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

Question 1

1 In the diagram, a firm increases its output from OY to OZ. MC costs, revenue AR O Y Z output Which statement about the effect on economic efficiency is correct? A It will increase because a greater quantity will be produced and higher total revenue will be earned. B It will increase because the value that consumers place on the product comes closer to the cost of producing the last unit. C It will decline because both average and marginal revenue will fall. D It will decline because both total and marginal cost will rise.

Accepted Answer

B

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. The price of Good X is $3 and the price of Good Y is $6. marginal utility marginal utility unit of X (units) of Y (units) 1 13 22 2 12 20 3 11 18 4 10 16 5 9 14 6 8 12 7 7 10 8 6 8 In order to maximise his utility, which quantities of X and Y should the consumer buy? X Y A 2 6 B 4 5 C 6 4 D 8 3

Accepted Answer

C

Question 3

3 What is not held constant when calculating the income effect of a change in the price of a good? A the consumer’s money income B the consumer’s preferences C the consumer’s real income D the prices of other goods

Accepted Answer

C

Question 4

4 The table shows the current position of a firm in a perfectly competitive industry. factor X factor Y marginal physical product 2 4 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

D

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 How many man-hours will the firm hire if the price of the product is $1.60 and the hourly wage is $3.20? A 1000 B 2000 C 3000 D 4000

Accepted Answer

D

Question 6

6 The diagram shows an individual’s supply of labour curve. S 80 70 60 50 hourly wage ($) 40 30 20 10 0 20 40 number of hours The hourly wage is $60 and the worker is compelled to work a 40-hour week. What is the value of the worker’s economic rent? A $0 B $200 C $400 D $2400

Accepted Answer

A

Question 7

7 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 100 rent of building 30 marketing fees 20 interest on bank loans 25 interest forgone on finance provided by owner 30 depreciation of equipment 35 What would an accountant calculate to be the total cost incurred by the firm? A $360 000 B $390 000 C $400 000 D $430 000

Accepted Answer

A

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 OQ3. B Average variable cost is minimised at output OQ2. C Average variable cost is minimised at output OQ3. D Marginal cost is minimised at output OQ1.

Accepted Answer

A

Question 9

9 The table shows the inputs of the two factors of production, capital and labour, needed to produce varying levels of output. output capital labour 100 5 10 200 8 16 300 12 24 400 20 40 500 30 60 Over which range of output do constant returns to scale occur? A 100 to 200 B 200 to 300 C 300 to 400 D 400 to 500

Accepted Answer

B

Question 10

10 What is likely to make it more difficult for a small firm to survive? A increased preference on the part of consumers for distinctive non-standardised products B reductions in the rate of interest charged by commercial banks C the absence of effective barriers to the entry of potential competitors D the existence of decreasing returns to scale

Accepted Answer

C

Question 11

11 The demand for a firm’s product is perfectly elastic. 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 decrease by 5%. C Its revenue will fall to zero. D Its revenue will increase by 5%.

Accepted Answer

C

Question 12

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

Accepted Answer

A

Question 13

13 The diagram shows the supply and demand curves of a good, and its marginal social cost of production (MSC). MSC S price, x y costs z D w O output Q Which area measures the net benefit to society if output OQ is produced? A x B x + y C x + z + w D x – y

Accepted Answer

D

Question 14

14 The table compares some of the properties of universal benefits and means tested benefits. Which pairing is correct? universal benefits means tested benefits A greater disincentive effects targeted at those most in need B higher take-up rate more expensive C more expensive greater disincentive effects D targeted at those most in need higher take-up rate

Accepted Answer

C

Question 15

15 What is most likely to occur when a command economy makes the transition towards becoming a market economy? A an increase in unemployment in the short run B a slower response to changes in technology C a decrease in the production of consumer goods D a decrease in the productivity of workers

Accepted Answer

A

Question 16

16 Which combination is usually found in developing countries? A a high birth rate and a dominant primary sector B capital intensive production and a low rate of saving C labour intensive production and a declining population D net inward migration and a low death rate

Accepted Answer

A

Question 17

17 According to monetarist theory, what will be affected in the long run by a change in the money supply? the level the price the level of of output level unemployment A no no yes B no yes no C yes no yes D yes yes no

Accepted Answer

B

Question 18

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

Accepted Answer

C

Question 19

19 The statistics refer to an open economy with a government sector where C = consumption expenditure I = investment G = government expenditure X = exports M = imports Y = national income In which situation is the economy in disequilibrium? C I G X M Y A 400 300 200 250 150 1000 B 500 300 200 250 150 1100 C 600 300 200 250 150 1200 D 800 300 200 250 150 1300

Accepted Answer

D

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 total increase in deposits within the system? A $20 B $200 C $800 D $1000

Accepted Answer

D

Question 21

21 A 6% increase in the money supply leads to a 4% increase in the level of money income. What can be deduced from this? A There has been an increase in interest rates. B There has been a decrease in the level of output. C There has been a decrease in the velocity of circulation. D The price level has increased by 2%.

Accepted Answer

C

Question 22

22 The diagram shows the market for loanable funds. D2 S1 D1 S2 rate of E1 E2 interest O loanable funds Which changes could cause the equilibrium to move from E1 to E2? A an increase in the propensity to save and an increase in bank lending B the discovery of oil reserves and an increase in the propensity to save C advances in technology and a decrease in bank lending D a decrease in the propensity to save and the introduction of new products

Accepted Answer

B

Question 23

23 The World Bank publishes statistics on changes in the number of people in the world who live on less than US$1 per day. What do these statistics measure? A the change in average living standards B the extent of poverty C the level of economic development D the rate of economic growth

Accepted Answer

B

Question 24

24 Which of the following are characteristics of most developing economies? government average debt: GDP ratio propensity to save A high high B high low C low high D low low

Accepted Answer

B

Question 25

25 What will result from rising unemployment in an economy? A a reduction in the government’s budget deficit B inflationary pressure will be reduced C potential output will fall D the economy’s production possibility curve will move inwards

Accepted Answer

B

Question 26

26 Why is a high ratio of government debt to GDP likely to cause a decline in a country’s economic growth? A Higher taxes to pay the interest charges on the debt will reduce the country’s money supply. B It will cause the growth in actual output to fall behind the country’s long-term rate of growth. C It will increase the cost of borrowing to both the government and the private sector. D It will weaken the country’s competitiveness by increasing unit labour costs.

Accepted Answer

C

Question 27

27 Which policy would be most likely to improve a country’s prospects of achieving a higher long-run rate of growth? A an increase in the government’s budget deficit B an increase in tuition fees charged to university students C intervention in the foreign exchange market to raise the exchange rate D the introduction of tax incentives to encourage households to save more

Accepted Answer

D

Question 28

28 What is most likely to result from foreign direct investment in developing economies? A a deterioration in the trade balances of developing economies B a reduction in migration to urban areas C a reduction in the transfer of technology to developing economies D a rise in per capita levels of consumption in developing economies

Accepted Answer

D

Question 29

29 In the diagram, the curve X1 shows an economy’s initial trade-off between inflation and unemployment. X2 X1 rate of inflation O unemployment rate What could cause the curve to shift to X2? A a decrease in the money supply B a decrease in the natural rate of unemployment C an increase in the rate of interest D the expectation of an increase in the inflation rate

Accepted Answer

B

Question 30

30 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? interest rates rate of income tax 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 3

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · In the diagram, a firm increases its output from OY to OZ

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

Q3 · What is not held constant when calculating the income effect of a change in the price of…

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

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

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

Q9 · The table shows the inputs of the two factors of production, capital and labour, needed…

Q10 · What is likely to make it more difficult for a small firm to survive?

Q11 · The demand for a firm’s product is perfectly elastic

Q12 · The table shows some of the assumptions of perfect competition and monopolistic…

Q13 · The diagram shows the supply and demand curves of a good, and its marginal social cost of…

Q14 · The table compares some of the properties of universal benefits and means tested benefits

Q15 · What is most likely to occur when a command economy makes the transition towards becoming…

Q16 · Which combination is usually found in developing countries?

Q17 · According to monetarist theory, what will be affected in the long run by a change in the…

Q18 · Which correctly identifies leakages from a country’s circular flow of income?

Q19 · The statistics refer to an open economy with a government sector where C = consumption…

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

Q21 · A 6% increase in the money supply leads to a 4% increase in the level of money income

Q22 · The diagram shows the market for loanable funds

Q23 · The World Bank publishes statistics on changes in the number of people in the world who…

Q24 · Which of the following are characteristics of most developing economies?

Q25 · What will result from rising unemployment in an economy?

Q26 · Why is a high ratio of government debt to GDP likely to cause a decline in a country’s…

Q27 · Which policy would be most likely to improve a country’s prospects of achieving a higher…

Q28 · What is most likely to result from foreign direct investment in developing economies?

Q29 · In the diagram, the curve X1 shows an economy’s initial trade-off between inflation and…

Q30 · A country’s government wishes to switch demand away from private consumption towards…

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