Cambridge A Level Economics 9708 — 2013 Oct/Nov Paper 3 · Variant 1

Question 1

1 The diagram shows the production possibility curve for an economy. L good Y O good X What might make it possible for consumers in this economy to consume the combination of goods X and Y indicated by the point L? A a reduction in unemployment B the achievement of productive efficiency C the elimination of a monopoly in the production of good X D trade with other economies

Accepted Answer

D

Question 2

2 The table shows the marginal utility derived by a consumer who devotes the whole of his weekly income of $42 to two goods X and Y. Good X costs $3 per unit and Good Y $6 per unit. marginal utility marginal utility unit of X (units) of Y (units) 1 12 34 2 11 30 3 10 26 4 9 22 5 8 18 6 7 14 7 6 10 8 5 6 In order to maximise his utility, which quantities of X and Y should the consumer purchase? X Y A 2 6 B 4 5 C 6 4 D 8 3

Accepted Answer

B

Question 3

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

Accepted Answer

C

Question 4

4 A firm in an initial profit maximising position employs two factors, X and Y, to produce a good which is sold for $3. Factor prices and productivities change. The new values are given in the table. marginal physical price factor product ($) X 2 4 Y 5 20 What should the firm employ to achieve equilibrium? A less of both X and Y B more of X and less of Y C more of Y and less of X D more of both X and Y

Accepted Answer

B

Question 5

5 The diagram shows an individual worker’s supply curve of labour. S x W hourly z wage O 40 number of hours The hourly wage is OW and the worker is compelled to work a 40-hour week. Which area measures the worker’s economic rent? A x B z C z – x D x + z

Accepted Answer

C

Question 6

6 In the diagram the heights of the vertical broken lines show the levels of output a firm can produce with different combinations of labour and capital. output capital labour What is the relationship between factor inputs and the level of output shown in the diagram called? A a long-run cost function B a long-run production function C a short-run cost function D a short-run production function

Accepted Answer

B

Question 7

7 In the diagram, TC is a firm’s short-run total cost curve. TC costs O Q1 Q2 Q3 output Which statement is correct? A Average total cost is minimised at output OQ2. B Average variable cost is minimised at output OQ1. C Average variable cost is minimised at output OQ3. D Marginal cost is minimised at output OQ2.

Accepted Answer

D

Question 8

8 An economist calculates that a firm has incurred the following costs over the course of a 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 What would an accountant calculate to be the total cost incurred by the firm? A $275 000 B $305 000 C $325 000 D $340 000

Accepted Answer

C

Question 9

9 Firms can grow internally or externally. Which strategy is an example of a commercial bank growing internally? A the bank cutting its costs by rationalising its structure B the bank merging with another commercial bank C the bank opening new branches D the bank taking over an insurance company

Accepted Answer

C

Question 10

10 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. How will this affect the net economic welfare of the following groups in the short run? customers workers A fall rise B fall fall C rise rise D rise fall

Accepted Answer

B

Question 11

11 A market structure in which a small number of firms face competition from potential entrants. What does this describe? A a contestable market B a monopoly C perfect oligopoly D monopolistic competition

Accepted Answer

A

Question 12

12 At its current level of output, a monopolist is on the price-inelastic part of its demand curve. What will be the effect of an increase in the price charged by the firm on its output and on its profits? output profits A decrease increase B decrease uncertain C increase increase D increase uncertain

Accepted Answer

A

Question 13

13 A country has a negative tax income regime. The curve NT in the diagram shows the country’s initial tax schedule. + NT tax NT1 O income – A change in the tax rate causes the schedule to shift to NT1. How will this affect work incentives and the after-tax distribution of income? work distribution incentives of income A strengthen less equal B strengthen more equal C weaken less equal D weaken more equal

Accepted Answer

A

Question 14

14 The diagram shows the market for new cars. Currently the quantity supplied is fixed by the government at S1. S1 S2 x y price z w D O quantity If the market was deregulated the supply curve would be S2. Which area measures the net welfare gain of removing the restriction on the quantity supplied? A w + y B x + y C z + w D z + x + y + w

Accepted Answer

A

Question 15

15 What are the losses in economic efficiency that are likely to result from a policy of income redistribution from the rich to the poor? distortion of individual administrative costs disincentive choices between work of the redistribution effects and leisure policy A yes yes no B yes yes yes C no no no D no no yes

Accepted Answer

B

Question 16

16 A government regulates the price charged by a monopolist. In which circumstance will such intervention improve economic efficiency? A The government sets the price where average revenue equals marginal cost. B The government sets the price where marginal cost is below average cost. C The intervention results in an increase in producer surplus. D The intervention results in predatory pricing.

Accepted Answer

A

Question 17

17 How are the weights applied to the different indicators used to construct the United Nations’ Human Development Index determined? A by the amount a country falls short of the maximum value of each indicator B by the proportion of GNP a country devotes to promoting each of the indicators C by the relative importance attached to the different indicators by the United Nations D by the relative size of each country’s population

Accepted Answer

C

Question 18

18 Which assets are included within the definition of broad money but not within the definition of narrow money? A commercial banks’ deposits at the central bank B commercial banks’ till money C notes and coins in circulation D private sector savings (deposit) accounts

Accepted Answer

D

Question 19

19 When national income equals $30 000 million and government spending equals $15 000 million, an economy is in equilibrium below full employment. Out of every increase of $100 in national income, $10 is taken in taxes, $25 is spent on imports and $15 is saved. To raise national income to the full employment level of $50 000 million, to which level will the government need to raise its own spending? A $20 000 million B $25 000 million C $30 000 million D $35 000 million

Accepted Answer

B

Question 20

20 In a banking system, all banks maintain 20% of deposits as cash. One bank receives a new cash deposit of $200. Subsequent net withdrawals of cash from the banking system are zero. What will be the resulting increase in bank loans and the total increase in bank deposits? increase in total increase bank loans in deposits $ $ A 160 200 B 160 360 C 800 1000 D 1000 1000

Accepted Answer

C

Question 21

21 A government finances an increase in spending by selling government securities to foreign residents. What will be the immediate effect on the money supply and on the foreign exchange reserves? foreign exchange money supply reserves A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

D

Question 22

22 What will cause a fall in the quantity of money demanded? A a rise in interest rates B a rise in national income C a rise in the price level D a rise in wealth

Accepted Answer

A

Question 23

23 The table gives the growth rate of nominal GDP, the population growth rate and the rate of inflation in one year for four countries. Which country had the greatest growth in average living standards? nominal GDP growth population growth rate rate of inflation rate % % % A 6 1 3 B 8 2 4 C 10 3 4 D 15 3 10

Accepted Answer

C

Question 24

24 When might an increase in a government budget deficit be considered the most appropriate policy? A when inflation is high B when there is a balance of payments trade deficit C when there is high cyclical unemployment D when there is high structural unemployment

Accepted Answer

C

Question 25

25 The diagram shows the relationship between the rate of increase in wages and the rate of unemployment. rate of increase in wages O rate of unemployment What would be likely to cause the curve in the diagram to shift downwards and to the left? A an increase in regional differences in unemployment rates B an increase in the proportion of the workforce belonging to trade unions C an increase in the unemployment rate D the expectation of a lower rate of inflation

Accepted Answer

D

Question 26

26 The diagram shows details of the British Government’s estimated spending and receipts for 2010–2011. All figures in UK £bn. spending receipts health national 122 welfare income tax insurance 226 150 99 total: education total: £697 89 £548 VAT billion billion 81 debt other interest 79 excise duties 44 46 other defence 114 council tax 40 corporation 25 law and business tax housing & 43 order rates environment 35 25 27 What can be concluded from the diagram? effect of largest type of largest overall budget spending item on receipt item balance income distribution A less equitable indirect tax deficit B less equitable indirect tax surplus C more equitable direct tax deficit D more equitable direct tax surplus

Accepted Answer

C

Question 27

27 What do governments need to do to allow automatic stabilisers to work? A adjust taxes in order to achieve a balanced budget B keep welfare benefit rates and tax rates unchanged C lower both taxes and government expenditure in a slump D lower taxes in a boom and raise taxes in a slump

Accepted Answer

B

Question 28

28 What is not a supply-side policy measure? A deregulating industry to encourage more competitive markets B linking unemployment benefits to the obligation to look for work C tackling cyclical unemployment by lowering interest rates D tackling structural unemployment by giving grants for labour mobility

Accepted Answer

C

Question 29

29 A country has a fixed exchange rate. Which combination of problems would be most likely to cause the country’s government to reduce taxation and lower interest rates? A demand inflation and a balance of payments current account deficit B demand inflation and a low level of investments C high unemployment and a balance of payments current account deficit D high unemployment and a low level of investment

Accepted Answer

D

Question 30

30 An economy has a low level of unemployment. The government increases its expenditure. Which method of financing the additional expenditure is most likely to cause inflation? A an increase in borrowing from the Central Bank B an increase in income taxes C an increase in sales of state assets to the non-bank private sector D an issue of bonds to the non-bank private sector

Accepted Answer

A

Cambridge A Level Economics 9708 — 2013 Oct/Nov Paper 3 · Variant 1

Question paper16 pages

Mark scheme2 pages

Questions as text

Q1 · The diagram shows the production possibility curve for an economy

Q2 · The table shows the marginal utility derived by a consumer who devotes the whole of his…

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

Q4 · A firm in an initial profit maximising position employs two factors, X and Y, to produce…

Q5 · The diagram shows an individual worker’s supply curve of labour

Q6 · In the diagram the heights of the vertical broken lines show the levels of output a firm…

Q7 · In the diagram, TC is a firm’s short-run total cost curve

Q8 · An economist calculates that a firm has incurred the following costs over the course of a…

Q9 · Firms can grow internally or externally

Q10 · The diagram shows a firm’s cost and revenue curves

Q11 · A market structure in which a small number of firms face competition from potential…

Q12 · At its current level of output, a monopolist is on the price-inelastic part of its demand…

Q13 · A country has a negative tax income regime

Q14 · The diagram shows the market for new cars

Q15 · What are the losses in economic efficiency that are likely to result from a policy of…

Q16 · A government regulates the price charged by a monopolist

Q17 · How are the weights applied to the different indicators used to construct the United…

Q18 · Which assets are included within the definition of broad money but not within the…

Q19 · When national income equals $30 000 million and government spending equals $15 000…

Q20 · In a banking system, all banks maintain 20% of deposits as cash

Q21 · A government finances an increase in spending by selling government securities to foreign…

Q22 · What will cause a fall in the quantity of money demanded?

Q23 · The table gives the growth rate of nominal GDP, the population growth rate and the rate…

Q24 · When might an increase in a government budget deficit be considered the most appropriate…

Q25 · The diagram shows the relationship between the rate of increase in wages and the rate of…

Q26 · The diagram shows details of the British Government’s estimated spending and receipts for…

Q27 · What do governments need to do to allow automatic stabilisers to work?

Q28 · What is not a supply-side policy measure?

Q29 · A country has a fixed exchange rate

Q30 · An economy has a low level of unemployment

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