1. Which of the following is not a consequence of the basic economic problem of scarcity?

A. The need for individuals and societies to make choices and trade-offs
B. The potential for economic growth and technological advancements
C. The emergence of opportunity cost in decision making
D. The ability to satisfy all human wants and needs without constraints

2. What do economies aim to achieve in tackling the economic problem of scarcity?

A. equal balance between public and private sectors
B. equal reward for equal effort
C. increased competition in the use of resources
D. optimum allocation of finite resources

3. A government wishes to increase agricultural output. It gives farmers the tools to irrigate
the farmers’ fields. Which factors of production are provided by the farmers?
A. capital and enterprise
B. enterprise and labour
C. labour and land
D. land and capital

4. Which statement about factors of production is correct?

A. Capital is the amount of money borrowed from a bank.
B. Labour is output made by an employee.
C. Land includes commercially grown rice crops.
D. Profit is the reward for enterprise.

5. A farmer reduces the land used to grow wheat from 80 hectares to 60 hectares and
increases the use of the land for growing potatoes from 80 to 100 hectares.
What is the opportunity cost of this change?
A. The output from 20 hectares used for growing potatoes.
B. The output from 20 hectares used for growing wheat.
C. The output from 60 hectares used for growing wheat.
D. The output from 80 hectares used for growing potatoes.
6. A student is trying to decide between attending a summer internship that pays $3,000 or
taking a summer course that costs $1,500. The internship is related to the student's career
field, while the course will enhance their skills. What is the opportunity cost of choosing
the summer course?
A. The potential career advancement from the internship
B. The skills and knowledge gained from taking the summer course
C. The tuition fee for the summer course - $1,500
D. The $3,00 lost in income from the apprenticeship by attending the summer course

7. Countries X and Y have identical resources. The diagram shows their production
possibility curves.

What can be concluded from the diagram?

A. X can produce food and drink more cheaply than Y.
B. X experiences higher unemployment than Y.
C. Y can produce food and drink more efficiently than X.
D. Y has higher retail prices than X.

8. What would cause an outward shift of a country’s production possibility curve (PPC)?
A. a fall in unemployment
B. an increase in the rate of income tax
C. an increase in the labour force
D. a reduction in expenditure on education
9. Economics is divided into two: microeconomics and macroeconomics.
statement 1 When the price of oil falls there is an expansion in demand.
statement 2 The Organization of the Petroleum Exporting Countries (OPEC) can
influence the price of oil.
Which combination correctly describes these two statements?

statement 1 statement 2
A macroeconomic statement macroeconomic statement

macroeconomic statement microeconomic statement

B microeconomic statement macroeconomic statement

microeconomic statement microeconomic statement

10. The economic question of 'How should goods/services be produced in an economy?' refers
to:
A. Weather production should be capital intensive or labour intensive
B. Weather the economy should be in the tertiary sector
C. Weather raw materials should be imported
D. Weather the goods should be produced for wealthy households

11. When the price of a product decreases and leads to an increase in the quantity demanded,
what type of movement along the demand curve is this called?
A. Expansion of demand
B. Contraction of demand
C. Elastic demand
D. Inelastic demand

12. What is the effect on the supply curve of a product if there is an increase in the price of a
key raw material used in its production?
A. The supply curve shifts to the left
B. The supply curve remains unchanged
C. The supply curve shifts to the right
D. The supply curve becomes inelastic
13. How do market forces typically respond to a shortage?
A. Prices decrease to eliminate the shortage
B. Prices increase to eliminate the shortage
C. Prices remain unchanged despite the shortage
D. Producers reduce supply to address the shortage

14. The table shows the quantity demanded and supplied for a commodity at different prices.

price quantity quantity

($) demanded supplied
10 100 800
9 210 700
8 400 600
7 500 500
6 600 400

What would happen to the equilibrium price if the quantity demanded increased by 200
units at each price?
A. It would decrease by $1.
B. It would decrease by $2.
C. It would increase by $1.
D. It would increase by $2.

15. A mobile (cell) phone operator increases the price of making calls on its network. After the
price increase, the revenue of the mobile phone operator falls by 10%.
What is the price elasticity of demand (PED) for the mobile operator’s service?
A. elastic
B. inelastic
C. perfectly elastic
D. unit elastic
16. The initial price of a product was $80, and the initial quantity demanded was 200 units.
After a price increase to $120, the quantity demanded decreased to 150 units. Calculate the
price elasticity of demand.
A. 2
B. 0.5
C. 1.25
D. 0.75

17. How might the concept of price elasticity of demand (PED) be useful for a government?
A. to determine the effect on employment of a change in income tax
B. to determine the effect on government revenue of a rise in the rate of interest
C. to determine the effect of providing a public good
D. to determine the result of imposing a tariff on imports

18. The price elasticity of supply of a good is 2. The price of the good then falls by 10%.
What is the effect on quantity supplied?
A. It falls by 0.2%.
B. It falls by 20%.
C. It increases by 0.2%.
D. It increases by 20%.

19. What is the key characteristic of a product with a perfectly inelastic price elasticity of supply
(PES)?
A. Producers can easily adjust production quantities
B. The PES value is equal to 1
C. Consumers are highly responsive to price changes
D. Quantity supplied remains constant regardless of price changes

20. The table shows the total cost of firm X at each level of output.
Output 0 1 2 3
Total cost 3 5 6 9
At which level of output does total variable cost exceed total fixed cost?
A. 0
 B. 1
C. 2
D. 3
Question 1
India and Ecuador are two major producers of bananas. India is the world’s largest producer of
bananas while Ecuador is the world’s largest exporter. Multinational companies (MNCs) produce
some of the bananas in both countries. The World Health Organization (WHO) recommends that
each person should eat 400 grams of fruit and vegetables a day. To encourage people to eat more
fruit and vegetables governments may use policy measures such as maximum prices and
subsidies.

(a) Define Subsidy. [2]

(b) Explain two reasons why the supply of bananas may decrease. [4]

(c) Explain why the concept of price elasticity of supply (PES) may be useful to a
government in deciding whether to subsidise the production of a product. [4]

Question 2

There is a range of factors that influence the supply of economic goods, including natural
disasters. Recently a series of earthquakes in one country destroyed buildings, including
factories and offices. One factory that survived has since increased its scale of production. This
firm has employed more factors of production and has experienced a fall in its average cost of
production.

(a) Define economic good. [2]

(b) Explain two influences on what factors of production a firm uses. [4]

(c) Analyse, using a production possibility curve diagram (PPC), the effect of the
destruction of some of its resources on an economy. [6]

(d) Discuss whether or not the average cost of production always falls when a firm
increases its scale of production. [8]
 Question 3
Read the source material carefully before answering Question 1.

Source material: Kenya’s flower industry

Kenya fact file 2015

population 47 million
labour force 18 million
unemployment rate 10%
GDP per head $3200

Kenya has a growing global reputation for high quality flowers and is the world’s third largest
producer of flowers. Production of flowers contributes to employment and to Kenya’s gross
domestic product (GDP) which increased in 2015. Most of the flowers are grown in an area that
has the right conditions for growing flowers. It has a ready supply of water, fertile soil, warm
days and cool nights, and is close to the capital’s airport in Nairobi. Kenya’s exports of flowers
increased significantly between 1990 and 2015, and flowers are now the country’s second
biggest export earner after tea. Many of Kenya’s flowers are sold to the UK, US and Russia for
special occasions including Mother’s Day, Thanksgiving and Women’s Day. On these days,
demand not only increases but also becomes more price-inelastic.

Kenya’s flower industry faces a number of challenges. A change in temperature can slow down
production so that producers can fail to deliver their flowers on time, for example to Russia in
time for Women’s Day. This can result in demand exceeding supply and shortages occurring. At
other times there is a surplus of supply with some flowers remaining unsold.

(a) Explain the effect that a rise in the price of flowers on Women’s Day in Russia would
be likely to have on flower producers’ revenue. [2]

(b) Analyse the evidence that shows the market for flowers is sometimes in
disequilibrium.
[4]

(c) Explain two reasons why the price of Kenyan flowers may have fallen in the US in
2015.
[4]

(d) Explain the differences between an extension in demand and an increase in demand.

[4]
(e) Analyse why the demand for a product may be higher in one country than in another
country. [6]