UNISON WORLD SCHOOL, DEHRADUN

SUMMER ASSIGNMENT-Paper 1, Paper 2

ALY1- ECONOMICS
1. Which statement about economics is not correct?
A Economic actions can produce unexpected side effects.
B Economic thinking is usually based on logical reasoning at the margin.
C The use of scarce resources to produce a good always has a cost.
D The value of a good or service involves a purely objective judgement.

2. A farmer is able to grow three crops, X, Y and Z, on his land. The farmer decides to grow at most two crops in
any year. The table shows six possible combinations of units of output of the three crops.

What is the opportunity cost of 1 unit of X?

A 1.33 units of Y
B 1.5 units of Y
C 0.5 units of Z
D 2.0 units of Z

3. The diagram shows a production possibility curve for an economy that produces capital goods and consumer
goods.

Why is the production possibility curve drawn concave to the origin?

A Capital goods are a more labour intensive output than consumer goods.
B Consumers always seek to maximise their satisfaction from consumption.
C Profit maximisation for firms always ensures efficiency in production.
D Some resources are more efficient in production of some goods than others.

4. The Bureau of Alcohol, Tobacco, Firearms and Explosives is a branch of the United States Government which
regulates markets. What does its name imply is most likely to be its main responsibility?
A to prevent harm from demerit goods
B to provide subsidies for essential goods
C to raise revenue from goods in elastic demand
D to safeguard employment in manufacturing industry
5. What is treated as a variable in constructing a market demand curve?
A consumers’ tastes
B the distribution of income
C the price of related goods
D the price of the good

6. The diagram shows how the quantity demanded of four goods changes as income changes. Which good has
an income elasticity of demand which is always +1?

7. The table shows three different prices and quantities supplied per week of two products, X and Y.

Which statement about price elasticity of supply (PES) is correct?

A The PES of X is elastic for a fall in its price from $15 to $10.
B The PES of X is unitary for a rise in its price from $15 to $20.
C The PES of Y is elastic for a fall in its price from $40 to $30.
D The PES of Y is unitary for a rise in its price from $40 to $50.

8. In 2016 car drivers bought more fuel (gas) because the price of oil from which it was made had fallen. Which
diagram represents this change in the market for fuel?
9. The market demand for a product is made up of the demand from three firms, X, Y and Z. The table shows
the demand from each firm and the market supply.

What is the equilibrium price in the market?

A $7 B $8 C $9 D $10

10. The diagram represents the market for diamonds.

What could have caused price to change from P1 to P2?

A a fall in the price of substitute gems
B a fall in the tax on diamonds
C a rise in the productivity of diamond miners
D a rise in the wages of diamond miners
11. Good X has a substitute, good Y, and a complement, good Z. The price of good Y decreases and the price of
good Z increases. Why might the equilibrium price of good X remain unchanged?
A Producers of good X adopt new technology.
B Producers of good X receive a subsidy.
C Some firms stop production of good X.
D The tax on the production of good X is cut.

12. At first, a television service is available at no charge. The television company then charges viewers $6 per
hour to watch its programmes. The demand curve is D.

What is the value of the loss in consumer surplus and what value of consumer surplus remains after the
introduction of the hourly charge?

13. The diagram shows the European airline market.

New entrants have come into the market, shifting supply from S1 to S2. Which area represents the new
producer surplus?
A GMJ B HNF C HNK D KNTO
14. Which benefit is most likely to result from a rise in the minimum price of labour (wage rate)?
A a reduction in costs of production
 B a reduction in income inequality
C a reduction in the level of unemployment
D a reduction in the rate of inflation

15. The diagram shows the equilibrium price and quantity of good X.

The initial market equilibrium is shown by point E. What might cause the market equilibrium to move to
point F?
A a decrease in the costs of producing good X
B a decrease in the demand for good X
C an increase in the price of a substitute good
D the imposition of a specific sales tax on producers of good X

16. The table shows the demand and supply schedules for a product before and after the government pays a
subsidy of $4 per unit to the producers.

Assuming that any extra sales are to new consumers, how much do the original consumers of the product
save as a result of the subsidy?
A $300 B $600 C $900 D $1500
17. Which statement about transfer payments is correct?
A Transfer payments are intended to reward productive economic activity.
B Transfer payments are only financed by government.
C Transfer payments may result in a disincentive to work.
D Transfer payments will include the sales of new cars.

18. What is the major problem associated with a government directly providing the correct amount of a public
good?
A competition from private producers
B estimation of demand
C increased trade diversion
D rivalry in consumption
19. An aggregate demand curve slopes downwards from left to right. One reason for this is that a reduction in
the average price level will lead to
A a decline in the country’s international competitiveness.
B an increase in interest rates.
C an increase in the real value of money balances.
D the expectation of further price falls.

20. In the diagram an economy is initially in equilibrium at point X. The government increases spending on
education. This coincides with an increase in wage rate inflation. Which point shows the most likely short-
run equilibrium of the economy?

21. What would be an opportunity cost of growth in an economy?

A the faster growth of services than of manufacturing
B the need for an increased level of imported raw materials
C the need for greater government intervention
D the reduction of consumption if growth requires investment

22. A ««1«« economic statement is an objective statement that ««2«« be tested using factual evidence,
whereas a ««3«« economic statement is a subjective statement that ««4«« be tested using factual evidence.
Which words complete gaps 1, 2, 3 and 4?

23. What would most likely be considered an advantage by producers and a disadvantage by consumers of the
operation of a planned economy?
A a bureaucratic system of decision-making
B a government emphasis on the production of capital goods
C a long response time to changing economic events
D an absence of financial incentives to work and to produce

24. A country can produce manufactured goods and agricultural products as shown in the diagram.
 Given this information, which statement is definitely correct?
A If the country produces at Q it has unused or inefficiently used resources.
B The country should produce at T instead of at Q.
C The country would be better off producing at R than S.
D The monetary costs are the same to produce at V as they are to produce at R.

25. The diagram shows a demand curve for a good.

Which statement describes the nature of this demand curve?

A A greater or smaller quantity is demanded as price changes.
B A lower price is the result of a fall in demand.
C As demand increases so does price.
D Quantity changes in proportion to the change in price.

26. The diagram shows the relationship between the price and the total expenditure on a good.

Which statement is correct?

A The income elasticity of demand for the commodity is unity.
B The income elasticity of demand for the commodity is zero.
C The price elasticity of demand for the commodity is unity.
D The price elasticity of demand for the commodity is zero.
27. Over the last ten years the price elasticity of demand for tea in many countries has risen. What is the most
likely cause of this change in price elasticity?
A a decrease in the incomes of consumers
B a decrease in the number of complements to tea
C an increase in the amount of tea supplied
D an increase in the number of substitutes for tea

28. What would be the price elasticity of supply of cell (mobile) phones if their price rose from US$100 to
US$110 and the quantity supplied rose from 200 to 250?
A 0.2 B 0.4 C 2.5 D 5.0

29. A product has a high price elasticity of supply. What might explain this?
A The product has a high opportunity cost.
B The product has a non-perishable nature.
C The product is classed as an inferior good.
D The product is considered to be a luxury.

30. The diagram shows the demand curve, DD1, and the supply curve, SS1, for eye operations.

The operations are provided free to the consumer. Which statement is correct?
A Consumer surplus from the operations is ODD1.
B The equilibrium price is indeterminate, because the supply curve is vertical.
C The equilibrium price is P.
D The equilibrium price is zero.

31. The demand for houses in London has caused house prices to rise considerably in the last five years. Many
people cannot now afford to buy a house. What can be concluded from this?
A On a demand and supply diagram for houses there has been a movement up the demand curve.
B On a demand and supply diagram for houses there has been a movement up the supply curve.
C The price elasticity of demand for houses is greater than one.
D The price elasticity of supply of houses is zero.

32. A specific tax is placed upon each bottle of perfume sold. In the diagram, S is the supply curve before tax and
St is the supply curve after tax.
 Which area represents the revenue received by the government from the tax?
A ORWY B PQUT C PRWT D QRWU

33. The diagram shows the demand curve and supply curve for a product.

Which area represents producer surplus?

A OWYZ minus OWY B OWYZ minus OYZ C OXYZ minus OYZ D OXYZ minus WXY

34. Which statement about maximum and minimum prices is correct?

A With an effective maximum price for a product, a shortage will develop.
B With an effective maximum price for a product, the market price will rise.
C With an effective minimum price for a product, rationing will be necessary.
D With an effective minimum price for a product, the market price will fall.

35. The diagram shows the effect on the market for a product of the introduction of a government subsidy.

What is the result of the payment of the subsidy?

A Consumer surplus increases.
B The price to the consumer halves.
C The subsidy provides over half of producer income.
 D Total consumer expenditure on the product increases.

36. Why are the pensions paid to retired citizens an example of a transfer payment?
A Retired citizens pay no tax on their pensions.
B Retired citizens produce no output for their pensions.
C Retired citizens save some of their pensions.
D Retired citizens spend all of their pensions.

37. What is definitely a feature of a nationalised industry?

A Consumers are not charged a price for its product.
B No profit is made from supplying its product.
C The government owns the industry’s capital.
D There is no competition in the market for its product.

38. Which government action would be identified as the direct provision of goods and services?
A increasing road maintenance because of poor weather conditions
B making payments to low-income families with elderly dependants
C subsidising firms in order to encourage them to increase their output
D taxing firms because they have been emitting damaging fumes

39. In its 2016 budget statement, the South African government proposed stimulating business activity by the
removal of regulations. It also announced that government expenditure was expected to grow by 7.1%. The
diagram shows aggregate demand (AD) and aggregate supply (AS) for the South African economy. X is the
original equilibrium point. Which new equilibrium would result from the changes?

40. The statements refer to the proposal to build another runway at London’s Heathrow airport. Which
statement is normative?
A Heathrow is the UK’s busiest airport and has more flights than any other European airport.
B The airport is highly competitive but there is spare capacity.
C The potential net benefit of expansion is around £5 billion over 70 years.
D We should concentrate on improving the use of existing capacity not build another runway.
41. YX is an economy’s production possibility curve (PPC). The equation of the curve is qY = 1000 – 2qX.

What is the opportunity cost of producing one extra unit of good X?

A 2 1 unit of good Y
B 2 units of good Y
C 500 units of good Y
D 1000 units of good Y

42. A farmer picks 10 kg of strawberries in each hour. The farmer is twice as productive at picking raspberries.
Which diagram shows the farmer’s daily production possibility curve when working 8 hours a day?

43. Governments provide public goods. What is an example of a public good?

A the services provided by a defence force
B the services provided by a hospital
C the services provided by a leisure centre
D the services provided by a toll road

44. India is one of the largest producers of tractors in the world. S1 and D1 are the original supply and demand
curves for Indian tractors.
 What would cause the supply curve to move to S2?
A a rise in the incomes of Indian farmers
B a rise in the price of electricity paid by Indian tractor manufacturers
C a rise in the price of tractors produced in the US
D a rise in the productivity of workers in Indian tractor factories

45. The diagram shows the demand curve for a product.

Which statement is correct?

A Consumer expenditure on the product always rises when price falls.
B Demand is less elastic at higher prices than at lower prices.
C Price elasticity of demand differs at every price.
D Price elasticity of demand equals one at every price.

46. The cross-elasticity of demand between two goods will be higher

A the greater the difference in price between the two goods.
B the greater the income elasticities of demand for the two goods.
C the greater the price elasticities of demand for the two goods.
D the more they are regarded as similar by consumers.

47. The price elasticity of supply of a good is +2. The quantity supplied originally was 200 units. The price
increases by 30%. What will the quantity supplied be after the price increase?
A 80 units B 140 units C 260 units D 320 units

48. The diagram shows S1 and D1, the original supply and demand curves for fast food in an economy. Point X is
the original equilibrium. Fast food is an inferior good. What would be the new equilibrium position following
a tax imposed on fast food and a fall in real income?
49. When will the price mechanism not function as a system for allocating goods?
A when the government bans advertising
B when the government maintains an effective maximum price
C when there is a limited supply of the good
D when there is a powerful company able to set the market price

50. During a certain period, 10 000 units of a normal good are sold at a price of US$20. During a later period, 12
000 units are sold at a price of US$22. What could explain this change?
A an increase in indirect taxation
B an increase in the cost of raw materials
C an increase in the price of a substitute commodity
D an increase in the productivity of factors of production

51. A free market is in disequilibrium with a shortage of a product. As the market moves towards equilibrium,
what will happen to the price, the quantity demanded and the quantity supplied?

52. In the diagram, D and S represent the domestic demand and supply curves for a product. Sw represents
world supply of the product at a world price of Pw. The initial domestic market equilibrium of the product is
at E1. If foreign trade were to be banned completely, the domestic market equilibrium would be at E2.
 What would be the loss of consumer surplus if all foreign trade were banned?
A PwXE1 B PwYE2E1 C YXE2 D ZYE2

53. A government wishes to impose a tax on a good so that the producer and not the consumer pays most of the
tax. Which type of elasticity would it be best for the good to have to achieve this aim?
A high price elasticity of demand
B low price elasticity of demand
C totally inelastic price elasticity of demand
D unitary price elasticity of demand

54. The diagram shows the effect on the supply curve of a product when the government provides a subsidy.

What can be concluded about the nature of the subsidy as the quantity supplied increases?
A It is a falling percentage (%) of the price of each unit.
B It is a fixed percentage (%) of the price of each unit.
C It is a fixed sum on each unit.
D It is a rising percentage (%) of the price of each unit.

55. What is not an example of a transfer payment?

A pocket money from parents
B private donations to charities
C salary paid to a teacher in a government school
D unemployment benefit

56. In 2016–2017 a government spent $135 billion on the health service. The diagram shows the provision of
healthcare in that country.
 What can we deduce about healthcare provision in the country if it were provided at zero price?
A At price P the benefits to society are maximised.
B It is non-rival in consumption.
C It is unlimited in supply due to government funding.
D It will need rationing as it will be overconsumed.

57. A government privatises the telecommunications industry. What is least likely to increase?
A choice of telecommunications services for consumers
B development of new telecommunications products
C employment in the telecommunications industry
D productivity in the supply of telecommunications

58. The diagram shows short-run aggregate supply and demand in an economy, where the initial equilibrium is
at S.

What is most likely to cause a movement from S to T?

A an increase in consumer expenditure and an increase in productivity
B an increase in consumer expenditure and a reduction in imports
C an increase in education and training and an increase in income tax
D an increase in the exchange rate and a reduction in corporation tax

59. A government proposes to introduce a road congestion charge which would require private motorists to pay
a toll for road use. Which statement relating to the proposal is normative?
A Bus passengers will benefit at the expense of motorists.
B Motorists with higher incomes will be prepared to pay the charge in return for reduced journey times.
C Motorists with lower incomes will not be able to afford to use the roads.
D The proposal will be unfair to motorists who have no alternative means of transport.
 60. A firm changes the type of product it produces. What might limit the firm’s ability to use division of labour?
A The new production method is more capital intensive.
B The new production method is very expensive.
C The new product is made to specific customer requirements.
D The new product requires specialised labour.

STRUCTURED QUESTIONS- Units1, 2, 3.

1. Explain why both merit goods and demerit goods are examples of private goods. [8]
2. Discuss whether merit goods and demerit goods are best provided by a market economy. [12]
3. Explain the factors that can affect the price elasticity of demand for a product. [8]
4. Discuss the extent to which knowledge of a product’s cross-elasticity of demand is likely to be important to a
firm supplying that product. [12]
5. Explain the characteristics that money needs to have in order to perform its functions effectively. [8]
6. Explain the different ways in which resources are allocated in a market economy and in a mixed economy.
[8]
7. Discuss the effectiveness of supply-side policies in increasing the supply of enterprise to the economy. [12]
8. With the use of diagrams, explain how the price elasticity of demand for a product influences the incidence
of an indirect tax on that product. [8]
9. ‘Indirect taxes reduce consumer surplus and should therefore never be imposed in a mixed economy.’
Discuss this view. [12]
10. In 2015, it was reported that the global demand for chocolate was projected to increase but it was unlikely
that the global supply of cocoa beans, required to produce chocolate, would increase.
(a) State and explain two factors of production needed for the manufacture of chocolate. Explain the
benefits of specialisation in the manufacture of chocolate. [8]
(b) Analyse the likely effects on the global price of chocolate of the reported changes in 2015. Discuss the
most effective way that the price of chocolate might be stabilised. [12]
11. In March 2016, the United Kingdom government announced that it will introduce a ‘sugar tax’ on the
producers of fizzy soft drinks in order to reduce child obesity.
(a) Using an example of each, explain the differences between direct progressive taxes and indirect
regressive taxes. [8]
(b) Discuss whether a sugar tax or an educational campaign on healthy eating is more likely to reduce child
obesity. [12]