Cambridge Assessment International Education

Cambridge Ordinary Level

ECONOMICS 2281/12
Paper 1 Multiple Choice October/November 2019
45 minutes
Additional Materials: Multiple Choice Answer Sheet
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There are thirty questions on this paper. Answer all questions. For each question there are four possible
answers A, B, C and D.
Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.

Read the instructions on the Answer Sheet very carefully.

Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
Any rough working should be done in this booklet.

This document consists of 10 printed pages and 2 blank pages.

IB19 11_2281_12/FP
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1 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.

2 The diagram shows two production possibility curves.

output of 100
capital goods

X Y
50

0
0 50 80 90
output of
consumer goods

Which statement about the movement from point X to point Y is correct?

A Demand for consumer goods has risen.

B The opportunity cost for producing consumer goods has risen.
C There has been an increase in productivity in consumer goods production.
D There has been an inward shift in the production possibility curve.

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3 Sam wrote a list of how he would prefer to spend his Saturday afternoon.

first choice go to a cricket match

second choice watch the annual town parade
third choice go to the cinema
fourth choice visit relatives

Unfortunately a thunderstorm caused the cricket match and the town parade to be cancelled.
Sam went to the cinema.

What was the opportunity cost of going to the cinema?

A going to a cricket match

B watching the annual town parade
C visiting relatives
D losing his Saturday free time

4 Which pair of economic institutions can be found in a market economy?

A local government and charities

B monopolies and commercial banks
C nationalised industries and partnerships
D stock exchange and public corporations

5 What suggests that there is market failure?

A high producer profits

B high retail prices
C lack of competition
D low levels of investment

6 What can cause the supply curve for a product to shift to the right?

A an increase in demand for the product

B an increase in government subsidies to producers
C an increase in indirect taxes on the product
D an increase in the costs of production

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7 A railway company increases ticket prices by 10% for travel between 06:00 and 09:00, causing a
reduction in demand by 2%. After 09:00 it reduces ticket prices by 5%, resulting in a 7% increase
in demand.

What is the price elasticity of demand in response to these price changes?

between 06:00
after 09:00
and 09:00

A elastic elastic
B elastic inelastic
C inelastic elastic
D inelastic inelastic

8 What is a disadvantage of being a specialist skilled worker?

A Career opportunities are abundant.

B Earnings are related to the level of skill.
C It may be difficult to find work locally.
D Labour supply is elastic and plentiful.

9 What is not normally a function of the central bank of a country?

A acting as lender of last resort

B issuing notes and coins
C operating the government’s monetary policy
D setting the government’s budget

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10 The table shows how three people (X, Y and Z) spend their income.

person X person Y person Z

food, clothing and housing 35% 50% 20%

entertainment and leisure 25% 20% 40%
luxury goods 40% 30% 40%

For these three people, what is the most likely order of income, from highest income to lowest
income?

A X → Y→ Z

B Y→Z→X

C Z→X→Y

D Z→Y→X

11 A musician has a choice of playing for an orchestra in either Germany or England.

Which combination of incomes and cost of living is most likely to cause her to choose the
German orchestra?

Incomes and cost of living in Germany compared with those in England

pre-tax (gross) income after-tax (net) income cost of living

A higher higher higher

B higher lower lower
C lower higher higher
D lower higher lower

12 Which type of business organisation is necessarily in the public sector of the economy?

A multinational company
B public limited company
C public corporation
D sole trader

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13 Which combination of characteristics correctly describes a monopoly?

barriers to entry economies of scale

A high possible
B high impossible
C low possible
D low impossible

14 The table shows the sales of cold drinks made by a company in the UK in 2016 and 2017.
Demand for cold drinks is influenced by changes in the temperature. In 2016 the sales followed
the usual seasonal pattern.

sales 2016 sales 2017

month
(thousand cans) (thousand cans)

April 300 290

May 400 350
June 550 270
July 570 490
August 620 590

In which month of 2017 was the usual pattern disturbed?

A May
B June
C July
D August

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15 A firm producing bicycles has the following costs at different levels of output.

total fixed costs total variable costs

output
($) ($)

10 300 800
20 300 1500
30 300 3300

What happens to the average total cost over this range of output?

A It falls continuously.
B It falls then rises.
C It rises continuously.
D It rises then falls.

16 Why are indirect taxes, such as VAT of 20% on goods and services, described as regressive
when comparing high-income and low-income purchasers?

A High-income purchasers pay a higher percentage of their income in tax.

B High-income purchasers pay a lower percentage of their income in tax.
C Low-income purchasers pay a lower percentage of their income in tax.
D Low-income purchasers and high-income purchasers pay the same percentage of their
income in tax.

17 The government has an important role in mixed economies.

Which function would it not perform?

A distributing dividends from profits of state-owned enterprises

B employing workers to collect taxes
C investing in transport infrastructure projects
D producing goods in public corporations

18 Which combination of policy measures would be effective in reducing the effects of a recession?

A a reduction in interest rates and a reduction in income tax

B a reduction in interest rates and an increase in income tax
C an increase in interest rates and a reduction in income tax
D an increase in interest rates and an increase in income tax

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19 How would government spending on education be classified?

fiscal monetary supply-side

policy policy policy

A no no yes
B no yes no
C yes no yes
D yes yes no

20 Which increase is most likely to cause a rise in the output of an economy?

A hyperinflation
B income taxes
C interest rates
D investment

21 Why was the Human Development Index (HDI) introduced as a measure of the standard of
living?

A Education and healthcare are important contributors to the standard of living.

B GDP per head only measures development.
C Inequality can only be measured by HDI.
D Literacy rates are not an effective measure of the standard of living.

22 During periods of high unemployment across the entire labour force, the highest unemployment
rate in an economy is often in the 16–19 year-old age group.

Which statement explains why 16–19 year-olds may find it difficult to find a job?

A The incentive to earn an income is lower for that age group.

B Their wages are lower than those of adults.
C They lack both work experience and the necessary skills.
D They prefer leisure activities to long working hours.

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23 Venezuela, a leading world oil producer, has experienced hyperinflation of over 400% per annum
in recent years.

How does hyperinflation affect an economy?

prices effect

A fluctuate up and down consumers are uncertain about future price levels
B fluctuate up and down consumers can anticipate future price levels
C rise very rapidly value of fixed assets remains stable
D rise very rapidly money has limited worth as a medium of exchange

24 What is most likely to increase as a country becomes more developed?

A average household income

B average size of family
C infant mortality rate
D the proportion of income spent on food

25 In Botswana, better healthcare has meant that birth rates have been falling faster than death
rates. Also the number of children born, on average, to each woman has declined from 6.4 to 3.2.

What may be concluded from this information?

A Government spending on education will need to increase.

B Medical improvements have resulted in falling infant mortality rates.
C There will be a decline in income for each person working.
D There will, in the long run, be an increase in the working population.

26 The table shows the percentage share of GDP held by the richest 20% and poorest 20% of the
population in each country.

Which country had the greatest extremes of income and poverty?

country richest 20% poorest 20%

A Ghana 41.7% 8.4%

B Nigeria 55.7% 4.4%
C Senegal 48.2% 6.4%
D South Africa 64.8% 2.9%

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27 What would cause a favourable change in the Kenyan trade in services (invisible) account?

A A Kenyan company wins a contract to transport exports from Uganda.

B A Kenyan tea company increases its exports.
C A Kenyan trade delegation promoting coffee sales visits India.
D A Zambian company increases its exports to Kenya.

28 What is a disadvantage of trade protection of manufactured goods?

A It can lead to retaliation from trading partners.

B It encourages infant industries to grow.
C It increases demand for domestic manufactured goods.
D It reduces outflows of currencies to pay for imports.

29 What would cause a rise in the deficit on the current account of the balance of payments?

A a fall in foreign direct investment into the country

B a fall in interest earned on overseas investment by the country
C a fall in the value of imported manufactured goods into the country
D a rise in the revenue earned from tourism in the country

30 What would reduce the volume of international trade in the world economy?

A a German bank making a loan to a Nigerian company

B a Japanese car manufacturer establishing a factory in the Czech Republic
C the Canadian government introducing quotas on Malaysian electronics products
D the Swedish government granting aid to Somalia

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