economics

1. the statements refer to the proposal to build another runway at london’s heathrow airport.
which statement is normative?
a_ heathrow is the uk’s busiest airport and has more flights than any other european airport.
b_ the airport is highly competitive but there is spare capacity.
c_ the potential net benefit of expansion is around £5 billion over 70 years.
d we should concentrate on improving the use of existing capacity not build another runway.

2  yxis an economy’s production possibility curve (ppc).
the equation of the curve is qy = 1000 — 2qx.
1000-\y
output of
good y (qy)
xx
a 500
output of
good x (qx)
what is the opportunity cost of producing one extra unit of good x?
a 4 unit of good y
b  2units of good y
c 500 units of good y
d 1000 units of good y

3 a farmer picks 10kg of strawberries in each hour. the farmer is twice as productive at picking
raspberries.
which diagram shows the farmer’s daily production possibility curve when working 8 hours a
day?
a b
: 20 _ _ 160
raspberries raspberries
picked (kg) picked (kg)
[e) 10 oo 80
strawberries strawberries
picked (kg) picked (kg)
cc d
raspberry raspberry
picking (hours) picking (hours)
4 8
(6) 8 o 16
strawberry strawberry
picking (hours) picking (hours)

4 governments provide public goods.
what is an example of a public good?
a the services provided by a defence force
b the services provided by a hospital
c_ the services provided by a leisure centre
d the services provided by a toll road

5 india is one of the largest producers of tractors in the world. s; and d, are the original supply and
demand curves for indian tractors.
ss,
price of
tractors s,
p, sn
pa aa, a
fi d,
oo q, q,
quantity of tractors
what would cause the supply curve to move to s2?
a arise in the incomes of indian farmers
b_ arise in the price of electricity paid by indian tractor manufacturers
c arise in the price of tractors produced in the us
d arise in the productivity of workers in indian tractor factories

6 the diagram shows the demand curve for a product.
price
d
es quantity

which statement is correct?

a consumer expenditure on the product always rises when price falls.

b demand is less elastic at higher prices than at lower prices.

c_ price elasticity of demand differs at every price.

d_ price elasticity of demand equals one at every price.

7 the cross-elasticity of demand between two goods will be higher
a the greater the difference in price between the two goods.
b_ the greater the income elasticities of demand for the two goods.
c_ the greater the price elasticities of demand for the two goods.
d_ the more they are regarded as similar by consumers.

8 the price elasticity of supply of a good is +2. the quantity supplied originally was 200 units.
the price increases by 30%.
what will the quantity supplied be after the price increase?
a 80 units b 140 units c 260 units d 320 units

9 the diagram shows s, and d,, the original supply and demand curves for fast food in an
economy. point x is the original equilibrium. fast food is an inferior good.
what would be the new equilibrium position following a tax imposed on fast food and a fall in real
income?
price se
s;
a, ss
d b
cc d,
my
oo quantity

10 when will the price mechanism not function as a system for allocating goods?
a_ when the government bans advertising
b_ when the government maintains an effective maximum price
c_ when there is a limited supply of the good
d_ when there is a powerful company able to set the market price

11 during a certain period, 10000 units of a normal good are sold at a price of us$20. during a later
period, 12000 units are sold at a price of us$22.
what could explain this change?
a anincrease in indirect taxation
b_anincrease in the cost of raw materials
c_anincrease in the price of a substitute commodity
d_anincrease in the productivity of factors of production

12 a free market is in disequilibrium with a shortage of a product.
as the market moves towards equilibrium, what will happen to the price, the quantity demanded
and the quantity supplied?
| | price | quantity demanded quantity supplied
a decrease decrease increase
b decrease increase decrease
cc increase decrease increase
d increase increase decrease

13 in the diagram, d and s represent the domestic demand and supply curves for a product.
sw represents world supply of the product at a world price of py. the initial domestic market
equilibrium of the product is at e,.

if foreign trade were to be banned completely, the domestic market equilibrium would be at eo.
x
' ss
price
y =
p i ss
z
d
oo q,
quantity of products
what would be the loss of consumer surplus if all foreign trade were banned?
a pyxe, b pyye2e1 c yxe, d zye,

14 a government wishes to impose a tax on a good so that the producer and not the consumer pays
most of the tax.
which type of elasticity would it be best for the good to have to achieve this aim?
a high price elasticity of demand
b low price elasticity of demand
c totally inelastic price elasticity of demand
d unitary price elasticity of demand

15 the diagram shows the effect on the supply curve of a product when the government provides a
subsidy.
25
price
gb) ogiteseeee ese eee sy
15 ea
. — | .
54 |
0 i i
0 10 20 30 40 50 60
quantity
what can be concluded about the nature of the subsidy as the quantity supplied increases?
a ltis a falling percentage (%) of the price of each unit.
b itis a fixed percentage (%) of the price of each unit.
c_itis a fixed sum on each unit.
d_itis arising percentage (%) of the price of each unit.

16 what is not an example of a transfer payment?
a_ pocket money from parents
b private donations to charities
c _ salary paid to a teacher in a government school
d unemployment benefit

17 in 2016-2017 a government spent $135 billion on the health service. the diagram shows the
provision of healthcare in that country.
’ is)
price
($)
p
nn
ie) q
quantity
what can we deduce about healthcare provision in the country if it were provided at zero price?
a at price p the benefits to society are maximised.
b it is non-rival in consumption.
c_itis unlimited in supply due to government funding.
d it will need rationing as it will be overconsumed.

18 a government privatises the telecommunications industry.
what is least likely to increase?
a_ choice of telecommunications services for consumers
b_ development of new telecommunications products
c employment in the telecommunications industry
d productivity in the supply of telecommunications

19 the diagram shows short-run aggregate supply and demand in an economy, where the initial
equilibrium is at s.
sras,
ice level
price leve sras,
sras,
t
ad,
ad,
ad,
oo real output
what is most likely to cause a movement from s to t?
a_anincrease in consumer expenditure and an increase in productivity
b_anincrease in consumer expenditure and a reduction in imports
c_anincrease in education and training and an increase in income tax
d_anincrease in the exchange rate and a reduction in corporation tax

20 the diagrams show the inflation rate over time in four countries.
which country experiences a falling cost of living throughout the period?
a b
inflation inflation
rate rate
+ +
oo time o time
cc d
inflation inflation
rate rate
+ +
o time o time

21 a government statistical office measured changes in income from employment, pensions and
benefits, then subtracted income tax and welfare contributions and adjusted for inflation.
what did the final figure represent?
a_ changes in nominal income
b_ changes in nominal net earnings
c_ changes in real disposable income
d_ changes in real gross earnings

22 the table shows all of the items on the current account of a country’s balance of payments.
fs on

exports of goods 143
imports of goods 156
exports of services 15
imports of services 72
net transfers +5

what is the value of the current account balance?

a $5m deficit

b  $10m deficit

c $13m deficit

d $3m surplus

23 following a long period of depreciation of the us$, both the us and uk monetary authorities
raised their domestic interest rate.
what will happen to the value of the exchange rate of the us$ in terms of uk£?
a itwill fall.
b it will remain unchanged.
cit will rise.
d_ the outcome is uncertain.

24 country p exports goods and imports goods.
export prices and import prices are set to an index of 100 in year1. the table shows
corresponding prices indices for years 2 and 3.
veer years |
export price index 120 132
import price index 110 121
which statement is correct?
a _ltis not possible to say how the terms of trade changed without further information.
b_ the terms of trade improved between years 1 and 2, and improved again between years 2
and 3.
c_ the terms of trade improved between years 1 and 2, and then remained unchanged between
years 2 and 3.
d_ the terms of trade worsened throughout the whole period.

25 in the diagram, mn is the production possibility curve of a country that has a comparative
advantage in the production of good y.
. m
quantity of
good x ma
[e) n
quantity of
good y

what might enable the country to consume the quantities of x and y indicated by point r?
a areduction in unemployment
b_ increased specialisation in the production of good x
c increased specialisation in the production of good y
d_ more participation in international trade

26 what is the difference between a customs union and a free trade area?
a only the customs union has a common external tariff with the rest of the world.
b_ only the customs union requires fixed exchange rates between member countries.
c_ only the free trade area needs to eliminate tariffs between member countries.
d only the free trade area requires freedom of movement for labour and capital between
member countries.

27 which statement about trade protection is correct?
a a tariff will result in a greater decrease in demand for an import the lower its price elasticity of
demand is.
b  embargoes are only an effective trade barrier against imports in price-elastic demand.
c_ export subsidies to domestic firms will prevent the dumping of foreign products in the
domestic market.
d quotas are less effective than tariffs for raising government revenue.

28 what is an example of expansionary monetary policy?
a the central bank buying government bonds in the money market
b_ the central bank causing an appreciation of the country’s foreign exchange rate
c_ the central bank increasing controls on credit lending
d_ the central bank increasing the minimum lending rate of interest

29 china had a us$155 billion current account surplus in 2012.
which combination of policies might the chinese government use to reduce the surplus?
a decrease income tax and raise the value of the chinese currency, the yuan
b_ increase income tax and lower the value of the chinese currency, the yuan
c_ increase subsidies to chinese firms and reduce income tax
d increase tariffs on imports and increase income tax

30 in an economy, prices are rising. the government wishes to limit further increases in prices.
which policies would it be likely to use?
a decrease goods and services (sales) tax and put a quota on cheap imports
b_ decrease income tax and decrease interest rates
c_ increase interest rates and decrease government spending
d_ withdraw industry subsidies and impose a minimum wage

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