Cambridge A Level Economics 9708 — 2009 Oct/Nov Paper 3 · Variant 1

Question 1

1 An economy is operating at a point on its production possibility curve. What is true about the way the economy’s resources are being used at this point? allocatively efficient productively efficient socially desirable A possibly yes yes B yes possibly possibly C possibly yes possibly D yes possibly yes

Accepted Answer

C

Question 2

2 The schedule shows the total utility derived by a consumer of a good X at different levels of consumption. quantity of X consumed 1 2 3 4 5 6 7 8 total utility (units) 28 40 50 58 64 68 71 73 The consumer obtains two units of satisfaction from the last cent she spends on each good that she purchases. What is the maximum number of units of X that she will consume if the price of X is 6 cents? A 2 B 5 C 7 D 8

Accepted Answer

A

Question 3

3 In the diagram, an individual initially chooses combination N on budget line LM. An increase in his money income accompanied by an increase in the price of good Y causes his budget line to shift to RS, and he now chooses combination T. L R good Y N T O M S good X How does this affect his economic welfare? A He is definitely better off because his money income has increased. B He is definitely worse off because he has to pay more for good Y. C He is better off since combination T, which he now chooses, was not previously available to him. D He is worse off since combinations of X and Y along LN are no longer available to him.

Accepted Answer

C

Question 4

4 Which statement describes a situation in which a rise in input of factor X, all other factors being constant, results in no change in a firm’s output? A There are diminishing returns to factor X. B Returns to scale are constant. C There are diseconomies of scale. D The marginal product of X is zero.

Accepted Answer

D

Question 5

5 What could cause a perfectly competitive firm’s marginal revenue product of labour curve to shift to the right? A an increase in wages B a higher rate of sales tax C an increase in labour supply D a rise in the price of the final product

Accepted Answer

D

Question 6

6 In the diagram, MRPL is a firm’s marginal revenue product of labour curve, S is its supply of labour curve, and MCL its marginal cost of labour curve. MCL W4 S $ W3 W2 W1 MRPL O N1 N2 labour Assuming profit maximisation, how many workers will the firm employ and what wage will it pay? number wage employed A N1 W3 B N1 W1 C N2 W2 D N2 W4

Accepted Answer

B

Question 7

7 What is an example of a wage differential that compensates for the disadvantages associated with particular jobs? A male workers earning more than female workers in the same job B the tendency for wage rates negotiated by trade unions to exceed those for non-unionised labour C labourers on off-shore oil rigs earning more than those employed on-shore D government office workers being paid more than private sector office workers

Accepted Answer

C

Question 8

8 The diagram shows the initial position of a labour market. D S weekly wage O number of workers The government introduces a law reducing the statutory working week from 39 hours to 36 hours. How will this affect the supply and demand curves in the diagram? employers’ workers’ supply demand curve curve A shifts to right shifts to left B shifts to right shifts to right C shifts to left shifts to left D shifts to left shifts to right

Accepted Answer

D

Question 9

9 The table shows the inputs of the two factors of production, capital and labour, needed to produce varying levels of output. output capital labour 100 5 10 200 8 16 300 14 28 400 20 40 500 26 52 Over which output range do increasing returns to scale occur? A 100 to 200 B 200 to 300 C 300 to 400 D 400 to 500

Accepted Answer

A

Question 10

10 The diagram shows an industry producing under conditions of constant average costs. Y X $ Z T LRAC, LRMC W AR O S MR V output Under perfect competition, the industry produces output OV. Which area measures the loss in consumer surplus if it were to become a monopoly? A YWZ B XYWT C XYZT D SYZV

Accepted Answer

C

Question 11

11 The price elasticity of demand for a firm’s product is zero. What will be the effect on the firm’s revenue if it increases its price by 5 %? A Its revenue will be unchanged. B Its revenue will increase by 5 %. C Its revenue will decrease by 5 %. D Its revenue will fall to zero.

Accepted Answer

B

Question 12

12 The diagram shows the short-run position of a monopolist who believes that, in the long run, excessive profits might attract new entrants to the industry. If the monopolist believes that at prices above Pe new competitors would enter, which output would he choose to protect his long-run profits? $ Pe MC = AC AR MR O A B C D output

Accepted Answer

C

Question 13

13 The diagram shows the cost and revenue curves of a monopoly producer whose only cost of production is a fixed cost. $ X Y AFC AR O MR output What will such a monopolist do? A set a price of OX in the short run and the long run B set a price of OY in the short run and the long run C set a price of OX in the short run, but discontinue production in the long run D set a price of OY in the short run, but discontinue production in the long run

Accepted Answer

D

Question 14

14 A country’s steel producers are members of a cartel. Each member is allocated a production quota, and initially produces the maximum allowed under its quota. What will be the effect on total steel production and the industry’s total profits of allowing the producers to trade the quotas among themselves? effect on production effect on total profits A increase increase B increase no change C no change increase D no change no change

Accepted Answer

C

Question 15

15 What could prevent a market economy achieving allocative efficiency? A disagreement among consumers over resource allocation B inequalities in the distribution of income and wealth C an inability to produce free goods D an inability to produce public goods

Accepted Answer

D

Question 16

16 The information in the table is taken from a country’s national income accounts. $ million national income 600 consumer spending 400 investment spending 80 government spending on goods and services 100 taxation 90 imports 120 What is the value of exports? A $100 million B $120 million C $140 million D $230 million

Accepted Answer

C

Question 17

17 Assuming a constant income velocity of circulation of money, if the rate of growth of the money supply is 8 % and the average price level increases by 5 %, what will be the approximate change in real output? A –3 % B +3 % C +8 % D +13 %

Accepted Answer

B

Question 18

18 According to monetarist theory, what will be the short-run effect of an unexpected increase in the money supply? A an appreciation of the foreign exchange rate B an increase in employment C an increase in real wages D an increase in the rate of interest

Accepted Answer

B

Question 19

19 The table gives the national income of a country over six years. year national income (Y) 1 2100 2 2110 3 2125 4 2145 5 2160 6 2170 According to the accelerator principle, in which year did net investment first fall to a level below that of the previous year? A year 3 B year 4 C year 5 D year 6

Accepted Answer

C

Question 20

20 Out of any addition to national income, 20 % is spent on imports, 15 % is paid in taxes, 5 % is saved and the rest is spent on domestically-produced goods. What is the value of the multiplier? A 2.5 B 5 C 6 D 20

Accepted Answer

A

Question 21

21 The diagram shows a number of expenditure functions. The original expenditure function is shown by E. E1 E2 E E3 expenditure E4 O income The government announces a decrease in government expenditure on goods and services and reduces the standard rate of income tax. Which line shows the new expenditure function resulting from these changes? A E1 B E2 C E3 D E4

Accepted Answer

B

Question 22

22 The diagram shows an economy’s aggregate supply curve. AS price level O output What is likely to cause the curve to shift to the left? A improvements in technology B schemes to increase the geographical mobility of labour C an increase in investment due to a reduction in interest rates D an increase in the marginal rate of income tax

Accepted Answer

D

Question 23

23 The government sells $1 million of bonds to the commercial banks. It uses the proceeds from the sale to provide subsidies to sugar producers who pay them into their bank accounts. Assuming that notes and coins in circulation remain unchanged, what will be the immediate effect on the assets and liabilities of the commercial banks? assets liabilities A bonds +$1 million unchanged reserves –$1 million B bonds +$1 million deposits +$1 million C reserves –$1 million deposits –$1 million D unchanged unchanged

Accepted Answer

B

Question 24

24 According to loanable funds theory, what will cause the rate of interest to rise? A an increase in the rate of investment B an increase in liquidity preference C an increase in the level of savings D an increase in the supply of money

Accepted Answer

A

Question 25

25 In the diagram, the curve X1 shows an economy’s initial trade-off between inflation and unemployment. X1 X2 rate of inflation O unemployment rate What could cause the curve to shift to X2? A an increase in the natural rate of unemployment B a decrease in the money supply C the expectation of a decrease in the inflation rate D an increase in the rate of interest

Accepted Answer

A

Question 26

26 An economy’s GDP per capita grows over a certain period of time, but its development when measured by the Human Development Index remains unchanged. What could explain the difference? A longer working hours B increased pollution C an increased crime rate D a decline in life expectancy

Accepted Answer

D

Question 27

27 What is most likely to be the impact on economic growth and on the rate of inflation in developed economies of an inflow of migrant labour from developing economies? impact on impact on economic growth rate of inflation A increase increase B increase decrease C decrease increase D decrease decrease

Accepted Answer

B

Question 28

28 An economy has unemployed resources and a flexible exchange rate. It lowers interest rates below the level prevailing in other countries. What will be the likely effect on the level of domestic demand for goods and services and on the demand for the country’s exports? domestic demand export demand A increase increase B increase decrease C decrease decrease D decrease increase

Accepted Answer

A

Question 29

29 Which policy is most likely to help to correct an adverse balance on the current account of the balance of payments? A abolishing tariffs B devaluing the currency C reducing direct taxes D reducing indirect taxes

Accepted Answer

B

Question 30

30 A government decides to pursue a more deflationary fiscal policy and a more reflationary monetary policy. Which combination of changes in policy instruments is consistent with this? government interest rate taxation expenditure A decrease decrease increase B decrease decrease decrease C increase increase decrease D increase increase increase

Accepted Answer

A

Cambridge A Level Economics 9708 — 2009 Oct/Nov Paper 3 · Variant 1

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · An economy is operating at a point on its production possibility curve

Q2 · The schedule shows the total utility derived by a consumer of a good X at different…

Q3 · In the diagram, an individual initially chooses combination N on budget line LM

Q4 · Which statement describes a situation in which a rise in input of factor X, all other…

Q5 · What could cause a perfectly competitive firm’s marginal revenue product of labour curve…

Q6 · In the diagram, MRPL is a firm’s marginal revenue product of labour curve, S is its…

Q7 · What is an example of a wage differential that compensates for the disadvantages…

Q8 · The diagram shows the initial position of a labour market

Q9 · The table shows the inputs of the two factors of production, capital and labour, needed…

Q10 · The diagram shows an industry producing under conditions of constant average costs

Q11 · The price elasticity of demand for a firm’s product is zero

Q12 · The diagram shows the short-run position of a monopolist who believes that, in the long…

Q13 · The diagram shows the cost and revenue curves of a monopoly producer whose only cost of…

Q14 · A country’s steel producers are members of a cartel

Q15 · What could prevent a market economy achieving allocative efficiency?

Q16 · The information in the table is taken from a country’s national income accounts

Q17 · Assuming a constant income velocity of circulation of money, if the rate of growth of the…

Q18 · According to monetarist theory, what will be the short-run effect of an unexpected…

Q19 · The table gives the national income of a country over six years

Q20 · Out of any addition to national income, 20 % is spent on imports, 15 % is paid in taxes…

Q21 · The diagram shows a number of expenditure functions

Q22 · The diagram shows an economy’s aggregate supply curve

Q23 · The government sells $1 million of bonds to the commercial banks

Q24 · According to loanable funds theory, what will cause the rate of interest to rise?

Q25 · In the diagram, the curve X1 shows an economy’s initial trade-off between inflation and…

Q26 · An economy’s GDP per capita grows over a certain period of time, but its development when…

Q27 · What is most likely to be the impact on economic growth and on the rate of inflation in…

Q28 · An economy has unemployed resources and a flexible exchange rate

Q29 · Which policy is most likely to help to correct an adverse balance on the current account…

Q30 · A government decides to pursue a more deflationary fiscal policy and a more reflationary…

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