ANSWERS TO PRACTICE EXAM QUESTIONS

UNIT 1
SECTION 1: Multiple-choice questions
1 b
2 d
3 c
4 b
5 a
6 d
7 c
8 d
9 c
10 a
SECTION 2: Structured questions
1 (a) The resources of the island need to support more than just the native population
because, although it is a small island nation, the country is a popular tourist
destination and so the resources are needed to support a much larger population,
especially at certain times of the year when the greatest number of tourists come to
the island.
(b) Two examples of scarce resources are land and labour. We are told that several big
hotel chains have built hotels and that there are others that would like to buy land to
build leisure resorts; there is only so much land available, especially given that the
land required needs to be in the coastal areas as near as possible to the beaches.
Labour is also a scarce resource; there is not enough labour with the required skills
and experience to work in the fish canning industry and the leisure industry.
(c) Two examples of natural resources that are being used by the people of Country A
are the beaches and the fish. The beaches are used as part of the tourism industry, with
hotels located near to them, while the fish are caught and then canned in a large
factory in the west of the island.
(d) The concept of opportunity cost involves a sacrifice that has to be made as a result
of a decision taken. In this case, the decision that has been taken is to increase
tourism. The sacrifice involves the alternative uses that the resources or factors of
production could have had. For example, land will be taken to build more hotels; this
land could have been left as an area of natural beauty near to the sea. Similarly, more
workers will be required to be employed in the tourist industry and these might have
worked in alternative jobs, such as the fish canning industry.
2 (a) The four factors of production used in the fishing industry are land or natural
resources (the fish in the sea), labour (the people who work in the fishing industry,
such as fishermen and workers who do the canning), capital (the fishing boats and the
factory) and enterprise (the people who take the risk in organising the fishing and
canning).

(b) The reward to land will be the rent that is paid. The reward to labour will be the
wages or salaries received by the workers. The reward to enterprise will be the profit
that is obtained.
(c) The four factors of production used in the hotel industry are land or natural
resources (the land where the hotels are built), labour (the people who work in various
capacities in the hotels), capital (the hotels themselves and all the facilities and
equipment contained within them) and enterprise (the people who take the risk in
organising the hotels in the expectation of profit).
(d) This is again an example of opportunity cost. If it is proposed to increase the
tourist industry, there will be a reallocation of resources away from other industries
towards the tourist industry. In this case, fewer workers will be employed in the
fishing industry, both as fishermen and as workers in the canning factory.
3 (a) The opportunity cost of using more buildings in the town for offices and shops is
the next best alternative use that these buildings could have been used for. For
example, they could have been used as private dwellings; this would have meant that
fewer residents would have had to move out to the suburbs. It would also have meant
that the area would have been quieter, less congested and less polluted.
(b) One opportunity cost to local residents who chose to move out of the town was the
fact that they could have lived in the town, much nearer to where they worked; this
would have saved them time. Another opportunity cost is the items that could
otherwise have been bought with the money that is now needed to pay for the
transport into town by bus or car.
(c) One opportunity cost to the owners of the land that will now be used to build
apartments on will be the use of the land that is now being given up; for example, it
could have been used as farming land. Another opportunity cost is the income that has
now been given up, such as the income from using the land as farming land.
(d) A government could use various policies to reduce congestion and pollution in the
town. For example, it could deny planning permission for the buildings to be used as
shops or offices. It could also restrict vehicles from entering particular areas of the
town. The government could also charge very high taxes on the firms using the
buildings as offices and shops.
4 (a) The term our resources refers to the factors of production that are available to
be used on the island for economic activity, i.e. land, labour, capital and enterprise.
(b) The government tourism minister, in referring to the need to make best use of our
resources, means that the factors of production will gain greater rewards. More
tourists will be attracted to the island, spending money locally; this will lead to greater
rewards in the form of rent, wages and salaries, interest and profit to the four factors
of production.
(c) One possible opportunity cost would be the tourists who would now not come to
the island, and the money that they would otherwise have spent on the island,
believing that it was now too developed. Another possible opportunity cost would be

the jobs that would otherwise have been provided if other companies had been
attracted to locate in the island; these might have been able to employ more people
than the international holiday companies.
(d) Increased tourism would certainly mean that more people would come to the
island and these people would spend money locally. It would also mean that jobs
would be needed to satisfy the tourists. Resources, however, are scarce and so if more
resources are allocated to the tourist industry, it means that fewer resources are
allocated to other economic uses, for example fishing and fish canning. There is a
problem with the tourist industry that if there is a prolonged recession, demand might
fall and this could severely damage the islands economy. The opportunity cost of
using resources today is the use that could have been made of them in the future. For
example, it is possible that the greater use of beaches might have a damaging effect on
them. It is, therefore, very difficult to determine whether increased tourism would
involve the best use of the islands resources in the long term. There, perhaps, needs
to be more of a balance between the conservation and the use of scarce resources.
SECTION 3: Analysis and critical evaluation
1 (a) Human resources refers to the labour that is available for employment; an
example would be a worker employed in the manufacturing sector.
(b) Man-made resources refer to capital that is used in the production process; an
example would be a cotton textile factory.
2 (a) Wood would be an example of scarce resources; there is only so much wood
available to satisfy the demand for it.
(b) One likely reason for the increased demand for resources is the greater population
of the country which has been growing at approximately 4% a year.
3 Whether the use of labour in the new call centre industry may benefit the economy
more than the established textiles factory jobs will depend on a number of things.
Firstly, it would depend on the differences in the wages and salaries that are paid.
Secondly, it would depend on how many people are employed (it would be necessary
to compare the extent to which the jobs were labour intensive compared to capital
intensive). Thirdly, it would depend on how many of the jobs in the call centres were
given to local people, given that we are told that it is a multi-national company that is
involved. From the information given, it is impossible to say which would benefit the
economy more.
4 (a) Wages and salaries are part of the costs of production for a firm. If the payments
for labour are increasing, firms will need to raise prices to offset this and ensure that
the profits are not reduced.
(b) A possible opportunity cost of using the wood in the forests for building materials
is the alternative use that could have been made of the wood. If the forests were left
alone, the number of square kilometres of forest would not be reduced. This would
leave an area of natural beauty unspoilt and would attract people to them.

5 The four factors of production are land, labour, capital and enterprise. Land would
refer to the location of the new call centre business. Labour would refer to the labour
employed there, both physical and mental. Capital would refer to the building itself
and the equipment used. Enterprise would refer to those who had taken a risk in
organising the factors of production involved in running the call centres in the
expectation of profit.
6 The government has decided to increase education provision for the population. The
opportunity cost of such a decision would be the alternative uses that the money could
have been put to. For example, the money could have been used to improve the
countrys health service and/or its transport infrastructure. We would need to know
more about such things to make a judgement as to whether the decision taken was a
wise one or not. We are told that employment is not difficult to obtain; however, a
greater education provision would be expected to improve the level of education of
the workforce and this would enable it to get better jobs with higher levels of
payment. This will be especially important given that we are told that the population
is growing at a rate of 4% a year, suggesting that jobs might be more difficult to
obtain in the future.