economics

1. what is correct about scarcity?
a scarcity affects low income earners only.
b_ scarcity forces individuals to make choices.
c_ scarcity is removed by periods of falling prices.
d_ scarcity will be abolished by advances in technology.

2 which labels might be used on a production possibility curve diagram?
[yenc ans |x torzonta os
a capital input labour input
b cost of production quantity produced
cc output of rice labour input
d output of rice output of sugar

3 a good’s defining quality is that its consumption by one person prevents its consumption by
someone else.
how is this good classified?
a a free good
b  anon-excludable good
c  anon-rival good
d_ aprivate good

4 which is a normative economic statement?
a money is the least liquid form of wealth.
b_ some firms are subsidised by the government.
c some workers earn more than others.
d_ taxes are the best way to discourage smoking.

5 the price of a ticket for an international athletics tournament was $50. all tickets were sold.
which area on the diagram represents consumer surplus?
suppl
100 supply
price per d
ticket ($)
50
0
quantity (thousands)

6 market demand curves normally slope downwards. they may also shift from d, to either d2 or ds.
price of
= we
sk d,
d,
d,
a quantity
demanded
what would cause a movement along d, for good x and not a shift to either d2 or d3?
a advertising of good x increases sales
b consumer incomes rise
c price of good x falls
d price of other goods falls

8 a government introduces a maximum price above the market price.
what will be the effect on consumer and producer surplus?
[| consumer sus | producer sus
a fall rise
b rise fall
cc rise unchanged
d unchanged unchanged

9 the diagram shows the market for air travel in asia. the initial market equilibrium is at x.
what will be the new equilibrium if the price of aviation fuel rises and incomes are falling in asia?
price of ss
air travel ss;
b s,
(e
d
p, “pd:
g quantity of
air travel

10 a government increased a specific tax on shoes. the resulting increase in the price of shoes was
paid mainly by the consumer and not by the producer.
what must be true for this to happen?
a the price elasticity of demand was less than the price elasticity of supply.
b_ the price elasticity of demand was unitary.
c_ the price elasticity of supply was less than one.
d_ the price elasticity of supply was inelastic while the price elasticity of demand was elastic.

11 the diagram shows supply and demand for a good. the original equilibrium is x.
what will be the new equilibrium if subsidies are given to firms for new machinery?
s,
price b ss,
s,
a cc
d
d,
d,
d,
o quantity

12 the diagram shows the market for a normal good.
- ><
d
ie) quantity
what is likely to cause both demand and supply curves to shift to the right?
a afall in the price of the good and a fall in the rate of indirect tax on the good
b_ arise in the price of a complementary good and an increase in the number of firms in the
industry
c_ arise in the price of a substitute good and a fall in the price of a raw material used in the
production of the good
d animprovement in production techniques and a fall in the incomes of consumers

13 the diagrams relate to the markets for four different products.
in which market would a 10% decrease in demand and simultaneously a 10% increase in supply
definitely result in both a fall in equilibrium price and a rise in equilibrium quantity?
a b
ss
price price
d
d
2) quantity je) quantity
cc d
d
. is) .
price price
ss
d
je) quantity ) quantity

14 why might governments provide free education for children aged 4 to 16 years old?
a consumers are not fully aware of the benefits of education.
b_ education in a free market system would be over consumed.
c education is a public good and there would be many free riders.
d_ the private costs of education exceed the private benefits in a free market.

15 the diagram shows three possible tax schemes.
x
tax paid
y
z
fe) personal
income
what can be concluded about these tax schemes?
a xis more progressive than z.
bx, y and z are all proportional.
cy is the only proportional tax.
d zis more regressive than y.

16 [he diagram shows an initial market equilibrium for an agricultural product of 6 and 800 units.
sy
piigs: 10-pen=--= sige ene
($)
d
0 i
0 400 800
quantity

how much will the government have to spend to increase the market price to $10?
a $1600 b $2400 c $3200 d $4000

17 the table identifies items of government annual spending.
pt son

army pay 35
civil servants’ salaries 125
farming subsidies 15
pension payments 1s
welfare benefits 50

what is the total government expenditure on transfer payments?

a $50m b $125m c $175m d $300m

18 a subsidy is given to the producers of a good with perfectly elastic demand.

what will be the outcome?

a consumer and producer receive equal amounts of subsidy.

b_ there will be no change in price; the incidence of the subsidy will fall on the producer.

c_ there will be a large increase in quantity consumed; the incidence of the subsidy will fall on
the consumer.

d_ there will be no change in the quantity consumed; the incidence of the subsidy will fall on the
consumer.

19 ‘primary income’ and ‘secondary income’ are components of the current account of the balance
of payments.
what do these represent?
| prmacyineame | secondary neome
a capital flows financial flows
b goods balance services balance
cc income flows current transfers
d private flows government flows

20 the diagram shows the original aggregate demand curve, ad,, and original aggregate supply
curve, as;. the original equilibrium is at x.

as,
price as,
level

py fe----2---=y4 kx

i ad,
o vo: va
real gdp

what would cause the new equilibrium to be at y?
a anincrease in export prices
b_anincrease in government spending on education
c_anincrease in import prices
d_anincrease in the money supply

21 what is not an example of protectionism?
a the european union (eu) requiring goods imported into member states to meet safety
standards
b_ the pakistan government increasing the rate of goods and services tax, gst, on some
exported goods from 2% to 5%
c_ the nigeria government banning the import of packaged sugar
d_ the us imposing a 35% tariff on tyres imported from china

22 the table shows the annual percentage increases in a country’s consumer prices index (cpi).

2015 8.3
2016 6.0
2017 6.0
2018 1.0

which statement is correct?

a consumer prices, on average, fell throughout the period.

b consumer prices, on average, remained the same in 2016 and 2017.

c_ the general level of consumer prices was at its highest in 2015.

d_ the general level of consumer prices was at its highest in 2018.

23 [he table indicates the factor inputs required to produce wheat and cars in countries x and y.
(eae | ee
inputs to produce inputs to produce
one tonne of wheat one car

country y 8 6
what makes it possible for both countries to benefit from trade?
a country x has an absolute advantage in wheat and car production.
b_ country y has an absolute advantage in wheat and car production.
c country y has a comparative advantage in wheat production.
d opportunity cost of wheat and car production is the same between countries.

24 in february 2016 the organisation for economic cooperation and development (oecd) urged
major economies such as the us and japan to increase government spending.
how would this affect the aggregate demand (ad) curve in these countries?
a amove left along the ad curve
b  amove right along the ad curve
c amove to the left of the ad curve
d  amove to the right of the ad curve

25 a foreign government pays a uk university to educate its students.
how would this be recorded on the balance of payments current account of the uk?
current account
money flows
component
a secondary income inflow
b secondary income outflow
cc trade in services inflow
d trade in services outflow

26 the tables show changes over a period in the average prices of a country’s exports and imports.
they are expressed as index numbers, with year 0 as 100.
126
what is the change in the country’s terms of trade index between years 1 and 2?
a _ lt improves by about 10%.
b_ it improves between 4% and 5%.
cit stays the same.
d_ it worsens between 4% and 5%.

27 which aim would be consistent with a government's decision to buy its own currency in foreign
exchange markets?
a anappreciation under a freely floating exchange rate system
ban appreciation under a managed float exchange rate system
c  adepreciation under a fixed exchange rate system
d  adevaluation under a managed float exchange rate system

28 vvhicn policy would assist in reducing a deficit within the balance of payments?
a increasing interest rates
b_ increasing the money supply
c_ reducing subsidies to exporting industries
d_ reducing the level of direct taxation

29 an economy’s current account on the balance of payments is in surplus. the exchange rate is
revalued by the government. assume the marshall-lerner condition holds.
which diagram shows the impact on the current account balance?
current a current b
account account
balance balance
surplus + surplus +
(e) o
time time
deficit — deficit —
current c current d
account account
balance balance
surplus + surplus +
[e) oo
time time
deficit — deficit —

30 what would be increased by an expansionary fiscal policy?
a budget deficit
b_ exchange rate
c money supply
d rate of direct taxation

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