Cambridge A Level Economics 9708 — 2013 May/June Paper 1 · Variant 3

1 What is likely to occur when an economy moves from state planning to a market system? A Consumer choice is reduced. B Enterprise is discouraged. C The amount of innovation declines. D The output of merit goods is reduced.

Mark scheme: D

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2 The diagram shows a production possibility curve for an economy that produces only two goods, X and Y. 1000 good Y 500 0 0 500 1000 1500 2000 good X The economy produces 400 of good Y and produces on its production possibility curve. Which quantity of good X is given up? A 600 B 800 C 1200 D 1600

Mark scheme: B

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3 In the recession of 2011 some governments decided to reduce expenditure and decrease the numbers working in the public sector. Trades unions organised a mass demonstration in protest. Which question relating to the government decision is a normative question rather than a positive question? A How should public sector industries be run? B What goods and services are produced by the public sector? C When the government reduced its expenditure what happened to the level of unemployment? D Why was there a trade union protest?

Mark scheme: A

More questions on Economic methodology

4 The table identifies the functions of money and the principal benefit that each function produces. Which function of money is correctly matched with its principal benefit? function benefit A medium of exchange permits a system of credit to operate B standard of deferred payment encourages the accumulation of funds for future use C store of wealth overcomes the drawbacks of the barter system D unit of account allows the relative value of goods to be compared

Mark scheme: D

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5 Which change does not have an immediate effect on the position of the demand curve for a product? A a fall in the price of a complementary product B an increase in the labour costs of its production C a range of new products entering the market D a rise in the price of a substitute product

Mark scheme: B

More questions on Demand and supply curves

6 The diagram shows the demand curve for a product. price D O quantity Which statement is correct? A Demand is less elastic at higher prices than at lower prices. B Consumer expenditure on the product always rises when price falls. C Price elasticity of demand is different at every price. D Price elasticity of demand equals one at every price.

Mark scheme: C

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

7 Why might a product have a high negative income elasticity of demand and a high price elasticity of demand? A It is an inferior good with close substitutes. B It is an inferior good with weak complements. C It is a normal good with close substitutes. D It is a normal good with weak complements.

Mark scheme: A

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

8 The supply function of good X is given by the equation QS = 10PX where PX is the price of the good and QS is the quantity supplied. What can be deduced from the equation about the elasticity of supply of good X? A It is equal to 0.0. B It is equal to 0.1. C It is equal to 1.0. D It is equal to 10.0.

Mark scheme: C

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9 There are three firms (X, Y and Z) supplying a market. The table shows their supply at four different prices. price ($) firm X’s supply firm Y’s supply firm Z’s supply 10 50 40 10 20 60 60 20 30 85 80 35 40 115 100 55 Which price change is required for market supply to halve? A $20 to $10 B $30 to $10 C $30 to $20 D $40 to $20

Mark scheme: B

More questions on The interaction of demand and supply

10 Palm oil and sunflower oil are substitutes. Palm oil and palm kernel cake for animal feed are in joint supply. Other things being equal, what will be the effects of a fall in the price of sunflower oil? price of price of palm palm oil kernel cake A fall fall B fall rise C rise fall D rise rise

Mark scheme: B

More questions on Demand and supply curves

11 A rise in the price of a good is accompanied by an increase in the quantity demanded. What could explain this? A Consumers spend a high proportion of disposable income on the good. B The price of a complementary good has also increased. C The substitute goods are all very much more expensive. D The price of the good is taken to be an indication of the level of quality.

Mark scheme: D

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12 A specific tax is placed on the sale of bottles of lemonade. In the diagram, SS is the supply curve before imposition of the tax and StSt is the supply curve after tax. St D W S U price X St D T S O quantity Which distance represents the specific tax on each bottle? A UT B WT C WU D WX

Mark scheme: B

More questions on Methods and effects of government intervention in markets

13 The diagram shows a consumer’s demand curve for a product. 30 25 20 price ($) 15 10 5 D 0 5 10 15 quantity How does consumer surplus change as the price of the product falls by $5 increments between $20 and $5? A It increases at a constant rate (%) with each $5 fall. B It increases by a constant amount with each $5 fall. C It increases by a decreasing amount with each $5 fall. D It increases by an increasing amount with each $5 fall.

Mark scheme: D

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14 The table below shows the results of a government survey into the economic effects of the use of chewing gum in a country. US $ million private cost 300 social cost 400 private benefit 350 social benefit 450 What is the net external benefit of chewing gum to the economy? A US $0 million B US $50 million C US $100 million D US $800 million

Mark scheme: A

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

15 Which statement about a product with external costs must be correct? A The consumption of the product has positive effects on third parties. B The private costs of its production exceed the social costs of its production. C The production of the product has negative effects on third parties. D The social costs of its production exceed the social benefits of its production.

Mark scheme: C

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16 The government buys more speed cameras from the manufacturer. What would be included among the external benefits of increasing the number of speed cameras on a country’s roads? additional additional jobs government a reduction in a reduction in fuel in camera revenue from road accidents consumption production fines on motorists A no no yes yes B no yes yes no C yes no no yes D yes yes no no

Mark scheme: A

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

17 Advances in technology are turning a number of goods which are usually thought of as public goods, for example, television broadcasting, into private goods. Why might this be so? A Consumer surplus is being increased. B The costs of production are being reduced. C It is becoming easier to exclude non-payers. D The technology is increasing the number of people consuming the goods.

Mark scheme: C

More questions on Classification of goods and services

18 The diagram shows the market for wheat. S P2 P1 price D O X Y Z quantity If the government wishes to fix the price at OP2 what quantity of wheat must the government buy? A OZ B XY C XZ D YZ

Mark scheme: C

More questions on Methods and effects of government intervention in markets

19 In the diagram, JK is a country’s production possibility curve. LK is its trading possibility curve which shows possible combinations of good X and good Y after specialising in the product in which it has comparative advantage, and then trading it. L J good X R S O T K good Y The country consumes OR of good X and OT of good Y. Which quantities of goods X and Y does it produce? good X good Y A JS OT B OS OT C RS TK D zero OK

Mark scheme: D

More questions on The reasons for international trade

20 What would be least likely to restrict international trade? A increasing shipping charges B more complex customs procedures C rising levels of global income D rising unemployment in developed countries

Mark scheme: C

More questions on Protectionism

21 A country’s terms of trade increased from the base year value of 100 to 120 in the following year. What changes in export prices and import prices would have caused this? export prices import prices A decreased 10% increased 10% B increased 10% decreased 10% C increased 20% unchanged D unchanged decreased 20%

Mark scheme: C

More questions on Current account of the balance of payments

22 The balance of payments accounts are arranged in the following way. Which total is the current account balance? balance of trade in goods + balance of trade in services =total A + net income = total B + net transfers = total C + capital balance = total D financial balance errors and omissions

Mark scheme: C

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23 A country has a population of 100 million. 60 million are of working age and 50 million are in the labour force. The country’s unemployment rate is 10%. How many people are employed? A 40 million B 45 million C 50 million D 54 million

Mark scheme: B

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24 The diagram shows the output of an economy. AD AS price level P AD O Y real GDP What would be the effect of a decrease in net exports? aggregate price level real GDP supply A shift decrease unchanged B shift unchanged decrease C unchanged increase unchanged D unchanged unchanged decrease

Mark scheme: D

More questions on Aggregate Demand and Aggregate Supply analysis

25 A country experienced an annual inflation rate of 2% for four successive years. Which statement is correct for the four-year period? A The price level rose by 8%. B The price level rose by more than 8%. C The real value of money rose by 8%. D The real value of money rose by more than 8%.

Mark scheme: B

More questions on Price stability

26 In 2010 it was reported that there were concerns when a government kept interest rates very low despite a threat of inflation. Why might the government’s policy have caused concern at this time? A Low interest rates encourage increased consumer spending. B Low interest rates lead to increased spending on capital equipment. C Low interest rates mean imports will increase. D Low interest rates will cause an increase in the exchange rate.

Mark scheme: A

More questions on Monetary policy

27 Australia’s spending on imports falls and, at the same time, investment abroad by Australian firms declines. Which diagram shows the immediate effect of these changes on the market for the Australian dollar? A B D S1 S D S D1 price of P price of P1 Australian P1 Australian P dollars dollars D S1 D D1 S S O Q1 Q O Q1 Q quantity of Australian dollars quantity of Australian dollars C D S D1 S1 D S1 S D1 D P P1 price of price of Australian Australian P P1 dollars dollars D1 S D S1 S1 D1 S D O Q O Q quantity of Australian dollars quantity of Australian dollars

Mark scheme: B

More questions on Exchange rates

28 Which policy, adopted by a government with the intention of reducing the rate of inflation, might cause a greater deficit on the balance of payments? A higher foreign exchange rates for its currency B higher interest rates for domestic customers C higher subsidies to domestic producers D higher tax rates on consumer incomes

Mark scheme: A

More questions on Fiscal policy

29 What is likely to result in an increase in a country’s balance of payments deficit (disequilibrium) in the short run but may reduce it in the long run? A an appreciation of the country’s currency B substantial foreign investment by the country’s residents C the introduction of controls on capital outflows D the introduction of import quotas

Mark scheme: B

More questions on Policies to correct imbalances in the current account of the balance of payments

30 A depreciation of the exchange rate of the pound sterling against the US dollar from £1 : $1.50 to £1 : $1.00 must mean that A dollars will become more expensive in terms of pounds. B the pound will be undervalued. C UK imports from the US will become cheaper. D US imports from the UK will become more expensive.

Mark scheme: A

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