IGCSE Economics Paper 1

What would an economist regard as an example of the factor of production capital?

• an individual’s purchase of stocks and shares

• borrowing by a firm to pay for electricity

• the building by a firm of a new factory

• total savings by individuals in a country

The diagram shows a production possibility curve (PPC).

Why is the curve usually drawn like this?

• International free trade exists.

• Opportunity cost changes.

• Resources are unlimited in supply.

• Some resources will be unemployed.

Which situation indicates a mixed economy?

• Economic activity is controlled entirely by the private sector.

• Individual choices are unaffected by government actions.

• Services are provided by both private and public sectors.

• The government carries out all planning and decision making.

What causes market failure?

• government provision of services

• social costs equal private costs

• the existence of external benefits

• the existence of perfect competition

The Saudi Arabian government is encouraging the growth of the private sector. It is a low-cost oil producer, but its exports to South Africa have fallen recently. South Africa has a floating foreign exchange rate, but its central bank has recently tried to prevent a large fall in its foreign exchange rate.

(a) Define a floating foreign exchange rate.

(b) Explain two benefits a government may gain from the growth of the private sector.

In February 2017, Europe experienced a shortage of fresh vegetables due to bad weather. For a period of time, the markets for a number of vegetables, including broccoli and lettuces, were not in equilibrium. The price of food tends to fluctuate more than the price of manufactured goods and services. These fluctuations influence the rate of inflation.

(a) When is a market in equilibrium?

(b) Explain how a rise in the price of food would affect a country’s consumer prices index (CPI).