Cambridge A Level Economics 9708 — 2013 May/June Paper 1 · Variant 2

1 A government minister states that the main economic benefit of locating a new factory in a coastal region is the 500 jobs it will create. What does this statement imply about the coastal region? A Alternative employment opportunities are scarce. B Job seekers have a wide range of choices open to them. C Labour is a scarce resource. D Unemployment is at a low level.

Mark scheme: A

More questions on Factors of production

2 The diagram shows two production possibility curves (EF and GH), before and after technological progress has taken place. G E consumer goods X O Y M F H capital goods After technological progress has taken place, what is the opportunity cost in capital goods of producing OX consumer goods? A MH B OH C OM D YF

Mark scheme: A

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3 The table shows indicators for four countries undergoing a transition to a market economy. Which country has achieved the most indicators of a successful transition? exchange rate stock inward prices system exchange investment A administered managed yes allowed B administered floating no controlled C liberalised floating no allowed D liberalised managed yes controlled

Mark scheme: C

More questions on Resource allocation in different economic systems

4 A kitchen manufacturer wanted to become more efficient. It decided to move to an industrial estate and to increase the division of labour in the manufacture of its products. Which statement about the division of labour is correct? A It occurs only in manufacturing industry. B It occurs only in market economies. C It occurs only when similar firms are located in the same area. D It occurs only when workers become more specialised.

Mark scheme: D

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5 What will cause a shift in the demand curve for a computer? A a change in the cost of production of the computer B a change in the price of the computer C a change in the performance of the computer D the imposition of a specific tax on the computer

Mark scheme: C

More questions on Demand and supply curves

6 If the price of maize rises, the quantity of maize demanded should fall. If the demand for maize decreases, the price of maize should rise. What can be said about these two statements? first statement second statement A correct correct B correct incorrect C incorrect correct D incorrect incorrect

Mark scheme: B

More questions on The interaction of demand and supply

7 When the supply of a good decreases, equilibrium price stays the same. What is the price elasticity of demand of the good? A –1 B zero C +1 D infinite

Mark scheme: D

More questions on Price elasticity, income elasticity and cross elasticity of demand

8 A product is an inferior good with no close substitutes. It is also a complement to good X. Which product matches the above description? cross elasticity of price elasticity income elasticity product demand with respect of demand of demand to the price of X A –2 +2 +1 B –2 +2 –1 C –0.5 –2 +1 D –0.5 –2 –1

Mark scheme: D

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9 A supply curve is represented by the equation, quantity supplied = 10 + 5P, where P = the price of the product. Which price rise would cause the quantity supplied to double? A $1 to $2 B $1 to $3 C $1 to $4 D $1 to $5

Mark scheme: C

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10 Firm Z is one of a number of firms producing televisions. What would cause firm Z’s supply curve to shift to the left whilst the market supply curve for televisions shifts to the right? A Firm Z benefits more from advances in technology than the other firms in the industry. B Firm Z experiences a strike whilst more firms enter the industry. C Firm Z passes on more of a tax to its customers than the other firms in the industry. D Firm Z reduces its costs of raw materials whilst other firms in the industry lower their wage costs.

Mark scheme: B

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11 A country’s government announces that the penalties imposed on those found guilty of supplying an illegal drug to others are to be increased but that possession of small quantities of the drug for an individual’s own use will no longer be illegal. What effect are these changes likely to have on the illegal market price of that drug and on the quantity consumed? illegal market quantity price consumed A increase decrease B increase uncertain C uncertain decrease D uncertain uncertain

Mark scheme: B

More questions on The interaction of demand and supply

12 A specific tax is placed upon each bottle of perfume sold. In the diagram, SS is the supply curve before tax, StSt is the supply curve after tax. D St S W R price U Q X P T St D S O Y Z quantity Which area represents that part of the tax revenue paid by consumers? A ORWY B PQUT C PRWT D QRWU

Mark scheme: D

More questions on Methods and effects of government intervention in markets

13 The diagram shows the change in the number of passengers when a company reduces the fare for a train journey from OP1 to OP2. v train P1 fare w y P2 x z O N1 N2 number of passengers Which areas measure the consumer surplus at the new fare for the original passengers and for the additional passengers? original additional passengers passengers A v y B v + w y C v + w + x y + z D x z

Mark scheme: B

More questions on Consumer and producer surplus

14 Which is not an example of an externality? A The establishment of a new firm in an area increases the general level of wage rates in the area. B The flowers planted by a householder in his garden give pleasure to his neighbours. C The immunisation of children against smallpox reduces the danger of the risk of infection to others. D The installation of security cameras in a city centre results in an increase in thefts elsewhere.

Mark scheme: A

More questions on Private costs and benefits, externalities and social costs and benefits

15 A government decided to approve a private airport-building scheme because it was socially beneficial. In making its decision it calculated private costs at $700 m, private benefits at $800 m and external costs at $200 m. What must have been true about the external benefits of the scheme? A External benefits equalled private benefits. B External benefits exceeded external costs. C External benefits exceeded $100 m. D There were no external benefits.

Mark scheme: C

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16 A tax on a product is removed causing supply to increase from SS to S1S1 as shown in the diagram. S S1 D 20 18 price D $ S 15 S1 0 40 60 quantity What effect does the move have on government tax revenue and consumer expenditure? consumer tax revenue expenditure A reduce by $80 increase by $280 B reduce by $80 increase by $480 C reduce by $200 increase by $280 D reduce by $200 increase by $480

Mark scheme: C

More questions on Methods and effects of government intervention in markets

17 Which type of government intervention runs the risk of causing shortages? A maximum price controls B specific indirect taxes C subsidies paid to some producers D taxes on company profits

Mark scheme: A

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18 In the diagram, D is the demand curve of an agricultural commodity and S is the initial supply curve. The government promises to maintain farmers’ incomes at least at this initial level. The harvests in four subsequent years are shown by supply curves S1 – S4. 6 S1 S 5 S2 4 S3 price 3 ($) S4 2 1 D 0 1 2 3 4 5 6 quantity (’000 tonnes) In which years will the government need to provide extra income to farmers? A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4

Mark scheme: B

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19 The table shows the costs of producing a unit of food and a unit of clothing in countries X and Y, expressed in the currency of each country. country food clothing X $2 $4 Y £1 £1 The exchange rate is fixed at £1 = $3. What level of transport cost per unit of each commodity would exactly eliminate the benefits of trade? A £0.33 B £0.50 C £1.00 D £1.50

Mark scheme: A

More questions on The reasons for international trade

20 What is the most likely aim of a government that increases the level of tariffs on imported manufactured goods? A a fall in interest rates B a fall in the exchange rate C a rise in domestic employment D a rise in the general price level

Mark scheme: C

More questions on Protectionism

21 What is a characteristic of a customs union but is not of a free trade area? A abolition of import quotas B abolition of tariffs between member countries C a common currency D a common external tariff

Mark scheme: D

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22 Since 2000 a country’s export prices have increased on average by 50% and its import prices by 25%. What is the current figure for the country’s terms of trade (2000 = 100)? A 75 B 83 C 120 D 125

Mark scheme: C

More questions on Current account of the balance of payments

23 The table gives details of the unemployment rates and expenditure on unemployment benefits for the United Kingdom in 2007 and 2009. expenditure on unemployment unemployment rate (%) benefits as % of GDP 2007 2.7 1.6 2009 4.7 3.4 What can definitely be concluded from the table? A More of the workforce was unemployed in 2009 than in 2007. B The number of workers in employment was higher in 2007 than in 2009. C Unemployment benefits were more generous in 2009 than in 2007. D Unemployment increased faster than expenditure on unemployment benefits.

Mark scheme: A

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24 The exchange rate of the Mexican peso against the US$ changed from 10 pesos = 1 US$ to 9 pesos = 1 US$. During the same period, the general price level in Mexico fell by 10% while the US price level remained unchanged. What happened to the nominal and real exchange rate of the peso against the US$? nominal peso real peso exchange rate exchange rate A appreciated appreciated B appreciated unchanged C depreciated depreciated D depreciated unchanged

Mark scheme: B

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25 The table shows an index number of prices between 2009 and 2012. In the base year of 2008, inflation was 2% per annum. What was the first year in which the rate of inflation fell? year price index A 2009 103 B 2010 104 C 2011 104 D 2012 101

Mark scheme: B

More questions on Price stability

26 What will be the probable effect of an increase in indirect taxes on demand-pull inflation and on cost-push inflation? demand-pull cost-push inflation inflation A increase increase B increase decrease C decrease decrease D decrease increase

Mark scheme: D

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27 When is a balance of trade deficit likely to be considered a particularly difficult problem for a country? A when the imported goods are identical to domestic products B when the imported goods are items of capital equipment C when the imported goods are the raw material for exports D when the imported goods are to cover a temporary shortage

Mark scheme: A

More questions on Current account of the balance of payments

28 The graphs show the changes in the exchange rates of the £ sterling against the US$ and against the euro. The exchange rate of sterling against the euro is shown by an inverted scale. sterling against (inverted sterling against the dollar ($ per £) scale) the euro (€ per £) 1.80 0.55 1.70 0.60 1.60 0.65 1.50 0.70 1.40 1.30 0.75 1 2 3 1 2 3 years years Which statement about the period year 1 to year 3 is correct? A the £ appreciated against the $ and the € B the £ appreciated against the $ and depreciated against the € C the £ depreciated against the $ and the € D the £ depreciated against the $ and appreciated against the €

Mark scheme: C

More questions on Exchange rates

29 In spring 2011 the US$ exchanged for 81.6 yen. In spring 2012 the US$ exchanged for 76.1 yen. What would be expected to rise for the United States as a result of this change? A the level of unemployment B the price of exports sold in Japan C the rate of imported inflation D the volume of imports

Mark scheme: C

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30 A country with a fixed exchange rate experiences a balance of payments surplus. Which policy measure will enable it to maintain its exchange rate at its target level? A decreasing government borrowing B decreasing government spending C decreasing the interest rate D decreasing the money supply

Mark scheme: C

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