Cambridge A Level Economics 9708 — 2013 Oct/Nov Paper 3 · Variant 2

Question 1

1 What is the purpose of trying to achieve economic efficiency? A to ensure that economic decisions are made equitably B to ensure that firms are internationally competitive C to ensure that firms maximise their profit levels D to ensure that the economy does not waste scarce resources

Accepted Answer

D

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 24 2 45 3 63 4 78 5 90 6 99 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

D

Question 3

3 The line RS in the diagram shows the different combinations of goods X and Y that a consumer can afford with her present income. R quantity N of Y M S O quantity of X The consumer’s original equilibrium is at M. What could explain a subsequent change in her equilibrium position to N? A a change in her tastes B an increase in the price of X and a fall in the price of Y C an increase in the price of X and a smaller percentage increase in the price of Y D equal percentage increases in her income and in both prices

Accepted Answer

B

Question 4

4 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 The price of the product is $1.60. What will be the number of man-hours hired by the firm if the hourly wage is $6.40? A 1000 B 2000 C 3000 D 4000

Accepted Answer

C

Question 5

5 The diagram shows the initial position of a labour market. S weekly wage D O number of workers The government increases the number of statutory paid holidays to which workers are entitled from 10 days a year to 15 days a year. How will this affect the supply and demand curves in the diagram? employers’ workers’ demand curve supply curve A shifts to left shifts to right B shifts to left shifts to left C shifts to right shifts to right D shifts to right shifts to left

Accepted Answer

A

Question 6

6 In the diagram, HN is the initial supply of labour curve faced by a firm, and RM is its initial marginal cost of labour curve. M N wage, cost of J K W X labour R H O quantity of labour What will be the firm’s new labour supply curve, if the workers join a trade union and achieve a union negotiated wage, OW? A RJX B HKX C WJM D WKN

Accepted Answer

D

Question 7

7 The table shows a firm’s long-run total cost schedule. output of goods total cost (US$) per month 100 100 200 120 300 150 400 200 Which graph shows the shape of the firm’s long-run average cost curve? A B LRAC LRAC cost cost O output O output C D LRAC cost cost LRAC O output O output

Accepted Answer

C

Question 8

8 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 OQ1.

Accepted Answer

C

Question 9

9 What is an internal diseconomy of scale that often arises as a firm becomes larger? A a more complex decision-making process B an increase in the cost of raising finance for investment C an increase in traffic congestion D upward pressure on wages in the local labour market

Accepted Answer

A

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 profit maximisation to sales revenue maximisation. Which groups are likely to be winners and losers as a result of this change? winners losers A customers shareholders B managers customers C workers managers D shareholders workers

Accepted Answer

A

Question 11

11 The table shows some of the assumptions of perfect competition and monopolistic competition. Which pairing is correct? perfect competition monopolistic competition A barriers to entry small number of firms B differentiated products large number of firms C freedom of entry and exit barriers to entry D large number of firms differentiated products

Accepted Answer

D

Question 12

12 The diagram shows the initial cost and revenue curves of a profit-maximising monopolist. MC costs, revenue P AR MR O J K output What would cause the firm to increase its output from OJ to OK? A The government fixes the price at OP. B The government requires the firm to charge a price equal to marginal cost. C The government imposes an indirect tax on the firm’s product. D The firm is allowed to earn only a normal profit.

Accepted Answer

A

Question 13

13 What makes it most likely that a firm’s profits will be volatile and subject to substantial fluctuations? A Fixed costs are a high percentage of total costs. B It produces a diversified range of products. C It produces basic consumer products. D It sells its product in a number of different markets.

Accepted Answer

A

Question 14

14 A country has a negative income tax. The curve NT in the diagram shows the country’s initial tax schedule. + NT1 tax NT 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 more equal B strengthen less equal C weaken less equal D weaken more equal

Accepted Answer

D

Question 15

15 What is most likely to contribute to households finding themselves in a poverty trap? A means-tested benefits B progressive taxation C regressive taxation D universal benefits

Accepted Answer

A

Question 16

16 The firms in a perfectly competitive industry combine to form a monopoly. What would prevent a deadweight welfare loss resulting? A The government imposes an indirect tax on the monopolist’s product. B The government requires the monopolist to charge a price equal to average cost. C The monopolist adopts marginal cost pricing. D The monopolist charges the same price to all consumers.

Accepted Answer

C

Question 17

17 What might cause the growth of measured GNP to overstate the ‘true’ rate of economic growth in an economy? A People move from unpaid housework to paid employment. B The exchange rate is overvalued according to purchasing power parity. C There is a reduction in environmental pollution. D There is a reduction in the rate of investment in physical capital.

Accepted Answer

A

Question 18

18 The diagram shows changes in broad and narrow measures of money supply between 2004 and 2006. narrow money 12 9 % 6 3 0 key –3 2004 2005 2006 Euro area Britain broad money Japan 16 United States 12 % 8 4 0 2004 2005 2006 Which is the only area to have experienced a contraction in either one of its measures of money supply? A Euro area B Britain C Japan D United States

Accepted Answer

D

Question 19

19 Which assertion could be described as monetarist rather than Keynesian? A The interest elasticity of investment expenditure is close to zero. B The money supply is the main determinant of aggregate monetary expenditure. C The money supply is the main determinant of output in the long-run. D The velocity of circulation of money is unstable over time.

Accepted Answer

B

Question 20

20 In an economy, the marginal propensity to consume of the unemployed is higher than that of taxpayers. The government increases expenditure on unemployment benefits by $10 m and increases taxation by $10 million. What will be the impact on aggregate demand? A It will be unchanged. B It will increase by less than $10 million. C It will increase by $10 million. D It will decrease by $10 million.

Accepted Answer

B

Question 21

21 According to loanable funds theory, what will cause the rate of interest to rise? A a decrease in the demand for money B an increase in the level of savings C an increase in the rate of investment D an increase in the supply of money

Accepted Answer

C

Question 22

22 What is most likely to contribute to high long-term growth rates of GNP per head? A government imposition of maximum prices for particular goods B high rates of trade union membership amongst the labour force C high ratios of saving to GNP D restrictions on inward foreign investment

Accepted Answer

C

Question 23

23 A country experiences cyclical unemployment due to a decrease in domestic spending. If the government takes no action in response, what will be a likely consequence? A an increase in the current account deficit on the balance of payments B an increase in the government’s budget deficit C an increase in the rate of inflation D an increase in the volume of investment

Accepted Answer

B

Question 24

24 What is a possible combination of a cost and a benefit of rising levels of unemployment? cost benefit A a deterioration in human capital an increase in capital expenditure B an increase in import expenditure a decrease in government tax revenue C an increase in the rate of economic growth a more responsive workforce D an irretrievable loss of output a reduction in inflationary pressure

Accepted Answer

D

Question 25

25 What would increase an economy’s actual output but not its potential output? A an increase in the capital available to the labour force B an increase in the labour force’s skill level C an increase in the number in the labour force D an increase in the proportion of the labour force employed

Accepted Answer

D

Question 26

26 Which combination indicates that a country is operating a ‘dirty float’? nominal exchange rate foreign currency reserves A depreciates by 20% decrease by $1 billion B depreciates by 20% unchanged C unchanged decrease by $1 billion D unchanged unchanged

Accepted Answer

A

Question 27

27 What is a reflationary fiscal measure? A reducing interest rates B increasing the money supply C increasing taxes D increasing government spending

Accepted Answer

D

Question 28

28 A country’s government wishes to switch demand away from private consumption towards investment and net exports. Which combination of policy measures would be most likely to help it achieve this objective? rate of value interest rates added tax A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

B

Question 29

29 A government aims to achieve steady and stable growth, in line with the economy’s long-run increase in productivity. If this objective is achieved, how is this likely to affect average living standards and the level of unemployment? average living level of standards unemployment A constant falling B falling unchanged C rising rising D rising unchanged

Accepted Answer

D

Question 30

30 During year 1, a government announces a temporary one-year reduction in the level of indirect taxation balanced by an equivalent temporary one-year increase in direct taxation. What is most likely to be the impact on household saving in year 1 and in year 2? impact on household impact on household saving in year 1 saving in year 2 A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

B

Cambridge A Level Economics 9708 — 2013 Oct/Nov Paper 3 · Variant 2

Question paper16 pages

Mark scheme2 pages

Questions as text

Q1 · What is the purpose of trying to achieve economic efficiency?

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

Q3 · The line RS in the diagram shows the different combinations of goods X and Y that a…

Q4 · A firm operates under perfect competition in both product and factor markets with labour…

Q5 · The diagram shows the initial position of a labour market

Q6 · In the diagram, HN is the initial supply of labour curve faced by a firm, and RM is its…

Q7 · The table shows a firm’s long-run total cost schedule

Q8 · In the diagram, TC is a firm’s short-run total cost curve

Q9 · What is an internal diseconomy of scale that often arises as a firm becomes larger?

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

Q11 · The table shows some of the assumptions of perfect competition and monopolistic…

Q12 · The diagram shows the initial cost and revenue curves of a profit-maximising monopolist

Q13 · What makes it most likely that a firm’s profits will be volatile and subject to…

Q14 · A country has a negative income tax

Q15 · What is most likely to contribute to households finding themselves in a poverty trap?

Q16 · The firms in a perfectly competitive industry combine to form a monopoly

Q17 · What might cause the growth of measured GNP to overstate the ‘true’ rate of economic…

Q18 · The diagram shows changes in broad and narrow measures of money supply between 2004 and…

Q19 · Which assertion could be described as monetarist rather than Keynesian?

Q20 · In an economy, the marginal propensity to consume of the unemployed is higher than that…

Q21 · According to loanable funds theory, what will cause the rate of interest to rise?

Q22 · What is most likely to contribute to high long-term growth rates of GNP per head?

Q23 · A country experiences cyclical unemployment due to a decrease in domestic spending

Q24 · What is a possible combination of a cost and a benefit of rising levels of unemployment?

Q25 · What would increase an economy’s actual output but not its potential output?

Q26 · Which combination indicates that a country is operating a ‘dirty float’?

Q27 · What is a reflationary fiscal measure?

Q28 · A country’s government wishes to switch demand away from private consumption towards…

Q29 · A government aims to achieve steady and stable growth, in line with the economy’s…

Q30 · During year 1, a government announces a temporary one-year reduction in the level of…

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