Cambridge A Level Economics 9708 — 2011 Oct/Nov Paper 1 · Variant 2

Question 1

1 An individual has an appointment with his bank manager. He has a choice between travelling to the appointment by car, or leaving the car at home and travelling by bus and then by train. The costs of the journey are given below. $ bus fare 2 train fare 3 car parking charge 4 petrol 2 car wear and tear costs 1 Given this information, what is the opportunity cost to the individual of travelling by car rather than by bus and train? A $2 B $4 C $7 D $12

Accepted Answer

A

Question 2

2 The curve PP in the diagram is the production possibility curve for a country producing goods X and Y. The production of X is more labour intensive than the production of Y. R Q P S good Y T O S T P R Q good X The working hours of the labour force are reduced by law. Which curve could be the country’s new production possibility curve? A TT B SS C QQ D RR

Accepted Answer

B

Question 3

3 In Economics, decisions are usually taken ‘at the margin’. What does this mean? A They are concerned with actions that occur in free market not planned economies. B They are concerned with issues on the boundary between macroeconomics and microeconomics. C They are concerned with the choice between normative and positive actions. D They are concerned with the effect of adding a further action to the current level of activity.

Accepted Answer

D

Question 4

4 Which factor of production and example are correctly linked? factor of production example A capital $10 000 in a savings account B enterprise a company accountant C labour a robot D land the flow of a river

Accepted Answer

D

Question 5

5 During a period of falling incomes in Germany in 2009, demand for jewellery declined. There was, however, a rise in demand for frozen foods. How would the effect on the demand for the two products be illustrated? jewellery frozen food A a movement downwards a movement upwards along the demand curve along the demand curve B a movement upwards a shift to the right of along the demand curve the demand curve C a shift to the left of a shift to the right of the demand curve the demand curve D a shift to the right of a movement upwards the demand curve along the demand curve

Accepted Answer

C

Question 6

6 It was estimated in 2010 that milk had an income elasticity of demand of –0.6. What can be concluded about milk from this information? A It accounts for only a small proportion of household expenditure. B It has very few substitutes. C Household expenditure on milk will decrease if the price of milk increases. D It is an inferior good.

Accepted Answer

D

Question 7

7 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 8

8 A manufacturer has estimated that the price elasticity of supply of ice cream is +1.5. If the demand for ice cream rises and price increases by 10 %, how much more will the manufacturer supply to the market? A 0.15 % B 1.5 % C 15 % D 50 %

Accepted Answer

C

Question 9

9 The table shows demand and supply schedules for red peppers. The equilibrium price is initially 15 cents per kg. price per kg amount demanded amount supplied cents kg (thousands) kg (thousands) 30 11 22 25 12 19 20 13 17 15 15 15 10 17 13 5 20 11 The government pays a subsidy of 10 cents per kg to producers. What will be the new equilibrium price charged to consumers? A 5 cents B 10 cents C 15 cents D 20 cents

Accepted Answer

B

Question 10

10 The diagram shows the market for new houses. S2 S1 Y price X D2 D1 O quantity What would cause the change in the market equilibrium position from X to Y? A a fall in income tax and a rise in building costs B a fall in interest rates and increased efficiency in house-building C a fall in population and a rise in taxes on building materials D a rise in building subsidies and a fall in incomes

Accepted Answer

A

Question 11

11 In the diagram, S1 is the original supply curve and D is the original demand curve. S2 W S1 V T price R P Q D O M N quantity If supply shifts to S2, which area represents the change in consumer surplus? A PQVT B PQW C PRVT D TVW

Accepted Answer

A

Question 12

12 When demand for a good falls, its price falls. What is the function of the price fall? A to eliminate shortages B to reduce consumer surplus C to send a signal to producers D to stimulate a further fall in demand

Accepted Answer

C

Question 13

13 When is a rise in the price of a product likely to cause more resources to be allocated to its production? A if demand increases when the supply curve is perfectly inelastic B if the demand curve shifts to the right when the supply curve is inelastic C if supply increases when the demand curve is perfectly inelastic D if the supply curve shifts to the left when the demand curve is elastic

Accepted Answer

B

Question 14

14 A congestion charge of £10 per day has been imposed on motorists taking their cars into Central London. What is it about driving into Central London that provides the economic justification for this charge? A The external benefits are greater than the external costs. B The private costs are greater than the external costs. C The social benefits are greater than the private benefits. D The social costs are greater than the private costs.

Accepted Answer

D

Question 15

15 A cost-benefit analysis of a proposed underground railway produced the following statistics. annual costs and benefits $ million annual capital cost 10 operating and maintenance costs 3 fare revenue 6 savings to private travellers 5 savings to business 10 other economic benefits 7 What can be concluded from the statistics? A If undertaken by the private sector there would be a loss of $13m. B If undertaken by the private sector there would be a profit of $3m. C If undertaken by the public sector there would be a net social benefit of $15m. D If undertaken by the public sector there would be a net social cost of $1m.

Accepted Answer

C

Question 16

16 A government admits that building a new bridge would produce a positive net benefit to society. Owing to a lack of public funds, the bridge would have to be built and operated by a private company, that would charge the public to use the bridge. Private companies insist that building the bridge would not be profitable. What could explain the companies’ unwillingness to build the bridge? A A private company will be unable to obtain the consumer surplus of the users. B Building the bridge will give rise to negative externalities. C The demand for bridge crossings is price-inelastic. D The potential benefits are non-excludable.

Accepted Answer

A

Question 17

17 What is a merit good? A a good or service which has higher social costs than private costs B a good or service which has no opportunity cost C a good or service which is both non-excludable and non-rival D a good or service which has a greater value than individuals recognise

Accepted Answer

D

Question 18

18 The diagram shows the market demand and supply curves for rice. S 10 price 8 ($) D O Q1 Q2 Q3 quantity What would happen if a government imposed a maximum price of $10? A The government would need to supply Q1 to Q3. B The quantity sold would be Q1. C The quantity sold would be Q2. D The quantity sold would increase from Q2 to Q3.

Accepted Answer

C

Question 19

19 A government removes the tariff on a product as shown in the diagram. D domestic supply P price P1 world supply with tariff P2 world supply without tariff S domestic demand O V W X Y Z quantity What will be the change in domestic production? A a reduction of WV B a reduction of XV C a reduction of XW D a reduction of ZY

Accepted Answer

A

Question 20

20 Country X joins an existing customs union comprising countries Y and Z. Country W remains outside the customs union. Both X’s initial tariff and W’s tariff are at the same level as the customs union’s common external tariff. What is likely to be the effect on trade flows when X joins the customs union? trade between X and W trade between Y and Z A unchanged decrease B decrease decrease C unchanged increase D decrease increase

Accepted Answer

B

Question 21

21 The table shows four combinations of price changes which may affect a country’s terms of trade. Which combination of price changes must cause an improvement in the country’s terms of trade? average price of exports average price of imports A falls falls B falls rises C rises falls D rises rises

Accepted Answer

C

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 shows the rate of unemployment and population for selected countries in 2009. unemployment population country rate (%) (millions) Brazil 8.1 196 India 6.8 1 120 Indonesia 8.1 237 Malaysia 4.0 26 Thailand 2.4 65 What can be concluded from this information? A A higher proportion of those willing and able to work are in employment in Malaysia than in India. B The labour force of Thailand is smaller than that of Malaysia. C The same number of workers were unemployed in Brazil and Indonesia. D There are more people employed in Thailand than in India.

Accepted Answer

A

Question 24

24 The average consumer divides his expenditure between food, clothing, accommodation and transport in the ratio 2 : 1 : 4 : 3. During the course of a year, the price of food falls by 2 %, the price of clothing increases by 4 %, the price of accommodation increases by 10 % and the price of transport remains constant. Assuming that the weights of a price index reflect the expenditure of the average consumer, what is the increase in the index over the year? A 2.5 % B 4 % C 10 % D 12 %

Accepted Answer

B

Question 25

25 At the start of 2009, a worker earned $100 a week. In 2009, the Retail Price Index (RPI) rose 4 % and his average wage rose 7 %. In 2010, the RPI fell 3 % and his wage fell 2 %. What happened to his real wage between the start of 2009 and the end of 2010? A It fell by less than 5 %. B It fell by more than 5 %. C It rose by less than 5 %. D It rose by more than 5 %.

Accepted Answer

C

Question 26

26 The table shows items from the balance of payments for countries A, B, C and D. Official Financing including changes in reserves 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

Accepted Answer

B

Question 27

27 What must be the necessary result of a surplus in the current account of a country’s balance of payments? A a depreciation of the currency B an improvement in the terms of trade C an increase in foreign exchange reserves D an increase in net holdings of foreign assets

Accepted Answer

D

Question 28

28 The graphs show the changes in the exchange rates of the £ sterling between 1998 and 2003. US$ per £ £ per Euro (€) 0.725 1.750 1.700 0.700 1.650 0.675 1.600 0.650 1.550 0.625 1.500 1.450 0.600 1.400 0.575 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 What happened to the value of the £ sterling between 2001 and 2003? A The £ appreciated against the $ and the €. B The £ appreciated against the $ and depreciated against the €. C The £ depreciated against the $ and the €. D The £ depreciated against the $ and appreciated against the €.

Accepted Answer

B

Question 29

29 Other things being equal, what will happen if a British company raises the sterling (£) price of goods it sells to Pakistan by the full extent of a depreciation of sterling against the Pakistan rupee? A The demand for the company’s goods will fall in Pakistan. B The company’s earnings in Pakistan will remain constant in pounds sterling. C The company’s earnings in Pakistan will remain constant in Pakistan rupees. D The profit margin on sales to Pakistan will decline.

Accepted Answer

C

Question 30

30 When will a country’s balance of payments current account deficit be reduced? A when it raises its rate of income tax B when it reduces tariffs on its imports C when it revalues its currency D when it removes export subsidies

Accepted Answer

A

Cambridge A Level Economics 9708 — 2011 Oct/Nov Paper 1 · Variant 2

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · An individual has an appointment with his bank manager

Q2 · The curve PP in the diagram is the production possibility curve for a country producing…

Q3 · In Economics, decisions are usually taken ‘at the margin’

Q4 · Which factor of production and example are correctly linked?

Q5 · During a period of falling incomes in Germany in 2009, demand for jewellery declined

Q6 · It was estimated in 2010 that milk had an income elasticity of demand of –0.6

Q7 · In a free market in disequilibrium, which combination of price and quantity will lead to…

Q8 · A manufacturer has estimated that the price elasticity of supply of ice cream is +1.5

Q9 · The table shows demand and supply schedules for red peppers

Q10 · The diagram shows the market for new houses

Q11 · In the diagram, S1 is the original supply curve and D is the original demand curve

Q12 · When demand for a good falls, its price falls

Q13 · When is a rise in the price of a product likely to cause more resources to be allocated…

Q14 · A congestion charge of £10 per day has been imposed on motorists taking their cars into…

Q15 · A cost-benefit analysis of a proposed underground railway produced the following…

Q16 · A government admits that building a new bridge would produce a positive net benefit to…

Q17 · What is a merit good?

Q18 · The diagram shows the market demand and supply curves for rice

Q19 · A government removes the tariff on a product as shown in the diagram

Q20 · Country X joins an existing customs union comprising countries Y and Z

Q21 · The table shows four combinations of price changes which may affect a country’s terms of…

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

Q23 · The table shows the rate of unemployment and population for selected countries in 2009

Q24 · The average consumer divides his expenditure between food, clothing, accommodation and…

Q25 · At the start of 2009, a worker earned $100 a week

Q26 · The table shows items from the balance of payments for countries A, B, C and D

Q27 · What must be the necessary result of a surplus in the current account of a country’s…

Q28 · The graphs show the changes in the exchange rates of the £ sterling between 1998 and 2003

Q29 · Other things being equal, what will happen if a British company raises the sterling (£)…

Q30 · When will a country’s balance of payments current account deficit be reduced?

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