielding infant industries from free trade?

Globalisation, free trade and protection

On the diagram, curves $D_1$ and $S_1$ show the demand for and supply of the US dollar ($\$$) in relation to the Chinese yuan. Which change is most likely to make the demand curve for US dollars move from $D_1$ to $D_2$?

Foreign exchange rates

The diagram illustrates a production possibility curve (PPC) for an economy. Why does the economy move from point M to point N?

Production possibility curve (PPC) diagrams

Brazil recorded a balance of payments current account deficit of $\text{US}\$23.5$ billion. Which policy is most likely to cut the current account deficit in Brazil?

Current account of balance of payments

Which factor is not kept constant when a demand curve for a good or service is drawn?

Demand

The diagram illustrates a movement of the supply curve for New Zealand’s airlines from S$_1$ to S$_2$. What is the most likely reason for this change?

Supply

What might lead to an increase in the price of tea?

Price changes

A business alters the price of its product and discovers that its revenue rises. Which pairing of price change and price elasticity of demand could explain this?

Price elasticity of demand (PED)

What would not be possible in a market economic system?

Market economic system

Which option gives a correct definition of a demerit good?

Market failure

Why must scarcity always be present?

The nature of the economic problem

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

Workers

What might cause households in a country to spend less?

Households

Which combination illustrates the advantages that a small firm has compared with a larger firm?

Firms

What does variable cost mean for a firm?

Firms' costs, revenue and objectives

The table presents the daily mean revenue and the number of units sold for a bicycle manufacturer across a five-day period. What conclusion can be drawn from the table?

Firms' costs, revenue and objectives

Which function of money serves as a measure of value?

Money and banking

What characteristics does a highly competitive market have when compared with a monopoly market?

Market structure

Which of the following is not a function of central government in a mixed economy?

Mixed economic system

A government wants to stop deflation. Which policy mix would be most effective in achieving this objective?

Inflation and deflation

The diagram illustrates the effect of a tax that has been imposed on a product. Which area shows the amount of tax paid by the consumer?

Price changes

A student chooses to begin a two-year apprenticeship, during which she will receive $10\,000$ each year. Once this has finished, she expects to earn $25\,000$ per year. Instead of doing the apprenticeship, she could accept an unskilled job that pays $16\,000$ per year. What is the opportunity cost over the two years spent completing the apprenticeship?

Opportunity cost

Which of the following statements about supply-side policy is correct?

Supply-side policy

Which change is most likely to lead to more rapid economic growth in the short run?

Economic growth

What changes are likely to occur in the pattern of employment as a country becomes more developed?

Differences in economic development between countries

Which item is the least likely to be included in the Consumer Prices Index (CPI)?

Inflation and deflation

The table presents statistics for four countries A, B, C and D. From the data shown, which country has the lowest standard of living?

Living standards

Economic development in country X has advanced more quickly than in country Y. What is the most likely reason for this difference in economic development between country X and country Y?

Differences in economic development between countries

An increase in which factor would lead to a higher population growth rate in a country?

Population

The diagram illustrates the market for an imported good, with equilibrium at point X. A tariff is then imposed by the country on this good. Does the new equilibrium occur at point A, B, C or D?

Globalisation, free trade and protection

The diagram illustrates the market for the Chinese yuan (¥), with the price expressed in US dollars ($). What might have led to the shift in demand for the yuan from $D_1$ to $D_2$?

Foreign exchange rates

The table gives the average exchange rate of the UK pound (£) against the US dollar ($), meaning how many $ can be purchased with £1. What is a likely consequence of this change for the UK economy?

Foreign exchange rates

The diagram illustrates a country’s production possibility curve (PPC). Which present mix of capital and consumer goods would lead to the largest quantity of consumer goods in the future?

Production possibility curve (PPC) diagrams

The table presents components of Japan’s current account balance in trillion yen (¥) over 2 years. Which balance became better from year 1 to year 2?

Current account of balance of payments

Which one is not a macroeconomic topic?

Microeconomics and macroeconomics

What is likely to lead to an extension in demand for a firm’s fruit drink?

Price changes

Supermarkets provide petrol (gas) at sites outside their stores. They cut the petrol price to a level lower than that of other suppliers in order to draw in more customers, who then buy more items in the store when they purchase more petrol. If this plan succeeded, how would it be shown on demand and supply diagrams?

Demand

Which statement identifies a market that is in disequilibrium?

Price determination

Following a rise in price from $\$5$ per kg to $\$6$ per kg, a farmer raised supply from $400$ kg each week to $500$ kg per week. What is the price elasticity of supply?

Price elasticity of supply (PES)

Which government policy is most likely to bring about a decrease in both price and quantity traded?

Price determination

Read the source carefully before you answer Question 1. Source material: What might the future look like for Nicaragua? Nicaragua is the largest nation in Central America. It has a substantial agricultural sector, and coffee is one of its main exports. It has been estimated that a $10\%$ change in the price of coffee will lead to a $3\%$ change in the quantity of coffee demanded. The country’s agricultural output, including coffee, is often disrupted by natural disasters such as droughts and earthquakes. Nicaragua has the lowest Gross Domestic Product (GDP) per head in Central America. Pay is especially low in the rural areas of the country. Income inequality is high and firms usually make lower profits than those in other Central American countries. The number of Nicaraguans who were willing and able to work but could not find a job rose in 2020, as shown by both the claimant count and the labour force survey. In 2020, the purchasing power of Nicaraguan consumers declined because prices increased by more than incomes. Even so, the country’s currency, the cordoba, still remained widely accepted. It continued to function as a medium of exchange and a store of value. Nicaragua’s future economic performance will be shaped by several factors. These include the share of the labour force employed in agriculture, the size of the country’s firms and what the country produces. Table 1.1 shows the percentage of the labour force employed in agriculture and GDP per head in selected countries in 2020. Nicaraguan firms are usually relatively small. Such firms often know the needs of their individual customers, but many are not large enough to gain economies of scale. In recent years, Nicaragua has experienced a boom in coffee shops. Between 2015 and 2020, the number of coffee shops in the country more than doubled. These shops distinguish themselves through their customer service and the quality of the coffee they serve. Nicaragua is the world’s twelfth largest producer of coffee. Global coffee consumption continues to rise. This trend may increase Nicaragua’s coffee output and exports.

Price elasticity of demand (PED)

In recent years, labour mobility, the number of women in the labour force and GDP have all increased in Bangladesh. In 2019, Bangladesh’s central bank approved three additional commercial banks. In that year, women on average earned $77\%$ of men’s pay in Bangladesh. The country’s economy recorded the world’s seventh highest economic growth rate, with GDP rising by $7.4\%$.

Workers

Indonesia has a mixed economic system. Bank Indonesia, the central bank of Indonesia, seeks stable prices. Changes in population size can affect the country’s price level. Indonesia’s population is still rising, although the growth rate is now slower. Several industries in the country are expanding, with especially rapid growth in Indonesian domestic and international air travel.

Mixed economic system

Healthcare belongs in the tertiary sector. Healthcare generates both private benefits and external benefits. In 2019, five mergers took place between large US healthcare firms. Alongside their operations in the US, US healthcare firms also operate in several host countries, including Singapore.

Market structure

During 2020, gold prices declined in Vietnam. In that year, Vietnam ranked among Asia’s strongest-performing economies. Unlike several Asian economies, Vietnam did not go into recession. Its overall output, exports and imports all rose. Unemployment did rise from 2.0% to 2.3% but still stayed very low. One aim of fiscal policy may be to reach full employment.

Fiscal policy

Study the source material thoroughly before you answer Question 1. Source material: The difficulties facing the Tunisian government Tunisia fact file For several years, Tunisia had a government budget deficit. From 2015 to 2020, the Tunisian government introduced reforms intended to cut the tax burden, depend more heavily on indirect taxes and make the tax system more efficient and more economical. In addition to taxing a variety of products, the Tunisian government also controls the prices of some goods, such as flour and milk. Keeping the prices of flour and milk under government control can help to lower poverty and stop monopoly firms using their market power to exploit consumers. The Tunisian government also provides subsidies for electricity production. The subsidy changes the cost of producing electricity, and any movement in the price of electricity influences the costs faced by other firms. This type of government expenditure can help to ease inflationary pressure, although it may also influence how efficiently electricity is produced. Although some firms gain from the subsidy for electricity production, they also go through periods in which their other production costs rise. Tunisian shoe producers have recently faced higher wage costs and a fall in the number of workers they employ. The average wage paid to Tunisian workers and the Tunisian inflation rate changed between 2014 and 2020, as shown in Fig. 1.1. Unemployment has been a difficulty in Tunisia for many years. In 2020, the government passed a law promising that workers who had been unemployed for ten years or more would be taken on by the public sector. To reduce the time spent moving from one job to another, it expanded labour market information available to workers and employers and did not increase unemployment benefit in line with inflation. The Tunisian foreign exchange rate moved up and down in 2020. This influenced the prices of the country’s exports and imports. It also affected the current account of its balance of payments, economic growth, inflation and unemployment.

Fiscal policy

During 2020, pay received by Mexican workers, including those in the primary sector, declined. This decline helped to cause a 9% increase in poverty in the country. In that same year, many small and medium-sized firms shut. The country also experienced traffic congestion. Its capital city, Mexico City, is the world’s most congested city.

Opportunity cost

South America covers a very extensive geographical region and includes millions of microeconomic decision-makers. During a recent pandemic, schools remained shut for longer than anywhere else in the world. Consequently, students obtained less education. The World Bank estimated that the average student would earn $\$24\,000$ less across their lifetime. Some students may receive only the minimum wage. In 2020, South America recorded an inflation rate of $6.3\%$ and an economic growth rate of only $1.8\%$.

Microeconomics and macroeconomics

Tajikistan is among Asia’s low-income nations. Its currency, the somoni, has the main features of money. More than one million Tajik citizens work overseas, mainly in Russia. In 2020, the Tajik government feared that the economy could slip into recession, which might reduce tax revenue. Even with this risk, some Tajik firms still purchased new capital equipment.

Money and banking

Free goods and economic goods are used in Poland. In 2020, demand for both economic goods and factors of production rose in Poland. For instance, Polish consumers wanted more football shirts, and the Polish government raised its expenditure on housing for the nation’s population.

Demand