Oct/Nov 2025

A government plans to construct a new hospital. What is the most likely obstacle that would stop the government from doing this?

Opportunity cost

Which is not a function of the central bank?

Money and banking

The table sets out the proportion of disposable income that four different households spend on three different goods. Which household is most likely to have the lowest income?

Households

In which jobs are wages usually lowest?

Workers

In what ways could a trade union strengthen its bargaining power?

Trade unions

Rubber is needed in order to make a car tyre. If a car tyre manufacturer combines with a supplier of rubber, what type of merger is this?

Firms

At an output level of 100 units, a firm's total variable cost is $300$ and its total fixed cost is $2700$. What is the average total cost?

Firms' costs, revenue and objectives

What is likely to be observed when an industry has many small firms?

Market structure

A government places tariffs on imported goods. Which of these is not a likely reason for doing this?

Globalisation, free trade and protection

In one year, a government receives the following revenue: taxes on goods = $30\text{ m}$, taxes on income = $500\text{ m}$, taxes on services = $20\text{ m}$, customs and excise duties = $50\text{ m}$. What is the total indirect tax revenue?

Fiscal policy

Which policy measures would count as fiscal policy?

Fiscal policy

Which term is used for the loss of possible benefit to a consumer when choosing between alternatives?

Opportunity cost

What is the most likely effect of a decrease in interest rates?

Monetary policy

What does a successful supply-side policy cause to increase in an economy?

Supply-side policy

During one specific year, South Sudan's population growth stood at $1.3\%$ and its GDP growth was $2\%$. What is the most probable consequence of this?

Economic growth

What are the correct definitions of unemployment and employment in relation to the number of people of working age?

Employment and unemployment

The graph illustrates movements in the average price level. At what time did the country experience deflation?

Inflation and deflation

In a number of high-income economies, rising income inequality has resulted in higher poverty levels. Which mix of policies would be intended to lessen income inequality?

Poverty

A country is experiencing a lower birth rate and a higher death rate, and a growing number of adults of working age (16-60 years) are going overseas to look for jobs. What effect is this likely to have on the population numbers in the country’s different age groups?

Population

What is one benefit of international specialisation?

International specialisation

A country increases the tariffs it charges on imported goods. What is the outcome that is most likely?

Globalisation, free trade and protection

Which combination of changes in export revenue and import spending is most likely to make a country’s exchange rate depreciate?

Foreign exchange rates

A country is operating at point X on its production possibility curve (PPC), which illustrates how its output can be divided between capital goods and consumer goods. A recession then leads to the shutdown of some factories. Which point could show the country’s new location?

Production possibility curve (PPC) diagrams

A government wants to decrease the deficit on the current account of its balance of payments. Which policy ought it to adopt?

Current account of balance of payments

Which combination correctly provides examples of macroeconomics and microeconomics?

Microeconomics and macroeconomics

The diagram illustrates the supply and demand curves for a good. The starting market equilibrium is shown at point E₁. A shift in the market then results in a new equilibrium at E₂. What is the cause of the shift in the market equilibrium?

Price determination

The diagram illustrates the demand curve for a good. What conclusion can be drawn from a single downward-sloping demand curve?

Demand

If the price of butter rises by 10%, the quantity supplied of butter rises by 20%. What is the price elasticity of supply (PES) of butter?

Price elasticity of supply (PES)

In a market economic system, what determines economic decisions?

Market economic system

A bridge is constructed across a river, cutting journey times. The table gives the costs and benefits of constructing the bridge. private benefit = $12000$, private cost = $10000$, external benefit = $8000$, external cost = $5000$. Which calculation shows social benefit?

Market failure

Which factor is least likely to raise the geographical mobility of labour?

Workers

What makes banknotes serve as money?

Money and banking

Worker X is paid less than worker Y. Which statement is most likely to apply to worker X?

Workers

What factor would strengthen a trade union?

Trade unions

The large scale of the domestic car industry in Japan has allowed Japanese car producers to be more price competitive than rival car producers. What explains this?

Firms and production

The table gives the cake output from four bakeries, A, B, C and D. Which bakery has the greatest labour productivity?

Firms and production

The table displays a firm’s average revenue and average cost at different output levels. If every unit produced is sold, which level of output yields the greatest profit?

Firms' costs, revenue and objectives

Which factors would make a monopoly market more likely to exist?

Market structure

Which function is not carried out by a government?

The role of government

A government has announced four principal aims for the coming year. Which two of these are macroeconomic aims for the government?

The macroeconomic aims of government

Which item is unlikely to appear in a government budget?

Fiscal policy

What value is measured by opportunity cost?

Opportunity cost

Which mix of policy actions is most likely to raise aggregate demand in an economy?

Fiscal policy

Which supply-side policy measure would be most likely to produce the largest rise in labour productivity in a country?

Supply-side policy

In what way is a country’s economic growth measured?

Economic growth

A country undergoes a substantial decrease in unemployment. What could be one possible advantage and one possible disadvantage of this decrease?

Employment and unemployment

The Consumer Prices Index (CPI) in a country decreases from 120 to 110 over one year. What is a likely consequence of this decrease?

Inflation and deflation

The populations of four countries, A, B, C and D, are each the same size. Based on the changes shown in the table, which country is most likely to experience the greatest population growth?

Population

Which combination of characteristics would be present in a less developed economy?

Differences in economic development between countries

What is one probable advantage of greater national specialisation?

International specialisation

Which of the following is not likely to be a benefit of free trade?

Globalisation, free trade and protection

Which set of changes would certainly increase the value of the Pakistani rupee on the foreign exchange market?

Foreign exchange rates

The diagram illustrates a production possibility curve (PPC). Which point is most likely to result in the largest outward movement of the PPC?

Production possibility curve (PPC) diagrams

Which government policy is likely to reduce a deficit on the current account of the balance of payments?

Current account of balance of payments

Which is not one of the functions of prices in a market economy?

The role of markets in allocating resources

The diagram illustrates the market for fresh fish in the Caribbean, where the equilibrium is at point X. A new type of fishing boat raises production and so lowers costs. Which point indicates the new equilibrium?

Price determination

The table presents the market schedule for good X. If quantity supplied rises by 50% at every price, what equilibrium price and quantity will result?

Price determination

The price of fish has risen from $3.00 to $4.80. The quantity supplied of fish has risen from 100 units to 130 units. What is the price elasticity of supply (PES) of fish?

Price elasticity of supply (PES)

Which combination indicates features of the mixed economic system?

Mixed economic system

The diagram illustrates the equilibrium price for bread. What will be the short-term effect if the government imposes a maximum price below $5?

Price determination

Study the source material closely before you answer Question 1. Source material: Labour shortages in Japan Japan has a relatively old average population age and mixed economic performance. It has a low birth rate, a low inflation rate, strong healthcare, high life expectancy and a low unemployment rate. Each year, fewer Japanese people join the labour force. It is forecast that Japan’s labour force will decrease by 10 million by 2040. Many young Japanese people move to Australia, Canada and the US in search of better pay. However, Japan is now experiencing net immigration, although foreign workers are still only a small share of Japan’s labour force. To reach an annual economic growth rate of 1.2%, it has been estimated that foreign workers would need to rise to 7 million by 2040. Some foreign workers are put off working in Japan because they must pass a Japanese language test. Only the most highly skilled are permitted to remain for more than 5 years and to take their families with them. Many Japanese industries are being affected by labour shortages and by the country’s falling population. For instance, the population decline has affected the volume of furniture traded. It has also had an impact on the country’s air transport industry. Air travel is the main transport method in Japan for foreign travel and for long-distance domestic travel. Japan’s air passenger figures show a pattern similar to world air passenger figures. Table 1.1 shows global GDP per head and global air passenger numbers between 2016 and 2022. Demand for goods and services, including air travel, depends on how much people save. Japanese people save a fairly large share of their income. This has affected the country’s inflation rate, current account balance of the balance of payments and economic growth rate. Japan’s macroeconomic performance is also affected by the mobility of its labour force. There are several reasons why the mobility of Japan’s labour force may alter in the future. These include an ageing workforce and possible changes in education and training, house prices and the quality and cost of transport. Answer all parts of Question 1. Use the source material in your answers.

Employment and unemployment

Some markets in Belgium are already in equilibrium. The country makes a broad variety of goods and services that have different levels of price elasticity of demand. The Belgian Government wants the economy to move to a production possibility point beyond its present production possibility curve (PPC). One industry performing strongly is Belgium’s scientific industry. The workers in this industry are highly specialised.

Price determination

In April 2023, a cosmetics company in France merged with one based in Australia. The merger is expected to reduce average total costs because the enlarged firm is likely to gain from larger internal economies of scale. A manager said that an important objective is to make production more sustainable by using raw materials drawn from renewable sources. In most countries, the firm’s cosmetics, including perfume, are taxed at a higher rate than food.

Firms' costs, revenue and objectives

A central bank or government can use a number of policy measures to cut unemployment. One option for a government is to raise spending on house construction. The Federal Reserve, which is the central bank of the US, has two principal aims: to keep prices stable and to reach full employment. A few central banks also aim for economic growth, but no central bank sets HDI value as a target.

Employment and unemployment

In some countries, dumping takes place when products are sold in Cambodia for below cost price. The Cambodian Government aims for the country to achieve high-income economy status by 2050. To raise its economic growth rate, it applies fiscal, monetary and supply-side policies. Cambodia gives subsidies to some infant industries. The nation has one of the world’s largest deficits on the current account of its balance of payments (as a percentage of GDP). Some economists argue that reducing taxes would help to cut this deficit.

Globalisation, free trade and protection

Read the source material thoroughly before you answer Question 1. Source material: Changes in the Malawian economy Malawi is a low-income country in East Africa. It is frequently struck by natural disasters, including droughts, floods and storms. In January 2022, Storm Ana hit Malawi. This damaged agricultural crops, factories, forests and power stations. More than three-quarters of Malawi’s labour force work in agriculture. Two of the country’s major crops are tea and sugar. The quantity of tea supplied for sale is influenced by weather conditions, government subsidies and the price of fertilisers. The world market for sugar has been affected by health reports that identified the possible harmful effects of consuming too much sugar. Three of the Malawian Government’s priorities are to develop new industries, improve education standards and create more sustainable sources of energy. The proportion of Malawian children who complete their primary education (5-11 years of age) is relatively low. Table 1.1 shows GDP per head and the percentage of children who complete primary education in selected countries in 2022. Only a small share of Malawi’s population has access to electricity. Most households depend on wood and charcoal for cooking and heating. Using wood as a fuel contributes to the destruction of the country’s forests and lowers air quality. However, the country receives 3000 hours of sunshine a year. This means it could develop solar energy. There would be an initial expense to install solar panels and to reduce the risk of storm damage. Solar energy plants (also known as solar farms) can take up a large area and cause visual pollution. Even so, a successful solar energy industry could reduce Malawi’s imports of fuel and might affect its exchange rate. Malawi’s foreign exchange rate fell in 2022. The country’s currency, the kwacha, bought fewer US dollars. This depreciation affected Malawi’s current account of the balance of payments, its inflation rate and its economic growth rate. Some economists suggested that the Malawian Government should prevent the kwacha from falling further in value.

Supply

A Swiss multinational food manufacturer lifted the prices of its products by an average of 8% in 2022. In the USA, its prices rose by 11.6%. This multinational company (MNC) is among the world’s oldest MNCs. It began as a small firm and has expanded over the past 160 years. Throughout this period, its decisions have always been shaped by opportunity cost.

Opportunity cost

Central banks affect the money supply in their own countries. They also supervise commercial banks. Households gain from these commercial banks in a number of ways. In recent years, commercial banks have adopted new technology. Global online banking rose by 14% between 2019 and 2022. These technological improvements were accompanied by greater use of division of labour.

Money and banking

Chad, a Central African nation, has a population pyramid that is triangle-shaped and experiences a high level of poverty. It usually records an overall current account deficit in its balance of payments. Chad normally shows a surplus on secondary income. By contrast, trade in goods, trade in services and primary income are each usually in deficit. Some economists argue that the Chadian Government ought to introduce import quotas to cut its trade in goods deficit.

Current account of balance of payments

In 2023, Canada’s Prime Minister stated that his country’s goal was to raise immigration to half a million each year. This was because the country was facing labour shortages and longer life expectancy. Having more workers in Canada would lift the tax revenue available for pensions, and extra workers would also boost consumer spending. A rise in the immigration of both skilled and unskilled workers could influence the country’s car industry.

Economic growth