Questions

Q1.

Answer the question with a cross in the box you think is correct . If you change your mind
about an answer, put a line through the box and then mark your new answer with a cross .

The Chinese Government introduced a carbon emissions trading scheme. The

objective of this tradeable pollution permit scheme is to reduce carbon emissions by
A forcing highly polluting firms to buy permits from low polluting firms
B forcing low polluting firms to buy permits from highly polluting firms
C paying subsidies to firms who manage to reduce their carbon emissions
D taxing firms who pollute less than their allowance

(Total for question = 1 mark)

Q2.

The diagram shows the market for new house construction.

The housing construction industry is a major source of pollution.

Which one of the following can be deduced from the diagram?

A The social optimum output is Q1
B The market equilibrium output is Q2
C Welfare loss is shown by the area UVT
D Welfare loss is shown by the area UWV

(Total for question = 1 mark)

Q3.

The diagram shows the market for wheat in India. It illustrates the introduction of a subsidy for the
production of wheat by the Indian Government.

Which one of the following is the producer incidence of the subsidy?

A Rs 217 500 000
B Rs 435 000 000
C Rs 1 812 500 000
D Rs 2 247 500 000

(Total for question = 1 mark)

Q4.

In India, Vodafone has requested that the government imposes a minimum price for mobile data of Rs35
per gigabyte (GB). The current market price is Rs5. The diagram shows the possible impact of a minimum
price introduced at Pmin.

Which one of the following can be deduced from the diagram following the imposition of the minimum
price?
A Excess supply is Q1Q2
B Excess demand is Q1Q2
C Supply contracts from Qe to Q2
D Demand extends from Qe to Q1

(Total for question = 1 mark)

Q5.

Which one of the following is an example of market failure?

A Excessive administration costs associated with government regulation
B Diminishing marginal utility occurring as consumption increases
C Rising stock market prices causing a market bubble
D Unintended consequences after the introduction of a tax

(Total for question = 1 mark)

Q6.

Which one of the following is a function of the price mechanism?

A To create an incentive for producers to decrease the quantity supplied when the price
increases.
B To encourage government intervention to allocate scarce resources.
C To provide a signal to producers and consumers about changes in supply and demand when
prices change.
D To ration scarce resources by allowing prices to decrease when demand increases.

(Total for question = 1 mark)

Q7.

The cross elasticity of demand for Pepsi cola with respect to Coca Cola is estimated to be +1.24.

Explain the likely impact of a 10% increase in the price of Coca Cola on the demand for Pepsi cola.

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(Total for question = 4 marks)

Q8.

Between August 2018 and August 2019 the world price of sweet potatoes increased from $12 to $22.50
per box. This was caused by Hurricane Florence and heavy rains in the USA, the world's largest supplier.

Explain the likely impact of this change in price on consumer surplus in the market for sweet potatoes.
Illustrate your answer with a diagram.

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(Total for question = 4 marks)

Q9.

In Ho Chi Minh City, Vietnam, the price of sand increased from VND510 000 to VND695 000 per cubic
metre between April and May 2017. This was caused by reduced supply from Vietnamese mining
companies.

Explain the likely impact of this change on producer surplus in the market for sand. Illustrate your answer
with a diagram.

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(Total for question = 4 marks)

Q10.

The table shows the gross weekly income for workers in the UK and the number of visits abroad by UK
citizens in 2016 and 2017.

Based on the data in the table, calculate the income elasticity of demand for visits abroad by UK citizens.
Show your workings.

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(Total for question = 4 marks)

Q11.
In Oregon, USA, research was conducted in which 10 000 citizens were given health insurance and
45 000 citizens were not. On average, the 10 000 citizens with health insurance had far more hospital
admissions and emergency department visits.

Explain why the result of this research is an example of moral hazard.

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(Total for question = 4 marks)

CHOOSE ONE OF THE FOLLOWING:

Q12.

The European Union (EU) operates a tradeable pollution permit scheme which affects 12 000 businesses
including energy producers, airlines and the steel industry.

Evaluate the use of tradeable pollution permits to reduce pollution.

(Total for question = 20 marks)

Q13.

Between 2000 and 2019 in China the average price of a house increased from 4 000 yuan per square
metre (m2) to 60 000 yuan per m2. The ratio of average house prices to average incomes increased from
5.6 to 7.6, showing that houses were becoming less affordable.

Evaluate the impact of market bubbles in the housing market.

(Total for question = 20 marks)

Q14.

In 2019 the price of a litre of diesel was 65% higher in Thailand than in Malaysia. The price difference was
because of higher taxation on diesel in Thailand. This led to illegal smuggling. For example, on one night,
Thai authorities seized 300 000 litres of diesel that was illegally imported from Malaysia.

Evaluate possible causes of government failure in a market of your choice.

(Total for question = 20 marks)

Mark Scheme

Q1.

Q2.

Q3.

Q4.
Q5.

Q6.

Q7.
Q8.
Q9.
Q10.
Q11.
Q13.
Q14.
Q15.