Unit 1: Introduction to Economic Principles · 2520U10-1
WJEC AS Unit 1, June 2019
All 10 written questions and 15 multiple choice questions from WJEC AS Unit 1 (June 2019), Introduction to Economic Principles. Each question shows its marks and topic, with an examiner insight on 1, and opens the question paper and mark scheme at the right page.
Section A
Q1
Which of the following is the best example of a 'free good'?
- AFlood defence
- BMusic concert ticket
- COil
- DSunlight
- EDental services
Show the answer
The answer is D.
Q2
The Law of Diminishing Marginal Utility explains:
- AThe shape of the demand curve
- BThe shape of the Laffer curve
- CThe income elasticity of demand of a product
- DThe shape of the supply curve
- EThe amount of tax revenue received from an indirect tax
Show the answer
The answer is A.
TopicDemand, supply and elasticityPublic finances and the role of the stateGovernment intervention in markets
Q3
The diagram below shows the labour market equilibrium for childcare workers in the UK. The market is in equilibrium at Q1, W1. S3 Wages S1 S2 W2 W1 W3 D2 D1 D3 Q3 Q1 Q2 Quantity A newly-elected government then introduces new legislation which says that all childcare workers must now serve a longer training period of 2 years. At the same time, it increases funding to parents to pay for childcare. Which of the following is most likely to occur?
- AThe equilibrium wage will decrease to W3 but the number employed will remain at Q1
- BThe equilibrium wage will increase to W2 but the number employed will remain at Q1
- CThe equilibrium wage will remain at W1 but the number employed will rise to Q2
- DThe equilibrium wage will remain at W1 but the number employed will fall to Q3
- EThe equilibrium wage will remain at W1 and the number employed will remain at Q1
Show the answer
The answer is B.
TopicDemand, supply and elasticityThe labour market
Q4
The diagram below shows a product that has negative externalities in both consumption and production. What is the socially efficient level of output? MSC MSC - Marginal Social Cost Price MPC MSB - Marginal Social Benefit MPC - Marginal Private Cost MPB - Marginal Private Benefit MSB MPB Q1 Q4 Quantity Q2 Q3
- AQ1
- BQ2
- CQ3
- DQ4
- ECannot be determined
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The answer is A.
TopicMarket failureAggregate demand
Q5
The table below shows a market demand schedule and a market supply schedule for tomatoes. Quantity demanded Quantity supplied per Price per tonne per month month (£) (millions of tonnes) (millions of tonnes) 280 4.0 9.2 260 5.0 8.8 240 6.4 8.2 220 7.4 7.4 200 8.2 6.6 180 9.0 5.8 160 9.8 4.8 What would be the consequence of the government setting a maximum price for tomatoes at £200 per tonne?
- AThere would be a surplus of 1.6 million tonnes of tomatoes
- BProducers' revenue would increase by £12 million
- CThe price of tomatoes would be unchanged
- DProducers' revenue would decrease by £12 million
- EThere would be a shortage of 1.6 million tonnes of tomatoes
Show the answer
The answer is E.
TopicDemand, supply and elasticityGovernment intervention in markets
Q6
Which of the following is most likely to cause an appreciation of the pound sterling?
- AUS interest rates are raised
- BThe Bank of England starts a programme of quantitative easing
- CConfidence in Britain's departure from the EU deteriorates
- DChina imports significantly more luxury British products
- ECapital outflows from the UK increase
Show the answer
The answer is D.
TopicMacroeconomic objectives and policyInternational trade and exchange rates
Q7
Which of the following is not an assumption of free markets operating?
- APerfect information
- BNo government intervention
- CLarge number of buyers and sellers
- DThere is at least one fixed factor of production
- ENo externalities
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The answer is D.
TopicThe economic problem and resource allocationMarket failureGovernment intervention in markets
Q8
The graph below shows Japan's interest rates over a given time period. 0.6 0.6 % % 0.4 0.4 0.2 0.2 0 0 _ _ _ 0.2 0.2 2008 2010 2012 2014 2016 What is the most likely effect on the Japanese economy of the interest rate changes shown in the data?
- AJapan will suffer from deflation
- BCommercial banks will stop lending
- CThe Bank of Japan will change its inflation target
- DUnemployment will rise
- EThe rate of saving will fall
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The answer is E.
TopicMacroeconomic objectives and policyMeasuring economic performanceThe financial sector
Q9
The demand for Good X is both price inelastic and income inelastic. Good X is also a complement to Good Y. Identify Good X from the table below. Price elasticity Income elasticity Cross-elasticity with of demand of demand Good Y
- A–0.8 0.25 1.4
- B–0.8 1.25 0.4
- C–2.8 –0.25 –1.4
- D–2.8 –1.25 –0.4
- E–0.8 0.25 –1.4
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The answer is E.
Q10
In 2017, the price of a Toshiba laptop computer was £460. Twelve months later in 2018, the price of the same Toshiba laptop was £483. In the same period of time, the UK's inflation rate was measured at 3.5%. Using 2017 as a base year, calculate the real price of the Toshiba laptop in 2018.
- A£444.44
- B£466.67
- C£476.10
- D£483.00
- E£499.91 Questions 11 and 12 refer to the diagram below. A tariff on imports is imposed by a certain government with the aim of reducing imports. Price Sdomestic A B C D Sworld + tariff E F G H I Sworld J K L M N O P Ddomestic Quantity
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The answer is B.
TopicInternational trade and exchange ratesMeasuring economic performance
Q11
Which area shows the increase in revenue received by domestic producers after the imposition of the tariff?
- AI+J
- BE+F+L
- CK+L+M+N+O+P
- DJ+K
- EA
Show the answer
The answer is B.
Q12
Which area shows the loss in consumer surplus after the imposition of the tariff?
- AE
- BB+C+G+M
- CE+F+G+H+I
- DB+C+D
- EC+D+G+H+M+N
Show the answer
The answer is C.
TopicInternational trade and exchange ratesDemand, supply and elasticity
Q13
The Government decides to use a per unit subsidy to reduce the price of an agricultural product. The price of the product will fall the most when:
- AThe price elasticity of demand is inelastic
- BThe price elasticity of supply is inelastic
- CThe price elasticity of demand is unitary
- DThe price elasticity of supply is elastic
- EThe price elasticity of demand is elastic
Show the answer
The answer is A.
TopicDemand, supply and elasticityGovernment intervention in markets
Q14
Jon is buying a health insurance policy from a provider. He does not tell them about his smoking habit and, as a result, he is able to buy a health insurance policy at a much lower price than if he had told them. This is an example of which type of market failure?
- ADemerit good
- BVolatile prices
- CAsymmetric information
- DNegative externalities
- EPublic good
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The answer is C.
TopicMarket failure
Q15
The graph below shows the main sources of UK Government tax revenues in 2015-16. Income tax - £170 billion Council tax - 28 billion Business rates - £28 billion X - £115 billion VAT - £133 billion Corporation tax - £42 billion Identify the source of tax revenue labelled X.
- AInheritance Tax
- BNational Insurance Contributions
- CStamp Duty
- DCapital Gains Tax
- EExcise Duties
Show the answer
The answer is B.
TopicGovernment intervention in marketsMacroeconomic objectives and policy
Section B
Q16(a)
Using the House Price Index in Table 1, calculate the price of the graduate's £200 000 house four years later in 2017. Give your answer to two decimal places.
Mark splitApplication 2
TopicThe financial sectorMeasuring economic performance
Q16(b)
Identify and calculate the opportunity cost of buying the house.
Q17(a)
Describe how prices help to allocate resources between different users.
Mark splitKnowledge 2
Q17(b)
Using price elasticity of demand (PED) calculations, explain why PED changes along a straight line downward sloping demand curve.
Q17(c)
Consider whether the marketing manager should continue to reduce ticket prices in order to increase revenue. Use revenue calculations to support your answer.
Mark splitApplication 2Analysis 2Evaluation 2
Q18(a)
Outline one reason why the aggregate demand curve slopes downwards.
Mark splitKnowledge 2
TopicAggregate demandDemand, supply and elasticity
Q18(b)
Outline why the LRAS curve is vertical at the full employment level of output (Yfe).
Mark splitKnowledge 2
TopicAggregate supply
Q18(c)
Using an example of a fiscal supply-side policy, discuss whether it would be effective at achieving the policy objective of low inflation in this economy.
Mark splitKnowledge 1Analysis 3Evaluation 2
TopicMacroeconomic objectives and policyMeasuring economic performance
Q19(a)
Explain two ways in which monetary authorities can influence the value of an exchange rate in a free floating system.
Q19(b)
Evaluate whether Donald Trump's claims that China is holding its exchange rate artificially below the free market level is likely to worsen the US trade balance.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicInternational trade and exchange rates
Examiner insight
- What to cover
- Explain the mechanism first: an artificially low yuan makes Chinese exports cheaper in dollars and US exports dearer in yuan, so US imports rise and exports fall and the trade balance worsens. Use the data, for example the 6.6 per cent fall of the yuan against the dollar.
- Diagram
- Foreign exchange market for the yuan with the authorities selling yuan to hold the rate below the free market level, or a simple export and import price comparison.
- Evaluation
- At least two developed points: the Marshall Lerner condition and the J curve, whether US demand for Chinese goods is price inelastic, the import content of US exports, tariffs and retaliation, and whether the yuan really is undervalued.
- Watch out
- Full marks needed two developed evaluation points, not a list. AO2 marks were there for the data or for your own knowledge of the trade dispute, so use one or the other.
- How it went in the exam
- Examiners said this was a familiar question in an unfamiliar context, the Trump Twitter feed. Candidates were confident on the interest rate and exchange rate link in part (a).
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.