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THE NCUK INTERNATIONAL FOUNDATION YEAR

IFYEC003 Economics

Examination

Time Allowed

3 hours 40 minutes

Questions 1-22

Answer ALL questions.

These questions carry 60 marks in total.

If wages rise in the copper industry and there is an increase in global demand for copper, what is the most likely outcome for the copper industry? [ 1 ]

A A rise in the price of copper

B A fall in the quantity of copper traded

C A fall in the price of copper

D No change in either the quantity of copper traded or the price of copper

Question 2

The diagram below shows aggregate demand and long-run aggregate supply in a given economy with the original curves as AD1 and LRAS1. [ 1 ]

The average of producing 10 units for a firm is £15, and the average cost 11 units is £17. What is the marginal cost of the 11th  unit? [ 1 ]

A £2

B £18.50

C £37

D £187

Question 7

The diagram below shows the aggregate demand and short-run aggregate supply curves for an economy, where X is the initial equilibrium. [ 1 ]

Where will be the new equilibrium position (A, B, C or D) following a significant increase in productivity and reduction in imports?

A A

B B

C C

D D

Question 8

When an increase in the rate of growth causes a correspondingly larger increase in the rate of investment  this is known as [ 1 ]

A a positive output gap.

B a budget surplus.

C the multiplier.

D the accelerator.

Question 9

The diagram below shows two production possibility frontiers for a country. [ 1 ]

Which of the following is most likely to represent an increase in short run economic growth. A movement from

A A to C

B B to C

C C to D

D D to E

Question 10

The diagram below shows a country’s aggregate demand and supply schedules, with equilibrium at point Y. [ 1 ]

The central bank has set interest rates at 0.1% for an extended period of time, and the economy remains in equilibrium at point Y. In such

circumstances, what is the most likely policy intervention that a government might use?

A Expansionary supply side policy

B Expansionary monetary policy

C Contractionary monetary policy

D Expansionary fiscal policy

Question 11

A supermarket has estimated values of the income elasticity of demand for some of its products as shown in the table below. [ 1 ]

Given this information, which product is most likely to be considered a necessity?

A Eggs

B Milk

C Cheese

D Fruit

Question 12

The diagram below shows the economic cycle for a given country. [ 1 ]

Which one of the following policies is most appropriate when the economy is at point X and wishes to move to point Y and then Z?

Question 15

The equilibrium market price in a competitive market of a good increases. The establishment of the new equilibrium at a higher price would most likely lead to [ 1 ]

A a rise in the demand of a complementary good.

B lower costs of production.

C new firms entering the market.

D excess demand at the new price.

Question 16

In the Phillips Curve diagram below, the economy is currently at its non- accelerating inflation rate of unemployment with an inflation rate of L. [ 1 ]

A They are always provided by the government and not by the private sector

B Their marginal private benefit is less than their marginal social benefit

C They have the characteristics of non-excludability and non-rivalry.

D They cannot be supplied at a profit

Question 21:

UK petrol price jumps above £1.50 as oil costs rise

Fuel prices have hit record highs in the UK as Russia's invasion of Ukraine continues to affect global oil prices.

The average price of petrol jumped to £1.51 a litre, while diesel increased to   £1.55. The cost of filling a 55-litre family car with unleaded petrol is now £83, or £85 for diesel.

The price of Brent crude oil rose by 4.6% to $102 barrel after Western nations imposed new sanctions on Russia - one the world's largest energy producers.

Petrol price movements in the UK are mainly determined by the price of crude oil, and the exchange rate between the dollar and the pound, because fuel,

like oil is traded in dollars. Petrol also has a relatively low price elasticity of demand.

UK consumers are already paying a high price for fuel, with demand surging

following the easing of Covid restrictions. Steve Irwin, from fuel consultancy

firm Portland, told the BBC that prices had also risen due to concerns over oil   and gas pipelines which travel through Ukraine and carry Russian products. He said there was "potential for enormous supply disruption"

Source: The BBC [Adapted extract] – March 2022

(b) Explain using a diagram and the information in the article, why fuel [ 6 ]

prices in the UK have risen.

(c) Analyse the reasons why petrol may have a relatively low price elasticity [ 6 ]

of demand.

(d) Evaluate the extent which rising fuel prices in the economy might affect [ 6 ]

living standards.

Question 22:

UK unemployment flat as wage growth drives inflation worries

The U.K. unemployment rate remained flat at 4.1% in the last quarter of

2021 and likely declined in January, data by the Office for National Statistics showed.

The information also confirmed that fewer Britons are working than before the pandemic.

Although the number of employees on payrolls rose in January and now tops pre-pandemic levels, "the number of people in employment overall is well

below where it was before COVID- 19 hit," said ONS head of economic

statistics, Sam Beckett. "This is because there are now far fewer self-

employed people."

Around 400,000 people, mostly over the age of 50, “have disengaged from  the world of work altogether and are neither working nor looking for a job,” he said, with the data pointing to an increase in long-term illness, among     other factors.

Source: Politico.eu (adapted extract) – February 2022

(b) Explain using a diagram the likely effects on the UK economy if the [ 6 ]

number of people in employment overall stays below pre-pandemic levels.

(d) Evaluate the possible consequences of rising numbers of people over [ 6 ]

the age of 50 who are neither working nor looking for a job.

Questions 23 & 24

Answer 1 question ONLY

This question carries 20 marks in total.

Question 23

Explain and analyse with the use of a diagram, the likely effects of a [20]

subsidy on the market for merit goods AND evaluate the view that

subsidies are the most effective method to reduce the market failure

associated with the under provision of merit goods in society.

Question 24

Explain the different forms of mergers and acquisitions that can occur AND evaluate with the use of a diagram,  the extent to which you

agree with the view that monopolistic competition will always create long term benefits to consumer welfare.

[20]

Questions 25 & 26

Answer 1 question ONLY

This question carries 20 marks in total.

Question 25

Explain and analyse the difference between direct and indirect taxation AND [20]

evaluate the view that fiscal policy is the most effective way for a

government to increase long run economic growth.

Question 26

Explain and analyse the alternative supply side policies available to a [20]

government AND evaluate the view that supply side policy is the most   effective method of reducing the level of unemployment in an economy.