Economics Junior College 1
Name : _________________ Date : ____________
1. India is failing to reach its full economic potential because of poor rail, road and electricity
infrastructure as well as a lack of skilled civil engineers.
Which factors of production need to be increased?
a. Capital and land c. Labour and capital
b. Enterprise and capital d. Land and enterprise
2. The fundamental economic question is how to meet unlimited wants with limited resources.
What is an example of limited resources?
a. Insufficient consumer goods in the local shops
b. Insufficient jobs to allow full employment
c. Insufficient machinery to produce electrical goods
d. insufficient tax revenue to finance building a school
3. Which statement is not a positive economic statement?
a. An increase in the rate of income tax decreases the wish to save
b. An increase in the rate of income tax has a greater impact the greater the level of income
c. An increase in the rate of income tax causes more workers to be supplied
d. An increase in the rate of income tax is the fairest way to finance the national health service
4. The diagram shows a production possibility curve (PPC). It indicates the combinations of consumer
goods and capital goods produced by an economy using all its available resources.
What does position X indicate?
a. a lower ratio of capital to consumer goods is necessary to achieve economic growth
b. increasing levels of unemployment
c. insufficient factors of production are available
d. too many consumer goods are causing a fall in economic growth
5. A production possibility curve for a country is shown.
What would cause the shift from PP to P1P1?
a. application of more machinery used in manufacturing
b. productivity decreases
c. scientific methods applied to farming
d. switch from production of consumer goods to capital goods
6. A government wants to move its economy away from central planning towards a market economy.
Which policy would be consistent with this aim?
a. introduce tariffs on imported goods
b. privatize the ownership of electricity generation
c. provide free education for primary school pupils
d. reduce prices of foods such as wheat and rice
7. What is the opportunity cost to a person of spending $20 on a new pair of sports shoes?
a. all the other things the person could have bought
b. the cost of getting to the sports shop
c. the current value of his old pair of shoes
d. the next best thing that could have been bought with the $20
8. Which statement is correct?
a. In the short run all factors of production are fixed; in the long run all factors are varied.
b. In the short run at least one factor is fixed; in the long run all factors can be varied.
c. In the short run at least one factor is varied; in the long run all factors are fixed.
d. In the short run at least one factor is varied; in the long run at least one factor is fixed.
9. What is correct at any point along an economy’s production possibility curve?
B
10. ‘The local government of Tokyo should use a policy of taxation to reduce traffic congestion in the city
centre.’
What can be concluded about this statement and the type of economic policy?
Identify whether the statements below belong to positive or normative statements. [5]
a. If the government raises the tax on beer, this will lead to a fall in profits of the brewers (Positive)
b. Unemployment is more harmful than inflation. (Positive)
c. The government should increase the minimum wage to $10 per hour to reduce poverty. (normative)
d. Cut-price alcohol has increased the demand for alcohol among teenagers. (positive)
e. The government is right to introduce a ban on smoking in public places. (normative)
Essay
1. Explain, with the help of diagrams, how (i) constant and (ii) increasing opportunity costs determine the
shape of an economy’s production possibility curve. [8]
i) It is constant because the opportunity costs are always increasing with the same digits. For
instance, if company AB changes production from point A to point B, the opportunity costs is 5
units of good Y for 2 units of Good X while if they change production from Point B to C, it would
still be the same, 5 units of good Y for 2 units of good X.
ii) It is increasing because, changes in production will lead to unstable changes in opportunity cost.
For instance, If company AC changes production from point A to B. The opportunity cost is
7 units of good Y for 2 units of good X while if company AC changes production from
Point B to C, the opportunity cost would be 4 Units of good Y and 12 units of good X.
2. Discuss what the most significant issues of transition are that a country will face as it moves from a
planned economy to a mixed economy. [12]
Mixed economy is the combination of market and planned economic system. Countries may prefer to
use mixed economies because it lets some parts of the economy that does not affect living standards
like luxury goods and it lets some parts of the economy to the government that is fundamental to the
economy like electricity and water.
Planned economy main characteristics: It is all controlled by a central body, consumers or producers
don’t have any sovereignty, profit is not the main objective(producers) and it is non excludable
Market economy main characteristics: It is controlled by the market forces, consumers and producers
has freedom of production and consumption, Profit is the main objective(producer), and it is excludable
If a country wants to switch from planned to mixed economy, there are some issues that the central
body must take into account:
1. Living standards – the process of privatization means that goods provided will become private
goods and thus it becomes excludable and rival. Some people will not be able to afford as private
businesses/companies aim for higher profit and this reduces the living standards. In extreme cases,
these companies become a monopoly and that only the wealthiest people can afford it.
2. Environment – most private companies don’t care about the environment and that their only motive
is profit. Their sourcing or production may not be environmentally friendly and this causes damage
to the environment. Other economic sectors and living standards will be affected negatively.
3. In conclusion, The most significant problems that the central body of a planned economy must take
into account are the effects of privatization to the living standards and the environment.
