Component 1: Economic Principles · A520U10-1
Eduqas A-level Component 1, October 2021
All 7 written questions and 20 multiple choice questions from Eduqas A-level Component 1 (October 2021), Component 1: Economic Principles. Each question shows its marks and topic, and opens the question paper and mark scheme at the right page.
Autumn series, sat in October because the summer exams were cancelled.
Section A
Q1
An increase in which one of the following would, all other things being equal, reduce actual economic growth but raise long run potential economic growth in an economy?
- AConsumer spending
- BInvestment spending
- CGovernment current and capital spending
- DExport spending
- EImport spending on capital goods
Show the answer
The answer is E.
TopicEconomic growth and the economic cycleInternational trade and exchange ratesAggregate demand
Q2
An absence of private property rights results in a market failure which is linked to a concept entitled 'the tragedy of the commons'. Which pair of characteristics in the table below would cause this market failure?
- ACharacteristic 1: Non-diminishability; Characteristic 2: Excludability
- BCharacteristic 1: Non-diminishability; Characteristic 2: Rejectability
- CCharacteristic 1: Diminishability; Characteristic 2: Excludability
- DCharacteristic 1: Diminishability; Characteristic 2: Non-excludability
- ECharacteristic 1: Non-diminishability; Characteristic 2: Non-excludability
Show the answer
The answer is D.
TopicMarket failure
Q3
The diagram below shows the cost and revenue curves for a firm which is currently operating at an output of Q1. If the firm cut output to Q2, what would be the expected impact on total revenue, total cost and total profit? (The diagram is in the question paper.)
- ATotal revenue: Rise; Total cost: Fall; Total profit: Rise
- BTotal revenue: Fall; Total cost: Fall; Total profit: Fall
- CTotal revenue: Fall; Total cost: Rise; Total profit: Fall
- DTotal revenue: Rise; Total cost: Rise; Total profit: Unknown
- ETotal revenue: Rise; Total cost: Rise; Total profit: Rise
Show the answer
The answer is B.
TopicCosts, revenues and profitDemand, supply and elasticity
Q4
In 2019 global coal production rose as a result of new mines opening in India, Indonesia and Russia. The effect of this was to drive down the price and increase the quantity demanded. Which of the following supply and demand diagrams for coal best represents the situation described? (Options A to E are diagrams: see the question paper.)
Show the answer
The answer is C. Open the question paper to read the options.
Q5
The change in the sterling exchange rate in the UK in 2016, as shown in the chart of the Sterling Exchange Rate Index (Jan 2005 = 100) in the question paper, was most likely the result of the:
- ABursting of the dotcom bubble
- BUK's decision in a referendum to leave the EU
- CGlobal financial crisis
- DBank of England's quantitative easing programme
- EUK's decision to leave the Eurozone of the EU
Show the answer
The answer is B.
TopicInternational trade and exchange ratesMacroeconomic objectives and policyThe financial sector
Q6
The diagram below shows unemployment and inflation rates for an economy in three consecutive years. Which of the following sets of explanations best fits the changes in unemployment and inflation shown in the diagram? (The diagram is in the question paper.)
- AYear 1 to Year 2: Rapidly rising demand; Year 2 to Year 3: Supply side shock
- BYear 1 to Year 2: Sharply falling demand; Year 2 to Year 3: Supply side shock
- CYear 1 to Year 2: Supply side shock; Year 2 to Year 3: Sharply falling demand
- DYear 1 to Year 2: Supply side shock; Year 2 to Year 3: Rapidly rising demand
- EYear 1 to Year 2: Rapidly rising demand; Year 2 to Year 3: Sharply falling demand
Show the answer
The answer is A.
TopicAggregate supplyMeasuring economic performance
Q7
The chart in the question paper gives information on the share of global wealth owned by North America, Europe, Asia and lower income countries. Global wealth grew on average by 3.8% per year. It can be concluded that between 2010 and 2018:
- AWealth in North America fell by more than wealth in Europe
- BWealth inequality fell in North America, Europe and Asia
- CIncome inequality fell in North America, Europe and Asia
- DWealth grew more quickly in lower income countries than elsewhere
- EIncome per person rose in lower income countries
Show the answer
The answer is D.
Q8
The diagram below shows the supply and demand for an agricultural commodity, with the market initially in equilibrium at a price of £50 per tonne. The supply curve meets the price axis at £10 and the demand curve at £100; quantities marked are 65m, 100m and 120m tonnes per year. Suppose that the government introduces a minimum price of £70 per tonne and agrees to buy any unsold units at that price. The new level of producer surplus per year will be: (The diagram is in the question paper.)
- A£975 m
- B£2 000 m
- C£3 000 m
- D£3 600 m
- E£8 400 m
Show the answer
The answer is D.
TopicDemand, supply and elasticityGovernment intervention in markets
Q9
The diagram below shows a monopoly firm with MC, AC, AR (demand) and MR curves and outputs Q1 to Q5 marked. Which of the following is true? (The diagram is in the question paper.)
- ADemand is price elastic between Q1 and Q5
- BThe firm would be productively efficient at Q3
- CThe firm would maximise profits at Q2
- DThe firm would earn abnormal profits at Q4
- EThe firm would be allocatively efficient at Q1
Show the answer
The answer is A.
TopicCosts, revenues and profitMarket structures
Q10
Property prices on the Gold Coast in Australia are expected to rise rapidly over the next few years. Although there is a steady increase of new properties being built every year, population growth and tourism are expected to lead to an even higher number of people wanting to live there. Which of the following supply and demand diagrams best summarises the situation? (Options A to E are diagrams: see the question paper.)
Show the answer
The answer is D. Open the question paper to read the options.
Q11
The table below gives information on the UK Government's budget/fiscal deficit (financial years ending March). 2011: £142.8bn (8.8% of GDP). 2012: £125.4bn (7.5%). 2013: £127.0bn (7.4%). 2014: £103.9bn (5.8%). 2015: £94.7bn (5.1%). 2016: £83.7bn (4.3%). 2017: £56.4bn (2.8%). 2018: £56.2bn (2.7%). 2019: £41.5bn (1.9%). It can be concluded that:
- AGDP was higher in 2011 than in 2019
- BGDP was about £2 184 tn in 2019
- CNational debt was falling over the period
- DGDP was about £1 257 tn in 2011
- ENational debt rose by 46.3 % over the period
Show the answer
The answer is B.
TopicPublic finances and the role of the stateMacroeconomic objectives and policy
Q12
The table below gives information on the weights of different categories of goods in the Australian CPI (Consumer Price Index). Consumer Price Index – Base Period Expenditure Weights Per cent Expenditure Group 2011 2017 Housing 22.3 22.7 Food and non-alcoholic beverages 16.8 16.1 Recreation and culture 12.6 12.7 Transport 11.6 10.3 Furnishings, household equipment and services 9.1 9.4 Alcohol and tobacco 7.1 7.1 Insurance and financial services 5.1 5.8 Health 5.3 5.4 Education 3.2 4.3 Clothing and footwear 4.0 3.6 Communication 3.1 2.7 Total 100.0 100.0 It can be concluded that:
- ASpending on education was a higher proportion of the basket in 2017 than in 2011
- BHouse prices rose between 2011 and 2017
- CSpending on food and non-alcoholic beverages fell between 2011 and 2017
- DSpending on alcohol and tobacco remained constant between 2011 and 2017
- EMore students were in education in Australia in 2017 than in 2011
Show the answer
The answer is A.
Q13
Research in the US suggests the following price elasticities of demand (PED) and cross-price elasticities of demand (XED) for cereals and for fruit and vegetables: PED for fruit and vegetables –0.79 PED for cereals –0.58 XED for fruit and vegetables with respect to a change in the price of cereals –0.3 The effect of a 10 % decrease in the price of cereals would be likely to be:
- ADemand for cereals: -5.8%; Demand for fruit and vegetables: -3%
- BDemand for cereals: +3%; Demand for fruit and vegetables: +7.9%
- CDemand for cereals: +5.8%; Demand for fruit and vegetables: +3%
- DDemand for cereals: -3%; Demand for fruit and vegetables: -7.9%
- EDemand for cereals: +5.8%; Demand for fruit and vegetables: +1.09%
Show the answer
The answer is C.
Q14
The diagram below shows the production possibility frontiers (PPFs) for two economies, Crickovia and Footania, producing Good X and Good Y. Which of the following summarises the potential trade situation between the two countries? (CA = comparative advantage, AA = absolute advantage.) (The diagram is in the question paper.)
- ACrickovia: CA in Y; Footania: CA in X; Possible trade deal: 2X for 5Y
- BCrickovia: CA in Y; Footania: CA in X; Possible trade deal: 5X for 2Y
- CCrickovia: CA in X; Footania: CA in Y; Possible trade deal: 2X for 5Y
- DCrickovia: CA in X; Footania: CA in Y; Possible trade deal: 5X for 2Y
- ECrickovia: AA in both; Footania: CA in X; Possible trade deal: No deal possible
Show the answer
The answer is A.
TopicInternational trade and exchange ratesThe economic problem and resource allocation
Q15
Between 2010 and 2015 the US money supply rose from around $2 tn to around $4 tn. Over the same period, US nominal GDP rose from around $15 tn to around $21 tn. According to the quantity theory of money, which of the following can be deduced?
- AReal GDP rose
- BThe price level rose
- CThe velocity of circulation fell
- DNominal GDP rose slower than the price level
- EThe price level rose more quickly than the velocity of circulation
Show the answer
The answer is C.
TopicMeasuring economic performanceMacroeconomic objectives and policy
Q16
The chart in the question paper shows the terms of trade index for Indonesia (2006 to 2018). It can be concluded that:
- AIndonesia's trade balance was worse by the end of the period than the start
- BThe index of Indonesian export prices fell on average over the period
- CThe index of Indonesian import prices fell on average over the period
- DThe index of Indonesian import prices fell relative to the index of export prices on average over the period
- ENone of the above
Show the answer
The answer is E.
TopicInternational trade and exchange ratesMeasuring economic performance
Q17
A sharp fall in the value of the pound against all major currencies would most likely result in:
- AAn improvement in the UK's terms of trade
- BA rise in the price of UK exports
- CA fall in the overseas earnings of UK-owned multinationals
- DA rise in the number of UK firms purchased by overseas firms
- EA fall in the UK rate of inflation
Show the answer
The answer is D.
TopicInternational trade and exchange ratesMeasuring economic performance
Q18
Study the chart on the decline of elephant populations in Africa in the question paper (about 27 million in 1800, 10 million in 1900, falling to under 0.5 million by 2000). The most likely economic explanation for the trend shown in the chart is that:
- AElephants are public goods
- BThere are external benefits in the consumption of ivory
- CElephants are demerit goods
- DThere is an absence of property rights
- EThere is the existence of monopoly power
Show the answer
The answer is D.
TopicMarket failureAggregate demandMarket structures
Q19
The diagram below shows a market in which an externality is present. Supply is MPC=MSC; the MSB curve lies below the MPB curve, so equilibrium output (Qeq) is above the socially optimal level of output (Qsoc). The most likely explanation for the situation shown in the diagram is:
- APollution from coal-fired power stations
- BHealth care provision
- CRaw sewage discharged into rivers
- DNoise from lorries leaving a steelworks
- EAlcohol consumption
Show the answer
The answer is E.
TopicMarket failureAggregate demandDemand, supply and elasticity
Q20
The table below shows the demand and supply for a commodity (million kg per week). Price £50: demand 0, supply 75. £45: 10, 70. £40: 20, 65. £35: 30, 60. £30: 40, 55. £25: 50, 50. £20: 60, 45. £15: 70, 40. If the government was to impose a tax of £15/million kg on producers, the impact on the equilibrium price and quantity would be:
- ANew equilibrium price: £30; New equilibrium quantity: 40
- BNew equilibrium price: £30; New equilibrium quantity: 55
- CNew equilibrium price: £35; New equilibrium quantity: 45
- DNew equilibrium price: £40; New equilibrium quantity: 65
- ENew equilibrium price: £40; New equilibrium quantity: 20
Show the answer
The answer is A.
Section B
Q21
The diagram below shows a monopoly firm operating at the profit maximising output of Q1. Using the diagram, explain why the firm maximises profit at output Q1.
Mark splitKnowledge 2Analysis 1
Q22
The diagram below shows an economy in equilibrium at P1Y1. The government then increases its expenditure on infrastructure. Consider the extent to which such a policy would be beneficial for the economy. Adapt the diagram as part of your answer.
Mark splitKnowledge 2Analysis 2Evaluation 2
TopicAggregate supplyMeasuring economic performance
Q23
Saint Emillion is a small town in the wine growing area of Bordeaux in France. The harvest of grapes is used to make wine and is affected significantly by the weather. Once produced, the wine is put into barrels for 18 months until it is finally put into bottles. With the aid of a diagram, comment on the likely price elasticity of supply of Saint Emillion wine.
Mark splitKnowledge 2Application 1
TopicDemand, supply and elasticityGrowth and development
Q24
Explain the shape of this firm's short run total cost curve.
Mark splitKnowledge 2Analysis 2
Q25
With reference to the matrix and economic theory, discuss whether or not the countries should engage in free trade.
Mark splitApplication 3Analysis 2Evaluation 3
Q26
With reference to the data above, consider how effective the UK Government's spending on flood defences is in correcting market failure.
Mark splitApplication 3Analysis 2Evaluation 3
TopicMarket failure
Q27
Using the information above and relevant economic theory, discuss the extent to which possessing natural resources, such as oil, leads to high levels of economic development.
Mark splitApplication 3Analysis 2Evaluation 3
Question text is quoted from the question papers, © WJEC CBAC Ltd (Eduqas), for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.