SECTION

Answer ALL the Multiple Choice Questions

The following are four ways factors of production are used.

A.

a carpenter making wooden articles in his leisure time for sale at a monthly market

a corn farmer negotiating with other farmers to hire expensive machinery

a food shop owner sometimes selling flowers in the shop

a householder harvesting vegetables grown at home

2.

To help reduce the price of oil, new supplies are needed. However, in 2013, objectors
opposed attempts to explore new sites because of the environmental damage the
exploration might cause.
How does this illustrate the basic economic problem?

Oil is a limited resource.

Oil is expensive.

The exploration involves demand and supply.

There are external costs involved in production.

3. With a given level of resources, an economy that can produce food or computers is at point
Q on its production possibility curve. Population growth means more resources need to be
allocated to food production.
At which point in the short term will the economy be in the diagram?

4.

A person makes sandwiches at home for five hours each day. She makes 20
sandwiches p hour, and she sells each sandwich for $2 each.
What is the opportunity cost if she takes a holiday on a working day?

$2

$40

20 sandwiches

100 sandwiches

5.

What can be found in a mixed economy but not in a market economy?

a national economic development plan

an unequal distribution of income and wealth

the operation of the price mechanism

the private ownership of factors of production

6.

Newspapers recently reported there had been a decrease in the demand for beef and
that its price per kilogram had increased.
From the initial equilibrium point X, which point in the diagram illustrates the new market
equilibrium?

7.

The diagram shows the market for fresh fish in the Caribbean with equilibrium point X. A
new type of fishing boat increases production, which reduces costs.
Which point represents the new equilibrium?

8. A large supermarket applied to build on land which was in an area of natural beauty. The
local government allowed the building, even though the natural beauty of the area would be
lost, because many jobs would be created and much needed income would be brought to
the local community.
Which economic ideas cannot be found in the above statement?
A

external cost and private enterprise

free market and the conservation of resources

opportunity cost and improved standards of living

public sector and external benefit

9.

What is most likely to influence the price elasticity of demand for a food?

a change in consumer tastes

the number of close substitutes

the rate of inflation

whether the food can be stored easily

10.

Economics textbooks often start by identifying the existence of the basic economic
problem.
What is it that makes this problem 'basic'?

It affects all economies and individuals.

It is the most urgent target of government economic policy.

It only affects low-income developing economies.

It relates to the production of raw materials in the primary sector.

11.

Which statement about the factors of production is correct?

Capital includes man-made machines that do not keep their original value.

Enterprise is a natural factor of production that cannot be taught.

Labour is an immobile factor that does not change its skill level.

Land is only agricultural fields that cannot be improved by human effort.

12.

The diagram shows two production possibility curves for an economy.

What could have caused the change in the economy's production possibility curve from
XX to YY?
A

a decrease in the price level

a large number of industrial disputes

a major earthquake

an increase in unemployment

13.

The diagram shows the market for refined oil with equilibrium of X.
What will be the new equilibrium when a major oil refinery shuts down for repair work?

14.

What is meant by the equilibrium quantity in the market for a product?

the average quantity produced over the year

the average quantity sold over the year

the quantity at which profit occurs

the quantity at which the demand and supply curves intersect

15.

The following is a headline from the newspaper.

increased employment in the car industry

increased petrol (gas) sales

reduced external costs of car use

reduced number of bus journeys

16.

Sam wrote a list of how he would prefer to spend his Saturday afternoon.
first choice
second choice
third choice
fourth choice

go to a cricket match
watch the annual town parade
go to the cinema
visit relatives

Unfortunately a thunderstorm caused the cricket match and the town parade to be
cancelled. Sam went to the cinema.
What was the opportunity cost of going to the cinema?
A

going to the cricket match

watching the town parade

visiting his relatives

losing his Saturday free time

17. How does a production possibility curve show that scarcity exists?
A

It shows that a rise in demand for one of the products increases its price.

It shows that as more resources are used to produce a product, its price rises.

It shows that at any point outside the production possibility curve an economy is wasting
resources.

It shows that there is a limit to the quantity of products that can be produced with
existing resources and technology.

18.

In which case is it possible to set the level

of reward before production takes place for the first

19.

In the 2016 Olympics in Brazil, the opening ceremony will take place in the Maracana
Stadium, which can seat 82 000 spectators. It is expected that all tickets for the ceremony
will be sold quickly, leaving many people dissatisfied.
What can be concluded from this?

Price elasticity of demand for tickets will be perfectly elastic.

Some people will be able to resell their tickets at a higher price than they paid for them.

The Olympic authority will make more tickets available for sale.

This will be an example of market failure.

20. The diagrams show different conditions of demand and supply for a product.
In which diagram would market price remain unchanged if consumers' incomes fell?

21.

In 2011, company selling milk in glass bottles replaced them with new plastic bottles.
When they were introduced, the equilibrium quantity on the market fell.

What could be a reason for this fall?

Consumers preferred the new bottle because it was lighter to carry.

Milk from the farms used to fill the bottle cost more.

The bottle was cheaper than the existing glass bottle to produce.

The new bottle was introduced with a successful advertising campaign.

22.

Which change would make the supply of a product more price elastic?

an increase in the number of close substitutes for the product

an increase in the proportion of firms working at full capacity

a reduction in the time taken to make the product

a reduction in the time that the product can be stored

23.

Which combination of resources and wants causes the economic problem?

man-made goods that do not directly satisfy human wants

money used to set up new businesses and expand existing businesses

natural resources that will not be replaced

the ability to earn profits by combining resources to produce goods

25. A student leaves school and decides to spend the next two years at a college to improve
her qualifications.
What is the opportunity cost to the student of taking this decision?
A

the cost of the course fees at the college

the increase in job opportunities she will have as a result of her extra qualifications

the lost production due to her not being in work

the money she would have earned if she had been in work for the two years

26.

What is found in a mixed economy but not a free market economy?

banks

division of labour

price controls

profit motive

27.

A large shop selling clothes opened in a town. Its prices were much cheaper than other
shops selling similar items. As a result many more customers came to the area. They also
visited restaurants near the shop. The restaurants reported a 10% increase in sales.
What economic concept does the above statement best illustrate?

external benefit

inelastic demand

market failure

perfect competition

28.

What is not held constant in constructing a demand schedule?

the incomes of consumers

the prices of complementary goods

the price of the good itself

the tastes of consumers

29. A shop sells chocolate birthday cakes. When the price was $15 it sold 40 cakes. It reduced
the price to $10 and sold 60 cakes.
What can be concluded from this?
A

The firm will make less profit because the price has fallen.

The firm will make more profit because sales have increased.

The price elasticity is inelastic because demand only increased by 50%.

There is unit price elasticity because the firm's revenue remained the same aft change.

30. In 2010, a major oil leak from an oil rig affected many people living around the Gulf of
Mexico. What type of market failure did they experience?
A

monopoly exploitation

negative externality

price discrimination

rising tax burden

SECTION

Answer any two the questions from this section

[2]

(b) Describe the two main features of the factor of production, 'enterprise'.

[4]

(c) Using a production possibility curve diagram, explain how the curve can be used to show
the consequences of a change in the allocation of resources between the production of
two goods.
(d)

[6]

Discuss whether a decision by a government, with limited financial resources, to

[8]

2. A government decides to encourage the use of public transport by the provision of a subsidy.
(a) Using a demand and supply diagram, analyse the effect of a subsidy on the equilibrium
price and the equilibrium quantity in such a market.

[6]

(b) Explain what factors influence the price elasticity of demand for public transport. [6]
(c) Discuss whether transport in a country should be provided by the public sector or by the
private sector.

[8]

3. In 2012, the Indian Prime Minister announced that the Government was going to spend
USS90 million on sending a spaceship to the planet Mars. Some economists argued that it
would be better to use the factors of production, such as land and labour, to improve
education or to build more roads.
(a) Describe two ways in which land is different from labour.

[4]

(b) Explain the significance of opportunity cost for a government when making its spending
decisions.

[4]

(c)

Using a production possibility curve diagram, analyse the impact of an increase in

(d) Discuss whether the building of more roads will benefit an economy.

[5]
[7]

4. Many governments seek to discourage people from smoking cigarettes, whilst encouraging
them to eat more fruit, including bananas and apples. The government's ability to influence
people's consumption is determined, in part, by the price elasticity of supply and the price
elasticity ofdemand of the products, and by changes in market conditions.
(a)

Define 'price elasticity of supply'.

(b)

Explain three reasons why the supply of bananas may decrease.

[2]

[6]
(c)

(d)

Analyse what effect a rise in the price of apples, which are a substitute for bananas, will
have on the market for bananas.

[4]

Discuss whether a government should increase the tax on cigarettes.

[8]