Cambridge A Level Economics 9708 — 2012 May/June Paper 1 · Variant 1

Question 1

1 The term ‘transition economy’ is used to describe a country that is A adopting capital-intensive methods in place of labour-intensive methods. B moving from central planning towards the market system. C replacing a trade deficit with a trade surplus. D substituting manufacturing output for agricultural output.

Accepted Answer

B

Question 2

2 In the diagram, JK is an economy’s production possibility curve. J G industrial goods O H K agricultural goods What could cause the curve to shift to GH? A a decrease in innovation B an increase in the retirement age C an increase in the price of energy D an increase in the unemployment rate

Accepted Answer

C

Question 3

3 What is the opportunity cost to a fully employed economy of increasing capital investment? A a fall in consumption B a fall in income C a rise in saving D a rise in the rate of interest

Accepted Answer

A

Question 4

4 Skilled actors deserve to receive a high income because they bring pleasure to people who attend the theatre. What can be concluded about this statement? A It is a normative statement because both services and goods are economic outputs. B It is a normative statement because it expresses an opinion. C It is a positive statement because actors do bring pleasure to people. D It is a positive statement because greater skill results in higher pay.

Accepted Answer

B

Question 5

5 What is a market demand curve? A the demand for all of a country’s products B the total sum of individual demand curves for a product C the output of all the firms in an industry D the stocks of a particular good available for sale

Accepted Answer

B

Question 6

6 A good has a unitary price elasticity of demand and at a price of $20 a firm sells 40 000 units. How many will the firm sell if it charges a price of $5? A 10 000 B 100 000 C 160 000 D 200 000

Accepted Answer

C

Question 7

7 The cross elasticity of demand between two products, X and Y, is negative. What would be the immediate effect of a rise in the price of product Y? A Quantity demanded of product X will fall. B Supply of product X will rise. C The cross elasticity of demand will rise. D The price of product X would rise.

Accepted Answer

A

Question 8

8 The table gives the short-run supply schedules of three firms X, Y and Z, which comprise an industry. price quantity supplied (units) ($) firm X firm Y firm Z 1 200 – – 2 300 100 – 3 400 160 140 4 500 300 200 Which is a point on the short-run supply schedule of the industry? price ($) quantity supplied (units) A 1 600 B 3 650 C 3 700 D 4 900

Accepted Answer

C

Question 9

9 The diagram shows the demand and supply curves of a commodity before and after a specific tax is removed. S S 12 10 8 price 6 4 2 D 0 quantity What is the tax per unit of output and what is the price after the removal of the tax? price after the tax per unit removal of the tax A 6 6 B 6 8 C 4 6 D 4 8

Accepted Answer

A

Question 10

10 The demand for a good falls at the same time as its costs of production decrease. What will be the combined effect of these changes on the price and on the quantity supplied of the good? price quantity supplied A decrease decrease B decrease uncertain C uncertain decrease D uncertain uncertain

Accepted Answer

B

Question 11

11 The diagram shows the effect of the imposition of a tax equal to FG on a commodity. S2 S1 price u x y v F w G D O quantity Which area represents the reduction in consumer surplus? A u + v B u + x C u + x + y D x + w

Accepted Answer

C

Question 12

12 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

Accepted Answer

B

Question 13

13 What is not a function of the price mechanism? A to ensure that firms make profits B to permit consumers to express their preferences C to ration scarce resources D to signal where resources are required

Accepted Answer

A

Question 14

14 Which statement is correct? A External cost equals social cost minus private cost. B Private cost equals external cost minus social cost. C Social cost equals external cost minus private cost. D Social cost equals private cost minus external cost.

Accepted Answer

A

Question 15

15 In deciding whether to invest in a new project, what would be taken into account in government cost-benefit analysis but not by a private company? A consultancy fees B consumer surplus C interest charges D tax payments

Accepted Answer

B

Question 16

16 Why does the production of public goods have to be financed by the government? A One person’s consumption of a public good means it is not available for anyone else. B People are able to consume public goods without paying for them. C Private sector firms will charge a price significantly above cost for public goods. D The cost of producing public goods is higher in the private sector.

Accepted Answer

B

Question 17

17 The government has to choose the best one of four possible sites to locate a port. The benefits and costs of each site are shown in $m in the table. Which site would be chosen? private external private external benefits benefits costs costs A 700 1100 20 5 B 800 1100 80 40 C 900 600 10 50 D 1000 900 100 200

Accepted Answer

B

Question 18

18 The diagram shows the market for spectacles. Initially the market equilibrium price is PO and quantity Q3 is bought and sold. S PX price PO PM D O Q1 Q2 Q3 Q4 Q5 quantity The government then sets both a maximum price of PX and a minimum price of PM. What effect will these measures have on the market for spectacles? A create a shortage of spectacles equal to Q1Q5 B create a surplus of spectacles equal to Q2Q4 C create a surplus of spectacles equal to Q3Q4 D leave the quantity bought and sold unchanged

Accepted Answer

D

Question 19

19 Thailand produces rubber at a lower opportunity cost than China. It does, however, import some rubber from China. What could explain Thailand importing rubber from China? A China imposes lower tariffs on rubber imports than Thailand. B China is consuming increasing quantities of rubber in industry. C Thailand has the absolute but not the comparative advantage in rubber production. D Thailand wants to avoid the risks involved in overspecialising in rubber production.

Accepted Answer

D

Question 20

20 The diagram shows the production possibility curves for two countries, X and Y. A decrease in productivity moves country X’s production possibility curve from X1 to X2. 40 30 raw materials X2 Y X1 0 50 90 120 manufactured goods Which statement is correct? A After the change X would export raw materials and import manufactured goods. B After the change there is no economic basis for trade. C Before the change Y had an absolute advantage in the production of raw materials. D Before the change X had a comparative advantage in both products.

Accepted Answer

A

Question 21

21 The diagram shows that the imposition of a tariff raises price from $10 to $14. domestic supply D price $ 14 10 domestic demand S 0 20 30 70 100 quantity (millions) What is the value of tax revenue raised? A $80 million B $160 million C $320 million D $400 million

Accepted Answer

B

Question 22

22 A firm borrows money from a bank based abroad in order to pay a lower rate of interest than that available from banks in its own country. Which two parts of the balance of payments accounts will be affected by this transaction? A capital account and currency reserves B capital account and trade in services C financial account and net income flows D financial account and net current transfers

Accepted Answer

C

Question 23

23 The table gives unemployment rates (%) for four countries in 1993 and 2002. UK Japan France Italy 1993 10.5 2.5 11.4 10.1 2002 5.0 5.4 8.8 8.5 What can be deduced from the table? A France had the lowest rate of employment in both years. B Italy had the most employed people in 2002. C Japan more than doubled its labour productivity between 1993 and 2002. D The UK created the most jobs between 1993 and 2002.

Accepted Answer

A

Question 24

24 In which year did the real value of money rise? Price Index year (base year 2001) A 2002 100 B 2003 104 C 2004 104 D 2005 103

Accepted Answer

D

Question 25

25 A country experienced a significant fall in unemployment but its inflation rate remained low. What could explain this? A Global competition prevented firms passing on higher costs. B Increased spending on imports had lowered the exchange rate. C There was a low level of spare capacity in the economy. D Wage rates had increased by more than labour productivity.

Accepted Answer

A

Question 26

26 Before 1999 the Brazilian government did not have a desired target rate of inflation. From 1999 it set target rates within an upper and lower boundary. The diagram shows the rate of inflation between 1994 and 2003 and the target rate between 1999 and 2003. Inflation and inflation targets in Brazil, 1994 to 2003 916 % 30 government target 25 and range 20 rate of inflation 15 10 5 0 1994 95 96 97 98 99 2000 01 02 03 What can be concluded from the diagram? A The Brazilian government achieved its target in each year from 1999 to 2003. B The inflation target was continuously reduced. C The lowest level of inflation was achieved when an inflation target was used. D The inflation rate was more stable after inflation targets were introduced.

Accepted Answer

D

Question 27

27 A government decides to reduce the quota on imported cars from 2000 to 1000 per year. What is likely to happen? A The balance of trade may improve. B The demand for the good will increase. C The good will become cheaper. D The government’s revenue will decline.

Accepted Answer

A

Question 28

28 A representative basket of goods costs $2500 in the United States. The same basket of goods costs £2000 in the UK. What can be deduced from this? A The £ sterling is 25 % overvalued. B The £ sterling is 20 % undervalued. C The purchasing power parity exchange rate of the £ sterling is $0.80 to the £. D The purchasing power parity exchange rate of the £ sterling is $1.25 to the £.

Accepted Answer

D

Question 29

29 The price of a good traded internationally increases. Who would be disadvantaged the most? A high income countries that pursue a policy of self sufficiency B high income countries with a balance of payments surplus that export the good C low income countries dependent on importing the good D low income countries with alternative suppliers of the good

Accepted Answer

C

Question 30

30 A country has a deficit on the current account of its balance of payments. What might help the country to reduce its deficit? A a decrease in its rate of income tax B a decrease in its tariffs C an increase in its level of employment D an increase in its subsidies to exporters

Accepted Answer

D

Cambridge A Level Economics 9708 — 2012 May/June Paper 1 · Variant 1

Question paper16 pages

Mark scheme2 pages

Questions as text

Q1 · The term ‘transition economy’ is used to describe a country that is A adopting…

Q2 · In the diagram, JK is an economy’s production possibility curve

Q3 · What is the opportunity cost to a fully employed economy of increasing capital investment?

Q4 · Skilled actors deserve to receive a high income because they bring pleasure to people who…

Q5 · What is a market demand curve?

Q6 · A good has a unitary price elasticity of demand and at a price of $20 a firm sells 40 000…

Q7 · The cross elasticity of demand between two products, X and Y, is negative

Q8 · The table gives the short-run supply schedules of three firms X, Y and Z, which comprise…

Q9 · The diagram shows the demand and supply curves of a commodity before and after a specific…

Q10 · The demand for a good falls at the same time as its costs of production decrease

Q11 · The diagram shows the effect of the imposition of a tax equal to FG on a commodity

Q12 · The diagram shows the average world price of coffee in US cents per pound weight (lb)…

Q13 · What is not a function of the price mechanism?

Q14 · Which statement is correct?

Q15 · In deciding whether to invest in a new project, what would be taken into account in…

Q16 · Why does the production of public goods have to be financed by the government?

Q17 · The government has to choose the best one of four possible sites to locate a port

Q18 · The diagram shows the market for spectacles

Q19 · Thailand produces rubber at a lower opportunity cost than China

Q20 · The diagram shows the production possibility curves for two countries, X and Y

Q21 · The diagram shows that the imposition of a tariff raises price from $10 to $14

Q22 · A firm borrows money from a bank based abroad in order to pay a lower rate of interest…

Q23 · The table gives unemployment rates (%) for four countries in 1993 and 2002

Q24 · In which year did the real value of money rise?

Q25 · A country experienced a significant fall in unemployment but its inflation rate remained…

Q26 · Before 1999 the Brazilian government did not have a desired target rate of inflation

Q27 · A government decides to reduce the quota on imported cars from 2000 to 1000 per year

Q28 · A representative basket of goods costs $2500 in the United States

Q29 · The price of a good traded internationally increases

Q30 · A country has a deficit on the current account of its balance of payments

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