ECONOMICS UNIT 1

1 Economics textbooks often start by identifying the existence of the basic economic problem.
What is it that makes this problem ‘basic’?
A It affects all economies and individuals.
B It is the most urgent target of government economic policy.
C It only affects low-income developing economies.
D It relates to the production of raw materials in the primary sector. [ON/2014/11]

2 Which statement about the factors of production is correct?

A Capital includes man-made machines that do not keep their original value.
B Enterprise is a natural factor of production that cannot be taught.
C Labour is an immobile factor that does not change its skill level.
D Land is only agricultural fields that cannot be improved by human effort. [ON/2014/11]

3 The diagram shows two production possibility curves for an economy.

Manufactured products

Agricultural Products

Y X

What could have caused the change in the economy’s production possibility curve from XX
to YY?
A a decrease in the price level
B a large number of industrial disputes
C a major earthquake
D an increase in unemployment [ON/2014/11]

4 Which resource is an example of capital used in the fishing industry?

A a fishing boat
B fish
C owners of firms in the industry
D skilled workers in the industry [ON/2014/13]

5 In recent years more golf courses, which use large quantities of water, have opened in China.
What may be the opportunity cost of this?
A cost of water
B loss of farmland
C sales of golf equipment
D wages of golf course staff [ON/2014/13]

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6 The following are four ways factors of production are used.

What is likely to require the greatest use of the factor enterprise?
A a carpenter making wooden articles in his leisure time for sale at a monthly market
B a corn farmer negotiating with other farmers to hire expensive machinery
C a food shop owner sometimes selling flowers in the shop
D a householder harvesting vegetables grown at home [MJ/2015/11]

7 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?
A Oil is a limited resource.
B Oil is expensive.
C The exploration involves demand and supply. [MJ/2015/11]
D There are external costs involved in production.

8 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?

Output of food

.B

.A .Q .D

.C
Output of computers
[MJ/2015/11]

9 What is the basic economic problem?

A finite resources and limited wants
B finite resources and unlimited wants
C infinite resources and limited wants
D infinite resources and unlimited wants [MJ/2015/12]

10 New oil reserves are discovered.

What has increased in supply?
A capital
B enterprise
C labour
D land [MJ/2015/12]

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11 The diagram shows production possibility curves (PPC) for a country that can produce
agricultural products or manufactured products.
Its current PPC passes through points Q and S but the country is currently experiencing
unemployment.

If there is now full employment at the same time as new agricultural techniques enable an
increase in productivity, what would be the movement on the PPC diagram?
A P to R B P to S C Q to R D S to Q [MJ/2015/12]

12 A person makes sandwiches at home for five hours each day. She makes 20 sandwiches per
hour, and she sells each sandwich for $2 each.
What is the opportunity cost if she takes a holiday on a working day?
A $2
B $40
C 20 sandwiches
D 100 sandwiches [MJ/2015/12]

13 Water is a scarce resource in Singapore because the island’s small geographical area means
there is little land on which to collect water for its 4.8 million people.
Which method would be least successful in tackling its water scarcity?
A exempting large families from paying water taxes
B importing water from neighbouring countries
C introducing a water tax that rises as consumption rises
D redirecting funds from education to schemes to purify rainwater [MJ/2015/13]

14 A business person employs two people to make sandwiches to sell in a cafe.

As well as labour, which factors of production are involved in this activity?
A capital, enterprise and land
B capital and land only
C capital and enterprise only
D enterprise and land only

15 Why is choice an important part of the basic economic problem?

A Choice is necessary to achieve an equilibrium price.
B Limited resources have many uses.
C Manufacturers produce a large variety of foods.
D The market leads to an unequal distribution of goods. [ON/2015/11]

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16 A power plant is built to provide electricity to a rural area in Botswana.

What is the opportunity cost to the local economy of building the plant?
A the cost of the building materials
B the price of electricity
C the school which was not built as a result
D the wages of the power plant workers

17 The diagram shows a production possibility curve for an economy that can provide financial
services or agricultural products. The economy is at point X.
Bad weather destroys part of the agricultural produce.
At which point will the economy be in the diagram?

[ON/2015/11]

18 A person works at home making table cloths. He works for 6 hours each day and makes 15 table
cloths an hour. He sells them for $10 each. He then decides to work for only 4 hours each day.
What can be concluded from the above information?
A The lost profit would be $300.
B The lost revenue would be $60.
C The daily opportunity cost would be 30 table cloths.
D The daily opportunity cost would be $50. [ON/2015/12]

19 An economy with few resources is encouraged to improve the quality of its human resources.
Which policy will lead to such an improvement?
A conserving and protecting more of its natural resources
B limiting the immigration of skilled labour
C providing more opportunities for education and training
D reducing the use of machines in production [FM/2016/12]

20 A country raises the school leaving age from 15 to 17 years.

What is the opportunity cost of this increased period of school education to the young people
affected?
A costs of training and employing more teachers
B financial help necessary for school leavers who go to university
C government expenditure on building extra classrooms
D lost income from paid employment because of school attendance [FM/2016/12]

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21 An increase in the number of manufacturing robots in the car manufacturing industry represents
an increase in the quantity of which factor of production?
A capital
B enterprise
C labour
D land [MJ/2016/11]

22 The diagram shows the choices for an individual between leisure and earnings.

23 What is the best example of the existence of the economic problem?

A A government provides accommodation for all those who are homeless.
B A police force has a lengthening list of unsolved crimes.
C Janitha hands her homework in at the last permitted deadline.
D Musa completes his journey without putting petrol in his car. [MJ/2016/12]

24 The diagram shows a production possibility curve for an economy.

Which point on the diagram is the most efficient for the economy to produce both consumer
goods and capital goods?

Consumer goods

B C

D Capital goods

[2017-MJ-11]

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25 Which is not a factor of production?

A a farm
B a farmer
C a farmer’s bank account
D a second-hand tractor

26 Heavy rain caused floods in an area of a country.

What may be an opportunity cost of repairing the damage caused?
A the allocation of government funds to the area instead of on a new airport
B the cost of providing shelter for those made homeless
C the decline in the tourist industry in the area
D the loss of profits from businesses affected by the flood

27 The diagram shows a production possibility curve for cars and furniture.

Cars

Y Z

0 Furniture

A recession causes a decrease in production in both cars and furniture.

Which movement would represent this change?
A X to W B X to Y C Z to W D Z to Y [2017- MJ-12]

28 Which statement about factors of production is correct?

A The fruit picked from the tree is called land.
B The managers of a company are called enterprise.
C The money used to finance a project is called capital.
D The owner of a company is called labour.

29 A person can make 10 items to sell on a craft stall in a day.

What is the opportunity cost if the person decides to paint a picture instead?
A 10 craft items
B the cost of the materials for the craft items
C the cost of the paint for the picture
D the value of the picture [2017- MJ-13]
30 What is an example of the purchase of a capital good?
A a farm owner purchasing additional land
B a farm owner purchasing a television
C a farm owner purchasing a tractor
D a farm worker purchasing some seeds [2018-FM-12]

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Section B
1 All countries face the economic problem and so choices have to be made.
(a) Explain what is meant by the ‘economic problem’. [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. [6]

2 It is forecast that by 2022 India will overtake China as the world’s most highly populated country.
China’s birth rate is lower than India’s and China has a higher proportion of its population aged over
65. By 2050, it is estimated that 500 million Chinese people and 330 million Indian people will be
over 65. Changes in population size and age structure affect the quantity and quality of a country’s
resources.

(a) Define resources. [2] [2018-FM-22 a & b]

(b) Explain two reasons why the quality of a country’s resources may increase. [4]

(c) Analyse, using a production possibility curve diagram, the effect of moving factors of
production from producing cigarettes to producing other products. [5] [2017-ON-21 Ad]

3 Firms use different quantities of land, labour, capital and enterprise in producing their products.
The ways in which a country’s resources can be used, and the extent to which they are employed,
can be shown on a production possibility diagram.

(a) What is the difference between capital and land? [2]

(b) Analyse, using a production possibility diagram, the effect on an economy’s output when there is
a change from full employment to unemployment. [6] [2017-FM-3 a & c ]

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