UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

General Certificate of Education Ordinary Level

ECONOMICS
2281/01


Paper 1 Multiple Choice

May/June 2005

1 hour
Additional Materials: Multiple Choice Answer Sheet
Soft clean eraser
Soft pencil (type B or HB is recommended)




READ THESE INSTRUCTIONS FIRST

Write in soft pencil.
Do not use staples, paper clips, highlighters, glue or correction fluid.
Write your name, Centre number and candidate number on the answer sheet in the spaces provided unless
this has been done for you.

There are forty questions on this paper. Answer all questions.
For each question there are four possible answers A, B, C and D. Choose the one you consider correct and
record your choice in soft pencil on the separate answer sheet.

Read the instructions on the answer sheet very carefully.

Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
Any rough working should be done in this booklet.
























This document consists of 12 printed pages.
IB05 06_2281_01/RP
UCLES 2005

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1 In a market economy, what does the entrepreneur decide?
A the combination of resources used
B the demand for the product
C the equilibrium price of the product
D the level of profits


2 China is changing from a centrally planned economy towards a market economy.

How will the influence of consumers and the government change?

consumers government
A decrease decrease
B decrease increase
C increase decrease
D increase increase


3 A factory working at full capacity is producing tennis racquets and golf clubs. The management
decides to produce fewer racquets and more clubs because of an increase in demand for golf
clubs.

What is the opportunity cost of producing more golf clubs?
A the cost of retraining some workers to make golf clubs
B the cost of transporting and selling the extra golf clubs produced
C the materials bought to make extra golf clubs
D the tennis racquets that will not now be produced


4 Anything used as money must have
A a fixed supply.
B general acceptability.
C recognition as legal tender.
D value in itself.


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5 A business has two owners. They have limited liability. Its shares are not sold on the stock
exchange.

What type of business is this?
A partnership
B private limited company
C public corporation
D public limited company


6 What is most likely to be the main function of a central bank?
A controlling the money supply
B investing in commerce and industry
C issuing and processing credit cards
D making loans to individuals


7 What would prevent an Egyptian company being classified as a multi-national company?
A It concentrates on one stage of production only.
B It employs only Egyptians as managers.
C It manufactures only in Egypt.
D It uses other firms to transport its goods.


8 What would not cause a shift in the demand curve for a good?
A a change in incomes
B a change in the price of a substitute good
C a change in the price of the good
D a change in the tastes of consumers


9 Four changes affecting the supply of a good are listed below.

What would cause the supply curve to shift to the right?
A an improvement in technology
B an increase in its market price
C a reduction in labour productivity
D the introduction of a sales tax


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10 What is an example of complementary demand?
A buses and bus fares
B cotton and cotton seed
C televisions and electricity
D wood and sawdust


11 A good is successfully advertised.

What is the most likely impact on the demand and supply curves for the good?

demand curve supply curve
A shift to left shift to left
B shift to left shift to right
C shift to right shift to left
D shift to right shift to right


12 The diagram shows the supply and demand curves for a good. The market is in equilibrium at
point X.

demand
supply
O
price
quantity
P
Q
R
S
T
X


What is the excess demand at price P?
A PT B QR C QT D ST


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13 The table shows the value of the price elasticity of demand for four products.

product
price elasticity
of demand
cars 2.0
mobile phones 1.0
radios 0.5
salt 0.1

What would have an increase in sales revenue if prices rose by 10 %?
A cars only
B cars and mobile phones
C radios and salt
D salt only


14 What might explain why wages paid in a particular occupation are high?
A a large supply of labour
B a low price for the good produced
C a strong trade union
D pleasant working conditions


15 What is a non-wage factor that can affect an individuals choice of occupation?
A bonuses
B commission
C long holidays
D overtime pay


16 A person has no outstanding debts.

What might cause that person to save more and spend less from their monthly income?
A a rise in the choice of products
B a rise in income tax
C a rise in interest rates
D a rise in the price of essential products


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17 The table gives information about full-time workers in a country.

average annual earnings
$
% increase in
200304
hours worked
per week
male 21 268 4.4 41.8
female 15 444 5.1 37.6

What can be concluded from the table?
A All female workers earned less than male workers.
B The difference between male and female earnings became smaller.
C The hourly rate of pay for females was higher than for males.
D The productivity of female workers was higher than that of males.


18 What is likely to be found when there are many small firms in an industry?
A There are few barriers to entry.
B There is high expenditure on research developments.
C Products are distributed to widely dispersed markets.
D Very large capital costs are needed to establish a firm.


19 A firm producing instant coffee previously paid for the disposal of the waste. It now sells the
waste to be made into garden fertiliser.

Which cost to the firm has not changed?
A average cost
B fixed cost
C total cost
D variable cost


20 In 2003 Hewlett-Packard, a major computer company, announced that its profits had fallen below
the level predicted.

What might have caused this?
A increased advertising costs that greatly improved sales
B low prices that made the companys product competitive
C new technology that reduced costs
D reduced sales and low prices


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21 Wal-Mart, the worlds biggest food retailer, has acquired a large number of supermarkets.

What type of integration is this?
A conglomerate
B horizontal
C vertical backward
D vertical forward


22 Ericsson is the worlds leading maker of mobile phone machinery. It announced that it had won a
major contract to supply a Chinese phone company, China Mobile, with machinery. Ericsson also
announced that it would become more efficient by reducing its workforce.

How would economists classify these changes for the two companies?

Ericsson China Mobile
A decreased average variable cost decreased fixed cost
B decreased average variable cost increased fixed cost
C increased fixed cost decreased average variable cost
D decreased fixed cost decreased average variable cost


23 A firm bottles 10 000 bottles of cola a week. Its fixed costs are $1000 a week. Its variable costs
are $0.50 a bottle. Each bottle of cola is sold for $1.

What is the profit per bottle of cola?
A $0.40 B $0.50 C $0.60 D $0.90


24 The table gives information on the rate of economic growth in a country from 2001 to 2004.


economic growth
(%)
2001 3.9
2002 2.6
2003 2.3
2004 3.0

What is likely to have fallen in this period?
A Gross Domestic Product
B imports
C prices
D unemployment
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25 What is most likely to conflict with a government's aim of price stability?
A higher direct tax rates
B higher government spending
C higher interest rates
D higher unemployment


26 The graph shows the percentage of tax taken from different levels of income by four different
taxes.

Which illustrates a regressive tax?

percentage of
income paid in
taxation
income
A
B
C
D
O



27 The table shows the working population and value of production in four areas of a country.

The government wants to encourage industrial development in the area with the lowest
productivity.

Which area will it select?

area
working population
(millions)
production
($ millions)
A 6 700
B 16 1000
C 12 1200
D 12 1100


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28 The government of Kenya wishes to help people with very low incomes.

Which policy would achieve this?
A increasing housing subsidies
B increasing income tax
C increasing indirect taxation
D increasing inheritance tax


29 In March 2000 the Ministry of Trade and Industry in Singapore stated that Gross Domestic
Product grew by 5.4 % in the previous year. This produced higher revenues from taxation and
resulted in a budget surplus.

What may be concluded from this statement?
A The change in Gross Domestic Product was caused by a change in taxation.
B The government had increased the rate of taxation and the expenditure on its services.
C The national income of the country had increased and so more was paid in taxes.
D There had been economic growth because the government had reduced its expenditure and
budgeted for a surplus.


30 The table gives selected details of the UK trade in goods in 1998 and 1999 in billion.

year
exports of
goods
imports of
goods
1998 164.1 184.9
1999 165.0 191.2

What happened to the balance of trade in goods between 1998 and 1999?
A The deficit decreased.
B The deficit increased.
C The surplus decreased.
D The surplus increased.


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31 Instead of cleaning their own homes, a large number of households decide to clean each others
homes and charge for their services. They all declare their income to the tax authority.

What will increase as a result of this?
A Gross Domestic Product
B imports
C investment
D unemployment


32 The bar chart shows details of three economic indicators of several Asian economies in year 1
and year 2.

Which country improved its economic performance in all three indicators?

11.7 5.5
12.2 12.0
8.5
5.3
7.6
4.8
3.6
2.3
1.7 6.0
3.9
5.4
13.3
10.8
11.7
7.6
5.8
6.8
2.1
5.7
6.1
1.3
China
Malaysia
Singapore
India
A
B
C
D
GDP growth, % Inflation, % Current-account balance, $bn
year 1 Asian economies year 2



33 Which citizens are most likely to become worse off in a period of falling prices?
A those earning fixed incomes
B those saving at a fixed rate of interest
C those who have borrowed money at a fixed rate of interest
D those who have lent money at a fixed rate of interest


34 Many fishermen are unemployed owing to long-term legislation to conserve fish stocks in the
North Sea.

What type of unemployment is this?
A demand-deficient
B frictional
C seasonal
D structural


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35 In producing a table of economic statistics about a developed country (Italy) and a developing
country (Ethiopia) one pair of statistics has been placed in the wrong columns.

Which is it most likely to be?

Italy Ethiopia
A adult literacy % 97.1 25.3
B birth rate (per 1000) 9.6 45.7
C death rate (per 1000) 16.4 9.9
D life expectancy 78.3 50.2


36 Which aspect of population will be most likely to change when the importance of the tertiary
sector increases?
A the dependency ratio
B the geographical distribution
C the occupational distribution
D the total size


37 When must there be a rise in a country's population?
A when the birth rate is greater than death rate and there is net emigration
B when the birth rate is greater than death rate and there is no migration
C when the death rate is greater than birth rate and there is net immigration
D when the death rate is greater than birth rate and there is no migration


38 In Indonesia the opportunity cost of producing timber is lower than in any other country.

To protect the environment, the Indonesian government decides to conserve its timber and ban
timber exports.

What would happen in Indonesia to the balance of trade and external costs?


balance of
trade
external costs
A worsens fall
B worsens unchanged
C improves rise
D unchanged rise


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reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.

University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department
of the University of Cambridge.

UCLES 2005 2281/01/M/J/05
39 Multi-national companies often set up business in developing countries. These countries benefit
in a number of ways.

What effect could not be considered a benefit for a developing country?
A Investment in infrastructure is increased.
B More local workers are employed.
C New ideas and skills are introduced.
D Profits earned are sent abroad.


40 If a country places a tax on imports of food, which group in the country is most likely to benefit?
A consumers
B farmers
C food importers
D supermarkets