Cambridge A Level Economics 9708 — 2012 May/June Paper 3 · Variant 2

Question 1

1 When is economic efficiency achieved in an economy? A when nobody can become better off without somebody else becoming worse off B when the economy is operating at its natural rate of unemployment C when the level of social costs is minimised D when the rate of economic growth is maximised

Accepted Answer

A

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 GH 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 JK? price of consumers’ good X money income 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 A firm experiences diseconomies of scale over its entire range of output. What is the shape of its long-run average cost curve? A It is horizontal. B It is ‘U’ shaped. C It slopes downwards. D It slopes upwards.

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 The table shows a firm’s total costs of production. production (tonnes) total cost ($) 0 40 1 60 2 70 3 80 4 90 5 100 What is the average variable cost of producing 5 tonnes of output? A $8.00 B $10.00 C $12.00 D $20.00

Accepted Answer

C

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 diagram shows a firm’s short-run and long-run average cost curves. J K M N cost L O output Which curve is the firm’s long-run average cost curve? A JLN B JLM C KLM D KLN

Accepted Answer

A

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 The diagram shows the cost curves of a firm in a perfectly competitive market. MC Z ATC AVC X cost W V U O output Which segment of a curve shows the quantity that the firm would be willing to supply to the market in the short-run? A VX B UZ C VZ D WZ

Accepted Answer

C

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 The diagram shows a firm’s short-run total cost curve (TC). TC total cost O Q output What is minimised at output OQ? A average fixed cost B average total cost C average variable cost D marginal cost

Accepted Answer

C

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 good gives rise to external benefits and is produced under conditions of imperfect competition. Which statement must be true? A Benefits to consumers exceed the benefits to society. B Firms producing the good will make a loss. C Output of the good is below the socially optimum level. D Social costs of production exceed private costs.

Accepted Answer

C

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 A government uses real personal disposable income per head as a measure of the standard of living. What does this measure not take into account? A the distribution of income B the level of national income C the size of the population D the average price level

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, YE indicates the equilibrium level of income corresponding to different levels of investment. YE equilibrium income O investment What does the slope of the line YE measure? A the investment multiplier B the marginal propensity to save C the rate of growth of investment D the rate of growth of national income

Accepted Answer

A

Question 22

22 In the diagram, C is an economy’s initial relationship between consumption and national income. C4 C3 C C2 C1 consumption O national income Which curve could show the economy’s new consumption function following a reduction in the rate of unemployment benefits? A C1 B C2 C C3 D C4

Accepted Answer

B

Question 23

23 What would result in an increase in the volume of bank deposits? A an increase in the public’s desire to hold cash B an increase in government expenditure financed by borrowing from the central bank C an increase in the proportion of their deposits that banks hold in cash D an open market sale of securities by the central bank

Accepted Answer

B

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 Which change is most likely to increase both economic growth and economic development in the long-run? A a decrease in the savings ratio B an increase in investment in human capital C the depletion of non-renewable resources D the greater use of compulsory overtime working of labour

Accepted Answer

B

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 What will be most likely to decrease a country’s national output in the short run but to increase its potential for long-run growth? A a decrease in the level of import tariffs B a decrease in the rate of immigration C an increase in female participation in the labour force D an increase in the money supply

Accepted Answer

A

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 What would be an appropriate government action to reduce both a balance of payments current account surplus and the rate of inflation? A increase the money supply B increase direct taxes C remove tariffs on imports D devalue the currency

Accepted Answer

C

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 2

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · When is economic efficiency achieved in an economy?

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

Q3 · The curve GH 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 · A firm experiences diseconomies of scale over its entire range of output

Q6 · Which is a financial economy of scale?

Q7 · The table shows a firm’s total costs of production

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

Q9 · The diagram shows a firm’s short-run and long-run average cost curves

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

Q11 · The diagram shows the cost curves of a firm in a perfectly competitive market

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

Q13 · The diagram shows a firm’s short-run total cost curve (TC)

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

Q15 · A good gives rise to external benefits and is produced under conditions of imperfect…

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

Q17 · A government uses real personal disposable income per head as a measure of the standard…

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, YE indicates the equilibrium level of income corresponding to different…

Q22 · In the diagram, C is an economy’s initial relationship between consumption and national…

Q23 · What would result in an increase in the volume of bank deposits?

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

Q25 · Which change is most likely to increase both economic growth and economic development in…

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

Q27 · What will be most likely to decrease a country’s national output in the short run but to…

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

Q29 · What would be an appropriate government action to reduce both a balance of payments…

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

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