Cambridge A Level Economics 9708 — 2007 Oct/Nov Paper 1 · Variant 1

Question 1

1 Some people are shipwrecked on a tropical island and allocate their time between gathering coconuts and fishing. Each individual is equally productive in collecting coconuts or catching fish. Which diagram represents the production possibility curve of this community? A B C D coconuts coconuts coconuts coconuts 0 0 0 0 fish fish fish fish

Accepted Answer

A

Question 2

2 Which is a normative statement? A Inflation can be reduced only by increasing the level of unemployment. B An increase in the rate of inflation will lead inevitably to an increase in unemployment. C Unemployment is more harmful than inflation. D If unemployment is reduced below a certain level, this will lead to higher inflation.

Accepted Answer

C

Question 3

3 In which situation would an economist assume ceteris paribus? A when calculating the retail prices index B when deciding what to include in a cost benefit analysis C when making normative statements to advise the government D when studying the effect of a price rise on demand

Accepted Answer

D

Question 4

4 In the 20th century the nature of a typical car assembly plant changed. Company mergers meant there were fewer firms, they operated on larger sites and they had more automated machinery and robots. How is this change most likely to have affected the relative employment of factors of production in the industry? increased relative use decreased relative use A capital and enterprise labour and land B enterprise and labour land and capital C land and capital enterprise and labour D labour and land capital and enterprise

Accepted Answer

C

Question 5

5 The following might influence the demand for a good. Which would not cause a shift in the demand curve for the good? A a change in the price of a complement B a change in the price of a substitute C a change in the price of the good itself D a change in consumers’ incomes

Accepted Answer

C

Question 6

6 A fall in the price of cars causes the demand for petrol to rise by 20 %. The cross-elasticity of demand between cars and petrol is –2. Which change in car prices has brought this about? from to A $6000 $5000 B $5500 $4500 C $5000 $4500 D $5000 $4000

Accepted Answer

C

Question 7

7 What is correct about market supply? A Market supply can increase only when all individual firms increase their output. B Market supply is effective when consumers have sufficient income to buy the good. C Market supply is the result of aggregating the supply of all individual firms. D Market supply of an inferior good falls as price increases.

Accepted Answer

C

Question 8

8 The price of a firm’s product rises by 12 %. After one week the firm is only able to produce the same quantity but after one month it can increase the quantity by 6 %. How would price elasticity of supply be described after one week and after one month? after one week after one month A infinite elastic B infinite inelastic C zero elastic D zero inelastic

Accepted Answer

D

Question 9

9 The government imposes a sales tax to reduce consumption of good X. With which combination of price elasticity of demand and price elasticity of supply will this have the greatest effect? A elastic demand and elastic supply B elastic demand and inelastic supply C inelastic demand and elastic supply D inelastic demand and inelastic supply

Accepted Answer

A

Question 10

10 Jam and honey are substitutes and honey and beeswax are in joint supply. Other things being equal, what will be the result of an increase in the price of jam? price of honey price of beeswax A fall fall B fall rise C rise fall D rise rise

Accepted Answer

C

Question 11

11 The number of passenger journeys per week by train on a certain route is shown by the demand curve in the diagram. V P fare T W U demand O R S number of journeys / week Initially the fare is OP, but it is then reduced by PW. Which area measures the amount spent on the extra journeys resulting from the lower fare? A VUT B PWTV C VRST D URST

Accepted Answer

D

Question 12

12 The diagram shows a market for a good which is supplied partly from domestic production and partly from imports. Sh represents domestic supply and Sm represents imports. Sh price Sm D O R T V quantity What will be the level of consumption and the associated volume of imports? consumption volume of imports A OT RT B OT OT C OV RT D OV RV

Accepted Answer

D

Question 13

13 In a free market in disequilibrium, which combination of price and quantity will lead to a fall in price and a contraction in output to reach equilibrium? S P1 P2 price P3 D O Q1 Q2 Q3 quantity A P1Q1 B P1Q3 C P3Q1 D P3Q3

Accepted Answer

B

Question 14

14 A government decided to approve a private airport-building scheme because it was socially beneficial. In making its decision it calculated private costs at $700 m, private benefits at $800 m and external costs at $200 m. What does this suggest must have been true about the external benefits of the scheme? A External benefits equalled private benefits. B External benefits exceeded $100 m. C External benefits exceeded external costs. D There were no external benefits.

Accepted Answer

B

Question 15

15 In cost-benefit analysis the term net social benefit refers to A private benefit plus social benefit. B social benefit minus private benefit. C social benefit minus private cost. D social benefit minus social cost.

Accepted Answer

D

Question 16

16 Advances in technology are turning a number of goods which are usually thought of as public goods (for example, television broadcasting and road use) into private goods. Why might this be so? A Consumer surplus is being increased. B The costs of production are being reduced. C It is becoming easier to exclude non-payers. D The technology is increasing the number of people consuming the goods.

Accepted Answer

C

Question 17

17 What is true of merit goods? A Consumers underestimate the benefit they provide. B The free rider problem restricts their supply. C Their social cost is greater than their private cost. D The market system over-provides them.

Accepted Answer

A

Question 18

18 Brazil and Colombia attempt to control the supply of coffee in the world market to help stabilise their incomes. What condition is essential for this to stabilise their incomes effectively? A There must be large firms in the industry. B It must be possible to store the coffee and release stocks when necessary. C Other countries must supply a significant percentage of the total market. D The demand for the product must be elastic.

Accepted Answer

B

Question 19

19 Country X has a comparative advantage in producing wheat and country Y in producing cars. However, the countries choose not to specialise and trade. What is a valid reason for this behaviour? A The exchange rate lies within the countries’ opportunity cost ratios. B There is immobility of factors of production between the countries. C Trade is based on absolute rather than comparative advantage. D Transport costs are high relative to the opportunity cost differences between the countries.

Accepted Answer

D

Question 20

20 What would be an economic benefit to a country of imposing a tariff on imported goods? A It would increase global productivity. B It would make the country’s exports more competitive. C It would put pressure on foreign suppliers to reduce their prices. D It would reduce the prices paid by consumers for imported goods.

Accepted Answer

C

Question 21

21 When must the terms of trade of a country change? A when the volume of exports falls and the volume of imports rises B when the total value of exports falls and the total value of imports rises C when the balance of trade moves from deficit to surplus D when the average price of exports rises and the average price of imports falls

Accepted Answer

D

Question 22

22 The table shows all of the items on the current account of a country’s balance of payments. $ million exports of goods 143 imports of goods 156 exports of services 75 imports of services 72 net transfers + 5 What is the value of the current account balance? A $13 m deficit B $10 m deficit C $5 m deficit D $3 m surplus

Accepted Answer

C

Question 23

23 The table gives the % rates of youth unemployment and total unemployment in France and the UK in 2001 and 2005. France UK youth total youth total unemployment unemployment unemployment unemployment (%) (%) (%) (%) 2001 19.2 8.7 12 5.2 2005 22.1 10.1 12.5 4.8 What can be concluded from the table? A France and the UK experienced the same trends in unemployment. B France had a higher number of unemployed people than the UK. C The UK used a different definition of unemployment from France. D The UK was more successful than France in controlling unemployment.

Accepted Answer

D

Question 24

24 When is labour productivity in a firm most likely to increase? A when a firm employs more people B when a firm employs more capital C when a firm doubles all factors of production D when a firm replaces payment by results with hourly wage rates

Accepted Answer

B

Question 25

25 A country experienced an annual inflation rate of 4 % for three successive years. Which statement is correct for the three-year period? A The price level rose by 12 %. B The price level rose by more than 12 %. C The real value of money rose by 12 %. D The real value of money rose by more than 12 %.

Accepted Answer

B

Question 26

26 What would be likely to decrease inflation in an economy? A an increase in consumer spending B an increase in employment C an increase in labour productivity D an increase in taxes on imports

Accepted Answer

C

Question 27

27 A UK resident buys shares in a Spanish company. What will be the immediate and subsequent effects on the UK’s balance of payments? immediate effect subsequent effect on financial account on current account A credit credit B credit debit C debit credit D debit debit

Accepted Answer

C

Question 28

28 In a country the Marshall-Lerner condition for an improvement in the trade balance is satisfied in the long run, but quantities of imports and exports are slow to respond to price changes. The government devalues its currency to reduce its trade deficit. Which curve indicates the probable behaviour of the trade balance? A B + trade C 0 balance – D time

Accepted Answer

B

Question 29

29 There is a rise in the exchange rate of the US$. Which would cause the greatest increase in the US current account deficit? A a high level of domestic unemployment B a high price elasticity of demand for imports C a low price elasticity of demand for exports D a low rate of domestic inflation

Accepted Answer

B

Question 30

30 The diagram shows the market for £ sterling which is in equilibrium. S 2.5 2.0 price of £ in US$ D 0 20 25 30 quantity of £s (billions) What must the UK government do to achieve an exchange rate of £1 = US$2.50? A buy £10 billion sterling B buy £20 billion sterling C sell £10 billion sterling D sell £20 billion sterling

Accepted Answer

A

Cambridge A Level Economics 9708 — 2007 Oct/Nov Paper 1 · Variant 1

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · Some people are shipwrecked on a tropical island and allocate their time between…

Q2 · Which is a normative statement?

Q3 · In which situation would an economist assume ceteris paribus?

Q4 · In the 20th century the nature of a typical car assembly plant changed

Q5 · The following might influence the demand for a good

Q6 · A fall in the price of cars causes the demand for petrol to rise by 20 %

Q7 · What is correct about market supply?

Q8 · The price of a firm’s product rises by 12 %

Q9 · The government imposes a sales tax to reduce consumption of good X

Q10 · Jam and honey are substitutes and honey and beeswax are in joint supply

Q11 · The number of passenger journeys per week by train on a certain route is shown by the…

Q12 · The diagram shows a market for a good which is supplied partly from domestic production…

Q13 · In a free market in disequilibrium, which combination of price and quantity will lead to…

Q14 · A government decided to approve a private airport-building scheme because it was socially…

Q15 · In cost-benefit analysis the term net social benefit refers to A private benefit plus…

Q16 · Advances in technology are turning a number of goods which are usually thought of as…

Q17 · What is true of merit goods?

Q18 · Brazil and Colombia attempt to control the supply of coffee in the world market to help…

Q19 · Country X has a comparative advantage in producing wheat and country Y in producing cars

Q20 · What would be an economic benefit to a country of imposing a tariff on imported goods?

Q21 · When must the terms of trade of a country change?

Q22 · The table shows all of the items on the current account of a country’s balance of payments

Q23 · The table gives the % rates of youth unemployment and total unemployment in France and…

Q24 · When is labour productivity in a firm most likely to increase?

Q25 · A country experienced an annual inflation rate of 4 % for three successive years

Q26 · What would be likely to decrease inflation in an economy?

Q27 · A UK resident buys shares in a Spanish company

Q28 · In a country the Marshall-Lerner condition for an improvement in the trade balance is…

Q29 · There is a rise in the exchange rate of the US$

Q30 · The diagram shows the market for £ sterling which is in equilibrium

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