A level Essay Exam Questions by Topic (2000-2010)

Central Problem of Economics, PPC, Economic Systems 1a. Explain TWO ways in which an economy might move from a point within its production possibility curve (PPC) to a point on it. [10] Discuss the most effective economic policies to move the PPC outwards. [15] (05/P3)

1b.

2a.

Explain how scarcity, choice and cost are related to the problems of consumers and producers. [12] Assess whether these concepts are of relevance for governments when making macroeconomic policy. [13] (02/P3)

2b.

3.

Discuss whether the price system is the best mechanism for the allocation of economic resources. [25] (01/P3)

4a. 4b.

What is meant by the basic economic problem of scarcity? Discuss whether economic growth solves the problem of scarcity.

[12] [13] (00/P3)

Demand and Supply, Elasticity 1. In 2005, the rate of Goods and Services Tax (GST) in Singapore rose from 3% to 5%. Incomes rose by approximately 4.5% in 2005. a. Explain the likely effect of this change in GST on expenditure by consumers on different types of goods. [10] Discuss whether the combined effect of the rise in incomes and the rise in GST is likely to cause the quantities of different types of goods sold to rise or fall. [15] (07/H2)

b.

2.

The terrorist attack on New York on 11 September 2001 caused a worldwide recession and an increased fear of flying, both of which severely affected the demand for travel by air. This led to the closure of some of the major airlines in world. a. With the aid of diagrams, explain how the recession and the closure of some of the major airlines of the world affected the market for air travel. [10] Assess the relevance of price elasticity of demand, income elasticity of demand, cross-elasticity of demand and price elasticity of supply in explaining the effects of these events on the airline industry. [15] (04/P3)

b.

3a.

Explain the concepts of price elasticity of demand and income elasticity of demand, indicating why elasticities are different for different products. [12] Discuss how a supplier of a product that is currently fashionable might use both of these concepts in making price and output decisions. [13] (03/P3)

3b.

4.

In a free competitive market, a shortage causes price to rise, a surplus causes price to fall. In some markets this does not happen because a minimum price is fixed by producers. a. With the aid of diagrams and examples, explain why prices rise when there are shortages and fall when there are surpluses. [10] Discuss the factors that a group of companies might consider when deciding to fix a minimum price in a market. [15] (02/P3)

b.

5a.

Explain price elasticity of demand and income elasticity of demand.

[10]

5b.

A government is proposing to increase the tax on petrol. Examine the relevance of price elasticity of demand and income elasticity of demand for this proposal. [15] (01/P3)

6a. Explain price elasticity of demand, income elasticity of demand and cross elasticity of demand. 6b.

[12]

In 1998 an airline offered very cheap flights from the UK to other parts of Europe. However, the service was not very frequent, tickets could not be booked at agencies but only directly with the airline, and no meals were offered on the flights. Discuss whether the different elasticity concepts could be useful in explaining this airlines pricing policy for its flights. [13] (00/P3)

7.

Developments in modern technology, such as faster broadband internet connections, portable DVD players, iPods and MP3 players, have had major impacts on the demand for and supply of recorded music and associated products. Assess how the markets involved might be affected by these developments. [25] (08/P2)

8.

There have been large changes in the price of crude oil over the past few years. Discuss what determines whether consumers or producers are more likely to bear the cost of these oil price changes. [25] (09/P2)

9.

The price of sugar, an ingredient in many canned soft drinks, dropped dramatically by 32% between July 2006 and October 2008. Healthy living campaigns meant consumers became more aware of the possible health dangers of consuming too much sugar and they switched to diet drinks that do not contain sugar. Discuss how the combination of the fall in the price of sugar and the healthy living campaigns might affect expenditure by consumers on non-diet and diet canned soft drinks. [25] (10/P2)

10.

Singapore is facing an ageing population issue. By 2030 senior citizens are expected to comprise almost 20% of the population. Using economic analysis, discuss the likely effects of this demographic change on product markets in Singapore. [25] (11/P2)

Production and Costs, Economies of Scale, Alternative Theories of the Firm 1a. Explain how, in economic theory, a monopolist would determine the price that would maximise profits. [8] Discuss whether firms in the real world set prices at profit-maximising levels. [17] (07/H2) (07/P3)

1b.

2a.

Using appropriate examples, explain the difference between internal and external economies of scale. [10] Discuss the view that the profit motive will always lead to a few large firms dominating the market for each and every type of product. [15] (04/P3)

2b.

3.

In 2001, there was a world-wide reduction in airline business. Smaller airlines with lower costs and cheaper discount fares suffered less than the high-cost larger airlines such as Air France, Swissair and Lufthansa.

a.

Explain why, according to economic analysis, there are benefits from large scale organisations. [12] Discuss to what extent the above extract concerning costs disproves that economic analysis. [13] (03/P3)

b.

4a.

Explain the relationship between diminishing marginal returns in the short run and rising average total cost in the short run. [10] Discuss whether rising short run average costs limit the size of firms over time. [15] (02/P3)

4b.

5.

Many companies, recognising the increase in environmental awareness among consumers, now advertise that they have invested in research to ensure that their products are environmentally friendly. They hope that this will increase the demand for their products and lead to higher profits. a. Explain the difference between fixed and variable costs and suggest what might happen to the fixed and variable costs in the above companies in the short run. [12] Discuss whether the above statement supports the view that it is the producer who dictates what happens in the market with the sole aim of maximising profits. [13] (00/P3)

b.

Market Structure 1a. 1b. Explain what factors affect price and output in an oligopolistic market. [10]

Discuss whether this model of market structure is the most appropriate to explain the behavior of firms in Singapore. [15] (06/P3)

2a.

Explain the type of market structure in which each of the following is likely to operate in Singapore: [10] i ii Hawker food stalls and 5-star luxury hotels.

2b.

Discuss how a fall in market demand for hotel accommodation is likely to affect both a 5-star luxury hotel and other types of hotel. [15] (05/P3)

3a. 3b.

Explain what is meant by productive and allocative efficiency.

[12]

A firm should be encouraged to maximize profits because this makes the firm efficient. Assess whether this argument is true for a firm operating in an imperfect market. [13] (02/P3)

In the UK, train tickets may be obtained more cheaply if they are bought in advance. In August 2000 the railway companies jointly announced that these cheap tickets would be available only at major stations. Passengers living near smaller stations would, therefore, have to pay the full cost of the ticket. a Explain what is meant by price discrimination and discuss whether this is an example of price discrimination. [10] Identify the type of market structure that enables companies to practice price discrimination, and discuss whether that market structure is ever beneficial to consumers. [15] (02/P3)

5a.

Explain how monopolies can discriminate between buyers by charging different prices for the same product or service. [10] Discuss the circumstances in which a monopoly could be beneficial. [15] (01/P3)

5b.

6a. 6b.

Contrast the features of perfect competition with those of oligopoly. [10] Discuss why oligopoly is a more common market structure than perfect competition. [15] (01/P3)

7.

In 1998 two petrol companies, Shell and Texaco, stated that they proposed to co-operate with each other to bring greater efficiency in a competitive market. a. b. Distinguish between productive efficiency and allocative efficiency. [10]

Discuss what advantages and disadvantages might occur when large companies in the same industry co-operate with each other and the industry becomes more monopolistic. [15] (00/P3)

8.

Firms pricing and output decisions depend on barriers to entry and the behaviour of competitors. a. b. Explain why barriers to entry are a key determinant in firms pricing decisions. [10]

Discuss the extent to which the behaviour of firms depends in reality on the actions of their competitors. [15] (08/P2)

9.

Retailers in Singapore supply a wide range of services and products in a variety of market structures. c. Explain the key differences between oligopolistic competition and monopolistic competition. [10] Consider different retailers in Singapore and discuss which of these two market structures best explains their market behavior. [15] (10/P2)

d.

10a.

Explain how the different features of monopolistic competition and oligopoly affect price and output determination in these market structures. [10] Recession will affect firms in different ways depending, for example, on what they produce and the market structure in which they operate. Discuss the likely effects of a recession on different firms. [15] (11/P2)

10b.

Market Failure 1. With reference to examples, discuss whether there is a need to change the current policies adopted by the Singapore government to deal with market failure caused by externalities. [25] (07/H2) (07/P3)

2.

Discuss, with economic reasons to support your arguments, whether the Singapore government currently adopts the most appropriate economic policies in the provision of education. [25] (06/P3)

3a. 3b.

Explain why pollution and congestion caused by cars are likely to cause market failure.

[10]

Discuss whether the Singapore government currently adopts appropriate policies to overcome this market failure. [15] (05/P3)

4.

Illustrating your answer with examples, assess the policies that the Singapore government currently adopts to achieve an efficient allocation of resources when externalities are present, and consider whether some new policies should be introduced. [25] (04/P3)

5a.

Use examples to distinguish between i. A private good and a public good, ii. A social cost and a negative externality.

[12]

5b.

In March 2000 Hong Kongs air pollution index was the highest it had ever been. Clouds of thick yellow smog remained a fixture of the citys skyline. Discuss what economic policies might be used to deal with this situation. [13] (02/P3)

6.

In Indonesia, during 1999 plantation companies cleared huge areas of the rainforest for rubber production and caused large fires, choking people and killing some endangered species of animals. A state of emergency was declared as air pollution reached dangerous levels. Discuss how economic analysis could find a solution to prevent these problems happening again. [25] (01/P3)

7.

It was reported that in Egypt, private sector companies were being offered the chance to invest in the development and operation of airports and roads. a. Explain and illustrate what is meant by i. An externality, ii. A public good, and iii. A private benefit. [12]

b.

Discuss whether the above concepts are of any use in explaining why it is often the government and not private enterprise that is responsible for the development and operation of airports and roads. [13] (00/P3)

8a.

Explain why imperfect information and immobility of factors of market failure. b

production may lead to [10]

Evaluate the policies currently used by the Singapore government to correct these causes of market failure. [15] (08/P2)

9.

Governments around the world protect consumers against market failure due to market dominance. a. Analyse, with supporting examples, how market dominance might lead to market failure. [10] Assess the extent to which market dominance, rather than any other potential market failure, is the major cause of government intervention in the markets for goods and services within Singapore. [15] (09/P2)

b.

10a.

Explain why government intervention is advocated in the markets both for goods where externalities are present.

for public goods and [12]

10b.

In the UK, entry to national museums and art galleries is free of charge and tickets to see the opera are heavily subsidised. In contrast, in Japan, entry to national museums and art galleries comes at a high price and a ticket to see opera is among the most expensive in the world. Assess the economic case for these two different approaches. [13](10/P2)

11.

Consumers and producers are generally assumed by economists to be motivated by selfinterest. a. Explain how, according to economists, the pursuit of self-interest can help to address the problem of limited resources and unlimited wants. [10] b. Assess whether the price mechanism will always allocate scarce resources in the most efficient manner for all goods and services in a market economy. [15] (11/P2)

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National Income Accounting/ Living Standards 1. It was reported in October 2001, that industry in Singapore was facing a sharp recession, GDP grew by 10% in 2000, but in 2001, it was predicted to decline. The Singapore Chamber of Commerce petitioned the government for reductions in personal and corporate tax rates. a. Explain what might happen to national income if a government were to reduce personal and corporate tax rates. [10] Discuss whether the decline in GDP mentioned above necessarily meant that the standard of living for the average person in Singapore also sharply declined. [15] (03/P3)

b.

2.

It was reported that in the last 10 years there has been an improvement in the standard of living of the average person in Namibia. a. If you were asked as an economist to show that the average person in Namibia is better off than ten years ago, explain what information you would need. [12] Comment on the difficulties of comparing living standards between countries. [13] (01/P3)

b.

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Economic measures of the Singapore economy for 2007 indicate that GDP was $243 billion. The current account on the balance of payments was $59 billion in surplus. a Explain how you might use GDP and balance of payments data to measure the performance of an economy. [12] Assess whether these economic indicators are the best measures of economic performance and standard of living in Singapore. [13] (09/P2)

Theory of Income and Employment 1a Assume there is an open economy with a government sector. Explain equilibrium in the circular flow in such an economy. 1b the conditions for [10]

Discuss how an increase in injections may affect the equilibrium level of national income. [15] (02/P3)

2.

Discuss the consequences for an economy of an increase in interest rates.

[25] (02/P3)

12

Discuss the effect that a rise in interest rates in a country might have on consumers, producers and international financial speculators. [25] (01/P3)

Discuss how a significant fall in the level of interest rates might affect the components of aggregate demand. [25] (00/P3)

A rise in the price of a major commodity such as oil benefits the producing country in the short run but causes serious problems in the oil-importing countries. In the long run everyone is worse off. a e. Explain the possible short run consequences of a rise in oil prices. Discuss the validity of the above statement with regard to the long run. [13] [12] (00/P3)

Many economists argue that achieving a low and stable rate of inflation is the single most important macro-economic objective for governments.

a. b.

Explain how a high rate of inflation can be caused.

[10]

Discuss the view that a governments fiscal and monetary policies should be focused primarily on achieving a low and stable rate of inflation. [15] (H109)

7a

Explain the process whereby an increase in government expenditure can lead to a bigger change in national income. [10] Discuss the extent to which conflicts in government macroeconomic objectives limit the scope for the use of fiscal policy in any economy. [15] (11/P2)

7b

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Macroeconomic Problems and Policies 1a To be considered successful, an economy needs to achieve low unemployment, low inflation and stable economic growth. Explain this statement. [12] Discuss whether fiscal policy is the most effective way for Singapore to sustain a successful economy. [13] (07/H2) (07/P3)

1b

2a.

Explain how fiscal and monetary policy can be used to influence the circular flow of income. [12] Discuss whether effective supply-side policies are the best way for the b. Singapore government to achieve long term economic growth and stability. [13] (07/H1)

2b.

In the 4th quarter of 2004 Singapores unemployment rate rose to 3.7%. Discuss whether supply-side policies are the best way of achieving full employment in Singapore. [25] (06/P3)

Discuss the possible impact of a world-wide recession on Singapore and the policy options that the government could adopt to reduce the most harmful effects of this impact. [25] (05/P3)

5a. 5b.

Explain what determines the size of the national income multiplier.

[10]

To what extent might other macroeconomic problems result from the use of fiscal policy that is designed to reduce unemployment in an economy? [15] (04/P3)

6a.

Explain how changes in the money supply might affect the general level of prices in an economy. [10] Discuss the view that monetary policy is the best method of controlling inflation in an economy. [15] (04/P3)

6b.

7.

Explain the key macro-economic aims of the Singapore government, and discuss which policy measures might best be used to overcome the most significant macro-economic problem that is currently being experienced by the Singapore economy. [25] (03/P3)

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8.

Keyness solution to unemployment was higher public spending which through the multiplier process would generate income and more jobs. a. b. Explain how this solution works. Are there any other solutions to the problem of unemployment? [12] [13] (01/P3)

9a. 9b.

Explain what causes inflation.

[10]

Discuss whether a low rate of inflation should be the economic priority of a government. [15] (01/P3)

10

Discuss the economic information about another country that would be useful to a company which is considering exporting its products to that country. [25] (00/P3)

11

Discuss the most appropriate policies that a government could adopt to encourage both actual and potential economic growth. [25] (08/P2)

12

Discuss the relative significance of the multiplier, the price elasticities of demand for imports and exports, and crowding out influencing macroeconomic policy decisions. [25] (08/P2)

13

The relative importance of the components of the circular flow of income for a small and open economy, such as Singapore, is likely to be different from a large and less open economy, such as the USA. a. b. Explain this statement. [10]

Assess whether a change in the external value of its currency is more likely to have a larger impact on Singapore or the USA. [15] (09/P2)

14.

The recent worldwide recession caused many governments to re-assess their use of fiscal policy in order to stimulate their stagnating economies. a. Explain what would reduce the effectiveness of fiscal policy as a stimulus to the Singapore economy. [10]

15

b. Assess the alternative policies that might be more appropriate in managing the Singapore economy when faced with a worldwide recession. [15] (10/P2)

15.

When there are large increases in the prices of oil and other primary products, they are usually expected to lead to rising inflation throughout the worlds economies. Discuss the extent to which these factors are likely to affect the rate of inflation in Singapore. [25]

16.

In the study of macroeconomics, investment can take many forms including foreign direct investment, fixed capital investment and investment in human capital. a. Explain what is meant by these different types of investment. [10]

b. Discuss how far supply-side policies can be used to stimulate these different types of investment. [15] (11/P2)

Balance of Payments and Exchange Rate, Problems and Policies related to the External Economy 1a. 1b. Explain the potential causes of a balance of payments deficit on current account. [10] Discuss which measures, if any, a government should adopt when confronted with a current account deficit. [15] (07/H2) (07/P3)

2.

In October 2005, the Monetary Authority of Singapore stated that its policy of allowing the Singapore dollar to strengthen against a basket of currencies would be maintained. a. Using a diagram, explain what might cause a countrys exchange rate to appreciate in a floating exchange rate system. [10] (06/P3)

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b.

Discuss the extent to which problems are likely to result from an appreciation of Singapores exchange rate. [15] (06/P3)

3.

Discuss how the Singapore government might use the concepts of price elasticity of demand and income elasticity of demand to determine the impact of a fall in exchange rates and a rise in worldwide incomes on the current account of the Singapore balance of payments. [25] (05/P3)

4.

Many countries need to import raw materials and component parts, which become more expensive if the value of their currency falls against the currencies of other countries. To what extent have the main macroeconomic problems faced by Singapore in recent years been caused by a weakening of the exchange rate? [25] (04/P3)

5a. 5b.

What might cause an appreciation of a floating exchange rate?

[10]

Discuss whether an appreciation of a countrys exchange rate will always be beneficial to that country. [15] (01/P3)

6.

When societies are attempting to solve the central economic problem by improving the standard of living of their citizens at a rapid rate, they are always inclined to try to do it behind protectionist trade barriers.

a.

Using the concept of opportunity cost, explain the central economic problem that all societies have to solve. [10] Discuss the view that the reasons for protectionism can never outweigh the benefits of free trade. [15] (H109)

b.

7.

A governments macroeconomic aims are low inflation, low unemployment, balance of payments equilibrium and economic growth. Which of these aims do you consider most significant for Singapore and why? [25] (02/P3)

17

International Trade and Globalisation 1. Discuss whether Singapore is among the economies that have most to gain from globalization. [25] (07/H2) (07/P3)

2.

For many years the USA did not conduct normal trading relations with Vietnam. In 2001, a trade agreement was signed between the two countries which reduced tariffs, encouraged foreign investment and opened up export markets.

a.

How does the theory of comparative advantage explain why a developed country such as the USA might wish to trade with a developing country such as Vietnam? [12] Discuss what effect such a trade agreement might have on the economies of the participating countries. [13] (03/P3)

b.

3.

Specialisation and international trade have meant that some countries enjoy higher living standards than others. a. b. Explain why specialization occurs. Discuss whether protection offers any advantages over specialization. [12] [13] (02/P3)

4a. 4b.

Explain the theory of comparative advantage.

[10]

To what extent does this theory explain the pattern of trade between Singapore and the rest of the world? [15] (00/P3)

5a

Explain the determinants of the pattern of trade between Singapore and the rest of the world. [10] Discuss whether the Singapore government should change its policies for managing the balance of payments. [15] (08/P2)

5b.

An economist stated The trend towards globalisation leaves no room for protectionism. a. b. Account for the trend towards globalisation. Discuss whether you agree with the economists view. [10] [15] (09/P2)

There is a general consensus among economists that protectionism is a bad thing. a. Explain why protectionism exists. [8]

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b.

Assess the extent to which the Singapore governments approach to international trade may need to be adjusted in response to a growth in worldwide protectionism. [17] (10/P2)

8.

The SIngapore economy is open to the world, in trade and investment. This is both a matter of policy and necessity because of our size and limited resources. In 2008, our trade to GDP ratio was 360%, the highest in the world. (Ministry of Trade and Industry, Singapore 2009) Discuss whether the openness of the economy is beneficial or harmful to the standard of living in Singapore. [25] (11/P2)

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