Cambridge A Level Economics 9708 — 2006 Oct/Nov Paper 1 · Variant 1

1 Why are there no markets for free goods? A Consumers’ valuation of free goods is the same at all levels of demand. B Free goods are non-excludable. C The demand for free goods is infinite. D The supply of free goods is sufficient to satisfy all demand at zero price.

Mark scheme: D

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2 What is present in a mixed economy but not in a planned economy? A capital goods B consumer surplus C government borrowing D private production

Mark scheme: D

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3 In economics a statement is positive if A it assumes current economic conditions remain unchanged. B it concerns the factual outcomes of an economic action. C it examines the desirability of government economic policy. D it is based upon the opinion of an economic adviser.

Mark scheme: B

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4 Which characteristic of money is essential, if it is to be used as a medium of exchange? A It must be durable. B It must be legal tender. C It must be limited in supply. D It must have intrinsic value.

Mark scheme: C

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5 The market demand for a product is made up of the demand from three firms, X, Y and Z. The table shows the demand from each firm and the market supply. price $ demand from X demand from Y demand from Z market supply 7 3300 3300 3300 3300 8 3100 2900 3100 6200 9 2800 2500 2900 8200 10 2500 2100 2700 10 000 What is the equilibrium price in the market? A $7 B $8 C $9 D $10

Mark scheme: C

More questions on The interaction of demand and supply

6 The diagram shows the demand curve for good X. M N price D O quantity What could cause a movement along the curve from M to N? A a change in consumer tastes in favour of X B a decrease in labour costs of producing X C a decrease in the demand for X D an increase in the price of a substitute good

Mark scheme: B

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7 From the table below, in which price range is demand for product X inelastic? product X price quantity demanded $ 12 250 11 450 10 500 9 600 8 650 A $12-11 B $11-10 C $10-9 D $9-8

Mark scheme: D

More questions on Price elasticity, income elasticity and cross elasticity of demand

8 Product R is an inferior good with no close substitutes. It is also a complement to product S. Which describes product R? cross elasticity of demand income elasticity of demand with respect to product S A negative positive B positive negative C negative negative D positive positive

Mark scheme: C

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9 A firm publishes and sells books. The diagram shows a shift in the firm’s supply curve from S1 to S2. S1 S2 price of books O quantity of books What would have caused this shift in the firm’s supply curve? A a fall in the subsidies paid to book publishers B a fall in the price of paper C a rise in the real income of customers D a rise in the wages of the firm’s workers

Mark scheme: B

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10 A product has a low price elasticity of supply. What might explain this? A The product has a low opportunity cost. B The product has a perishable nature. C The product is classed as an inferior good. D The product is considered to be a necessity.

Mark scheme: B

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11 In the diagram, S1 and D1 are the initial supply and demand curves for tea and X is the original equilibrium. There is then a failure in the coffee harvest of a major coffee producer. Which point would represent the equilibrium position in the tea market as a result of this failure? D2 S3 S1 S2 D1 B C A price X D D2 S3 S1 S2 D1 O quantity

Mark scheme: C

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12 The diagram shows a market subject to a maximum price. S price P maximum price D O Q1 Q Q2 quantity What will happen if the maximum price is removed? A There will be allocation by a queuing system. B There will be allocation by government rationing. C There will be allocation by seller’s preference. D There will be allocation by the price system.

Mark scheme: D

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13 What is not correct when price acts as a means to allocate resources? A Price determines the supply of public goods. B Price operates in the markets for both goods and factors of production. C Price recognises consumers’ ability to pay rather than consumers’ needs. D Price signals to producers which goods are most profitable.

Mark scheme: A

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14 What is an external cost of building new houses in a city centre? A the cost of compensating residents for mud on local roads B the cost of city centre traffic congestion resulting from the building C the cost of obtaining planning permission D the cost of painting the outside of the new houses

Mark scheme: B

More questions on Private costs and benefits, externalities and social costs and benefits

15 What is an advantage of using cost-benefit analysis in decision-making rather than using only private costs and private benefits? A It does not require detailed calculations. B It is easier to calculate social costs than private costs. C It speeds up the decision-making process. D It takes into account a wider range of effects.

Mark scheme: D

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16 What is an essential characteristic of a private good? A Consumption of the good by one user diminishes the quantity available to others. B Consumption of the good by the user has no external effects on the consumption of others. C It is produced by the private sector. D The user has to pay for it.

Mark scheme: A

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17 The diagram shows the market demand and supply curves for an agricultural product. The government allows the price paid by consumers to be determined by the market, but guarantees producers a price of OP2. supply P2 z x y P1 price w demand O quantity Which area in the diagram represents the total subsidy payments made by the government to producers? A w + y + z B y + z C x D x + y + z

Mark scheme: D

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18 A government intends to introduce a minimum price for rice, a maximum price for heating oil and a tax on chewing gum. Who, in each market, is meant to benefit from these policies? market for rice market for heating oil market for chewing gum A consumers government producers B government producers government C producers producers consumers D producers consumers government

Mark scheme: D

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19 The table shows the output per unit of input of two goods, X and Y, in two countries, 1 and 2. output of X output of Y per unit of input per unit of input Country 1 70 30 Country 2 50 25 Which statement about the data in the table is correct? A Country 1 has absolute advantage in the production of X and comparative advantage in the production of Y. B Country 1 has absolute advantage in the production of Y and comparative advantage in the production of X. C Country 2 has no absolute or comparative advantage. D Country 2 has comparative advantage in the production of X and no absolute advantage.

Mark scheme: B

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20 What would reduce an economy’s protection against the import of cars? A a lower exchange rate B a higher quota of imported cars C a higher tariff on imported cars D a higher subsidy for domestic car producers

Mark scheme: B

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21 A country’s terms of trade index currently stands at 120 (base year 2000). Since 2000, the average price of its imports has increased by 25 %. What has been the change in the average price the country has received for its exports over this period? A –10 % B +5 % C +45 % D +50 %

Mark scheme: D

More questions on Current account of the balance of payments

22 The diagram shows the UK trade balance with China and Japan in 2003 and 2004. 2400 imports from China 2200 imports from Japan 2000 1800 1600 1400 £ billion 1200 1000 exports to Japan 800 600 exports to China 400 200 0 2003 2004 How did the trade balance of the UK change between the start of 2003 and the end of 2004? A There was a fall in the trade surplus with China. B There was a fall in the trade surplus with Japan. C There was a rise in the trade deficit with China. D There was a rise in the trade deficit with Japan.

Mark scheme: C

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23 The data in the table are taken from a country’s labour market statistics. millions adult population 100 number of persons in employment 45 number of persons unemployed 5 What is the unemployment rate and the participation rate? unemployment rate participation rate % % A 5 45 B 10 50 C 10 45 D 5 50

Mark scheme: B

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24 The diagram shows rates of inflation as measured by the Consumer Price Index (CPI) between 1997 and 2004. services and goods CPI inflation % year on year 5 services 4 3 2 1 goods 0 –1 –2 –3 –4 –5 1997 1998 1999 2000 2001 2002 2003 2004 Which conclusion can be drawn from this data? A The prices of goods fell in 1999. B The prices of goods rose between 2000 and 2001. C The prices of services fell between 2002 and 2004. D Between 1997 and 2004, services cost more than goods.

Mark scheme: A

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25 The table shows a country’s rate of inflation for four years. rate of inflation year % 2000 4.0 2001 3.0 2002 2.5 2003 2.0 What fell between 2000 and 2003? A average prices B the cost of living C the exchange rate D the value of money

Mark scheme: D

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26 What is not a possible cause of cost-push inflation? A an increase in firms’ profit margins B an increase in the supply of money C an increase in trade union power D an increase in world oil prices

Mark scheme: B

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27 The table shows items from the balance of payments for countries A, B, C and D. Official Financing is excluded from the Financial Account. Which country has the greatest disequilibrium on its balance of payments? Current Account Capital Account Financial Account $m $m $m A –41 13 28 B 44 12 25 C –32 –5 –37 D –15 –17 4

Mark scheme: B

More questions on Current account of the balance of payments

28 Turkey can produce a good but also imports some of the good from Egypt. The Turkish currency depreciates against the Egyptian currency. How might this affect production of this good in Egypt and in Turkey? production in Egypt production in Turkey A decrease decrease B decrease increase C increase decrease D increase increase

Mark scheme: B

More questions on Exchange rates

29 The diagram shows the supply and demand for pounds sterling (£) in the foreign exchange market with the initial US dollar ($) price of the £ being OP1. S $ price P2 of £ P1 D2 D1 O Q1 Q2 quantity of £s What will increase the $ price of the £ to OP2? A a large capital inflow into the UK B a large deficit on the UK current account C a reduction in interest rates in the UK D a speculative sale of £s in the foreign exchange market

Mark scheme: A

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30 In which of the following circumstances will devaluation of the external value of a country’s currency have the greatest beneficial effects on its balance of trade? A There is full employment in the country. B The government has implemented expansionary fiscal policies. C The demand for its imports is price-inelastic. D There is a high price elasticity of demand for its exports.

Mark scheme: D

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