Cambridge O Level

ECONOMICS 2281/12
Paper 1 Multiple Choice May/June 2022
45 minutes

You must answer on the multiple choice answer sheet.

*3209236737*

You will need: Multiple choice answer sheet

Soft clean eraser
Soft pencil (type B or HB is recommended)

INSTRUCTIONS
 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 multiple choice answer sheet.
 Follow the instructions on the multiple choice answer sheet.
 Write in soft pencil.
 Write your name, centre number and candidate number on the multiple choice answer sheet in the
spaces provided unless this has been done for you.
 Do not use correction fluid.
 Do not write on any bar codes.
 You may use a calculator.

INFORMATION
 The total mark for this paper is 30.
 Each correct answer will score one mark.
 Any rough working should be done on this question paper.

This document has 12 pages. Any blank pages are indicated.

IB22 06_2281_12/FP
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1 What is an example of a free good?

A defence
B education
C health services
D sunshine

2 A student has nothing to do on a Friday evening. She withdraws $5 from the $100 she has in a
savings account and buys a present to take to a party, to which admission is free.

What does this involve?

A an opportunity cost equal to $95

B an opportunity cost equal to other goods she could have bought for $5
C no opportunity cost, as entrance to the party is free
D no opportunity cost, as she had no better way of using the time

3 The diagram shows two production possibility curves for a country.

capital
goods

L
O consumer
goods

What might cause a shift from point K to point L in the country’s production?

A a change in what consumers want to buy

B a recession
C more investment
D the use of previously unemployed resources

4 Which relationship would be studied by an economist specialising in macroeconomics?

A the relationship between the inflation rate and the unemployment rate
B the relationship between the output of a firm and its costs of production
C the relationship between the price of a product and the quantity demanded by a consumer
D the relationship between the wage rate of workers and demand for labour in an occupation

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5 In recent years, a government has started to make more use of the free market system. However,
they are doing it very slowly to avoid the disadvantages that a free market system might bring.

What is a possible disadvantage of the free market system?

A decreased incentive to work

B decreased levels of pollution
C increased efficiency
D increased inequality of income

6 What will cause the demand curve for a good to shift to the right?

A a decrease in the disposable income of consumers

B a decrease in the price of a complement good
C a decrease in the price of a substitute good
D a decrease in the price of the good

7 In the diagram, which demand curve has perfectly elastic demand?

A B
C
price

O quantity

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8 The table shows the demand and supply schedules for rice. The current price is $2.00 per kilo.

quantity demanded quantity supplied

price per kilo $
(million tonnes) (million tonnes)

2.50 5 30
2.00 10 25
1.50 20 20
1.00 30 15
0.50 40 10

What will happen if the price is reduced to $1.00 per kilo?

A The demand schedule will shift to the left.

B The market will move from shortage to surplus.
C The market will move from surplus to shortage.
D The supply schedule will shift to the right.

9 The diagram shows the fixed costs, variable costs and total costs of a firm at output S.

costs
P

O S
output

Which distance represents the firm’s variable costs?

A PQ B PS C QR D QS

10 What could cause profits to be high in a monopoly market?

A barriers to entry
B diseconomies of scale
C elastic demand for the product
D high number of substitutes for the product

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11 Which firm is most likely to be classified as a small firm in the tertiary sector?

A a farm
B a hairdresser
C a steelworks
D a supermarket

12 Germany is considered a capital-intensive economy while Indonesia is considered a

labour-intensive economy.

What does this mean about the economies of Germany and Indonesia?

A Capital is relatively cheaper than labour in Germany while labour is relatively cheaper than
capital in Indonesia.
B Germany has many primary sector workers while Indonesia has many tertiary sector
workers.
C Indonesia has a higher growth in its population size than Germany.
D Relatively more low-cost labour is available in Germany while capital is more efficient than
labour in Indonesia.

13 A bank continues to operate loss-making branches.

Which objective is the bank trying to achieve?

A growth
B efficiency
C profit maximisation
D social welfare

14 The table shows how three people, X, Y and Z, spend their income.

person X person Y person Z

food, clothing and housing 30% 25% 50%

entertainment and leisure 35% 35% 25%
luxury goods 35% 40% 25%

What is the likely order of income, from lowest income to highest income, for these three people?

A YXZ

B YZX

C ZXY

D ZYX

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15 Which activity is correctly linked to the organisation that provides it?

organisation activity

A central bank regulate the rate of inflation

B central bank set direct tax rates
C commercial bank manage the government’s financial accounts
D commercial bank safeguard the country’s foreign reserves

16 The chart shows a government’s spending in a year.

40 000
$ (millions) 35 000 34 006

30 000
25 000
20 000 18 660
15 280
15 000
10 000
5050
5000 2390
0
social security health education law and defence
and welfare order

What was the total government spending on public goods?

A $2390 million
B $5050 million
C $7440 million
D $33 940 million

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17 A government levies a specific tax on the supply of cigarettes. At the same time it starts a
campaign to explain the health risks of smoking cigarettes.

Which diagram illustrates the effects on the demand and supply of cigarettes?

A B

price price S1
S2 S2
S1

D D
O quantity O quantity

C D

price price
S2 S1
S1 S2

D2 D1 D1 D2
O quantity O quantity

18 A government wishes to pursue an expansionary monetary policy.

What should it do?

A discourage bank lending
B give subsidies to firms
C lower income tax thresholds
D lower interest rates

19 A government introduces a series of economic measures.

What is a supply-side policy measure?

A building more affordable homes to improve labour mobility

B controlling consumer spending to reduce inflation
C lowering interest rates to encourage purchase of expensive goods
D raising pensions to help retired people pay their fuel bills

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20 What is identified as economic growth?

A a fall in labour productivity

B an increase in the productive capacity of the economy
C an increase in the Consumer Prices Index (CPI)
D the economy enters a period of recession

21 The retail trade in a country has unemployed workers in one region and job vacancies in another
region.

What could explain this?

A Costs of employing workers are lower when there is unemployment.

B It is more expensive to live in the area where the retail jobs are available.
C Retailing demands the same skills everywhere.
D The geographical mobility of labour has increased.

22 A country wishes to reduce the level of inflation.

Which combination of policy measures will be most successful?

policy measure 1 policy measure 2

A decrease exchange rates increase interest rates

B decrease interest rates increase exchange rates
C increase government spending decrease interest rates
D increase interest rates decrease government spending

23 A government wants to reduce both its budget deficit and the amount of poverty in its country.

Which fiscal policy measure is most likely to achieve both of these aims?

A decreasing the rate of progressive income tax

B decreasing government spending on welfare benefits
C increasing the rate of progressive income tax
D increasing government spending on welfare benefits

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24 Which components, in addition to Gross Domestic Product (GDP) per head, are included in the
Human Development Index (HDI)?

A average earnings and inequalities of incomes

B balance of trade and balance of payments
C life expectancy at birth and expected years of schooling
D size of population and age structure of population

25 What is likely to cause an immediate decrease in the size of the labour force?

A a fall in the average size of families

B a fall in the birth rate
C a reduction in the age of retirement
D an increase in net immigration

26 The table shows some economic indicators.

Which increase in the first indicator is most likely to lead to an increase in the second indicator?

first indicator second indicator

A budget surplus consumer saving

B consumer spending unemployment
C inflation trade surplus
D productivity living standards

27 The price of a currency in a fixed exchange rate system is reduced.

What is this called?

A appreciation
B depreciation
C devaluation
D revaluation

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28 A government removed the quota on goods imported into the country.

What is the most likely result of this?

A a decrease in demand for domestic production

B a decrease in domestic unemployment
C a decrease in exports
D a decrease in the balance of trade deficit

29 What is most likely to result from a reduction in the value of a country’s currency if there are no
other changes in the economy?

A A trade in goods surplus will fall.

B Export prices will rise.
C Import prices will rise.
D The inflation rate will fall.

30 The governments of low-income countries often allow foreign multinational companies (MNCs) to
mine minerals in their country.

Which conflict between benefit and cost might this cause the low-income countries?

benefit cost

A improved balance of trade training by the MNCs

B higher employment loss of a finite resource
C increased profits for the MNCs efficient production
D more sustainable development economic growth

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