Cambridge A Level Economics 9708 — 2011 May/June Paper 3 · Variant 1

Question 1

1 In the diagram, LM is an economy’s production possibility curve. L E G good X F H O good Y M Which statement is correct? A E only is attainable. B F is economically efficient. C G may be economically efficient but is not productively efficient. D H is productively efficient but may not be economically efficient.

Accepted Answer

D

Question 2

2 A consumer seeks to maximise his utility. Up to what point should he continue to consume each good? A until the marginal utility per dollar from each good is the same B until the marginal utility from each good is the same C until the marginal utility from each good reaches a maximum D until the marginal utility from each good is zero

Accepted Answer

A

Question 3

3 In the diagram, a consumer’s initial budget line is JK. G J good Y O H K good X Assuming no change in the price of X, what could explain a shift in the consumer’s budget line to GH? consumer’s money price of good Y income A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

A

Question 4

4 The table shows the main characteristics of employment in two occupations. occupation X occupation Y average annual wage $100 000 $60 000 number of weeks annual leave 5 weeks 10 weeks average length of working week 48 hours 44 hours job security low high length of training course to obtain job qualification 1 year 2 years What can definitely be deduced from the table? A Those employed in occupation Y attach greater importance to job security. B Those employed in occupation X attach less importance to leisure activities. C There will be more competition for places on training courses to enter occupation X than occupation Y. D Occupation Y has greater non-pecuniary advantages than occupation X.

Accepted Answer

D

Question 5

5 Which diagram correctly shows the relationship between the average product (AP) and the marginal product (MP) of labour given that the quantities of other factor inputs remain constant? A B MP AP product product MP AP O labour O labour C D MP AP product product AP MP O labour O labour

Accepted Answer

B

Question 6

6 What is the name for the relationship between a firm’s output and the quantities of factor inputs that it employs? A a long-run average cost function B a long-run production function C productive efficiency D returns to scale

Accepted Answer

B

Question 7

7 The diagram shows the supply and demand for labour in an industry. S W wage rate D O L M N employment Initially the industry’s labour market is in equilibrium. What effect will the introduction of a minimum wage OW have on the level of employment in the industry? A It will decrease by an amount LM. B It will decrease by an amount LN. C It will increase by an amount LN. D It will increase by an amount MN.

Accepted Answer

A

Question 8

8 A product with infinite elasticity of supply has sales of 1000 units a week at a price of $1 per unit. Price elasticity of demand is 1.5 over the relevant range. The government imposes a tax of 10 %. What will be the government’s weekly tax revenue? A $15 B $85 C $100 D $150

Accepted Answer

B

Question 9

9 What is the likely outcome for producers and consumers when a market moves from being non-contestable to being a contestable market? producers consumers A gain from higher prices gain from a wider choice of products B gain from likely higher profits lose from likely higher prices C lose from likely lower output lose from a reduced choice of products D lose from likely lower profits gain from likely lower prices

Accepted Answer

D

Question 10

10 A firm is engaging in price discrimination. In order to maximise profits, what should the firm do? A charge a higher price to consumers earning higher incomes B charge a higher price to consumers earning lower incomes C charge a higher price to consumers whose demand for the product is price inelastic D charge a higher price to consumers whose demand for the product is price elastic

Accepted Answer

C

Question 11

11 The diagram shows the private and social marginal costs and benefits at different volumes of traffic. MSC MPC + tax x z MPC costs, y benefits MPB = MSB O volume of tra f fi c The imposition of a congestion tax raises the MPC curve to MPC + tax. Which area measures the resulting reduction in the deadweight loss? A x + y only B x + y + z C y only D z only

Accepted Answer

A

Question 12

12 A government imposes a maximum price for electricity. Which statement justifying this measure might be considered valid on economic grounds? A It will encourage electricity suppliers to invest in additional capacity. B It will increase the incentive for consumers to conserve energy. C It will prevent the monopolistic exploitation of consumers. D It will prevent the rationing of electricity through power cuts.

Accepted Answer

C

Question 13

13 Individuals are free to choose the number of hours they work, how much of their income they save and which goods and services they buy. Which type of tax will not distort the choices individuals make? A a tax levied on the wealth accumulated by individuals B a uniform tax which raises the same fixed amount from all individuals C indirect taxes on specific goods D proportional income taxes

Accepted Answer

B

Question 14

14 The table shows data on a country’s gross national product at market prices and on domestic
spending.

year 1 year2 | year 3

($m) ($m) ($m)
GNP at market prices 420 440 560
private consumption 200 260 300
government consumption 120 120 140
gross investment 90 80 130

In which of these years will the country be faced with a deficit on the current account of the
balance of payments?

year 1 year 2 year 3
A x v v
B x v x
Cc v x v
D v x x

Accepted Answer

A

Question 15

15 An economy is operating at its natural rate of unemployment. According to monetarist theory, what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run long run A no change no change B no change reduction C reduction no change D reduction reduction

Accepted Answer

C

Question 16

16 What will reduce the value of the investment multiplier? A a low marginal propensity to import B automatic stabilisers C low marginal tax rates D low rates of unemployment benefit

Accepted Answer

B

Question 17

17 The diagram shows a consumption function. C consumption 45° O personal disposable income As income increases, what happens to the average propensity to save and the marginal propensity to save? average propensity marginal propensity to save to save A decreases decreases B decreases increases C increases decreases D increases increases

Accepted Answer

D

Question 18

18 Other things being equal, what will result in a decrease in aggregate demand? A a decrease in interest rates B a decrease in the balance of trade deficit C a decrease in the government’s budget deficit D a decrease in the household saving ratio

Accepted Answer

C

Question 19

19 What will expand the money supply in an open economy? A a current account balance of payments deficit B an increase in the cash reserve ratio of commercial banks C government borrowing from domestic residents D government intervention to prevent an appreciation in the foreign exchange value of domestic currency

Accepted Answer

D

Question 20

20 According to Keynesian theory, in which circumstance will there always be an increase in the demand for money? real income price level interest rates A constant decrease increase B constant increase decrease C increase decrease decrease D increase increase increase

Accepted Answer

B

Question 21

21 Which characteristics are usually found in developing countries? saving ratio capital output ratio A low low B high low C low high D high high

Accepted Answer

A

Question 22

22 Which cause of economic growth would involve the least cost for present and future generations of a country’s population? A increased exploitation of a country’s mineral resources B investment financed by borrowing from abroad C investment financed by high rates of domestic savings D technological innovations in productive processes

Accepted Answer

D

Question 23

23 The table shows some indicators of macro-economic performance in the US economy for five decades. economic target 1950s 1960s 1970s 1980s 1990s real GDP growth (average %) 4.18 4.43 3.28 3.02 3.03 inflation (average %) 2.07 2.33 7.09 5.66 3.00 unemployment (average %) 4.51 4.78 6.22 7.27 5.76 Between which decades did the US government achieve an overall improvement in its performance with no trade-off between individual policy goals? A 1950s to 1960s B 1960s to 1970s C 1970s to 1980s D 1980s to 1990s

Accepted Answer

D

Question 24

24 The diagram shows the relationship between the rate of inflation and the rate of unemployment. F J inflation rate G K O unemployment rate What would cause the curve FG to shift to JK? A a lower exchange rate B a lower expected rate of inflation C an increase in government expenditure D a rise in the level of employment

Accepted Answer

B

Question 25

25 The diagram shows a government’s revenue and expenditure for three years. revenue 2008 expenditure revenue 2009 expenditure revenue 2010 expenditure 0 1 2 3 4 $m What can be concluded from the diagram? A A budget deficit was replaced by a budget surplus. B A government borrowing requirement emerged. C The economy moved from a recession into a boom period. D The yield from taxation continuously increased.

Accepted Answer

B

Question 26

26 Which tax is most likely to be regressive? A an inheritance tax B a property tax C a sales tax D income tax

Accepted Answer

C

Question 27

27 Why might a reduction in domestic interest rates have an adverse effect on a country’s balance of payment on current account? A It will cause a rise in the exchange rate. B It will make the country’s industry less competitive. C The resulting higher level of economic activity is likely to increase imports. D There will be an outflow of capital from the country.

Accepted Answer

C

Question 28

28 What would be classified as a supply side policy measure? A additional legislation to restrict the power of trade unions B a reduction in the government’s fiscal deficit C an open market sale of securities D the imposition of a tariff on imported goods

Accepted Answer

A

Question 29

29 A country decides to join a group of countries which maintain fixed parities for their currencies and forbid any restriction on foreign trade and payments. What will the country have to forgo to maintain a fixed parity for its currency? A an independent anti-monopoly policy B an independent fiscal policy C an independent interest rate policy D an independent prices and incomes policy

Accepted Answer

C

Question 30

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

Accepted Answer

B

Cambridge A Level Economics 9708 — 2011 May/June Paper 3 · Variant 1

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · In the diagram, LM is an economy’s production possibility curve

Q2 · A consumer seeks to maximise his utility

Q3 · In the diagram, a consumer’s initial budget line is JK

Q4 · The table shows the main characteristics of employment in two occupations

Q5 · Which diagram correctly shows the relationship between the average product (AP) and the…

Q6 · What is the name for the relationship between a firm’s output and the quantities of…

Q7 · The diagram shows the supply and demand for labour in an industry

Q8 · A product with infinite elasticity of supply has sales of 1000 units a week at a price of…

Q9 · What is the likely outcome for producers and consumers when a market moves from being…

Q10 · A firm is engaging in price discrimination

Q11 · The diagram shows the private and social marginal costs and benefits at different volumes…

Q12 · A government imposes a maximum price for electricity

Q13 · Individuals are free to choose the number of hours they work, how much of their income…

Q14 · The table shows data on a country’s gross national product at market prices and on…

Q15 · An economy is operating at its natural rate of unemployment

Q16 · What will reduce the value of the investment multiplier?

Q17 · The diagram shows a consumption function

Q18 · Other things being equal, what will result in a decrease in aggregate demand?

Q19 · What will expand the money supply in an open economy?

Q20 · According to Keynesian theory, in which circumstance will there always be an increase in…

Q21 · Which characteristics are usually found in developing countries?

Q22 · Which cause of economic growth would involve the least cost for present and future…

Q23 · The table shows some indicators of macro-economic performance in the US economy for five…

Q24 · The diagram shows the relationship between the rate of inflation and the rate of…

Q25 · The diagram shows a government’s revenue and expenditure for three years

Q26 · Which tax is most likely to be regressive?

Q27 · Why might a reduction in domestic interest rates have an adverse effect on a country’s…

Q28 · What would be classified as a supply side policy measure?

Q29 · A country decides to join a group of countries which maintain fixed parities for their…

Q30 · What would be an economic benefit to a major economy of imposing a tariff on imported…

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