IGCSE Economics Section A
Question Bank
By Ms.Dharshani Perera
Paper
1
Chocolate consumption is increasing 25% a year in the Asia/Pacific region. Chocolate
producers fear that cocoa bean growers will not be able to keep up with demand.
(GCE O/L
May
2008/Q2)
Figure 1 below shows the demand and supply of cocoa beans, the main ingredient of
chocolate.
Demand and supply of cocoa beans
Price
S1
P1
D1
Quantity
Q1
a) On the diagram draw a new demand curve, D2, to show the effect of an
increase in the demand for chocolate. Indicate the new price, P2, and
new quantity, Q2. (2)
b)
I.
Define elasticity of supply (2)
II.
Is the elasticity of supply of cocoa beans likely to be elastic or
inelastic? (1)
c) Briefly explain TWO reasons why the elasticity of supply of cocoa beans
id less elastic than the elasticity of supply of chocolate bars. (4)
1
IGCSE Economics Section A
2
Question Bank
By Ms.Dharshani Perera
a)
i.
What is the likely income elasticity of demand for public transport? (4)
ii.
What is the likely cross elasticity of demand for public transport in
relation to the price of cars? Briefly explain your answer. (4)
(GCE O/L
May
2008/Q6)
b) Examine the arguments for and against a government subsidizing public
transport services. (12)
3
Spain is the world’s largest producer of olive oil. In 2005 production of olive oil fell due
to Spain’s worst drought since records began.
a) Draw a demand and supply diagram to show:
i.
The equilibrium price and quantity before the drought, (3)
ii.
The equilibrium price and quantity after the drought. (2)
i.
Define price elasticity of demand. (2)
ii.
Explain what will happen to the revenue of olive oil farmers after the
drought if the demand for olive oil is price elastic. (3)
(GCE O/L
January
2008/Q2)
b)
4
With the aid of demand and supply diagrams discuss the effects on an economy of :
a) The introduction of a minimum wage rates. (7)
(GCE O/L
January
2008/Q11)
b) A decrease in subsidies to domestic farmers. (7)
c) The discovery of additional oil supplies. (6)
5
Coffee prices on world markets averaged about $1.20 per pound weight in the 1980s
but byn2003 had fallen to only $0.50 per pound weight. Annual coffee production has
been rising at an annual rate of 3.6% whilst demand has been growing by only 1.5%.
(GCE O/L
January
2007/Q3)
a) With the aid of a demand and supply diagram , explain why coffee prices fell
from $1.20 per pound weight in the 1980s to $0.50 per pound weight in 2003.
(5)
2
IGCSE Economics Section A
Question Bank
By Ms.Dharshani Perera
b) What effect would the fall in coffee prices have on the price of tea? Explain
your answer. (3)
6
Cigarettes are widely considered to be demerit goods. In the past high taxes have been
placed on cigarettes, but because demand is price inelastic this has had little effect on
sales. Canada , Norway and other countries have banned smoking in public places.
(GCE O/L
January
2007/Q4)
a) What is meant by a DEMERIT GOOD? (2)
b) Give TWO possible reasons why governments have introduced anti-smoking
measures.(2)
c) With the aid of a diagram , explain what is meant by the phrase ‘Demand is
price inelastic’. (4)
d) Briefly describe ONE other measure governments could use to decrease sales
of cigarettes. (2)
7
a) What is meant by CROSS ELASTICITY OF DEMAND? (2)
b) With the aid of examples, identify the relationship between pairs of goods
whose cross elasticity of demand is :
8
i.
Positive (2)
ii.
Negative (2)
Imports of apples of Britain have increased. The result is that producers in Britain are
facing falling prices for their apples.
a) Draw a diagram to show :
i.
The demand and supply of British apples before imports increased, (2)
ii.
A new demand or supply curve to show why the price of British apples
has fallen, (1)
iii.
The new price and quantity demanded and supplied. (1)
(GCE O/L
May
2006/Q2)
(GCE O/L
January
2006/Q2)
b) Give TWO reasons why the British Government might want to reduce the
amount of imported apples. (2)
c) Identify and briefly explain ONE method which :
i.
The government could use to9 increase the demand for British apples.
3
IGCSE Economics Section A
Question Bank
By Ms.Dharshani Perera
(2)
ii.
9
The growers could use to increase the demand for British apples. (2)
(GCE O/L
May
2005/Q3)
a) What is meant by income elasticity of demand? (2)
b) Study the table below:
Annual income ($) Quantity demanded of good A Quantity demanded of good B
10,000
2,000
2,000
15,000
2,500
1,000
Calculate the income elasticity of demand as income rises from $10,000 to $15,000 per
annum for :
i. Product A (2)
ii. Product B (2)
c) With the aid of examples, briefly explain what your answer in (b) tells you
about the two products. (4)
10
In the winter of 2002/2003 there was a national strike in Venezuela, the world’s fifth
largest oil producer.
a) Show on a demand and supply diagram the effect of the strike on the world
price of oil. (4)
(GCE O/L
January
2005/Q2)
b) The demand for oil is inelastic.
i.
What is meant by the term “inelastic”? (2)
ii.
Give one reason why the demand for oil may be inelastic. (2)
c) Identify two possible effects the strike may have had on Venezuela’s economy.
(2)
4
IGCSE Economics Section A
11
Question Bank
By Ms.Dharshani Perera
a) What is meant by “elasticity of supply”? Illustrate your answer with a diagram
and examples.(6)
b) Discuss the factors which may influence:
12
i.
The price of houses in city centres, (5)
ii.
The exchange rate of a currency, (5)
iii.
The wages of cleaners.(4)
If average household income rises from $5000 to $6000 and average household
spending on books rises from $100 to $200.
a) Calculate the income elasticity of demand for books (3)
(GCE O/L
May
2004/Q8)
(GCE O/L
January
2004/Q3)
b) Using examples, explain the difference between a normal and an inferior good.
(5)
13
A football manufacturer reducers the price of its footballs from $20 to $15and finds
that demand increases from 100 units a week to 150 units a week.
a) Calculate the price elasticity of demand. (2)
(GCE O/L
May
2003/Q2)
b) By how much would total revenue change as a result of this price reduction?(2)
c) Identify two other factors which might increase the demand for footballs. (2)
14
Saudi Arabia is the world’s largest exporter of crude oil and 75% of government
revenue comes from oil exports. It is essentially a one commodity economy. In times
when the demand for oil is strong , revenue is high , but in times of weak oil prices,
revenue can fall.
(GCE O/L
January
2003/Q3)
Explain, with reference to priced elasticity of demand, why “In times when the demand
for oil is strong, revenue is high , but in times of weak oil prices, revenue can fall” (5)
5