Cambridge O Level Economics Paper 1 - 2020
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Questions and Answers

What causes economic agents to make choices?

  • The existence of free goods
  • The existence of finite resources (correct)
  • The market mechanism
  • Limited needs and wants

    • Which combination of a factor of production and its factor income is not correct?

  • Land - Rent
  • Capital - Interest
  • Labour - Dividends (correct)
  • Enterprise - Profit

    • The diagram shows a production possibility curve (PPC) for a country. The country moved from position X to position Y on the PPC. What is the most likely reason for this change?

  • The government has encouraged long-term economic growth.
  • Firms have decided to increase investment in technology. (correct)
  • New economic resources have been discovered in the country.
  • The government has brought about an increase in living standards.

    • What is an example of a macroeconomic aim?

    <p>To create and maintain full employment (D)</p> Signup and view all the answers

    Why might a market economy fail to achieve the best use of scarce resources?

    <p>Public goods are overconsumed. (A), Consumers may lack information about which good to buy. (B), Demerit goods are underconsumed. (D)</p> Signup and view all the answers

    The diagram shows the global market for copper with an equilibrium point of X. Which point represents the new equilibrium after the copper producers' costs increase and there is rapid global economic growth?

    <p>B (B)</p> Signup and view all the answers

    The diagram shows the supply curve for a good. What is the price elasticity of supply when the price rises from $10 to $12?

    <p>1.4 (D)</p> Signup and view all the answers

    Which task is not a function of a trade union?

    <p>Agreeing the minimum number to be employed on a particular job (A)</p> Signup and view all the answers

    What does not have an effect on wages in a free market economy?

    <p>Danger levels in the workplace (A)</p> Signup and view all the answers

    The table shows how household spending changes with income. What is the lowest level of income at which savings are positive?

    <p>$4200 (D)</p> Signup and view all the answers

    What can a central bank increase in order to reduce consumer borrowing?

    <p>The rate of interest (D)</p> Signup and view all the answers

    The table shows the output and total costs of a small firm. What is the average fixed cost of producing 10000 units?

    <p>$6 (A)</p> Signup and view all the answers

    A firm has fixed costs of $1000. The table shows the variable cost at different levels of output. If the goods are sold for $500 each, how much profit will be made from the sale of 4 units?

    <p>$1650 (A)</p> Signup and view all the answers

    Firm X supplies bricks and decides to merge with firm Y that also supplies bricks. Which form of merger has taken place?

    <p>Horizontal (C)</p> Signup and view all the answers

    Who owns a public sector organisation?

    <p>The government (C)</p> Signup and view all the answers

    What are two aims that a government normally pursues when managing the performance of the whole economy?

    <p>To encourage an increase in production and to prevent high inflation (D)</p> Signup and view all the answers

    What is most likely to be the responsibility of a central government?

    <p>The provision of immigration officials at an airport (C)</p> Signup and view all the answers

    The table shows the tax that an individual would pay at different levels of disposable income. Which type of tax is shown in the table?

    <p>Progressive tax (A)</p> Signup and view all the answers

    The government wants to reduce the consumption of cigarettes. Which policy would be most likely to do this?

    <p>Increasing the indirect tax on cigarettes (B)</p> Signup and view all the answers

    Which group should not be included in the measurement of unemployment?

    <p>Seasonal agricultural workers in out-of-season periods (C), Students over 18 years continuing with full-time education (D)</p> Signup and view all the answers

    The table shows the rates of unemployment and real GDP growth for an economy in 2014 and 2018. Which combination of policy measures would be most effective in returning the economy to the 2014 level of economic activity?

    <p>An increase in government expenditure and a decrease in the rate of interest (C)</p> Signup and view all the answers

    An economy is experiencing rising prices. Which government policy will help reduce consumer expenditure?

    <p>Introducing compulsory saving for income earners (D)</p> Signup and view all the answers

    Some goods take a greater percentage of a typical household's total spending than others. How is this accounted for in the construction of a consumer prices index?

    <p>By giving a weight to the goods (D)</p> Signup and view all the answers

    In countries with absolute poverty, low incomes can start a process that keeps incomes low. What are the stages of this process?

    <p>Low incomes → low saving → low investment → low productivity → low incomes (B)</p> Signup and view all the answers

    Which factor in the world's low-income countries limits their economic development?

    <p>Rapid population growth (D)</p> Signup and view all the answers

    The table shows the percentage employment in the primary, secondary, and service sectors in four countries. Which country is likely to be the most developed?

    <p>A (D)</p> Signup and view all the answers

    What causes the birth rate to fall in a country?

    <p>Medical supplies and healthcare improve. (C)</p> Signup and view all the answers

    A country wishes to increase a current account surplus on the balance of payments. Which action would it take?

    <p>Remove export subsidies (C)</p> Signup and view all the answers

    The table shows a country's exports and imports. What was the country's balance of trade in goods and services?

    <p>A deficit of $7 million (A)</p> Signup and view all the answers

    The diagram shows the value of a country's exports and imports of goods over five years. Between which two years did the country have an increase in the value of imports and an improvement in its balance of trade in goods?

    <p>2 and 3 (C)</p> Signup and view all the answers

    Flashcards

    Economic agents' choices

    Economic agents make choices due to limited resources and wants.

    Factors of production

    Resources used to produce goods and services, including land, labor, capital, and enterprise.

    Production Possibility Curve (PPC)

    A graph that shows the maximum possible output combinations of two goods given resources.

    Macroeconomic aim

    Goals related to the economy as a whole, like full employment and economic growth.

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    Market economy failure

    When market inefficiencies prevent the optimal use of scarce resources.

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    Supply curve

    A graphical representation of the relationship between price and quantity supplied.

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    Price elasticity of supply

    A measure of how much the quantity supplied changes when price changes.

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    Trade union functions

    Organizations that negotiate for workers' rights, wages, and conditions.

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    Wages in free market

    Factors that determine wages include supply/demand and work conditions.

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    Household savings

    Savings are positive when income exceeds spending.

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    Interest rates and borrowing

    Higher interest rates generally reduce consumer borrowing.

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    Average fixed costs

    Fixed costs divided by the number of units produced.

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    Profit calculation

    Profit is revenue minus total costs.

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    Forms of mergers

    Combining companies, like horizontal (same industry) or vertical (supply chain).

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    Public sector ownership

    Public sector organizations are owned by the government.

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    Government economic aims

    Governments aim for stable production and low inflation.

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    Central government roles

    Central government handles nationwide responsibilities like defense and infrastructure.

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    Tax types

    Progressive tax increases with income; regressive tax decreases with income.

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    Reducing cigarette use

    Increasing taxes on cigarettes effectively lowers consumption.

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    Unemployment measurement

    Not including students in measurement of unemployment rates.

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    Economic performance measures

    Combining tax changes and interest rate adjustments to influence GDP growth.

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    Rising consumer prices

    Government can reduce spending by accessing compulsory savings.

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    Consumer Price Index

    Measures inflation by weighting goods based on household spending.

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    Poverty cycle

    Low incomes lead to low consumption, perpetuating economic struggles.

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    Low-income countries' issues

    Rapid population growth limits economic development in these nations.

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    Employment sectors and development

    Higher service sector jobs indicate a more developed economy.

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    Birth rate decline factors

    Improved healthcare and med supplies reduce fertility rates.

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    Current account surplus

    Increasing tariffs can help boost a current account surplus.

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    Balance of trade calculation

    Exports minus imports give the balance of trade in goods/services.

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    Trade balance change analysis

    Comparing values of exports and imports over time reveals trade performance.

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    Study Notes

    Cambridge O Level Economics Paper 1 Multiple Choice - October/November 2020

    • Instructions:
      • Answer all 30 multiple choice questions.
      • Use a soft pencil.
      • Record answers on the provided answer sheet.
      • Do not use correction fluid.
      • Do not write on bar codes.
      • Calculator permitted.
      • Time allowed: 45 minutes
      • Total marks: 30
      • Marks per question: 1
      • No penalties for wrong answers.

    Question 1 (What causes economic agents to make choices?)

    • Correct answer: The existence of finite resources.

    Question 2 (Which combination of a factor of production and its factor income is not correct?)

    • Incorrect combination: Land and Dividends

    Question 3 (PPC Shift from X to Y)

    • Likely reason: Increased investment in technology.

    Question 4 (Example of a macroeconomic aim)

    • Correct answer: Creating and maintaining full employment.

    Question 5 (Why might a market economy fail to achieve the best use of scarce resources?)

    • Possible reason: Consumers lack information about the best goods to buy.

    Question 6 (Equilibrium point shift due to copper producer costs and economic growth)

    • Correct answer: Point A. This shows a new equilibrium point on the graph

    Question 7 (Price elasticity of supply)

    • Price elasticity of supply (when price rises from $10 to $12): Answer: 1.4

    Question 8 (Trade Union Functions - not a function)

    • Not a trade union function: Providing legal advice on unfair dismissal

    Question 9 (Factors Affecting Wages in a Free Market)

    • Factor not affecting wages in a free market economy: Government regulations

    Question 10 (Lowest level of income with positive savings)

    • Lowest income level with positive savings: $3900

    Question 11 (Central Bank Action to reduce consumer borrowing)

    • Action to reduce consumer borrowing: Increase the rate of interest

    Question 12 (Average fixed cost of a small firm)

    • Average fixed cost of producing 10000 units: $60

    Question 13 (Profit from the sale of 4 units)

    • Profit from the sale of 4 units: $1650

    Question 14 (Type of merger - for firm X and firm Y)

    • Type of merger: Horizontal

    Question 15 (Owner of a public sector organization)

    • Owner of a public sector organization: The government

    Question 16 (Two aims of government for economy management)

    • Two aims : Encouraging production and preventing high inflation.

    Question 17 (Responsibility of central government)

    • Central government's responsibility: Providing immigration officials at an airport.

    Question 18 (Type of tax)

    • Type of tax: Progressive tax

    Question 19 (Government policy to reduce cigarette consumption)

    • Government policy: Increasing indirect tax on cigarettes

    Question 20 (Who should not be included in unemployment measurement)

    • Excluded group: Students over 18 years in full-time education

    Question 21 (Policy measures to return economy to 2014 levels)

    • Most effective combination: Increase in government expenditure with a decrease in the rate of interest

    Question 22 (Government policy for rising prices)

    • Government policy option: Reducing indirect taxes

    Question 23 (How is consumer price index constructed to account for certain goods)

    • Method: Goods are weighted based on the amount of spending on the goods to determine price influence.

    Question 24 (Stages of a process that keeps incomes low)

    • Process stages: Low incomes - low consumption - low prices- low output- low incomes

    Question 25 (Factor limiting economic development in low income countries)

    • Factor: Rapid population growth

    Question 26 (Most developed country)

    • Likely most developed country: Country D (40% primary, 40% secondary, 20% service).

    Question 27 (Causes of birth rate decline)

    • Cause: Medical supplies and healthcare improve.

    Question 28 (Country action to increase current account surplus)

    • Action: Increase import tariffs

    Question 29 (Country's balance of trade in goods and services)

    • Outcome: Deficit of $13 million

    Question 30 (Period with increased imports and improved balance of trade)

    • Period: Years 3 and 4

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    Cambridge O Level Economics Past Paper PDF 2281/12 October/November 2020

    Description

    Test your knowledge with this multiple choice quiz from the Cambridge O Level Economics Paper 1 for October/November 2020. The quiz consists of 30 questions covering key economic concepts, including market failures and factors of production. Prepare effectively for your exams and evaluate your understanding of essential economics principles.

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