Cambridge A Level Economics 9708 — 2012 Oct/Nov Paper 1 · Variant 3

Question 1

1 Why can division of labour benefit an economy? A Costs of trading are reduced. B Individual workers learn a wider range of skills. C Less money is required as a medium of exchange. D The total supply of goods and services rises.

Accepted Answer

D

Question 2

2 The production possibility curve for an economy producing capital goods and consumer goods is represented by the line PQ. P capital goods T R O S Q consumer goods What is the opportunity cost of producing OS of consumer goods? A OR of capital goods B PR of capital goods C SQ of consumer goods D SQ of consumer goods + PR of capital goods

Accepted Answer

B

Question 3

3 How is labour allocated in a market economy and in a planned economy? market economy planned economy A according to changes in wage levels according to the profit motive B according to demand and according to input-output analysis supply in product markets C according to government decisions according to the price mechanism D according to government microeconomic according to consumer surplus and macroeconomic policies

Accepted Answer

B

Question 4

4 A person who has bought a DVD player using a credit card does not have to settle the account until 56 days after making the purchase. What function of money is illustrated by this delay in settlement? A medium of exchange B standard of deferred payment C store of value D unit of account

Accepted Answer

B

Question 5

5 When will the demand curve for motorcycles shift to the left? A when the price of cars falls B when the price of motorcycles falls C when the tax on motorcycles rises D when the price of public transport rises

Accepted Answer

A

Question 6

6 There are three firms, X, Y and Z, supplying a market. The table shows their supply at four different prices. firm X’s firm Y’s firm Z’s price ($) supply supply supply 70 60 60 30 80 65 70 65 90 75 80 95 100 80 90 130 Which price change is required for market supply to halve? A $90 to $70 B $90 to $80 C $100 to $70 D $100 to $90

Accepted Answer

C

Question 7

7 A government wishes to impose a tax on a good so that the producer and not the consumer pays most of the tax. Which type of elasticity would it be best for the good to have to achieve this aim? A high price elasticity of demand B low price elasticity of demand C totally inelastic price elasticity of demand D unitary price elasticity of demand

Accepted Answer

A

Question 8

8 The diagram shows the relationship between the price and the total expenditure on a good. price O total expenditure Which statement is correct? A The income elasticity of demand for the commodity is unity. B The income elasticity of demand for the commodity is zero. C The price elasticity of demand for the commodity is unity. D The price elasticity of demand for the commodity is zero.

Accepted Answer

C

Question 9

9 The table gives an individual’s demand for four goods at two income levels. Over this range of income, for which good does the individual have an income elasticity of demand = 1? income level good $1000 $1100 A 50 50 B 50 55 C 50 60 D 50 100

Accepted Answer

B

Question 10

10 The diagram shows the market for coffee. The initial equilibrium position is X. The price of tea, a substitute, falls and an indirect tax is imposed on coffee. What will be the new equilibrium position? S1 B price of X C coffee A D D1 O quantity of coffee

Accepted Answer

A

Question 11

11 The diagram shows the demand curve, DD1, and the supply curve, SS1, for eye operations. S D price P O S1 D1 number of operations The operations are provided free to the consumer. Which statement is correct? A Consumer surplus from the operations is ODD1. B The equilibrium price is P. C The equilibrium price is indeterminate, because the supply curve is vertical. D The equilibrium price is zero.

Accepted Answer

B

Question 12

12 The diagram represents a market for a good, in which the equilibrium price is OU. W supply X Z maximum V price Y price U demand O quantity A maximum price of OV is imposed by the government. What effect does this have on consumer surplus? A It decreases by area VXYU. B It increases by area WXV. C It increases by area XYZ. D It is not affected.

Accepted Answer

D

Question 13

13 Which government policy might limit the rationing function of the price mechanism? A the imposition of tariffs on imported consumer goods B the levy of indirect taxes at varying rates on different goods C the payment of subsidies to food producers D the setting of maximum prices for rented housing

Accepted Answer

D

Question 14

14 A government is planning to intervene in a market to fix output at the socially desirable level by giving a subsidy. MSC = MPC T costs / Y benefits S X MSB MPB O R W output To achieve its objective, what should be the subsidy per unit? A ST B SX C TY D XY

Accepted Answer

D

Question 15

15 Which statement is correct? A External benefit minus private benefit equals social benefit. B Private benefit minus external benefit equals social benefit. C Social benefit minus external benefit equals private benefit. D Social benefit plus private benefit equals external benefit.

Accepted Answer

C

Question 16

16 A government carries out a cost-benefit analysis on the building of a new airport. It calculates that the cost of constructing and running the airport will be less than the revenue the airport will generate. It also estimates that benefits to third parties will be greater than the cost to third parties. Which reason might the government give for not building this airport? A The external costs exceed the external benefits. B The net private benefit is greater on another project. C The net social benefit is greater on another project. D The social costs exceed the social benefits.

Accepted Answer

C

Question 17

17 What is a defining characteristic of a public good? A An increase in consumption by one individual leaves the quantity available to others unchanged. B Consumption of the good by one individual confers benefits on other individuals. C The benefits obtained by those who consume the good are greater than they themselves realise. D The good is consumed jointly by all members of society.

Accepted Answer

A

Question 18

18 A government introduces a maximum price for house rentals (maxPh) and a minimum price for cleaning services (minPc). Both markets have identical demand and supply curves. Which diagram shows that the maximum price will be effective and the minimum price will be ineffective in the respective markets? A B S S maxPh minPc price price minPc maxPh D D O quantity O quantity C D S S maxPh minPc price price maxPh minPc D D O quantity O quantity

Accepted Answer

C

Question 19

19 The diagram represents the production possibility curves of two economies X and Y. 2500 X 2000 X1 agricultural goods (units) 1000 Y 0 500 1000 manufactured goods (units) As a result of soil erosion in economy X, the production possibility curve shifts from X to X1. According to the law of comparative advantage, what should country Y do following this change? A cease to trade with country X B export agricultural goods to country X C export manufactured goods to country X D import both agricultural and manufactured goods from country X

Accepted Answer

A

Question 20

20 What is an assumption behind the basic theory of comparative advantage? A Each country sets its own tariff barriers. B Factors of production are mobile between countries. C Producers benefit from economies of scale. D There are no significant transport costs.

Accepted Answer

D

Question 21

21 Which statement about the impact of a quota and a tariff is correct? A A quota benefits the seller of the imports while a tariff raises government revenue. B A quota decreases the quantity of imports while a tariff leaves the quantity of imports unchanged. C A quota leaves import prices unchanged while a tariff raises the price of imports. D A quota shifts the demand curve for imports while a tariff shifts the supply curve of imports.

Accepted Answer

A

Question 22

22 Between 2005 and 2010, a country’s import prices rose by 25 % and its terms of trade rose to 120 (2005 = 100). Which change has there been in the country’s export prices? A –5 % B 12.5 % C 45 % D 50 %

Accepted Answer

D

Question 23

23 A firm initially employs 50 workers, each working 40 hours a week, and produces a total output of 18 000 units. It then employs an additional 10 workers, again each working 40 hours, and total output rises to 19 200 units. What effect does this rise in employment have on labour productivity? A decreases it by 1 unit B decreases it by 40 units C increases it by 120 units D increases it by 1200 units

Accepted Answer

A

Question 24

24 The table shows some of the elements of aggregate demand in selected countries in US$ in 2009. consumer expenditure aggregate demand + investment exports country (US$ bn) + government spending (US$ bn) (US$ bn) Argentina 262 251 64 Brazil 1313 1291 180 Kenya 24 27 6 South Africa 283 292 89 What can be concluded from this information? A Argentina had a trade surplus of US$53 bn. B Brazil had a trade surplus of US$158 bn. C Kenya had a trade deficit of US$3 bn. D South Africa had a trade deficit of US$98 bn.

Accepted Answer

C

Question 25

25 The graph shows a country’s average annual inflation rate over a five year period. average annual inflation rate (%) 1 2 3 4 5 year What can be concluded about the general price level during the five years? A It fell in only one year. B It fell in only two years. C It rose in only two years. D It was constant in only one year.

Accepted Answer

A

Question 26

26 A country has a balance of payments disequilibrium with a long-run deficit on its current account. Which outcome of the disequilibrium will cause inflationary pressure? A the depreciation of the country’s exchange rate B the fall in the country’s reserves of international currencies C the increase in the demand for imports of goods and services D the introduction of expenditure-dampening policies by the government

Accepted Answer

A

Question 27

27 If interest rates are reduced, what is most likely to decrease? A borrowing by firms B consumer spending C import prices D short-term capital inflows

Accepted Answer

D

Question 28

28 The table gives information about the trade between Singapore and New Zealand during 2001, the first year after they signed a free trade agreement. The values are given both in Singapore dollars (S$) and New Zealand dollars (NZ$). percentage change S$ m NZ$ m from 2000 Singapore exports to New Zealand 508 618 +20 % Singapore imports from New Zealand 331 403 –17 % What can be concluded from the table? A New Zealand gained more than Singapore from the trade agreement. B New Zealand’s trade position with Singapore improved in 2001. C Singapore had a trade surplus with New Zealand in 2001. D The exchange rate in 2001 was approximately NZ$ 1 = S$ 1.2.

Accepted Answer

C

Question 29

29 At present, one unit of a country’s currency exchanges for US$1.2. The country aims to set its exchange rate at US$1.4. Which combination of government actions in the foreign exchange market must achieve this aim? A buying US currency and buying its own currency B buying US currency and selling its own currency C selling US currency and buying its own currency D selling US currency and selling its own currency

Accepted Answer

C

Question 30

30 The government wishes to encourage a rise in the external exchange rate of a currency in order to dampen inflationary expectations. What should it do? A discourage inward foreign direct investment B raise interest rates C raise the level of aggregate demand in the economy D remove quotas on imported products

Accepted Answer

B

Cambridge A Level Economics 9708 — 2012 Oct/Nov Paper 1 · Variant 3

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · Why can division of labour benefit an economy?

Q2 · The production possibility curve for an economy producing capital goods and consumer…

Q3 · How is labour allocated in a market economy and in a planned economy?

Q4 · A person who has bought a DVD player using a credit card does not have to settle the…

Q5 · When will the demand curve for motorcycles shift to the left?

Q6 · There are three firms, X, Y and Z, supplying a market

Q7 · A government wishes to impose a tax on a good so that the producer and not the consumer…

Q8 · The diagram shows the relationship between the price and the total expenditure on a good

Q9 · The table gives an individual’s demand for four goods at two income levels

Q10 · The diagram shows the market for coffee

Q11 · The diagram shows the demand curve, DD1, and the supply curve, SS1, for eye operations

Q12 · The diagram represents a market for a good, in which the equilibrium price is OU

Q13 · Which government policy might limit the rationing function of the price mechanism?

Q14 · A government is planning to intervene in a market to fix output at the socially desirable…

Q15 · Which statement is correct?

Q16 · A government carries out a cost-benefit analysis on the building of a new airport

Q17 · What is a defining characteristic of a public good?

Q18 · A government introduces a maximum price for house rentals (maxPh) and a minimum price for…

Q19 · The diagram represents the production possibility curves of two economies X and Y

Q20 · What is an assumption behind the basic theory of comparative advantage?

Q21 · Which statement about the impact of a quota and a tariff is correct?

Q22 · Between 2005 and 2010, a country’s import prices rose by 25 % and its terms of trade rose…

Q23 · A firm initially employs 50 workers, each working 40 hours a week, and produces a total…

Q24 · The table shows some of the elements of aggregate demand in selected countries in US$ in…

Q25 · The graph shows a country’s average annual inflation rate over a five year period

Q26 · A country has a balance of payments disequilibrium with a long-run deficit on its current…

Q27 · If interest rates are reduced, what is most likely to decrease?

Q28 · The table gives information about the trade between Singapore and New Zealand during…

Q29 · At present, one unit of a country’s currency exchanges for US$1.2

Q30 · The government wishes to encourage a rise in the external exchange rate of a currency in…

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