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1

The diagram shows the production possibility curves of two economies, X and Y. consumer goods capital goods X Y Which statement about the two economies is correct?

1. Basic economic ideas and resource allocation (AS Level)  →  1.5. Production possibility curves

7. The price system and the microeconomy (A Level)  →  7.5. Types of cost, revenue and profit, short-run and long-run production

Open

2

What distinguishes capital from other factors of production?

1. Basic economic ideas and resource allocation (AS Level)  →  1.3. Factors of production

Open

3

What is likely to be greater in a planned economy than a market economy?

7. The price system and the microeconomy (A Level)  →  7.3. Efficiency and market failure

1. Basic economic ideas and resource allocation (AS Level)  →  1.4. Resource allocation in different economic systems

Open

4

Which is a normative statement?

4. The Macroeconomy (AS Level)  →  4.5. Unemployment

4. The Macroeconomy (AS Level)  →  4.6. Price stability

Open

5

What is consistent with an individual demand curve that slopes down from left to right?

2. The price system and the microeconomy (AS Level)  →  2.1. Demand and supply curves

7. The price system and the microeconomy (A Level)  →  7.8. Differing objectives and policies of firms

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6

What will cause the demand curve for domestically produced cars to shift to the left?

2. The price system and the microeconomy (AS Level)  →  2.1. Demand and supply curves

4. The Macroeconomy (AS Level)  →  4.3. Aggregate Demand and Aggregate Supply analysis

Open

7

The diagrams show changes in the market for a good. price quantity D D1 price quantity D D1 price quantity D S S S S1 O O O Which diagrams represent ‘a change in the quantity demanded’?

2. The price system and the microeconomy (AS Level)  →  2.4. The interaction of demand and supply

2. The price system and the microeconomy (AS Level)  →  2.1. Demand and supply curves

Open

8

The diagram shows the demand curve for a product with unitary price elasticity. O price quantity D What will happen with such a curve?

2. The price system and the microeconomy (AS Level)  →  2.2. Price elasticity, income elasticity and cross elasticity of demand

2. The price system and the microeconomy (AS Level)  →  2.4. The interaction of demand and supply

2. The price system and the microeconomy (AS Level)  →  2.1. Demand and supply curves

Open

9

In the diagram D and S are the demand and supply curves of a good. S D S1 quantity O price What could cause the supply curve to shift in the short run to S1?

2. The price system and the microeconomy (AS Level)  →  2.1. Demand and supply curves

4. The Macroeconomy (AS Level)  →  4.3. Aggregate Demand and Aggregate Supply analysis

Open

10

A refinery which processes oil into petrol is faced with the following conditions. It is working at full capacity. Its petrol storage tanks are full. It has received delivery of a new fleet of petrol tankers to transport its petrol. It requires six months to train new workers to qualify in safety procedures. Which of the conditions will tend to make the supply of petrol relatively price inelastic?

2. The price system and the microeconomy (AS Level)  →  2.3. Price elasticity of supply

Open

11

The table gives estimates of the price elasticities and cross elasticities of demand for bus and rail travel. elasticity with respect to the price of: service bus travel rail travel bus travel –0.37 +0.13 rail travel +0.16 –0.43 What would be the change in the volume of rail travel resulting from a 1 % increase in bus fares?

2. The price system and the microeconomy (AS Level)  →  2.2. Price elasticity, income elasticity and cross elasticity of demand

Open

12

The diagram shows the demand and supply curves for a good. price O quantity P1 Q1 Q Q2 P S D The government fixed a maximum price of OP1. What would this have achieved?

2. The price system and the microeconomy (AS Level)  →  2.4. The interaction of demand and supply

2. The price system and the microeconomy (AS Level)  →  2.1. Demand and supply curves

5. Government macroeconomic intervention (AS Level)  →  5.4. Supply-side policy

Open

13

Global stocks of cod are currently under threat due to over-fishing whilst there are plentiful supplies of the less popular Alaskan pollock. How might the price mechanism operate to limit the depletion of fish stocks?

2. The price system and the microeconomy (AS Level)  →  2.4. The interaction of demand and supply

5. Government macroeconomic intervention (AS Level)  →  5.4. Supply-side policy

Open

14

The table shows some of the costs and benefits at a given level of production of a good. costs $m benefits $m private private social external What is correct at this level of production?

7. The price system and the microeconomy (A Level)  →  7.4. Private costs and benefits, externalities and social costs and benefits

Open

15

The consumption of a good generates external benefits. Its market equilibrium is E. Which diagram shows the change in the equilibrium (E to E1) necessary to reflect the correct value of the good to society?

2. The price system and the microeconomy (AS Level)  →  2.4. The interaction of demand and supply

7. The price system and the microeconomy (A Level)  →  7.4. Private costs and benefits, externalities and social costs and benefits

2. The price system and the microeconomy (AS Level)  →  2.5. Consumer and producer surplus

Open

16

What is an advantage, rather than a disadvantage, of cost-benefit analysis in deciding on a government investment project?

7. The price system and the microeconomy (A Level)  →  7.4. Private costs and benefits, externalities and social costs and benefits

Open

17

What is a distinguishing feature of a public good that is not found with private goods?

1. Basic economic ideas and resource allocation (AS Level)  →  1.6. Classification of goods and services

3. Government microeconomic intervention (AS Level)  →  3.1. Reasons for government intervention in markets

7. The price system and the microeconomy (A Level)  →  7.4. Private costs and benefits, externalities and social costs and benefits

Open

18

In the diagram S and S1 are the supply curves for an agricultural product in years 1 and 2 respectively. D is the demand curve in years 1 and 2. In year 1 the government purchased an amount necessary to ensure that the price was OP. price quantity O P X W Y Z S (year 1) S1 (year 2) D The price is held at OP in year 2. How much more must the government buy in year 2 than it bought in year 1?

2. The price system and the microeconomy (AS Level)  →  2.1. Demand and supply curves

2. The price system and the microeconomy (AS Level)  →  2.4. The interaction of demand and supply

Open

19

Each diagram shows the production possibility curves of two economies, X and Y, which produce food and clothes. In which diagram would both economies benefit by specialising in the good in which they have comparative advantage and trading at an exchange rate of 1 unit of clothes to 1.5 units of food?

6. International economic issues (AS Level)  →  6.1. The reasons for international trade

Open

20

An argument against trade protection is that it will increase A competition for domestic industries. B domestic price levels. C opportunities for domestic infant industries. D the current account deficit.

6. International economic issues (AS Level)  →  6.1. The reasons for international trade

6. International economic issues (AS Level)  →  6.2. Protectionism

Open

21

A country’s terms of trade currently stands at 150 (base year 2000 = 100). Since 2000 the average price the country has received for its exports has increased by 20 %. What has been the change in the average price it has paid for its imports?

6. International economic issues (AS Level)  →  6.1. The reasons for international trade

6. International economic issues (AS Level)  →  6.4. Exchange rates

11. International economic issues (A Level)  →  11.2. Exchange rates

Open

22

A government wishes to present its final balance of payments account. It has calculated the current account balance, the capital account balance and the financial account balance. What additional information is required to complete the task?

6. International economic issues (AS Level)  →  6.3. Current account of the balance of payments

11. International economic issues (A Level)  →  11.1. Policies to correct disequilibrium in the balance of payments

Open

23

The table shows inflation rates, unemployment rates and changes in money wage rates between 2008 and 2009 for a number of countries. country inflation % unemployment % money wages % France +0.2 9.4 +3.0 Germany +0.2 8.3 +2.7 UK +1.8 7.8 +2.5 US –0.3 9.4 +2.5 What can be concluded from the table?

5. Government macroeconomic intervention (AS Level)  →  5.3. Monetary policy

6. International economic issues (AS Level)  →  6.4. Exchange rates

10. Government macroeconomic intervention (A Level)  →  10.2. Links between macroeconomic problems and their interrelatedness

Open

24

The diagram compares the inflation rates of Paraguay and Argentina between 1950 and 2005. 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Paraguay Argentina key inflation (%) What can be concluded about inflation rates in the two countries in the period 1950 to 2005?

10. Government macroeconomic intervention (A Level)  →  10.2. Links between macroeconomic problems and their interrelatedness

4. The Macroeconomy (AS Level)  →  4.6. Price stability

Open

25

Over a period of a year, the annual rate of inflation falls from 10 % to 6 %. Which statement is correct?

4. The Macroeconomy (AS Level)  →  4.6. Price stability

6. International economic issues (AS Level)  →  6.4. Exchange rates

Open

26

A Japanese company builds a factory in the UK to supply both the UK market and the market in the rest of Europe. What is likely to be the long-run impact on the UK’s balance of trade in goods and on its current balance?

6. International economic issues (AS Level)  →  6.3. Current account of the balance of payments

6. International economic issues (AS Level)  →  6.5. Policies to correct imbalances in the current account of the balance of payments

Open

27

A country experiences changes in the value of its exports and imports of goods and services and its inflow of incomes and transfers. These are shown...

6. International economic issues (AS Level)  →  6.4. Exchange rates

11. International economic issues (A Level)  →  11.2. Exchange rates

Open

28

What is likely to happen if there is a rise in the international value of a country’s currency?

6. International economic issues (AS Level)  →  6.4. Exchange rates

11. International economic issues (A Level)  →  11.2. Exchange rates

6. International economic issues (AS Level)  →  6.3. Current account of the balance of payments

Open

29

The table shows observations of the exchange rate of an economy and its current account balance over six years. year exchange rate (US dollars per unit of domestic currency) current account balance (billions of US dollars) 2.0 –3 1.5 –5 1.5 –4 1.5 –3 1.5 1.5 +3 Which concept does the data in the table illustrate?

6. International economic issues (AS Level)  →  6.3. Current account of the balance of payments

6. International economic issues (AS Level)  →  6.4. Exchange rates

11. International economic issues (A Level)  →  11.2. Exchange rates

Open

30

Copyright Acknowledgements: Question 24 © Graph extracted from: www.imf.org/external/pubs/ft/wp/2008/wp08270.pdf p.29. 30 The diagram shows the exchange rate for the UK£ in terms of the US$. The original equilibrium exchange rate is at E. What will be the new exchange rate equilibrium of the UK£ following a reduction in UK interest rates and a rise in US interest rates?

6. International economic issues (AS Level)  →  6.4. Exchange rates

11. International economic issues (A Level)  →  11.2. Exchange rates

Open