www.dynamicpapers.

com

Cambridge O Level

ECONOMICS 2281/12
Paper 1 Multiple Choice May/June 2021
45 minutes

You must answer on the multiple choice answer sheet.

*0772616870*

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.

IB21 06_2281_12/FP
© UCLES 2021 [Turn over
 www.dynamicpapers.com
2

1 What is an advantage of competitive markets?

A Competition causes inequalities of wealth.

B Competition encourages the efficient use of resources.
C The economic problem of scarcity is eliminated.
D The right quantity of merit goods is guaranteed.

2 A multinational company (MNC) wishes to invest in a low-income country to expand its palm oil
production.

What is most likely to make this investment possible?

A high cost of clearing forests to increase land for plantations

B increased demand for palm oil
C shortages of labour in the rural economy
D the removal of subsidies for palm oil production

3 A farmer sells land used for crops to a firm that will use the land for wind turbines to produce
electric power.

What is the opportunity cost of this decision by the farmer?

A the cost of installing wind turbines

B the loss of revenue from crops that grow on the land
C the profit made from selling the land
D the reduced cost of producing renewable energy

4 What is not included in microeconomics?

A economies of scale
B forms of competition
C individual demand
D the inflation rate

© UCLES 2021 2281/12/M/J/21

 www.dynamicpapers.com
3

5 What determines a consumer’s demand for a product?

the consumer’s
the consumer’s the price
willingness to buy
income of the product
the product

A   
B   
C   
D   

6 Which problem will be reduced by a government subsidy to a firm?

A absence of a public good

B abuse of monopoly power
C overconsumption of a demerit good
D underconsumption of a merit good

7 The diagram shows the market for information technology (IT) graduates. The original equilibrium
was X. Later, more IT students graduated from university and greater use of artificial intelligence
(AI) increased the demand for IT staff.

What is the new equilibrium?

D1 D D2

wage B S1
($) A

S
X

C S2
D

O quantity of labour

8 In response to an increase in price from $5 per kilo to $6 per kilo, a farmer increased supply from
400 kilos to 500 kilos per week.

What is the price elasticity of supply?

A 0.8 B 0.9 C 1.2 D 1.25

© UCLES 2021 2281/12/M/J/21 [Turn over

 www.dynamicpapers.com
4

9 What might cause consumers in a high-income economy to both save more and spend more?

A an increase in the rate of interest

B an increase in wealth
C expectation that prices will fall in the future
D inflation rising at a faster rate than wages

10 What would be a disadvantage of specialisation for a worker?

A a low price of the product that they make

B boredom due to repetition of the same task
C higher quality of the good
D the opportunity to undertake training

11 The diagram shows a market for labour. X is the original equilibrium. A trade union negotiates a
minimum wage at W, and the government restricts the supply of immigrant labour.

What is the new equilibrium?

S2
wages S1
($)
B
A C D
W
X

D
O quantity of
labour

12 Which cost of production falls continuously as output increases?

A average fixed cost

B average total cost
C average variable cost
D total variable cost

© UCLES 2021 2281/12/M/J/21

 www.dynamicpapers.com
5

13 A Swedish furniture maker bought a Romanian firm that owned 83 000 hectares of trees.

Which type of merger is this most likely to be?

A diversification
B horizontal
C vertical backward
D vertical forward

14 What is calculated when price is multiplied by the quantity demanded of a product?

A average revenue
B profit
C total cost
D total revenue

15 A private sector firm is the only supplier of rail services between two cities.

What will stop the firm charging very high ticket prices?

A barriers to entry into rail services

B competition from public road transport
C government policy encouraging monopoly power
D high costs of maintaining rail tracks

16 What is a fiscal policy measure?

A direct tax
B exchange rates
C interest rates
D regulation

17 A government uses expansionary monetary policy.

What does the government decrease?

A bank lending
B interest rates
C the budget deficit
D the money supply

© UCLES 2021 2281/12/M/J/21 [Turn over

 www.dynamicpapers.com
6

18 A country is experiencing unemployment. It has a progressive income tax policy and benefits for
the poor. The government aims to increase employment and reduce income inequality.

Which fiscal policy measures are most likely to achieve these aims?

income tax benefits for the poor

A decrease the highest tax rate decrease

B increase the highest tax rate decrease
C decrease the lowest tax rate increase
D increase the lowest tax rate increase

19 The table shows changes in the Consumer Prices Index (CPI) from the base year, 1, and for the
next three years.

year 1 2 3 4
CPI 100 101.1 101.8 102.1

Which statement is correct?

A Consumer prices were highest in year 3.

B The rate of inflation was 2.1% in year 4.
C The rate of inflation was highest in year 2.
D The rate of inflation was lowest in year 1.

20 What is likely to happen when a country is experiencing deflation?

A Consumers delay spending.

B Governments raise interest rates.
C The level of imports increases.
D The real value of money falls.

21 Economic growth can be defined as

A a reduction in a country’s rate of inflation.

B an increase in a country’s exports.
C an increase in a country’s population.
D an increase in a country’s productive capacity.

© UCLES 2021 2281/12/M/J/21

 www.dynamicpapers.com
7

22 The table compares the distribution of employment in selected industries in two years.

employment in millions
industry
year 1 year 2

agriculture 4 3
mining 2 2
manufacturing 6 6
retailing 4 4
transport 4 5
total 20 20

How did the distribution of employment change between year 1 and year 2?

primary sector secondary sector

A fell rose
B fell unchanged
C rose fell
D rose unchanged

23 In a year, two changes occurred in a company.

Company directors’ salaries increased by 15%.

Office workers’ wages increased by 5%.

The rate of inflation was 3.4%.

What happened to real income?

company directors’ office workers’

real income real income

A fell fell
B fell rose
C rose fell
D rose rose

© UCLES 2021 2281/12/M/J/21 [Turn over

 www.dynamicpapers.com
8

24 The diagrams show birth rate (BR) and death rate (DR) in three countries, X, Y and Z, in two
years, 1 and 2.

There was no migration.

X Y Z

BR BR BR
and and and BR
DR DR DR DR

BR
DR
DR BR
1 2 1 2 1 2
year year year

Where was there a rise in population in year 1 and a fall in population in year 2?

A X and Z B X only C Y and Z D Y only

25 The richest 60% of the population of a high-income economy received an increase in income.
The income of the rest of the population did not change.

What happened to absolute and relative poverty?

absolute poverty relative poverty

A increased increased
B increased remained constant
C remained constant increased
D remained constant remained constant

26 Gross Domestic Product (GDP) is a better measure of comparative living standards when it is
adjusted for the effects of

A exports and inflation.

B imports and exports.
C population change and exports.
D population change and inflation.

© UCLES 2021 2281/12/M/J/21

 www.dynamicpapers.com
9

27 What is the most likely benefit for a low-income economy if it removes tariffs on imported goods
and services?

A more choice for domestic consumers

B more employment in declining industries
C more exports by domestic firms
D more tax revenue from imports

28 Economies have become increasingly linked through globalisation.

What would discourage this?

A creation of a single world market

B direct foreign investment by multinational companies
C expansion of trade in financial services
D protectionist policies by trading groups

29 What may result from a balance of payments trade surplus?

A The exchange rate appreciates and causes export prices to fall.

B The exchange rate appreciates and causes export prices to rise.
C The exchange rate depreciates and causes export prices to fall.
D The exchange rate depreciates and causes export prices to rise.

30 A country has a deficit on its current account of its balance of payments.

What could increase the size of its deficit?

A increased exports of its services

B increased international competitiveness of its goods
C increased numbers of visitors from abroad
D increased spending on its military bases abroad

© UCLES 2021 2281/12/M/J/21

 www.dynamicpapers.com
10

BLANK PAGE

© UCLES 2021 2281/12/M/J/21

 www.dynamicpapers.com
11

BLANK PAGE

© UCLES 2021 2281/12/M/J/21

 www.dynamicpapers.com
12

BLANK PAGE

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.

To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
at www.cambridgeinternational.org after the live examination series.

Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

© UCLES 2021 2281/12/M/J/21