Unit 1: Introduction to Economic Principles · 2520U10-1
WJEC AS Unit 1, June 2023
All 10 written questions and 15 multiple choice questions from WJEC AS Unit 1 (June 2023), 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
Rational consumers seek to maximise their:
- AProfit
- BMarginal private benefits
- CUtility
- DMarginal social benefits
- ERevenue
Show the answer
The answer is C.
TopicMarket failureDemand, supply and elasticity
Q2
Which one of the following is an injection into the circular flow of income?
- AConsumption
- BTaxation
- CIncome
- DExports
- ESaving Questions 3 and 4 refer to the diagram below. The diagram below shows a production possibility frontier (PPF) for an economy. Capital goods A D C B E Consumer goods
Show the answer
The answer is D.
TopicThe economic problem and resource allocationNational income and the circular flowAggregate demand
Q3
Which one of the following correctly describes the relevant point labelled on the diagram?
- AEfficient Attainable
- BInefficient Unattainable
- CInefficient Unattainable
- DEfficient Attainable
- EEfficient Unattainable
Show the answer
The answer is A.
Q4
Which one of the following can be concluded from the diagram?
- AThe opportunity cost of increasing production of consumer goods is constant
- BThe rate of future economic growth will be the highest at point E
- CThe factors of production in this economy are perfectly substitutable
- DThe rate of future economic growth will be the highest at point B
- EThe opportunity cost of moving from point B to point C is zero
Show the answer
The answer is E.
TopicThe economic problem and resource allocationEconomic growth and the economic cycle
Q5
The chart below gives information on the quarterly percentage change in average house only prices in Australia from mid-2016 (Q2) to the beginning of 2019 (Q1). Quarterly percentage change in average house prices in Australia 4.1 2 2.2 1.9 2 1.5 % 0 – 0.2 – 0.7 – 0.7 –2 – 1.5 – 2.4 –3 –4 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 Source: TradingEconomics.com From the chart it can be concluded that, over the period shown, average house prices in Australia:
- AFell in Q1 2017
- BWere at their highest in Q4 2016
- CWere unchanged in Q2 2018 from Q1 2018
- DWere at their highest in Q4 2017
- EWere 3% lower in Q1 2019 than in Q2 2016
Show the answer
The answer is D.
Q6
Across Europe, milk prices rose by 50% in 2021. What was most likely to have caused this price rise?
- AIncreased demand for non-dairy milk substitutes
- BDecreased tariffs on fuel used by dairy farmers
- CIncreased costs of fertiliser and animal feed
- DDecreased wage rates for dairy farm workers
- EIncreased surpluses of milk around the world
Show the answer
The answer is C.
TopicDemand, supply and elasticityInternational trade and exchange ratesThe labour market
Q7
The government reduces the amount of welfare payments (Jobseeker's Allowance) that is paid to its unemployed citizens. As a result, businesses see more people applying for their job vacancies. This is an example of which economic concept?
- AWorkplace benefits
- BThe National Living Wage
- CDemand-side fiscal policy
- DThe Laffer curve
- EIncentive to work
Show the answer
The answer is E.
TopicMacroeconomic objectives and policyPublic finances and the role of the stateThe labour market
Q8
A government report found that expenditure on food would increase by $0.54 in Tanzania and by $0.02 in the USA if household incomes rose by $1 in each country. Which one of the following can be concluded from the data?
- AFood is an inferior good in the USA
- BDemand for food is more income inelastic in the USA than in Tanzania
- CFood is a substitute good in the USA
- DDemand for food is more price elastic in Tanzania than in the USA
- EFood is an inferior good in Tanzania
Show the answer
The answer is B.
Q9
Which one of the following would be most likely to cause an increase in an economy's level of aggregate demand?
- AAn increase in the value of the economy's trade deficit
- BAn increase in the economy's base interest rate
- CAn increase in the economy's unemployment rate
- DAn increase in the value of the economy's budget deficit
- EAn increase in the economy's rate of corporation tax
Show the answer
The answer is D.
TopicMacroeconomic objectives and policyMeasuring economic performanceAggregate demand
Q10
The table below shows the annual percentage increase in the UK National Living Wage (NLW) rate for workers aged 25 and over. It also shows the annual inflation rate, from April 2019 to April 2021. Percentage increase in the UK NLW Annual Date (aged 25 and over) inflation rate April 2019 4.9% 2.1% April 2020 6.2% 0.8% April 2021 2.2% 1.5% Over the period shown, for workers earning the UK National Living Wage:
- AReal incomes rose most in April 2020
- BMoney incomes rose by 2.8% in April 2019
- CAverage prices fell in April 2020
- DAverage prices were at their highest in April 2019
- EReal incomes rose by 3.7% in April 2021
Show the answer
The answer is A.
TopicMeasuring economic performanceThe labour market
Q11
In 2019, almost 38% of all US cinema ticket sales were to see Disney movies. When Disney negotiated the rights to show Star Wars: The Last Jedi with cinemas, it insisted the cinemas give them 65% of ticket revenue from the film, a new high for the industry. At the same time, some commentators complained that the quantity and quality of movies made by Disney had fallen. This may be an example of market failure caused by:
- AMonopoly power
- BIncome inequality
- CVolatile prices
- DDemerit goods
- EPublic goods
Show the answer
The answer is A.
TopicMarket failurePoverty and inequalityMarket structures
Q12
Which one of the following policies would be expected to reduce the level of unemployment in the long run?
- AAn increase in sales taxes
- BIncreasing labour market flexibility
- CReduction in import tariffs
- DIncreasing interest rates
- ERaising National Insurance contributions
Show the answer
The answer is B.
TopicInternational trade and exchange ratesMacroeconomic objectives and policyThe labour market
Q13
If there was a significant outflow of the Pound Sterling from the UK, which one of the following would be most likely to occur?
- AThe price of UK exports would rise
- BThere would be an appreciation of the Pound Sterling
- CThere would be a fall in the value of the exchange rate of the Pound Sterling
- DInterest rates would fall
- EThe UK government's budget deficit would worsen
Show the answer
The answer is C.
TopicInternational trade and exchange ratesMacroeconomic objectives and policy
Q14
In November 2021, the price of coal rose to its highest level since 2009. This was a result of increased demand from electricity producers, who switched to using coal from natural gas, after the price of natural gas doubled. A coal industry analyst said that coal production could not respond quickly enough to the increased price, as underinvestment in recent years had reduced the ability of coal producers to quickly increase their output. This implies that:
- AThe supply of natural gas is relatively price elastic
- BCoal and natural gas have a negative cross elasticity of demand
- CThe demand for natural gas is perfectly price inelastic
- DThe demand for coal is relatively price elastic
- EThe supply of coal is relatively price inelastic
Show the answer
The answer is E.
TopicDemand, supply and elasticityAggregate demand
Q15
The aggregate demand and aggregate supply diagram below represents an economy in equilibrium. Average LRAS price level P AD Real output Y All other things being equal, improvements in technology throughout the economy will most likely lead to: Equilibrium level of real output Equilibrium level of average prices
- AIncrease Decrease
- BDecrease Decrease
- CNo change Increase
- DDecrease Increase
- ENo change No change ON THIS PAGE
Show the answer
The answer is A.
TopicAggregate supplyDemand, supply and elasticityAggregate demand
Section B
Q16(a)
With reference to the data, outline what is meant by the term 'diminishing marginal utility'.
Mark splitKnowledge 1Application 1
Q16(b)
Calculate the student's total consumer surplus from her visits to the centre over her summer holiday.
Mark splitApplication 2
Q16(c)
Explain how the price of a visit to the go-karting centre should change to allocate resources more efficiently.
Mark splitKnowledge 1Analysis 2
Q17(a)
With reference to the data, outline why the prices of agricultural goods, such as olive oil, tend to be volatile.
Mark splitKnowledge 2Application 2
Q17(b)
Explain one likely benefit to the USA of imposing a tariff on Spanish olive oil.
Mark splitKnowledge 1Application 1Analysis 1
Q18(a)
Apart from conducting monetary policy, explain one role of the Bank of England.
Mark splitKnowledge 1Analysis 1
Q18(b)
Explain two factors the MPC is likely to take into account when setting the base interest rate and evaluate how useful each factor may be to the MPC.
Mark splitAnalysis 4Evaluation 4
TopicMarket failureMacroeconomic objectives and policy
Examiner insight
- What to cover
- Pick two factors the MPC actually uses, such as the CPI inflation rate and forecast, GDP growth, unemployment, wage growth or confidence surveys. Explain how each feeds into a rate decision. Then, for each, judge how useful it is.
- Evaluation
- Usefulness is the question. Good lines: the data is published with a lag and gets revised, national figures hide regional variation, consumers and firms behave irrationally, and the MPC must weigh factors that point in opposite directions.
- Watch out
- This is not a question about the effects of changing interest rates. Candidates who wrote about the impact of a rate change scored at most half marks.
- How it went in the exam
- Examiners said the answers that zeroed in on usefulness did very well, and named regional variation, inaccurate data, irrational behaviour and prioritisation as the strongest evaluation.
Q19(a)
With reference to the data, outline why there was a difference between the median value of household disposable income and the mean value of household disposable income.
Mark splitKnowledge 2Application 1
Q19(b)
With reference to the data, describe what is meant by 'progressive taxation'.
Mark splitKnowledge 1Application 2
Q19(c)
Apart from progressive taxation, discuss policies the UK Government could use to only reduce income inequality within the economy.
Mark splitKnowledge 3Analysis 3Evaluation 4
TopicPoverty and inequalityGovernment intervention in markets
Examiner insight
- What to cover
- Choose policies that genuinely target income inequality: the national living wage, benefits and universal credit, free or subsidised education and training, regional policy. Build multi step chains, A leads to B leads to C, for each.
- Diagram
- A minimum wage diagram in the labour market, or a transfer payment shown in the income distribution, used as an analytical tool.
- Evaluation
- Unpick your own analysis and find its flaws: the minimum wage may cost jobs, benefits may weaken work incentives, education has long time lags, and the cost has to be funded.
- Watch out
- The question says apart from progressive taxation, so do not discuss it. Avoid policies only loosely linked to inequality, such as subsidies to firms or tariffs, because the analysis then rests on too many assumptions to earn AO3 marks.
- How it went in the exam
- Candidates performed well on this question. The discriminators were policy selection and depth of analysis, not knowledge of inequality itself.
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.