Cambridge A Level Economics 9708 — 2013 May/June Paper 3 · Variant 2

Question 1

1 In which market situation will a firm take account of the reactions of its competitors before deciding to cut its price? A monopoly B monopolistic competition C oligopoly D perfect competition

Accepted Answer

C

Question 2

2 The table shows the total utility that an individual derives 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 = 2 units of utility. What is the maximum quantity of the good that the individual will buy when its price is $6? A 2 units B 3 units C 4 units D 5 units

Accepted Answer

C

Question 3

3 In the diagram a consumer’s budget line shifts from GH to JK. J G quantity of good Y O K H quantity of good X Which statement must be correct? A The price of good Y has fallen relative to the price of good X. B There has been a decrease in the price of good Y. C There has been an increase in the price of good X. D There has been an increase in the consumer’s real income.

Accepted Answer

A

Question 4

4 The table shows the current position of a firm in a perfectly competitive industry. factor X factor Y marginal physical product 3 12 factor price $5.00 $10.00 If the firm sells its product for $1 and aims to maximise profits, what should it employ? A more of both X and Y B more of X and less of Y C more of Y and less of X D less of both X and Y

Accepted Answer

C

Question 5

5 A firm operates under perfect competition in both product and factor markets with labour as the only variable factor input. In the diagram, the line JK shows the relationship between the marginal physical product of labour and the man-hours hired. J 10 8 marginal physical 6 product of labour (units) 4 2 K 0 0 1 2 3 4 5 thousand man-hours When the hourly wage is $3.20, the firm employs 4000 man-hours per day. What is the price of the product? A $1.60 B $2.00 C $3.20 D $6.40

Accepted Answer

A

Question 6

6 A fashion model is paid $100 000 a year. The next best paid job she could get is as a teacher at $60 000 a year. What are her transfer earnings and her economic rent? transfer earnings economic rent $ $ A 60 000 zero B 60 000 40 000 C 100 000 zero D 100 000 40 000

Accepted Answer

B

Question 7

7 An economist calculates that a firm has incurred the following costs over the course of the year. $(000) wages and salaries 150 opportunity cost of owner’s time 40 materials 80 rent of buildings 30 marketing fees 20 interest on bank loans 25 interest forgone on finance provided by owner 15 depreciation of equipment 20 By how much would the economist’s calculation of the total cost incurred by the firm exceed an accountant’s calculation of the firm’s total cost? A $15 000 B $40 000 C $55 000 D $75 000

Accepted Answer

C

Question 8

8 The diagram shows the long-run average cost curve of a firm which faces constant factor prices.

LRAC

cost

0 output

Which economic concepts in the table explain the shape of the LRAC curve?

economies and the law of the law of
diseconomies diminishing variable
of scale returns proportions
A v v x
B v Xx x
Cc x v v
D x Xx v

Accepted Answer

B

Question 9

9 Which feature of an economy would be most favourable for the survival of small firms? A capital intensive production B economies of scale in production C the presence of a stock exchange D the widespread availability of bank lending

Accepted Answer

D

Question 10

10 The demand for a firm’s product is perfectly inelastic. What will be the effect on the firm’s revenue if it increases its price by 5%? A Its revenue will be unchanged. B Its revenue will increase by 5%. C Its revenue will decrease by 5%. D Its revenue will fall to zero.

Accepted Answer

B

Question 11

11 The diagram shows a firm’s cost and revenue curves. MC cost, revenue AC MR AR O output The firm changes its objective from sales revenue maximisation to profit maximisation. Which groups are most likely to be winners and losers as a result of this change? winners losers A customers managers B managers workers C workers shareholders D shareholders customers

Accepted Answer

D

Question 12

12 A firm operates in a perfectly competitive market. Which relationship between the firm’s cost and revenue describes a position where allocative efficiency would be improved if the firm reduces its present level of output? A P = MR > MC B P = MR < MC C P > MR = MC D P > MR > MC

Accepted Answer

B

Question 13

13 Which change would make it easier for a cartel to operate effectively? A an increase in competition from closely related industries B an increase in the number of firms in the industry C an increase in the range of products made by cartel members D an increase in the stability of the market for its products

Accepted Answer

D

Question 14

14 The curve in the diagram shows the minimum combinations of capital and labour that are needed to produce 100 units of output. G capital Q = 100 O labour A firm’s management hires the combination of capital and labour indicated by point G in the diagram to produce 100 units of output. Which term best describes this situation? A lack of specialisation B managerial diseconomy C market failure D X-inefficiency

Accepted Answer

D

Question 15

15 The table shows the marginal tax rates paid by a country’s taxpayers at different levels of income. income tax rate first $4000 zero $4001 - $20 000 20 % above $20 000 40 % What correctly describes this tax? A It is regressive over the entire range of income. B It is proportional over the income range $4001 - $20 000. C It is proportional over the range of income above $20 000. D It is progressive over the range of income above $4000.

Accepted Answer

D

Question 16

16 The diagram shows the market supply and demand curves for corn. D S P2 P1 price O K L R output What should a government do if it is to maintain a minimum price of OP2? A buy quantity KR B buy quantity LR C sell quantity KL D sell quantity OL

Accepted Answer

A

Question 17

17 National income statistics show that real GDP per head is 25% higher in country X than in country Y. Why might this difference exaggerate the gap in average living standards between the two countries? A Country X has a larger population than country Y. B Country X has a higher rate of inflation than country Y. C The proportion of services people provide for themselves is higher in country Y. D The proportion of the country’s industry which is owned by foreign firms is higher in country Y.

Accepted Answer

C

Question 18

18 A country’s central bank engages in a policy of quantitative easing (open market purchase of securities). How is this policy meant to affect the quantity of narrow money and the quantity of broad money? effect on effect on narrow money broad money A increase increase B increase decrease C decrease increase D decrease decrease

Accepted Answer

A

Question 19

19 According to monetarist theory, what will be the short-run effect on the level of output and on the price level of an unanticipated increase in the money supply? effect on the effect on output price level A increase increase B increase no change C no change increase D no change no change

Accepted Answer

A

Question 20

20 Which correctly identifies injections into a country’s circular flow of income? private sector government sector trade sector I > S G > T M > X A no yes yes B yes no no C yes yes no D no no yes

Accepted Answer

C

Question 21

21 Other things remaining unchanged, what is likely to be a consequence of an increase in net cash withdrawals from the commercial banks? A an inflationary spiral B an increase in the cash reserves of the commercial banks C an increase in the liquidity of the commercial banks D a restriction in the ability of the commercial banks to lend

Accepted Answer

D

Question 22

22 The diagram shows the determination of the rate of interest in an economy where MS represents the money supply and LP represents liquidity preference. MS LP1 LP2 rate of interest r2 r1 O quantity of money The rate of interest rises as a result of a shift in the liquidity preference curve from LP1 to LP2. Which policy might be used to try to maintain the rate at r1? A increased government expenditure B increases in indirect taxes C reductions in income tax rates D the purchase of bonds in the open market

Accepted Answer

D

Question 23

23 The table gives the percentage of employment in the primary, secondary and tertiary sectors in four countries. Which country is most likely to be a developing country? primary secondary tertiary sector % sector % sector % A 15 40 45 B 30 40 30 C 35 45 20 D 45 35 20

Accepted Answer

D

Question 24

24 Which policy is specifically designed to reduce the level of structural unemployment? A an increase in the level of state benefits paid to the unemployed B a reduction in interest rates C a reduction in the level of direct taxation D the provision of retraining schemes

Accepted Answer

D

Question 25

25 What would be most likely to stimulate long-run growth in an economy? A employment protection legislation B government policy to raise aggregate demand C technical innovations by firms D the development of trade unions

Accepted Answer

C

Question 26

26 The European Union imposes a quota on the volume of garments imported from Brazil. What is likely to be a consequence? A a decrease in the price paid by EU consumers for Brazilian garments B a reduction in the inflation rate in the EU C a switch to producing lower-value garments by Brazilian textile firms D the closure of Brazilian-owned textile factories

Accepted Answer

D

Question 27

27 Other things being equal, what is likely to result from an increase in interest rates in a country? A a capital outflow from the country B a depreciation of the country’s currency C a decrease in consumption D an increase in investment

Accepted Answer

C

Question 28

28 What is the main objective of supply side policies? A to bring a country’s potential output up to the level of its actual output B to ensure a budget surplus C to ensure that the composition of output matches the pattern of demand D to increase potential output by increasing efficiency

Accepted Answer

D

Question 29

29 What will increase the multiplier effect of an increase in government spending on national income? A an increase in direct taxation B an increase in interest rates C an increase in the marginal propensity to consume D an increase in the marginal propensity to import

Accepted Answer

C

Question 30

30 Without any change in government policy, what will be the effect of an economic recession on tax revenue and on government expenditure? government tax revenue expenditure A decrease decrease B decrease increase C increase increase D increase decrease

Accepted Answer

B

Cambridge A Level Economics 9708 — 2013 May/June Paper 3 · Variant 2

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · In which market situation will a firm take account of the reactions of its competitors…

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

Q3 · In the diagram a consumer’s budget line shifts from GH to JK

Q4 · The table shows the current position of a firm in a perfectly competitive industry

Q5 · A firm operates under perfect competition in both product and factor markets with labour…

Q6 · A fashion model is paid $100 000 a year

Q7 · An economist calculates that a firm has incurred the following costs over the course of…

Q8 · The diagram shows the long-run average cost curve of a firm which faces constant factor…

Q9 · Which feature of an economy would be most favourable for the survival of small firms?

Q10 · The demand for a firm’s product is perfectly inelastic

Q11 · The diagram shows a firm’s cost and revenue curves

Q12 · A firm operates in a perfectly competitive market

Q13 · Which change would make it easier for a cartel to operate effectively?

Q14 · The curve in the diagram shows the minimum combinations of capital and labour that are…

Q15 · The table shows the marginal tax rates paid by a country’s taxpayers at different levels…

Q16 · The diagram shows the market supply and demand curves for corn

Q17 · National income statistics show that real GDP per head is 25% higher in country X than in…

Q18 · A country’s central bank engages in a policy of quantitative easing (open market purchase…

Q19 · According to monetarist theory, what will be the short-run effect on the level of output…

Q20 · Which correctly identifies injections into a country’s circular flow of income?

Q21 · Other things remaining unchanged, what is likely to be a consequence of an increase in…

Q22 · The diagram shows the determination of the rate of interest in an economy where MS…

Q23 · The table gives the percentage of employment in the primary, secondary and tertiary…

Q24 · Which policy is specifically designed to reduce the level of structural unemployment?

Q25 · What would be most likely to stimulate long-run growth in an economy?

Q26 · The European Union imposes a quota on the volume of garments imported from Brazil

Q27 · Other things being equal, what is likely to result from an increase in interest rates in…

Q28 · What is the main objective of supply side policies?

Q29 · What will increase the multiplier effect of an increase in government spending on…

Q30 · Without any change in government policy, what will be the effect of an economic recession…

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