Cambridge A Level Economics 9708 — 2014 May/June Paper 1 · Variant 1

Question 1

1 What is likely to occur as a result of a permanent rise in unemployment resulting in loss of skills? A a reduction in the economy’s long-run production possibility B a reduction in the scarcity of resources C an increase in the cost of allocating resources D an increase in the number of adults experiencing the economic problem

Accepted Answer

A

Question 2

2 What is likely to be the short-run consequence of replacing central planning with a market-based system? A a decrease in the rate of inflation B a lower rate of return on capital investment C a more equal distribution of income and wealth D an increase in the level of unemployment

Accepted Answer

D

Question 3

3 The diagram illustrates the production possibility curve of an economy in Year 1 (X1 Y1) and in Year 2 (X2 Y2). Y2 Y1 good Y O X1 X2 good X What can be concluded from the diagram? A The cost of production was higher in Year 2 than in Year 1. B The full employment level of output was higher in Year 2 than in Year 1. C The opportunity cost of production was higher in Year 2 than in Year 1. D Unemployment was higher in Year 2 than in Year 1.

Accepted Answer

B

Question 4

4 An American bought an English football team in 2013. The money to purchase the club came from loans, which meant future interest payments of more than US $95 million. Which function of money is best illustrated by this transaction? A double coincidence of wants B general acceptability C standard of deferred payments D store of value

Accepted Answer

C

Question 5

5 The market demand for a product is made up of the demand from three firms, X, Y and Z. The table shows the demand from each firm and the market supply. price $ demand from X demand from Y demand from Z market supply 7 3300 3300 3300 3 300 8 3100 2900 3100 6 200 9 2800 2500 2900 8 200 10 2500 2100 2700 10 000 What is the equilibrium price in the market? A $7 B $8 C $9 D $10

Accepted Answer

C

Question 6

6 In the diagram, D1 is the initial demand curve for student places at universities. D1 D2 fees D2 D1 O student places What could cause the demand curve to shift to D2? A a decrease in student fees for universities B a decrease in the level of youth unemployment C an increase in graduate earnings compared with non-graduate earnings D higher A Level grades demanded for university entrance

Accepted Answer

C

Question 7

7 In the diagram D1D1 is a straight line demand curve and D2D2 is a rectangular hyperbola curve. D1 D2 M price D2 N D1 O quantity Which statement is correct? A D2D2 is more elastic than D1D1 at point M. B D2D2 is more elastic than D1D1 at point N. C The elasticity of demand increases on moving down both curves. D The elasticity of demand is inelastic at point M on both curves.

Accepted Answer

B

Question 8

8 The table shows changes in a consumer’s expenditure on various goods when her income increases from $20 000 to $24 000. income income $20 000: $24 000: good amount spent amount spent on good on good ($) ($) W 100 96 X 100 100 Y 200 224 Z 200 248 Assuming all else remains unchanged, for which goods is the consumer’s income elasticity of demand greater than 1.0? A W, Y and Z B W and Z only C W only D Z only

Accepted Answer

D

Question 9

9 The diagram shows the demand for and supply of a product. D price S O quantity What can be deduced about the product? A It has infinite price elasticity of demand. B It has no substitutes. C It is an inferior good. D It takes a large proportion of consumer income.

Accepted Answer

B

Question 10

10 In 2010, poor harvests reduced fruit crops, and furniture producers gave big discounts on furniture products. How might these changes have affected the position of the supply curve for the products? fruit furniture producers A no change shift to the left B shift to the left no change C shift to the left shift to the left D shift to the right no change

Accepted Answer

B

Question 11

11 The diagram shows a supply curve. S price O quantity Which statement describes the price elasticity of supply along this curve? A It diminishes as quantity increases. B It is constant and greater than unity at all quantities. C It is constant and less than unity at all quantities. D It increases as quantity increases.

Accepted Answer

A

Question 12

12 The table shows a competitive market in equilibrium in two periods. period market price quantity traded 1 50 cents 10 000 units 2 60 cents 12 000 units What could explain the change from period 1 to period 2? A an increase in the price of a complement B an increase in the price of a substitute C the imposition of a minimum price of 60 cents by a government D the imposition of an indirect tax on suppliers

Accepted Answer

B

Question 13

13 A country experiences a very wet and cold summer. How might this affect the price of umbrellas and the price of ice creams? price of umbrellas price of ice creams A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

C

Question 14

14 What is an externality created by an individual consuming take-away food? A the cost to the individual of purchasing the take-away food B the litter created by the individual’s take-away food packaging being discarded C the pleasure derived by the individual from eating the take-away food D the time saved by the individual purchasing the take-away food

Accepted Answer

B

Question 15

15 A project has a social cost of $100 million, a private cost of $40 million and an external benefit of $20 million. Its net social value is zero. What can be concluded about the project? A External cost is greater than external benefit. B Private cost is greater than external cost. C Private cost is greater than private benefit. D Social cost is greater than social benefit.

Accepted Answer

A

Question 16

16 What is least likely to be included in a cost-benefit analysis of a proposed new university? A the costs of building the new university B the extra income earned by the new university’s graduates C the future staffing costs of other universities D the staffing costs of the new university five years into the future

Accepted Answer

C

Question 17

17 A local government decided to organise a craft show in its exhibition centre. Admission was $3. It promoted the show by paying for advertisements on advertising sites around the area. How may the craft show and the advertisements be classified from the viewpoint of local residents? craft show advertisements A private good private good B private good public good C public good private good D public good public good

Accepted Answer

B

Question 18

18 The diagram shows the original market clearing price is P1. The government then imposes a maximum price of P2 on the industry. S P2 P1 price D O quantity What will result from this? A a higher price and output B a shortage C a surplus D an unchanged price and output

Accepted Answer

D

Question 19

19 The diagram shows that a country can make a product at less than the world price. domestic supply D R T P1 world price U V P price W S domestic demand O X Y Z quantity What will happen if it engages in international trade? A Domestic consumers will experience a fall in consumer surplus of RVT. B Domestic output of OY will be exported. C Domestic producers will gain an increase in revenue of PP1TV. D Revenue from exports will be XRTZ from the product.

Accepted Answer

D

Question 20

20 Which argument is an importer most likely to use to gain the support of consumers for free trade? A More imports allow the government to raise revenue from tariffs. B More imports improve the country’s terms of trade. C More imports increase competition in the domestic economy. D More imports raise total employment in the domestic economy.

Accepted Answer

C

Question 21

21 A country is a major producer of cotton. Its government imposes a tax on exports of its cotton. What effect will this have on the price of cotton in the domestic and world markets? domestic price world price A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

B

Question 22

22 A US company receives a US$20 million dividend from shares that it owns in a Brazilian company. How would this dividend be shown in the balance of payments of the United States? A a credit in the capital account B a credit in the current account C a debit in the capital account D a debit in the current account

Accepted Answer

B

Question 23

23 In 2007 Turkey had a population of 73 m. Its labour force was 36 m, of which 12 m were trained for the primary sector and 24 m were trained for the secondary and tertiary sectors. The unemployment rate was 10%. What was the number of people unemployed? A 1.2 m B 2.4 m C 3.6 m D 7.3 m

Accepted Answer

C

Question 24

24 The diagram shows the macroeconomic equilibrium output and price level changing from Y and P to Y1 and P1. AD LRAS AD1 price P level P1 AD AD1 O Y1 Y real output What could have caused this change? A a decrease in exports B a decrease in labour productivity C an increase in the government’s spending D an increase in the money supply

Accepted Answer

A

Question 25

25 The table shows an index of consumer prices (2005 = 100) for a number of countries for 2009, 2010 and 2011. 2009 2010 2011 Canada 107.8 108.9 112.0 Greece 111.9 117.2 121.1 India 135.2 151.4 164.8 Japan 100.3 99.6 99.3 Portugal 107.4 108.9 112.9 Switzerland 104.3 104.5 104.7 Which statement about the period 2009 to 2011 is not correct? A Prices fell in Japan. B Prices increased in Switzerland. C Prices rose more in Greece than in India. D Prices rose more in Portugal than in Canada.

Accepted Answer

C

Question 26

26 In what circumstances will money lose its value? A The economy experiences a period of deflation. B The general level of prices is falling. C The growth of money supply falls below the growth of output. D The rate of inflation is positive.

Accepted Answer

D

Question 27

27 What would most help a country to achieve a surplus on the current account of the balance of payments? A a depreciating exchange rate combined with a high rate of inflation and falling productivity B a depreciating exchange rate combined with a low rate of inflation and rising productivity C an appreciating exchange rate combined with a high rate of inflation and falling productivity D an appreciating exchange rate combined with a low rate of inflation and rising productivity

Accepted Answer

B

Question 28

28 At the start of the year, the exchange rate of Country X’s dollar (X$) to Country Y’s pound (Y£) is X$4.80 : Y£1 During the year prices increase by 10% in Country X and by 20% in Country Y. According to Purchasing Power Parity theory, what will be the exchange rate at the end of the year? A X$4.40 : Y£1 B X$4.90 : Y£1 C X$5.00 : Y£1 D X$5.20 : Y£1

Accepted Answer

A

Question 29

29 Devaluation always has the effect of A decreasing the price of imports. B decreasing the value of imports. C worsening the balance of payments. D worsening the terms of trade.

Accepted Answer

D

Question 30

30 Policies to correct a balance of payments deficit fall into two categories: expenditure-dampening policies and expenditure-switching policies. Which pair of policies in the table are classified correctly? expenditure-dampening expenditure-switching policy policy an increase in the the imposition of A rate of income tax import quotas an increase in the rate an increase in the B of value added tax rate of income tax devaluation of the an increase in the rate C currency of value added tax the imposition of devaluation of D import quotas the currency

Accepted Answer

A

Cambridge A Level Economics 9708 — 2014 May/June Paper 1 · Variant 1

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · What is likely to occur as a result of a permanent rise in unemployment resulting in loss…

Q2 · What is likely to be the short-run consequence of replacing central planning with a…

Q3 · The diagram illustrates the production possibility curve of an economy in Year 1 (X1 Y1)…

Q4 · An American bought an English football team in 2013

Q5 · The market demand for a product is made up of the demand from three firms, X, Y and Z

Q6 · In the diagram, D1 is the initial demand curve for student places at universities

Q7 · In the diagram D1D1 is a straight line demand curve and D2D2 is a rectangular hyperbola…

Q8 · The table shows changes in a consumer’s expenditure on various goods when her income…

Q9 · The diagram shows the demand for and supply of a product

Q10 · In 2010, poor harvests reduced fruit crops, and furniture producers gave big discounts on…

Q11 · The diagram shows a supply curve

Q12 · The table shows a competitive market in equilibrium in two periods

Q13 · A country experiences a very wet and cold summer

Q14 · What is an externality created by an individual consuming take-away food?

Q15 · A project has a social cost of $100 million, a private cost of $40 million and an…

Q16 · What is least likely to be included in a cost-benefit analysis of a proposed new…

Q17 · A local government decided to organise a craft show in its exhibition centre

Q18 · The diagram shows the original market clearing price is P1

Q19 · The diagram shows that a country can make a product at less than the world price

Q20 · Which argument is an importer most likely to use to gain the support of consumers for…

Q21 · A country is a major producer of cotton

Q22 · A US company receives a US$20 million dividend from shares that it owns in a Brazilian…

Q23 · In 2007 Turkey had a population of 73 m

Q24 · The diagram shows the macroeconomic equilibrium output and price level changing from Y…

Q25 · The table shows an index of consumer prices (2005 = 100) for a number of countries for…

Q26 · In what circumstances will money lose its value?

Q27 · What would most help a country to achieve a surplus on the current account of the balance…

Q28 · At the start of the year, the exchange rate of Country X’s dollar (X$) to Country Y’s…

Q29 · Devaluation always has the effect of A decreasing the price of imports

Q30 · Policies to correct a balance of payments deficit fall into two categories…

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