Cambridge A Level Economics 9708 — 2013 May/June Paper 1 · Variant 1

1 The diagram shows the production possibility curve (PPC) of an economy that produces goods and services. X output of goods O Y2 Y1 output of services What might cause the shift of the PPC from XY1 to XY2? A a decrease in the demand for services B a decrease in the efficiency in the production of services C a decrease in the opportunity cost of producing services D a decrease in the resources employed in services

Mark scheme: B

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2 An economy has changed from a command economy to a market economy. What might increase after this change? A the amount of centralised decision making B the extent of externalities C the level of government economic intervention D the production of merit goods

Mark scheme: B

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3 What is most likely to be a result from the division of labour? A a decrease in job satisfaction B a decrease in productivity C an increase in the cost of living D an increase in unit labour costs

Mark scheme: A

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4 After hyperinflation, the Zimbabwe dollar was no longer used and instead the country used US dollars. A coin collector in Europe bought an old Zimbabwe 100 trillion dollar note at an auction in the hope that it would later become rare and increase in value. If that happened, which function of money would the Zimbabwe dollar note fulfil? A a generally accepted means of payment B a medium of exchange C a store of value D a unit of account

Mark scheme: C

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5 In 2009, demand for second-hand used cars in Venezuela increased. What could have explained this? A a decrease in the number of Venezuelans passing their driving test B a decrease in the price of public transport C an increase in restrictions on new cars imported into Venezuela D an increase in the domestic production of cars

Mark scheme: C

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6 The price elasticity of demand for a product is unitary for all price ranges. What will be the effect of an increase in its price? A an equal proportionate decrease in the amount demanded B an equal proportionate decrease in expenditure on the product C an increase in the product’s percentage of total consumer expenditure D no change in the amount of the product demanded

Mark scheme: A

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7 A fall in the price of cars causes the demand for petrol to rise by 20%. The cross-elasticity of demand between cars and petrol is –2. Which change in car prices has brought this about? from to A $6000 $5000 B $5500 $4500 C $5000 $4500 D $5000 $4000

Mark scheme: C

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8 In 2008, Ansell, makers of surgical products and rubber gloves, increased profits by 2.6 %, partly because of increased safety and health concerns in Brazil, Mexico, China and Russia. What would happen to the demand and supply curves on a diagram for Ansell’s products? demand curve supply curve A a shift to the left a shift to the left B a shift to the left a shift to the right C a shift to the right no change D no change a shift to the left

Mark scheme: C

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9 Which combination of price and quantity will lead to a fall in price and a contraction in quantity produced to reach equilibrium? S P1 P2 price P3 D O Q1 Q2 Q3 quantity A P1Q1 B P1Q3 C P3Q1 D P3Q3

Mark scheme: B

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10 In the diagram below, D1 and S1 represent the demand and supply curves of a Malaysian industry in its home market. Equilibrium is at X. The industry has to pay a large wage increase and at the same time faces increased competition from imported substitutes. Which point on the diagram could represent the new equilibrium? S3 S1 S2 D2 D1 D3 A price D X B C D2 S3 S1 S2 D1 D3 O quantity

Mark scheme: D

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11 The diagram shows the demand curve and supply curve for a good on which the government imposes a specific tax. S D price D S O quantity What will be the result of this tax? A Most of the incidence of the tax will fall on the producer. B There will be a new demand curve parallel to DD. C The price will rise by the full amount of the tax. D The quantity bought will fall proportionately to the tax rate.

Mark scheme: A

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12 The diagram shows the demand and supply curves for a product. X S price Y W V D O Z quantity Which area measures the total amount consumers would be willing to pay for the equilibrium level of output? A OWYZ B OXYZ C OVYZ D XYV

Mark scheme: B

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13 In which case is the price system not a possible method of allocating resources? A in the distribution of foodstuff among the population B in the hiring of workers by employers C in the ownership of land for agricultural use D in the provision of public goods by the government

Mark scheme: D

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14 A town council estimated the costs and benefits of operating a bus service in 2010 and 2011. These are shown in the table. 2010 2011 $000 $000 private costs 2000 2200 external costs 500 900 private benefits 1500 2300 external benefits 1000 800 What can be concluded from the table? A Between 2010 and 2011, social costs fell and social benefits rose. B Between 2010 and 2011, social costs rose and social benefits fell. C In both years, positive externalities exceeded negative externalities. D In both years, social costs equalled social benefits.

Mark scheme: D

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15 A cost-benefit analysis concludes that a nuclear power station project might be socially worthwhile, although it will take 10 years to bring into operation. Why might a government decide not to undertake the project? A Cost-benefit analysis has no method for valuing the long-term impact of a project. B Cost-benefit analysis is only suitable for private sector projects. C The government believes that the project has too high an opportunity cost. D The government’s policy is to restrict the extent of the market system.

Mark scheme: C

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16 A good is more likely to be supplied by the government rather than a private company if it is A excludable and non-rival. B excludable and rival. C non-excludable and non-rival D non-excludable and rival

Mark scheme: C

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17 A government fixes a maximum price for a product in order to increase its consumption. What would be the likely outcome of such a policy? A Consumption will fall if the maximum price is above the current equilibrium price. B Consumption will rise if the maximum price is below the current equilibrium price. C Production will fall if the maximum price is above the current equilibrium price. D Production will fall if the maximum price is below the current equilibrium price.

Mark scheme: D

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18 In the diagram, S1S1 and DD represent the original supply and demand curves for an agricultural product. S2 D S1 price P1 D S2 S1 O Q1 Q2 Q3 quantity Bad weather then reduces supply to S2S2. How much of the product will the government have to supply from stocks if it wishes to keep the price at OP1? A OQ3 B Q1Q3 C Q1Q2 D Q2Q3

Mark scheme: B

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19 What would cause a country to lose its comparative advantage in producing rice? A Another country becomes able to produce rice at a lower opportunity cost. B There is a global fall in demand for rice. C There is a fall in tariffs imposed by rice importers. D Transport costs to and from another country producing rice decrease.

Mark scheme: A

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20 The diagram shows the effects of introducing an import tariff on wheat in a country. R domestic supply price of S wheat PT world supply + tariff T U world supply P domestic demand O Q1 Q2 quantity of wheat Which area represents the loss of consumer surplus from the tariff? A PTSR B PTSUP C STU D SUQ2Q1

Mark scheme: B

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21 What is a feature of a customs union? A the fixing of quotas for its members B the introduction of a common currency C the joint setting of prices D the removal of tariff barriers between its members

Mark scheme: D

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22 The table shows the balances for four items in a country’s current account on the balance of payments for two years. current goods services income transfers US$ m US$ m US$ m US$ m year 1 –72 84 12 –24 year 2 –87 46 –3 –4 What can be concluded about the changes between year 1 and year 2? A The current account balance has moved into deficit. B The difference between the value of exported and imported services has increased. C The earnings from ownership of foreign assets have increased. D The value of exported goods has fallen.

Mark scheme: A

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23 The table shows a country’s employment statistics. million population of working age 100 number in employment 75 number unemployed 5 What are the participation rate and the unemployment rate? participation rate unemployment rate % % A 75 5.0 B 75 6.25 C 80 5.0 D 80 6.25

Mark scheme: D

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24 The table shows the annual rate of inflation in the UK between 2005 and 2010 measured by the retail price index (RPI) and the consumer price index (CPI). year RPI (%) CPI (%) 2005 2.8 2.1 2006 3.2 2.3 2007 4.3 2.3 2008 4.0 3.6 2009 –0.5 2.2 2010 4.6 3.6 What is a correct conclusion from the table? A The RPI and the CPI both record a fall at some time in the general price level in the UK. B The RPI and the CPI both show the same direction of change in inflation in each year. C The RPI records a lower rate of total inflation for the whole period than the CPI. D The RPI records a more unstable rate of inflation than the CPI.

Mark scheme: D

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25 The diagram shows the annual rate of inflation in a country between 2006 and 2009. 10 8 6 rate of inflation % 4 2 0 2006 2007 2008 2009 year Which statement about the period 2006 to 2009 is correct? A The cost of living fell. B The price level rose. C The Retail Prices Index fell. D The value of money rose.

Mark scheme: B

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26 If a country succeeds in attracting foreign direct investment in a single year, what is the result on its balance of payments in the short run and long run? short run long run A a credit in the current account a debit in the financial account B a debit in the current account a credit in the financial account C a credit in the financial account uncertain in the current account D uncertain in the financial account a credit in the current account

Mark scheme: C

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27 Country X conducts 60% of its trade with country Y and 40% of its trade with country Z. The initial value of the trade weighted exchange rate index of country X is 100. What will be its new trade weighted exchange rate index value if its currency falls in value by 20% against the currency of Y and rises by 10% against the currency of Z? A 84 B 90 C 92 D 116

Mark scheme: C

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28 Assume the Chinese monetary authorities are committed to maintaining the exchange rate of China’s currency, the Yuan, against the US$ between P1 and P2 on the diagram. S1 S2 P2 price of Yuan (in US$) P1 D O quantity of Yuan What might they do if supply changed from S1 to S2? A introduce controls on Chinese investment overseas B lower interest rates C remove tariffs on imports from USA D sell Yuan on the foreign exchange markets

Mark scheme: A

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29 A revaluation (appreciation) of the exchange rate of a currency always has the effect of A improving the current account of the balance of payments. B improving the terms of trade. C increasing the price of imports. D increasing the value of imports.

Mark scheme: B

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30 What is an expenditure-switching policy measure? A decreasing income tax B decreasing the money supply C devaluing the currency D increasing government spending

Mark scheme: C

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