AS Economics P1-2023 JUNE 12

Which factor of production is needed first in order to set up a new business?

• capital

• enterprise

• labour

• land

Answer explanation

Enterprise is needed first to set up a new business as it involves the entrepreneurial skills and decision-making to initiate the business idea.

Assuming nothing else changes, which change in an economy's labour market will cause the production possibility curve to shift to the left?

• an increase in worker immigration

• an increase in the retirement age

• an increase in labour productivity

• an increase in the school leaving age

Answer explanation

An increase in the school leaving age will cause a decrease in available labor force, shifting the production possibility curve to the left.

What is not a characteristic of a mixed economy?

• The government has no role in setting prices

• The government manages taxation rights

• The government prevents firms from earning excessive profits

• The government provides services not provided by the private sector

Answer explanation

The government has no role in setting prices is not a characteristic of a mixed economy as the government does play a role in setting prices in such an economic system.

What is not likely to result from the use of division of labour?

• a decrease in average costs

• an increase in motivation

• an increase in productivity

• an improvement in quality of the final product

Answer explanation

Division of labour typically does not result in an increase in motivation, as it may lead to repetitive and monotonous tasks, which can decrease motivation among workers.

Price plays a number of functions in the allocation of resources.

Which statement best illustrates the function that relies upon consumer choice (sometimes known as the incentivising function)?

• A price fall can show consumers that a good is becoming less popular

• A price fall tends to persuade some producers not to stay in the market for the good

• A price rise means consumers cannot afford to buy so much of a good

• A price rise tends to reduce competitiveness in the market for a good

Answer explanation

A price fall tends to persuade some producers not to stay in the market for the good, illustrating the function that relies upon consumer choice by affecting producer decisions based on market signals.

Which pair of products are substitutes both in consumption and production?

• barley and cotton

• gold and silver

• soap and toothpaste

• spinach and cabbage

Answer explanation

Spinach and cabbage are substitutes both in consumption and production because they are similar leafy green vegetables that can be used interchangeably in various dishes and grown using similar agricultural methods.

There is a worldwide shortage of oil. The diagram shows the consumption and production of oil

(billion tonnes) for selected countries.

What can be concluded from the diagram?

• In Britain, oil has zero opportunity cost

• In Japan, there is self-sufficiency in oil

• In Russia, there is no shortage of oil

• In the United States, rationing is the only solution to oil shortage

Answer explanation

In Russia, there is no shortage of oil because the production exceeds consumption, as shown in the diagram.

The cross elasticity of demand between bus travel and rail travel is +2. A rise in the price of bus fares caused the demand for rail travel to rise by 10%. Which change in bus fares would have caused this?

• A

• B

• C

• D

Answer explanation

A rise in bus fares would cause an increase in demand for rail travel due to the positive cross elasticity of demand. Therefore, Choice A is the correct answer.

A change in the price of a good causes an increase in the quantity of the good demanded. What would be the nature of the good and the direction of price change for this to be certain to happen?

• A

• B

• C

• D

Answer explanation

For an increase in quantity demanded due to a price change, the good must be a normal good, and the price should decrease. This is represented by choice C.

A specific tax is placed upon each bottle of perfume sold. In the diagram, S is the supply curve before tax, S_t is the supply curve after tax. Which area represents that part of the tax revenue paid by producers?

• A) ORWY

• B) PQUT

• C) PRWT

• D) QRWU

Answer explanation

The area PQUT represents that part of the tax revenue paid by producers as it is the triangle formed between the supply curve after tax (S_t) and the original supply curve (S).