Cambridge A Level Economics 9708 — 2012 May/June Paper 3 · Variant 1

Question 1

1 Which condition must be met for economic efficiency to be achieved? A Marginal social costs are zero in the production of all goods. B Marginal social costs are at a minimum in the production of all goods. C Marginal social benefits are at a maximum in the production of all goods. D Marginal social costs equal marginal social benefits in the production of all goods.

Accepted Answer

D

Question 2

2 The table shows the total utility that an individual obtains from consuming different quantities of a good. quantity of good total utility (units) (units) 1 20 2 36 3 50 4 62 5 72 6 80 The individual’s marginal utility of money is $1 = 3 units of utility. What is the maximum quantity of the good that the individual will buy when its price is $4? A 2 units B 3 units C 4 units D 5 units

Accepted Answer

C

Question 3

3 The curve JK in the diagram is a consumer’s initial budget line. G J good Y O H K good X Which combination could cause the budget line to shift to GH? consumer’s price of money income good Y A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

A

Question 4

4 The diagram shows a perfectly competitive firm’s average product of labour (APL) and marginal product of labour (MPL) curves. wage ($), labour W product (units) APL MPL O N1 N2 N3 N4 workers employed The market price of the firm’s product is $1. How many workers will the firm employ at a wage of OW? A ON1 B ON2 C ON3 D ON4

Accepted Answer

C

Question 5

5 The diagram shows the total product of labour curve for a firm whose only variable factor input is labour. TPL total product of labour O number employed What explains the shape of the curve? A diminishing marginal disutility of work B increasing marginal disutility of work C technical diseconomies of scale D the law of variable proportions

Accepted Answer

D

Question 6

6 Which is a financial economy of scale? A lower costs in raising capital B lower costs of marketing C lower risk due to diversification D lower variable costs of production

Accepted Answer

A

Question 7

7 There is an increase in the supply of female labour. What will be the likely effect on male and female wages? male wages female wages A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

A

Question 8

8 An economist calculates that a firm has incurred the following costs over the course of a year. $(000) wages and salaries 150 opportunity cost of owner’s time 35 materials 80 rent 30 marketing fees 20 interest on bank loans 25 interest forgone on finance provided by owner 10 By how much does total cost as defined by an economist exceed the total cost as defined by an accountant? A $75 000 B $45 000 C $35 000 D $10 000

Accepted Answer

B

Question 9

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

Accepted Answer

C

Question 10

10 The five firm concentration ratio for an industry changes from 50 % to 60 %. Which statement about the industry is correct? A Each firm has become more efficient. B The industry has become more oligopolistic. C The industry has benefited from external economies of scale. D The industry now has fewer barriers to entry.

Accepted Answer

B

Question 11

11 Which condition must apply before a market can be regarded as perfectly contestable? A All firms in the industry produce an identical product. B All firms in the industry are price-takers. C There are a large number of firms in the industry. D There are zero costs of entry to, and exit from, the industry.

Accepted Answer

D

Question 12

12 A perfectly competitive firm is currently producing at a level of output where its marginal cost is above both its average total cost and the market price. What will be the effect on price and output if the firm were to maximise its profit? effect on output effect on price A decrease increase B decrease unchanged C increase decrease D increase unchanged

Accepted Answer

B

Question 13

13 An industry moves from monopolistic competition to oligopoly. How will this affect barriers to entry and the degree of interdependence between firms? interdependence barriers to entry between firms A strengthen strengthen B strengthen weaken C weaken strengthen D weaken weaken

Accepted Answer

A

Question 14

14 In the diagram the imposition of a tax on a commodity causes its supply curve to shift from S1 to S2. D S2 S1 P2 J price P1 K N M O Q2 Q1 quantity Which area measures the resulting deadweight loss? A P1P2JK B JKQ1Q2 C JKM D JKN

Accepted Answer

C

Question 15

15 A government decides to privatise a state monopoly. What should the government do to try to ensure that this will result in an improvement in efficiency? A allocate vouchers to all citizens entitling them to a share in the ownership of the monopoly B encourage competition C impose a maximum profit margin D privatise the monopoly as a going concern

Accepted Answer

B

Question 16

16 The diagram shows the long-run cost and revenue curves of a monopolist. AR revenue, costs LRAC LRMC O W X Y Z MR output Which level of output satisfies the condition for an efficient allocation of resources? A OW B OX C OY D OZ

Accepted Answer

D

Question 17

17 Due to a cyclical downturn, a government is experiencing a budget deficit. If the government wishes to stimulate aggregate demand, which policy would be most effective? A financing the deficit by borrowing from the Central Bank B financing the deficit by selling bonds to individuals C financing the deficit by selling state assets to private firms D increasing tax rates to eliminate the deficit

Accepted Answer

A

Question 18

18 The graphs indicate economic performance in a country between 2007 and 2010. annual % increase in annual % increase annual % increase in industrial production in consumer prices GDP 12 6 16 8 12 4 % % 8 % 4 2 4 0 0 0 07 08 09 10 07 08 09 10 07 08 09 10 Which conclusion may be drawn from the graphs? A Between 2007 and 2008 industrial production and GDP fell but prices rose. B Between 2008 and 2009 the rates of growth of industrial production, GDP and prices all increased. C GDP and industrial production were at their lowest in 2008. D At no time did industrial production, GDP or prices fall.

Accepted Answer

D

Question 19

19 Which represents an injection into an economy’s circular flow of income? A a balance of trade surplus B a government budget surplus C the retained profits of private companies D household saving

Accepted Answer

A

Question 20

20 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 output C an increase in real wages D an increase in the rate of interest

Accepted Answer

B

Question 21

21 In the diagram, C1 shows the initial relationship between consumption and national income. C1 C2 consumption O national income What could cause the consumption function to shift to C2? A an increase in the rate of unemployment benefits B an increase in the standard rate of income tax C an increase in exports D an increase in investment

Accepted Answer

B

Question 22

22 Other things being equal, the money supply in an open economy will increase if A domestic banks increase their lending to foreign borrowers. B the central bank buys foreign currency in the foreign exchange market. C the government sells bonds to domestic residents. D there is an increase in the volume of imports to the economy.

Accepted Answer

B

Question 23

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

Accepted Answer

C

Question 24

24 In a banking system all banks maintain 10 % of deposits as cash. Customers withdraw $20 000 in cash. Assuming no subsequent net change in notes and coins in circulation, by how much will the banks have to reduce their net loans? A $2000 B $18 000 C $180 000 D $220 000

Accepted Answer

C

Question 25

25 The table shows the figures for consumption, capital formation and depreciation in four economies, all measured in US $. Assuming that the state of technology remains unchanged, which economy is most likely to experience economic growth? consumption capital formation depreciation ($ m) ($ m) ($ m) A 100 20 30 B 500 200 200 C 1 000 1 400 1 200 D 20 000 5 000 6 000

Accepted Answer

C

Question 26

26 What is likely to result from the discovery of oil reserves in a developing economy? A a more equal distribution of income and wealth B an increase in the real exchange rate C an increase in the competitiveness of commercial agriculture D a reduction in the volume of imports of manufactured goods

Accepted Answer

B

Question 27

27 A government’s priority is to reduce the natural rate of unemployment (NAIRU). Which policy would be most likely to help it achieve this objective? A an increase in interest rates B an increase in rates of unemployment benefit C the introduction of minimum wage rates D the introduction of subsidised travel for unemployed workers to search for jobs

Accepted Answer

D

Question 28

28 The number of people employed in a country and the level of unemployment both decrease. What could explain this? A net inward immigration B an increase in the level of unemployment benefits C an increase in the age at which state pensions are payable D an increase in the number of students

Accepted Answer

D

Question 29

29 The European Union imposes a quota on the volume of garments imported from China. What is likely to be a consequence? A an increase in the prices received by Chinese textile firms B a reduction in the prices paid by EU consumers C a switch to producing lower-value garments by Chinese textile firms D a reduction in the volume of garments exported from China to non-EU markets

Accepted Answer

A

Question 30

30 The government of Lesotho introduces a programme to promote exports and to encourage firms to grow by subsidising local entrepreneurs. What effect is this likely to have on incomes, the balance of payments current account deficit and government expenditure in Lesotho? balance of government incomes payments current expenditure account deficit A fall uncertain rise B rise reduce no change C fall reduce rise D rise uncertain rise

Accepted Answer

D

Cambridge A Level Economics 9708 — 2012 May/June Paper 3 · Variant 1

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · Which condition must be met for economic efficiency to be achieved?

Q2 · The table shows the total utility that an individual obtains from consuming different…

Q3 · The curve JK in the diagram is a consumer’s initial budget line

Q4 · The diagram shows a perfectly competitive firm’s average product of labour (APL) and…

Q5 · The diagram shows the total product of labour curve for a firm whose only variable factor…

Q6 · Which is a financial economy of scale?

Q7 · There is an increase in the supply of female labour

Q8 · An economist calculates that a firm has incurred the following costs over the course of a…

Q9 · The price elasticity of demand for a firm’s product is zero

Q10 · The five firm concentration ratio for an industry changes from 50 % to 60 %

Q11 · Which condition must apply before a market can be regarded as perfectly contestable?

Q12 · A perfectly competitive firm is currently producing at a level of output where its…

Q13 · An industry moves from monopolistic competition to oligopoly

Q14 · In the diagram the imposition of a tax on a commodity causes its supply curve to shift…

Q15 · A government decides to privatise a state monopoly

Q16 · The diagram shows the long-run cost and revenue curves of a monopolist

Q17 · Due to a cyclical downturn, a government is experiencing a budget deficit

Q18 · The graphs indicate economic performance in a country between 2007 and 2010

Q19 · Which represents an injection into an economy’s circular flow of income?

Q20 · According to monetarist theory, what will be the short-run effect of an unexpected…

Q21 · In the diagram, C1 shows the initial relationship between consumption and national income

Q22 · Other things being equal, the money supply in an open economy will increase if A domestic…

Q23 · According to Keynesian theory, in which circumstance would there always be an increase in…

Q24 · In a banking system all banks maintain 10 % of deposits as cash

Q25 · The table shows the figures for consumption, capital formation and depreciation in four…

Q26 · What is likely to result from the discovery of oil reserves in a developing economy?

Q27 · A government’s priority is to reduce the natural rate of unemployment (NAIRU)

Q28 · The number of people employed in a country and the level of unemployment both decrease

Q29 · The European Union imposes a quota on the volume of garments imported from China

Q30 · The government of Lesotho introduces a programme to promote exports and to encourage…

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