Unit 1: Introduction to Economic Principles · 2520U10-1
WJEC AS Unit 1, June 2018
All 9 written questions and 15 multiple choice questions from WJEC AS Unit 1 (June 2018), Introduction to Economic Principles. Each question shows its marks and topic, with an examiner insight on 2, and opens the question paper and mark scheme at the right page.
Section A
Q1
Identify the missing words from the following statement: "According to the circular flow of income model, when an economy is in equilibrium we would expect withdrawals to............................................. injections".
- Abe greater than
- Bbe less than
- Cbe equal to
- Dbe twice the size of
- Ebe greater or less than
Show the answer
The answer is C.
TopicNational income and the circular flowDemand, supply and elasticity
Q2
Which of the following is least likely to lead to a shift right of the long run aggregate supply curve?
- AIncrease in efficiency of resources
- BIncrease in quantity of resources
- CIncrease in the cost of resources
- DIncrease in quality of resources
- EImprovement in the state of technology
Show the answer
The answer is C.
TopicAggregate supplyDemand, supply and elasticity
Q3
Recent research into the banking system in Ghana found that many poor people, whose needs for basic survival are great and who are less able to make long-term plans, tend not to save any excess earnings and instead take out more loans that trap them into debt. This is an example of:
- AHigh savings ratio
- BThe profit motive
- CGovernment failure
- DIrrationality
- EPublic sector debt
Show the answer
The answer is D.
TopicAggregate demandPublic finances and the role of the stateDemand, supply and elasticity
Q4
A government invests £240m into building a new hospital. That figure is matched by private sector investment in other infrastructure projects. Consumption, on the other hand, falls by £135m and the trade balance worsens by £60m. Assuming there is no multiplier process, what is the effect on aggregate demand?
- AIncreases by £285m
- BIncreases by £555m
- CIncreases by £45m
- DIncreases by £675m
- EIncreases by £315m
Show the answer
The answer is A.
TopicAggregate demandInternational trade and exchange rates
Q5
Which of the following indicates that two goods are complementary?
- AAn inelastic cross-elasticity of demand
- BA horizontal demand curve
- CA positive income elasticity of demand
- DA price elasticity of demand greater than –1
- EA negative cross-elasticity of demand
Show the answer
The answer is E.
Q6
The chart below shows household spending on different categories of goods and services by income decile. Food and non-alcoholic drinks Housing, including fuel and power Transport Recreation and culture Other Percentage (low income) Income decile (high income) It can be concluded that:
- ALow income groups spend more in total on food and non-alcoholic drinks than high income groups
- BHigh income groups spend a higher proportion of their income on transport than low income groups
- CThe proportion of income spent on housing rises as income rises
- DThe proportion of income spent on other goods and services rises steadily as income rises
- EThe richest 10% of the population spend twice as much as the poorest 10% on recreation and culture
Show the answer
The answer is B.
Q7
Assume that resources are perfectly substitutable in an economy that makes cars and butter as shown in the production possibility frontier below. Between points X and Y, the opportunity cost of producing one more tonne of butter equals: Cars X Y 5 9 Butter (tonnes)
- A2 cars
- B3 cars
- C4 cars
- D8 cars
- E12 cars
Show the answer
The answer is A.
Q8
The graph below shows the inflation rate in France between 2011 and 2016. FRANCE INFLATION RATE 3 3 2.5 2.5 inflation rate (%) inflation rate (%) 2 2 1.5 1.5 1 1 0.5 0.5 0 0 – 0.5 – 0.5 2011 2012 2013 2014 2015 2016 Which of the following statements is not true?
- AThe highest rate of inflation was 2.5%
- BPrices fell between 2012 and 2013
- CInflation has not been above 1% since 2014
- DPrices rose between 2011 and 2012
- EFrance has experienced periods of deflation between 2011 and 2016 Questions 9 and 10 refer to the diagram below. The diagram shows the market for minced beef which is initially in equilibrium at point J. Minced beef is used to make hamburgers. You should assume that minced beef is an inferior good. S1 Price S $2.00 M K $1.50 L $1.00 J D1 D Minced Beef (000s of kgs)
Show the answer
The answer is B.
TopicMeasuring economic performanceDemand, supply and elasticity
Q9
Which of the following could explain a movement to a new equilibrium at point M?
- AA change in tastes away from hamburgers combined with an increase in disease related cattle deaths
- BAn increase in buyers' income combined with a cost- saving technological advance in minced beef production
- CAn increase in the price of hamburgers combined with an increased cost of production of minced beef
- DA fall in population combined with an increased price for an alternate form of packaged beef
- EA decrease in buyers' income combined with an increase in price for cattle
Show the answer
The answer is E.
Q10
Which of the following is correct if equilibrium shifts from point J to point K?
- ABoth the price and consumer surplus have increased
- BThe demand decreased due to a lower price substitute
- CThere is excess demand of 25 000 kg at the price of $1
- DA shift in supply will cause a temporary shortage, which will disappear when the price rises to $1.50
- EBoth the demand curve and the quantity demanded have decreased
Show the answer
The answer is D.
Q11
A positive consumption externality occurs when:
- AThe social marginal benefit is greater than the private marginal benefit
- BThe social marginal cost is greater than the private marginal cost
- CThe social marginal cost is greater than the private marginal benefit
- DThe social marginal benefit is lower than the private marginal benefit
- EThe social marginal cost is lower than the private marginal cost
Show the answer
The answer is A.
TopicCosts, revenues and profitAggregate demandMarket failure
Q12
Which of the following is not a function of the Bank of England?
- AIssuing bank notes in England and Wales
- BProviding safe custody for the UK's gold reserve
- CMaking sure the financial system is safe and sound
- DMaking sure that money is available to fund the UK's public services
- EOperating monetary policy by moving the bank rate up and down
Show the answer
The answer is D.
Q13
The diagram below represents the demand curve for a product. P A P1 B F C P2 E Q1 Q2 Q The price falls from P1 to P2 and, as a result, the increase in consumer surplus is area:
- AP1BFP2
- BP2AC
- CP1BCP2
- DFCQ2Q1
- EBFC
Show the answer
The answer is C.
Q14
The diagram below shows the market for a particular product. The Government has recently imposed an indirect ad valorem tax onto the product. How much tax revenue will the Government collect from this tax? S2 P S1 £9 £5 £3 D
- A£25 000
- B£30 000
- C£35 000
- D£15 000
- E£45 000
Show the answer
The answer is B.
TopicGovernment intervention in marketsMacroeconomic objectives and policy
Q15
A new report states that house prices in Swansea have increased by 2.1% between June 2015 and June 2016 to an average price of £134 822. What was the average house price in Swansea in June 2015?
- A£2 831
- B£137 653
- C£131 991
- D£111 423
- E£132 049
Show the answer
The answer is E.
Section B
Q16(a)
Adapt Diagram 1 to illustrate the impact on resource allocation of total specialisation in product X. Explain your answer.
Mark splitKnowledge 1Application 1Analysis 1
Q16(b)
Adapt Diagram 2 to illustrate the impact of division of labour on productivity within the economy. Explain your answer.
Mark splitKnowledge 1Application 1Analysis 1
Q17(a)
Using a diagram, outline why it might be argued that "immigration drives wages down in Wales".
TopicThe labour market
Q17(b)
Describe the trends in immigration and average weekly earnings shown by the data in Figures 1 and 2.
Mark splitApplication 4
TopicThe labour market
Q17(c)
To what extent do you agree with the statement: low economic growth and consumer spending are the biggest factors affecting wages in the UK.
Mark splitAnalysis 4Evaluation 4
TopicEconomic growth and the economic cycle
Examiner insight
- What to cover
- Define economic growth properly, then analyse the wage effect: growth raises derived demand for labour and cuts slack in the labour market, so wages rise. Do the same for consumer spending, then weigh other factors such as productivity, migration, union power, the minimum wage and inflation.
- Diagram
- Labour market with demand for labour shifting right as output grows, raising the wage rate.
- Evaluation
- Judge whether growth and spending really are the biggest factors. Productivity is the stronger long run driver of real wages, and growth can come with low wage jobs.
- Watch out
- Very few reached full marks. Two causes: shaky command of the term economic growth, and no real evaluation for the four AO4 marks.
- How it went in the exam
- Parts (a) and (b) of Q17 were among the easiest on the paper, but (c) was answered poorly, so the marks were all in this part.
Q18(a)
Calculate the % change in the value of the US dollar ($) over the two year period and state whether it has appreciated or depreciated against the euro (€).
Mark splitKnowledge 1Application 2
Q18(b)
Assume the price elasticity of demand (PED) of all Eurozone imports from the US is –0.8. Calculate the likely impact of this exchange rate change on the quantity demanded of Eurozone imports from the US.
Mark splitApplication 2
TopicInternational trade and exchange ratesDemand, supply and elasticity
Q18(c)
If the European Central Bank increases the base interest rate, explain the likely consequences on the trade of goods and services between the US and the Eurozone.
Mark splitKnowledge 2Analysis 2
TopicMacroeconomic objectives and policyInternational trade and exchange ratesThe financial sector
Q19
With the aid of a tariff diagram, discuss whether the imposition of a tariff on Chinese steel could save UK-based jobs.
Mark splitKnowledge 2Analysis 3Evaluation 4
TopicInternational trade and exchange ratesGrowth and development
Examiner insight
- What to cover
- Show how a tariff on Chinese steel raises the import price, cuts import volume and raises domestic output, protecting steel jobs. Then take the other side: higher input costs for steel using industries and the risk of retaliation costing jobs elsewhere.
- Diagram
- Tariff diagram with the world price, the price plus tariff, domestic supply expanding, imports falling, and the tariff revenue rectangle. Draw it accurately, this is where marks were lost.
- Evaluation
- Weigh jobs saved in steel against jobs lost in steel using sectors and exports hit by retaliation, the cost to consumers, and whether the plants are viable in the long run anyway.
- Watch out
- A great many candidates could not draw the tariff diagram accurately and many evaluated weakly. Both cost marks.
- How it went in the exam
- Marked out of 9, the mean was 5 with a standard deviation of 2.4, so this question pulled candidates apart more than any other. Solid tariff knowledge, both sides, scored very well.
Question text is quoted from the question papers, © WJEC CBAC Ltd, 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.