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IFYEC002 Economics

Examination

2018-19

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

Market failure is defined as occurring

A when firms go bankrupt.

B when firms make normal profit

C when consumers cannot afford luxuries.

D when free markets fail to efficiently allocate scarce resources.

Question A2

The diagram below shows the demand and supply curve for carrots.

Price

Q

price charged for carrots? [ 1 ]

A A fall in the price of fertilisers used to grow carrots

B An increase in the minimum wage for farm workers

C There is a fall in the price of cucumbers

D The government release some information regarding the health benefits

of eating carrots

Question A3

monetary policy? [ 1 ]

A A reduction in company taxes to encourage investment

B An increase in the rate of interest to reduce inflation

C A fall in the exchange rate to increase exports

D Investment into education and training

Question A4

Which one of the following is the best definition of household saving?

A Investments into stocks and shares

B An injection into the circular flow of income

C Disposable income that is not spent on consumption

D Cash deposited in a bank

Question A5

Which of the following is least likely to cause a shift to the right of a country’s production possibility frontier?

A An increase in labour mobility

B An increase in the money supply

C An increase in immigration

D Technological advancement

Question A6

Other things being equal, an appreciation in the value of the pound against the euro is most likely to occur if

A interest rates are lowered.

B the number of European tourists visiting the UK increases. C there is an increase in the money supply.

D UK imports from countries using the Euro increase.

Question A7

The diagram below shows the market demand for smoke alarms when  consumers have imperfect information about the benefits of installing a smoke alarm. If consumers had full information, the market demand for smoke alarms would be D2.

Price

P2

P1

P0

Quantity

Which one of the following policies is most likely to ensure that           consumption and production of smoke alarms is at the socially optimum

level? [ 1 ]

A A subsidy of P1 – P0

B A subsidy of P2 – P0

C A maximum price of P2

D A maximum price of P0

Question A8

The government has implemented an expansionary fiscal policy. Which of the following macroeconomic changes are most likely to happen?

A An increase in employment and a rise in government borrowing

B An increase in consumption and a rise in savings

C A fall in imports and a decrease in inflationary pressure

D A fall in consumption and a rise in government spending

Question A9

Which one of the following would be considered by an economist to be a

factor of production? [ 1 ]

A A car purchased by a consumer

B A bank loan

C Government spending on pensions

D A car purchased by a taxi firm

Question A10

The diagram below shows a shift in the long run aggregate supply curve for an economy from LRAS1 to LRAS2.

Price

Level

LRAS2

P1

P2

AD


Real National Output

[ 1 ]

A has rising demand.

B is experiencing cyclical unemployment.

C has improved its long-run economic growth potential.

D is experiencing deflation.

Question A11

can be inferred from this information? [ 1 ]

A Product X is in high demand

B There are many substitutes available for Product X

C Product X is an inferior good

D A rise in the price of Product X will increase the firm’s revenue

Question A12

The diagram below shows the actual and trend GDP for an economy over time.

Real

GDP

Actual GDP

Z


Time

When is the economy shown to be in recovery?

A At Point X only

B At Point W and Point Z

C Between Point X and Point Y

D Between Point W and Point Z

Question A13

A monopolist will produce where

A marginal revenue = marginal cost.

B marginal revenue = 0.

C average revenue = average cost.

D total revenue is greater than total cost.

Question A14

The table below shows the index of real GDP for the UK before and after the

2008–09 financial crisis.

2007

2008

2009

2010

2011

UK Index of

Real GDP

2009 = 100

105.8

104.3

100.0

101.8

102.4

From the data it can be inferred that in the UK

A

B

C

D

real GDP fell by 3.4% between 2007 and 2011.

the annual rate of inflation was minus 1.5% in 2008.

the rate of economic growth was lower in 2011 than in 2010.       total output of the economy fell by 5.8% between 2007 and 2009.

Question A15

The table below shows the quantity demanded and supplied of a good at different prices

Price per

unit (£)

Number of units demanded

Number of units supplied

£5

800

200

£6

700

300

£7

600

400

£8

500

500

£9

400

600

£10

300

700

If the government were to offer a producer subsidy of £2 per unit on this product, the new equilibrium price would be

A

B

C

D

£7 £8 £9 £10

Question A16

Which of the following is an example of market failure?

A A subsidy given to private sector firms.

B The government overproducing a merit good.

C Government provision of national defence.

D The government allowing the price of oil in the free market to rise. Question A17

Over a period of years, a country experiences deflation. It can therefore be concluded that

A real wages have increased.

B the real value of money increased.

C the value of savings must have fallen

D unemployment must be rising.

Question A18

Protectionism is most likely to be justified to

A support an established firm.

B boost profits of monopoly firms.

C increase imports.

D protect non-renewable resources.

Question A19

A shift to the left of a supply curve of a product can be caused by

A a tax on the product.

B the entry of new firms into the industry.

C a rise in productivity.

D a rise in the price of a substitute good.

Question A20

The diagram below shows the aggregate demand and short run aggregate supply curves for an economy, where X is the initial equilibrium.

SRAS3

AD2

Real National Output

All other things being equal, what would be the new equilibrium position of the economy following a rise in commodity prices and a fall in exports?

A

B

C

D

A

B

C

D

Question A21

Sugar tax may not solve Malaysia’s obesity crisis

Malaysia has become one of Asia’s most obese countries, with almost half the population either obese or overweight, according to the ministry of    health.

Last November, following the example of other countries in the region,    Kuala Lumpur announced it would impose a tax on sweetened drinks with effect from the beginning of April.

Malaysia is targeting obesity as part of a national plan to tackle the sharp   rise in hospital admissions, and wants more employers to promote healthier lifestyles as well as encouraging local communities to provide more            opportunities for physical activity.

The tax will be US$0.10 for beverages that contain sugar exceeding five      grams (g) per 100 millilitres (ml) and juices that contain more than 12 g per 100 ml.

The healthcare cost of obesity related illnesses is enormous in Malaysia, with estimates ranging from US$1 to US$2.1 billion according to a 2017 study

This works out to be about 10 to 19 percent of Malaysia’s total spending

onhealthcare.

Source: FT.com & theaseanpost.com (adapted extracts)

b)    With the aid of a diagram, briefly explain how the imposition of a tax on

sugary drinks might impact upon the market for sugary drinks. [ 3 ]

c)    Analyse ONE negative externality that may be caused by the over-

problems caused by the over-consumption of sugary drinks in Malaysia. [ 3 ]

Question A22

Japan posts trade deficit in 2018 as exports fall to the

weakest in 2 years

Trade tensions between China and the United States (US), two of Japan’s  biggest trading partners caused Japan to post a trade deficit for 2018, its  first deficit since 2015 and reversing from the trade surplus in the previous two years.

Exports in December for Japan also fell the most in more than two years, pulled down by weak global demand.

Exports for the month contracted by 3.8% from a year earlier, which was worse than the 1.9% drop economists had expected. The fall was the      biggest contraction since October 2016.

Japan’s central bank is expected to maintain its large monetary stimulus and revise its growth and inflation forecasts for the year, as a result of the weak

export figures.

Source:www.ig.com(adapted extract)

a)   Define the term trade deficit’ . [ 1 ]

b)   With the aid of a diagram, briefly explain how a rising trade deficit

exports. [ 3 ]

d)   Analyse ONE policy Japan could use to improve their trade position. [ 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

diagram, explain the long-run equilibrium position for a firm that enjoys

monopoly power. [ 10 ]

b) I don't think it's good in any business for anyone to have a monopoly. On the other hand, you need to have size to get costs down” Rick Scott, Former Governor of Florida, USA.

to reduce monopoly power in every industry. [ 20 ]

Question B2

will go through AND how it can be used in the evaluation of any

economic activity. [ 10 ]

b) Lester Lave, an economist at the Brookings Institution, said that cost- benefit analysis ''is a delightful tool for economists because it is complete, flexible and allows you to look at everything. ''

benefit analysis is complete, flexible and allows you to look at

everything when considering any economic decision. [ 20 ]

Question B3

a)   Explain carefully, with examples, the term market failure AND explain with the use of a diagram how maximum and minimum prices can be used to correct market failure.

b)   Evaluate the effectiveness of price controls, such as a maximum or minimum price in correcting market failure.

Question B4

a)   Identify and explain the main causes of a recession AND with the aid of a diagram explain the term negative output gap.

b)   Evaluate the extent to which you agree that the growth of GDP per capita is desirable?