Unit 1: Introduction to Economic Principles · 2520U10-1
WJEC AS Unit 1, June 2022
All 8 written questions and 15 multiple choice questions from WJEC AS Unit 1 (June 2022), Introduction to Economic Principles. Each question shows its marks and topic, with an examiner insight on 3, and opens the question paper and mark scheme at the right page.
The 2022 question paper carries WJEC's Z22 reference, from the adapted summer 2022 series. Its mark scheme is the summer 2022 one.
Section A
Q1
In 2019, the department store, John Lewis, saw demand for landline phone handsets fall by 20%. This would be most likely to cause:
- AAn increase in consumer surplus in the market for landline phone handsets
- BAn increase in John Lewis' total revenue
- CAn increase in the price of landline phone handsets
- DA decrease in producer surplus in the market for landline phone handsets
- EA decrease in demand for mobile phones
Show the answer
The answer is D.
TopicDemand, supply and elasticityCosts, revenues and profit
Q2
There is effect when the price of a good falls, because the product is now relatively cheaper than an alternative item.
- Aa substitution
- Ban income
- Ca demand
- Da supply
- Ean inflationary
Show the answer
The answer is A.
Q3
Which one of the following is an example of expansionary fiscal policy?
- AThe UK Government decreases capital expenditure
- BThe Bank of England increases the value of its asset purchases (QE)
- CThe UK Government increases the basic rate of income tax
- DThe Bank of England decreases the base interest rate
- EThe UK Government decreases the rate of corporation tax
Show the answer
The answer is E.
TopicMacroeconomic objectives and policyGovernment intervention in markets
Q4
The data below shows the number of women in work in Wales over a 20-year period. Year 1998 2003 2008 2013 2018 Women in Work in Wales (000s) Using 1998 as the base value, calculate to the nearest whole number, the index value for women in work in 2018. A 26 B 79
Show the answer
The answer is D. Open the question paper to read the options.
Q5
Baijiu is a popular Chinese alcoholic drink. Two popular brands are Shunxin and Maotai. Shunxin has an income elasticity of demand of −1.25 whilst Maotai has an income elasticity of demand of +0.4. If average income in China falls by 2% what will be the result? Shunxin Maotai
- ASales decrease by 2.5% Sales increase by 0.8%
- BSales increase by 0.625% Sales decrease by 0.2%
- CSales increase by 2.5% Sales decrease by 0.8%
- DSales increase by 2.5% Sales increase by 0.8%
- ESales decrease by 2.5% Sales decrease by 0.2%
Show the answer
The answer is C.
Q6
The chart below shows annual net migration to the UK from 1975 to March 2019. Thousands -100 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 (Source: ONS, Long Term International Migration by Citizenship Data) The most likely consequence of the trend shown in the data above is that in the UK the:
- AAggregate demand (AD) curve will have shifted inwards
- BLong run aggregate supply (LRAS) curve will have shifted outwards
- CProduction possibility frontier (PPF) will have shifted inwards
- DLong run aggregate supply (LRAS) curve will have shifted inwards
- ELaffer curve will have shifted outwards
Show the answer
The answer is B.
TopicAggregate supplyThe economic problem and resource allocationThe labour market
Q7
Bitcoin is a so-called 'cryptocurrency' that is exchanged like any other currency on the foreign exchange market. The graph below shows the value of Bitcoin in US $ during the first half of 2018. Price in US $ 1/1/2018 12/3/2018 21/5/2018 30/7/2018 What is the most likely cause of this trend?
- AInvestors sold more physical assets to buy Bitcoin
- BConsumer confidence in cryptocurrencies fell
- CThere was increased speculative demand for Bitcoin
- DThe supply of Bitcoin decreased creating scarcity
- EMajor businesses in China and the US started to accept Bitcoin as payment
Show the answer
The answer is B.
TopicDemand, supply and elasticityAggregate demandThe financial sector
Q8
The following data relate to the country of Comena. $ bn Government expenditure on goods and services 6.2 Imports of goods and services 14.5 Investment expenditure 13.3 Exports of goods and services 14.7 Consumer expenditure 26.3 Wages and salaries 27.6 Profits of companies 13.0 Land rental 5.4 Calculate aggregate demand in the economy.
- A$46.0 bn
- B$53.9 bn
- C$73.6 bn
- D$60.5 bn
- E$92.0 bn
Show the answer
The answer is A.
TopicAggregate demandInternational trade and exchange rates
Q9
The country of Simonia has a budget deficit of $50 bn. It also has a trade deficit of $50 bn. During the year, the government increases its spending by $20 bn and the trade deficit increases to $70 bn. Assuming there is no change to any other component of aggregate demand (AD), what is the impact on AD in Simonia?
- AAD increases by $140 bn
- BAD increases by $40 bn
- CAD doesn't change
- DAD decreases by $40 bn
- EAD decreases by $140 bn
Show the answer
The answer is C.
TopicMacroeconomic objectives and policyMeasuring economic performanceAggregate demand
Q10
In a 2019 survey, 70% of Netflix subscribers said that they would cancel their subscription to the streaming service in response to a 20% price increase. If true, this implies that demand for Netflix is:
- APerfectly price inelastic
- BRelatively price inelastic
- CUnitary price elastic
- DRelatively price elastic
- EPerfectly price elastic
Show the answer
The answer is D.
Q11
The aggregate demand and aggregate supply diagram below represents an economy in equilibrium. Average LRAS price level P AD Real output Y The level of savings in the economy decreases. All other things being equal, this will lead to: Equilibrium level of Equilibrium level of real output average prices
- ADecrease No change
- BIncrease Increase
- CDecrease Decrease
- DIncrease Decrease
- ENo change Increase
Show the answer
The answer is B.
TopicAggregate supplyDemand, supply and elasticityAggregate demand
Q12
If the Bank of England decreases the UK's base interest rate, this is most likely to cause:
- AA decrease in investment
- BA depreciation of the pound sterling
- CA negative wealth effect due to falling house prices
- DAn increase in government spending
- EA decrease in the average price level
Show the answer
The answer is B.
TopicMacroeconomic objectives and policyAggregate demandInternational trade and exchange rates
Q13
The table below shows the values of injections into and withdrawals from the circular flow of income for an economy. Injections (£ m) Withdrawals (£ m) Government spending 1 000 Taxation 900 Investment 650 Saving 500 Exports 825 Imports 1 050 From the data it can be concluded that this economy has a:
- ATrade surplus
- BGovernment budget surplus
- CNet injection into its circular flow
- DCurrent account surplus on the balance of payments
- ENet withdrawal from its circular flow
Show the answer
The answer is C.
TopicNational income and the circular flowInternational trade and exchange ratesMeasuring economic performance
Q14
George's Paints PLC and RuthBrush PLC are the country's leading manufacturers of industrial paints and their products compete directly with each other in the market. Which one of the following statements would you expect to be correct?
- AThe products of George's Paints PLC and RuthBrush PLC have a high positive cross elasticity of demand
- BThe products of George's Paints PLC and RuthBrush PLC have a low positive cross elasticity of demand
- CThe products of George's Paints PLC and RuthBrush PLC have a high negative cross elasticity of demand
- DThe products of George's Paints PLC and RuthBrush PLC have a low negative cross elasticity of demand
- EThe products of George's Paints PLC and RuthBrush PLC have a cross elasticity of demand equal to zero
Show the answer
The answer is A.
Q15
The diagram below shows a demand curve faced by a pizza delivery company in Newport. Price (£) 10.00 7.99 D Quantity of pizzas 300 500 (per week) If the company cuts the price of its pizzas from £10.00 to £7.99, this will:
- AKeep total revenue the same because demand is unitary price elastic
- BIncrease total revenue because demand is price inelastic
- CIncrease total revenue because demand is price elastic
- DDecrease total revenue because demand is price inelastic
- EDecrease total revenue because demand is price elastic ON THIS PAGE
Show the answer
The answer is C.
TopicDemand, supply and elasticityCosts, revenues and profit
Section B
Q16(a)
Using an example from the data, describe the concept of opportunity cost.
Q16(b)
Using the data, consider whether the population changes will lead to an outward shift in Wales's production possibility frontier (PPF).
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicThe economic problem and resource allocation
Examiner insight
- What to cover
- The command word consider requires evaluation. Show what the population changes in the data do to the quantity and quality of Wales's factors of production, and so to potential output.
- Diagram
- PPF shifting outward and inward, with axes labelled with two named goods or capital and consumer goods. Labelling was poor in most scripts.
- Evaluation
- Argue both ways. An ageing population and net outflow shrink the labour force and pull the PPF inward, but inward migration of working age people, rising participation, or better skills and capital could push it outward.
- Watch out
- Most candidates could argue the inward shift but not the outward one, so evaluation marks were limited. Build the case both ways.
- How it went in the exam
- Examiners said data use was generally good here. The AO1 mark could be earned by a definition, a diagram, or implicitly through the analysis.
Q17(a)
Calculate the consumer surplus in the UK vanilla ice cream market.
Q17(b)
(i) Adapt the diagram above to reflect the 50p per unit increase in the production costs for vanilla ice cream. (ii) On the diagram, shade in the producer surplus in the UK vanilla ice cream market after the change.
Q17(c)
Consider whether vanilla pods and vanilla ice cream should be considered complementary goods.
Mark splitKnowledge 2Analysis 2Evaluation 2
Q18(a)
Explain why volatile prices can lead to market failure.
TopicMarket failure
Q18(b)
Using a maximum-price diagram, discuss the effects on consumers and firms of introducing a maximum-price of $67 per barrel of oil.
Mark splitKnowledge 2Analysis 4Evaluation 4
Examiner insight
- What to cover
- Split the answer between consumers and firms. A maximum price of 67 dollars below equilibrium creates excess demand and a shortage, cuts price for those who buy, raises consumer surplus for them, and cuts producer surplus and revenue. Firms can be oil producers or oil consuming firms, either is accepted.
- Diagram
- Maximum price below equilibrium, with the shortage marked and the changes in consumer and producer surplus shaded. Refer to it in the writing.
- Evaluation
- Use PED and PES for oil, and the chart, to judge the size of the shortage. Consider rationing, queues and black markets, the effect on investment in supply, and how long the cap lasts.
- Watch out
- A diagram that is not explained in the written analysis earns little. Stronger candidates tied elasticity evidence to the size of the effects.
- How it went in the exam
- Examiners said maximum price diagrams were generally well drawn here and candidates did refer to them, so this was one of the better answered questions.
Q19
Using a Laffer curve diagram, and with reference to the data, explain how decreasing the corporation tax rate could increase tax revenue for the UK Government.
TopicPublic finances and the role of the stateMacroeconomic objectives and policyGovernment intervention in markets
Examiner insight
- What to cover
- This is explain, not discuss, so there are no evaluation marks. Explain the Laffer curve logic for corporation tax specifically: a lower rate raises post tax profit, encourages investment, retention of profits in the UK and less avoidance, so the tax base widens and revenue can rise. Quote the data.
- Diagram
- Laffer curve with correctly labelled axes, tax rate against tax revenue, and the current rate shown to the right of the revenue maximising point.
- Watch out
- Do not write about income tax and incentives to work. The question is about corporation tax. Do not evaluate, there are no AO4 marks, and do not leave out the data.
- How it went in the exam
- Most candidates drew the right shape but weaker ones mislabelled the axes. Examiners said the data must be integrated even for a well known concept.
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.