Cambridge A Level Economics 9708 — 2008 Oct/Nov Paper 1 · Variant 1

1 Why is scarcity the central feature of the economic problem? A People’s needs are limited. B Resources have alternative uses. C Economic resources are finite. D Consumers have limited choices.

Mark scheme: C

More questions on Scarcity, choice and opportunity cost

2 The production possibility curve for an economy producing capital and consumer goods is represented by the line PQ. P capital goods T R O S Q consumer goods What is the opportunity cost of producing OS of consumer goods? A OR of capital goods B PR of capital goods C SQ of consumer goods D SQ of consumer goods + PR of capital goods

Mark scheme: B

More questions on Production possibility curves

3 In which types of economy might a government control prices? A market and mixed only B market and planned only C market, mixed and planned D mixed and planned only

Mark scheme: D

More questions on Resource allocation in different economic systems

4 Which action by an individual would not be considered an action of the factor of production labour? A leaving college to work on the land B moving from a labour-intensive industry to work in a capital-intensive industry C setting up a new business in information technology D undertaking a training course in computer skills

Mark scheme: C

More questions on Factors of production

5 A change in the price of a good causes an increase in the quantity of the good demanded. What would be the nature of the good and the direction of price change for this to be certain to happen? nature of good price change A inferior fall B inferior rise C normal fall D normal rise

Mark scheme: C

More questions on Demand and supply curves

6 The diagram shows how the quantity demanded of four goods changes as income changes. Which good has an income elasticity of demand which is always +1? A B C quantity of good D demanded O income

Mark scheme: C

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

7 The diagram shows the demand curve for a product. M N price S Q R D O L P quantity If the rectangle OLMN is equal in area to the rectangle OPQR, which statement is correct? A A rise in price from OR to ON results in the same proportionate fall in quantity demanded. B Consumer surplus falls by RSMN if the price rises from OR to ON. C The price elasticity of demand is unitary for all changes in price. D Total revenue falls by MSQ if the price rises from OR to ON.

Mark scheme: A

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

8 The price of good X rises by 10 %. As a result, the demand for a substitute good Y rises by 20 %. What is the cross-elasticity of demand for good Y with respect to good X? A +2 B +0.5 C –0.5 D –2

Mark scheme: A

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

9 There are three firms (X, Y and Z) supplying a market. The table shows their supply at four different prices. price ($) firm X’s supply firm Y’s supply firm Z’s supply 10 50 40 10 20 60 60 20 30 85 80 35 40 120 100 55 Which price change is required for market supply to double? A $10 to $20 B $10 to $30 C $20 to $30 D $20 to $40

Mark scheme: B

More questions on Demand and supply curves

10 What might explain a simultaneous increase in both price and quantity traded in the market for a normal good? A the removal of an effective maximum price on the good B technological progress in the production of the good C the imposition of a tax on the good D the granting of a subsidy to producers of the good

Mark scheme: A

More questions on The interaction of demand and supply

11 The diagram shows demand and supply curves for petrol. The present equilibrium is at X. What could be the new equilibrium if there were a large fall in the price of cars? D1 S2 D A S D2 S1 B price X S2 D C D1 S D S1 D2 O quantity

Mark scheme: B

More questions on The interaction of demand and supply

12 The diagram shows the demand and supply curves for a product. X S price Y W V D O Z quantity Which area measures the total amount consumers would be willing to pay for the equilibrium level of output? A OWYZ B OXYZ C OVYZ D XYV

Mark scheme: B

More questions on Consumer and producer surplus

13 The diagram shows the average world price of coffee in US cents per pound weight (lb) between 1997 and 2005. The price of coffee, 1997 to 2005 150 125 100 US cents / lb 75 50 25 0 1997 2001 2005 year Which event is consistent with the price behaviour shown in the specified time period? A a continuous rise in the price of tea between 1997 and 2001 B the entry to the market of new producers of coffee between 1997 and 2001 C a series of good coffee harvests between 2001 and 2005 D increasing health worries about drinking coffee between 2001 and 2005

Mark scheme: B

More questions on The interaction of demand and supply

14 A firm owns a bridge and charges all vehicle users who cross it. How might the charge be classified? A an external benefit and an external cost B an external benefit and a private cost C a private benefit and an external cost D a private benefit and a private cost

Mark scheme: D

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

15 Which statement about externalities is correct? A Externalities are easier to value than private costs and benefits. B Externalities are only associated with industrial production. C Externalities can be both beneficial and harmful. D Externalities cannot exceed private costs and benefits.

Mark scheme: C

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

16 The table shows, for two different quantities of good X, the total amount consumers are willing to pay and the total external benefits that are generated. quantity of good X consumers’ willingness total external benefits (units) to pay ($) ($) 3 240 54 4 280 68 What is the additional social benefit when 4 units rather than 3 units are produced? A $14 B $40 C $54 D $348

Mark scheme: C

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

17 The diagram shows the market for apples. A government maintains a minimum price P2 by buying apples. D S V W P2 price Z P1 X Y S D O Q1 Q Q2 quantity Which area shows the amount of money the government has to spend to maintain the price P2? A P2WYP1 B P2VQ1O C P2WQ2O D VWQ2Q1

Mark scheme: D

More questions on Methods and effects of government intervention in markets

18 What is a defining characteristic of a private good? A It is purchased by individual customers. B It is supplied exclusively through the market. C It is produced only by private sector firms. D When consumed by one individual, it is not available to others.

Mark scheme: D

More questions on Classification of goods and services

19 The diagram represents the production possibility curves of two economies X and Y. 2500 X 2000 X1 agricultural goods (units) 1000 Y 0 500 1000 manufactured goods (units) As a result of soil erosion in economy X, the production possibility curve shifts from X to X1. According to the law of comparative advantage, what should country Y do following this change? A cease to trade with country X B export agricultural goods to country X C export manufactured goods to country X D import both agricultural and manufactured goods from country X

Mark scheme: A

More questions on The reasons for international trade

20 What will be the immediate effect of the removal of tariffs on imported consumer goods? A a decrease in the cost of living B a decrease in free trade C an increase in customs revenues received by the government D an increase in the level of domestic employment

Mark scheme: A

More questions on Protectionism

21 Which feature is found in both a customs union and a free trade area? A a common currency B a common external tariff C freedom from internal trade barriers D uniform tax rates

Mark scheme: C

More questions on Protectionism

22 In which situation must the terms of trade be moving in a country’s favour? A Its import prices are rising at a slower rate than its export prices. B There is a fall in both its import and its export prices. C There is an increase in its official reserves. D The volume of its exports is increasing more than the volume of its imports.

Mark scheme: A

More questions on Policies to correct disequilibrium in the balance of payments

23 The table shows a country’s employment statistics. million population of working age 100 number in employment 60 number unemployed 4 What are the participation rate and the unemployment rate? participation rate (%) unemployment rate (%) A 60 4.0 B 64 6.25 C 60 6.25 D 64 4.0

Mark scheme: B

More questions on Unemployment

24 The figures were taken from the consumer price indices of retail prices for three countries. country 2006 2007 X 100 120 Y 140 150 Z 90 99 Between 2006 and 2007, what is correct? A Country X has the highest growth in the purchasing power of money. B Country Y has the highest growth in the purchasing power of money. C Country Z has the lowest rate of inflation. D Country Y has the lowest rate of inflation.

Mark scheme: D

More questions on Price stability

25 What is correct about the causes of inflation? A Cost-push inflation can be caused by a rising exchange rate. B Cost-push inflation can be caused by lower indirect taxes. C Demand-pull inflation can be caused by a rising exchange rate. D Demand-pull inflation can be caused by lower direct taxes.

Mark scheme: D

More questions on Price stability

26 The diagram shows Australia’s exports to and imports from four trade partners in $billion in 1994 and 2004. Australia’s exports and imports, $bn, 1994 and 2004 30 imports 25 1994 20 2004 15 exports 10 1994 2004 5 0 Japan United States China New Zealand With which country did Australia have a trade deficit in 1994 and a trade surplus in 2004? A Japan B United States C China D New Zealand

Mark scheme: B

More questions on Current account of the balance of payments

27 A country succeeds in attracting foreign direct investment. How is its effect recorded in its balance of payments in the short run and long run? short run long run A a credit item in the current a debit item in the account financial account B a debit item in the current a credit item in the account financial account C a credit item in the a debit item in the current financial account account D a debit item in the a credit item in the current financial account account

Mark scheme: C

More questions on Current account of the balance of payments

28 Under a system of flexible exchange rates, what determines the foreign exchange value of a currency? A the overall supply of and demand for a currency B the purchasing power of the currency relative to the purchasing power of foreign currencies C the surplus or deficit on the balance of payments on current account D the differential between domestic and foreign interest rates

Mark scheme: A

More questions on Exchange rates

29 With an exchange rate of 5 Egyptian pounds (EGP) = 1 US dollar ($), an American product sells in Egypt for EGP100. Assuming that the dollar price remains unchanged, what will be the price of the product in Egypt if the Egyptian pound appreciates to EGP4 = 1 US$? A EGP75 B EGP80 C EGP120 D EGP125

Mark scheme: B

More questions on Exchange rates

30 Which measure to correct a balance of payments current account deficit would be classified as an expenditure-dampening policy? A a reduction in interest rates B an increase in direct taxes C an introduction of foreign exchange controls D an upward revaluation of the currency

Mark scheme: B

More questions on Policies to correct imbalances in the current account of the balance of payments