These questions use an invented country, Zenia, and cover the whole government and the economy topic. Write each answer on paper before you open the answer block.
Questions
Question 1
State two roles of the public sector in an economy.
Answer
Any two of: provider of goods and services, regulator of markets, redistributor of income through taxes and transfers, stabiliser of the economy. One word or phrase for each role earns the mark for a “state” question.
Question 2
Zenia’s government wants lower unemployment. It pays a wage subsidy to firms that hire new workers. Name the objective and the instrument.
Answer
Objective: lower unemployment. Instrument: a wage subsidy to firms that hire.
Test: “Pay a wage subsidy in order to lower unemployment” reads correctly, and the reverse does not.
Question 3
Explain, neutrally, why a public authority might provide a footbridge over a busy road.
Answer
A footbridge is hard to charge for per user, because people who do not pay cannot easily be stopped from crossing, and one person’s crossing does not stop others. A private firm may therefore find it hard to recover its cost, so the public sector may provide it, funded by taxes.
The answer names a reason and uses “may”. It does not say the authority should or must.
Question 4
Zenia’s budget shows revenue of RM8 000 million and spending of RM8 900 million. State whether it is a surplus or a deficit, and find the amount.
Answer
Spending exceeds revenue, so it is a deficit.
8 900 − 8 000 = RM900 million.
Question 5
Trace, using demand and supply, the effect of a subsidy of RM0.50 per kilogram on the producers of rice. Use “supply”, “price” and “quantity” in your answer and state one assumption.
Answer
The subsidy lowers producers’ cost per kilogram, so supply shifts to the right. At the old price there is now a surplus, so the equilibrium price falls and the quantity bought rises.
Assumption: demand, other costs and the number of sellers stay constant.
Question 6
After a RM2 tax on each bottle of a soft drink, the price rose from RM5 to RM6.20. Weekly sales fell from 10 000 to 8 800 bottles. Find the share of the tax paid by buyers, and explain why this result does not prove the model is correct.
Answer
The price rose by RM1.20, so buyers paid 1.20 ÷ 2 = 60% of the tax. Sellers absorbed the other RM0.80.
The fall in quantity matches the model’s prediction. Yet a school holiday or a change in incomes could also have moved sales, so one result cannot show the model is right. The data is consistent with the model, nothing more.
Question 7
A student writes: “The government must raise taxes on soft drinks because they are unhealthy.” Rewrite the sentence as a neutral, conditional statement using a stated model.
Answer
“A per-bottle tax shifts the supply of soft drinks to the left, so the model predicts a higher price and a lower quantity bought, provided demand and other costs do not change. Whether health outcomes change depends on evidence not stated here.”
The rewrite has a stated model, a prediction, an assumption and a limit, and it makes no claim about what the government should do.
If you got these wrong
Roles and neutral wording: explaining public-sector economic roles neutrally. Aim against tool: distinguishing policy objectives and instruments. Curve steps: tracing a policy mechanism using a stated model. Evidence questions: separating model predictions from documented outcomes.
For timed practice, use the timed practice builder. For a teacher to mark your answers with you, see online one-to-one Economics tuition.