Section A

Answer ALL questions. This section carries 40 marks.

Questions A1 – A20: select either A, B, C or D and write your answer in the

Answer Booklet provided.

Question A1

A pure public good is always: [ 1 ]

A heavily subsidised by the government.

B provided free of charge because opportunity cost is zero. C available for consumption by others when consumed by an additional

person .

D provided by the government for all consumers.

Question A2

The diagram below shows the demand curve for bananas.

most likely to have been caused by an increase in: [ 1 ]

A the price of substitutes.

B the wages of banana farmers.

C consumers incomes.

D subsidies to banana growers.

Question A3

A market is defined as being in equilibrium when: [ 1 ]

A consumer satisfaction is maximised.

B prices are fixed.

C all firms make abnormal profit.

D output reaches its maximum.

Question A4

(all other things being equal), if: [ 1 ]

A interest rates are lowered.

B there is a rise in demand for UK exports.

C UK consumers demand fewer imports.

D the government raises income tax.

Question A5

of 5.5 million tonnes in 2018/19 due to higher production in India, Thailand,

China and the European Union . If the forecast is accurate, it is most likely

to mean that: [ 1 ]

A sugar growers will see a rise in profits.

B the price elasticity of demand for sugar is elastic.

C global demand for sugar will decrease.

D the global price of sugar will fall.

Question A6

-0.7, it can be deduced that the good: [ 1 ]

A will see a fall in demand of 7% if prices rise by 10%.

B is an inferior good.

C is a public good .

D will see a fall in demand of 7% if the price of a substitute good rises by

10%.

Question A7

The diagram below shows the demand and supply curves for housing, where X is the initial equilibrium.

D1

D3

Following a fall in interest rates and an increase in building safety      regulations for new houses, what would be the new equilibrium point?

A

B

C

D

A

B

C

D

Question A8

from an increase in: [ 1 ]

A interest rates.

B income tax.

C import prices.

D the budget deficit.

Question A9

The diagram below shows a firm’s average costs as its output increases

Costs

Average

cost

0

X             Y            Output

A movement from Point X to Y indicates: [ 1 ]

A diseconomies of scale.

B the gains from specialisation.

C an increase in productive efficiency

D a decline in monopoly power.

Question A10

The diagram below shows a country’s aggregate demand and supply

schedules, with equilibrium at point E.

Which of the following policies is the government least likely to pursue?

A A decrease in income tax.

B An increase in government spending.

C Allow growth of the money supply.

D Encouraging more imports.

Question A11

Monopolies are less economically efficient than highly competitive markets because:

A their objective is to maximise profit.

B price is higher than marginal cost.

C output is higher, and prices are lower.

D barriers to entry are low.

Question A12

The diagram below shows the growth rate of an economy over time.

Between Point X and Point Y, it is most likely that: [ 1 ]

A unemployment fell.

B aggregate demand increased.

C imports fell.

D inflation has risen.

Question A13

The cross price elasticity of demand for a substitute good is always: [ 1 ]

A positive.

B negative.

C greater than +1.

D less than -1.

Question A14

A good is excludable if: [ 1 ]

A it is free.

B one person’s use has no effect on the quantity available for someone

else .

C it is possible to prevent someone from enjoying its benefits.

D it is only supplied by the government.

Question A15

Government provision of a merit good can be justified because: [ 1 ]

A there would be market failure without intervention.

B merit goods are usually over-provided.

C merit goods cannot be supplied at a profit.

D merit goods create negative externalities.

Question A16

The diagram below shows the market demand and supply curves for a good that creates a positive externality with initial equilibrium at point Z.

encourage the production and consumption of the good . The subsidy paid on

each unit is measured by the distance: [ 1 ]

A

B

C

D

ZY

ZX

XY

ZW

Question A17

Which one of the following is the best example of expansionary fiscal policy? [ 1 ]

A A cut in interest rates

B An increase in the money supply

C A cut in the budget surplus

D An increase in income tax

Question A18

likely to be achieved if there is an increase in: [ 1 ]

A interest rates.

B welfare benefits.

C imports.

D consumption.

Question A19

statements is correct? [ 1 ]

A A 5% increase in price leads to a 10% fall in quantity demanded B The good is income inelastic

C The firm supplying to good is making a loss

D A 20% increase in income leads to a 40% fall in quantity demanded

Question A20

will the firm produce at? [ 1 ]

A

B

C

D

A

B

C

D

Question A21:

Pollution eliminates the benefits of exercise, study

suggests

Pollution  eliminates  the  benefits  of  walking,  a  new  study  suggests. Researchers from Imperial College London found that the toxic air in built-up city centres prevents the positive effects on the lungs and heart which are usually gained from exercise.

Previous research has found that diesel exhaust fumes from cars has been associated with an increased risk of cardiovascular disease and death, and can cause a worsening of diseases such as asthma.

It is estimated that pollution is linked to 40,000 early deaths in Britain each year, and the government has pledged to ban the sale of diesel cars by 2040 and tax them more heavily until that date.

Responding  to  the  study,  Prof  Kevin  McConway,  a  Professor  of Applied Statistics, at The Open University, said: “It’s important that people continue to exercise.  In the UK physical inactivity is the fourth largest cause of disease and mortality and contributes to around 37,000 premature deaths in England every year. ”

Source: The Telegraph [Adapted extract] – 5 December 2017

b) Using a diagram, show the likely impact that an increased tax on diesel

cars is likely to have on the market for diesel cars. [ 3 ]

c) Briefly explain ONE policy, other than taxation, that might be used to

reduce pollution in city centres around the world. [ 3 ]

d) “It’s important that people continue to exercise. ”

ONE policy  that  a  government  might  use  to  encourage  people  to

undertake more exercise. [ 3 ]

Question A22:

EU registers 'highest economic growth rate in 10 years'

The European Commission gave an optimistic view of the EU economy, saying that it is "on track to grow at its fastest pace in a decade this year."

According to the EU executive's Autumn Economic Forecasts, the eurozone economy will grow by 2.2%, 2.1% next year and at 1.9% in 2019.

"This  is the  highest growth  rate  in  10 years," said  EU economic affairs commissioner Pierre Moscovici.

Moscovici explained that the improved prospects were due to "strong private consumption, stronger growth around the world, and falling unemployment".

He added that the investment in the EU is "picking up" and that confidence in economy has "considerably brightened".

Outside Europe, changes in the Chinese economy or possible protectionist measures by the USA mean that the Commission cannot predict whether the EU's economic situation will turn out better or worse than forecast.

Source: www.euobserver.com (adapted extract) – 9 November 2017

b) With  the  aid  of  a  diagram,  briefly  explain  the  effect  of  increased

investment within EU countries on economic performance. [ 3 ]

c) Briefly explain ONE impact on the UK economy of an increased rate

of growth in the EU. [ 3 ]

d) “…..possible protectionist measures by the USA mean that the Commission cannot predict whether the EU's economic situation will turn out better or worse than forecast. ”

upon the economic performance of EU countries. [ 3 ]

Section B

Answer 2 questions. This section carries 60 marks.

You must answer 2 complete questions.

Each question has two parts, a) and b) .  Both parts must be answered for each

of the questions you choose .

You must answer one question from Section B Part One (Micro

Economics) and one question from Section B Part Two (Macro Economics).

For all questions, you may use diagrams to help illustrate your answer.

Part One (Micro Economics)

Question B1

a)    Explain carefully, with examples, the terms “market failure” AND

“private goods”

b)    Evaluate  the  view  that  maximum  prices  are  the  best  method  a government might use to encourage the production and consumption of

merit goods to reduce market failure.