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1

An individual has an appointment with his bank manager. He has a choice between travelling to the appointment by car, or leaving the car at home and travelling by bus and then by train. The costs of the journey are given below. $ bus fare train fare car parking charge petrol car wear and tear costs Given this information, what is the opportunity cost to the individual of travelling by car rather than by bus and train?

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

1. Basic economic ideas and resource allocation (AS Level)  →  1.1. Scarcity, choice and opportunity cost

Open

2

The curve PP in the diagram is the production possibility curve for a country producing goods X and Y. The production of X is more labour intensive than the production of Y. R P Q S S T R P Q T good X good Y O The working hours of the labour force are reduced by law. Which curve could be the country’s new production possibility curve?

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

Open

3

In Economics, decisions are usually taken ‘at the margin’. What does this mean?

1. Basic economic ideas and resource allocation (AS Level)  →  1.2. Economic methodology

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

Open

4

Which factor of production and example are correctly linked?

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

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5

During a period of falling incomes in Germany in 2009, demand for jewellery declined. There was, however, a rise in demand for frozen foods. How would the effect on the demand for the two products be illustrated?

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

6

It was estimated in 2010 that milk had an income elasticity of demand of –0.6. What can be concluded about milk from this information?

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

Open

7

In a free market in disequilibrium, which combination of price and quantity will lead to a fall in price and a contraction in output to reach equilibrium?

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

9. The macroeconomy (A Level)  →  9.3. Employment/unemployment

Open

8

A manufacturer has estimated that the price elasticity of supply of ice cream is +1.5. If the demand for ice cream rises and price increases by 10 %, how much more will the manufacturer supply to the market?

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

Open

9

The table shows demand and supply schedules for red peppers. The equilibrium price is initially 15 cents per kg. price per kg cents amount demanded kg amount supplied kg 30 The government pays a subsidy of 10 cents per kg to producers. What will be the new equilibrium price charged to consumers?

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

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

Open

10

The diagram shows the market for new houses. O price quantity X Y D1 S2 S1 D2 What would cause the change in the market equilibrium position from X to Y?

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

11

In the diagram, S1 is the original supply curve and D is the original demand curve. S2 S1 D W T P O M N Q V R quantity price If supply shifts to S2, which area represents the change in consumer surplus?

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

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

Open

12

When demand for a good falls, its price falls. What is the function of the price fall?

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

13

When is a rise in the price of a product likely to cause more resources to be allocated to its production?

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

14

A congestion charge of £10 per day has been imposed on motorists taking their cars into Central London. What is it about driving into Central London that provides the economic justification for this charge?

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

Open

15

A cost-benefit analysis of a proposed underground railway produced the following statistics. annual costs and benefits $ million annual capital cost operating and maintenance costs fare revenue savings to private travellers savings to business other economic benefits What can be concluded from the statistics?

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

Open

16

A government admits that building a new bridge would produce a positive net benefit to society. Owing to a lack of public funds, the bridge would have to be built and operated by a private company, that would charge the public to use the bridge. Private companies insist that building the bridge would not be profitable. What could explain the companies’ unwillingness to build the bridge?

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

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

Open

17

What is a merit good?

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

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

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

Open

18

The diagram shows the market demand and supply curves for rice. S D price ($) Q1 Q2 quantity Q3 O What would happen if a government imposed a maximum price of $10?

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

19

A government removes the tariff on a product as shown...

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

20

Country X joins an existing customs union comprising countries Y and Z. Country W remains outside the customs union. Both X’s initial tariff and W’s tariff are at the same level as the customs union’s common external tariff. What is likely to be the effect on trade flows when X joins the customs union?

11. International economic issues (A Level)  →  11.6. Globalisation

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

Open

21

The table shows four combinations of price changes which may affect a country’s terms of trade. Which combination of price changes must cause an improvement in the country’s terms of trade?

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

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

Open

22

The table shows all of the items on the current account of a country’s balance of payments. $ million exports of goods imports of goods exports of services imports of services net transfers + 5 What is the value of the current account balance?

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

Open

23

The table shows the rate of unemployment and population for selected countries in 2009. country unemployment rate (%) population Brazil 8.1 India 6.8 1 120 Indonesia 8.1 Malaysia 4.0 Thailand 2.4 What can be concluded from this information?

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

Open

24

The average consumer divides his expenditure between food, clothing, accommodation and transport in the ratio 2 : 1 : 4 : 3. During the course of a year, the price of food falls by 2 %, the price of clothing increases by 4 %, the price of accommodation increases by 10 % and the price of transport remains constant. Assuming that the weights of a price index reflect the expenditure of the average consumer, what is the increase in the index over the year?

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

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

Open

25

At the start of 2009, a worker earned $100 a week. In 2009, the Retail Price Index (RProse 4 % and his average wage rose 7 %. In 2010, the RPI fell 3 % and his wage fell 2 %. What happened to his real wage between the start of 2009 and the end of 2010?

8. Government microeconomic intervention (A Level)  →  8.3. Labour market forces and government intervention

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

Open

26

The table shows items from the balance of payments for countries A, B, C and D. Official Financing including changes in reserves is excluded from the Financial Account. Which country has the greatest disequilibrium on its balance of payments?

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

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

Open

27

What must be the necessary result of a surplus in the current account of a country’s balance of payments?

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

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

Open

28

The graphs show the changes in the exchange rates of the £ sterling between 1998 and 2003. £ per Euro (€) 0.725 0.700 0.675 0.650 0.625 0.600 0.575 1.750 1.700 1.650 1.600 1.550 1.500 1.450 1.400 US$ per £ What happened to the value of the £ sterling between 2001 and 2003?

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

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

Open

29

Other things being equal, what will happen if a British company raises the sterling (£) price of goods it sells to Pakistan by the full extent of a depreciation of sterling against the Pakistan rupee?

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 28 Copy A Question 28 Copy B © Professor Werner Antweiler, University of British Columbia, Vancouver BC, Canada; 2011; http://fx.sauder.ubc.ca/cgi/fxplot?

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