Cambridge A Level Economics 9708 — 2014 May/June Paper 1 · Variant 2

Question 1

1 By 2030, as the human population grows, the world will need at least 50% more food, 45% more energy and 30% more water from the same resources. What does this statement directly indicate? A comparative advantage B merit goods C negative externalities D the economic problem

Accepted Answer

D

Question 2

2 A country was at point P on its production possibility curve. Following the threat of invasion it prepared for war. The war then reduced the country’s infrastructure. P consumer goods S R Q O military goods What are the most likely changes on the production possibility curve diagram that are consistent with these events? A P to Q followed by Q to R B P to Q followed by Q to S C P to R followed by R to Q D P to R followed by R to S

Accepted Answer

B

Question 3

3 Which is a normative statement? A A reduction in unemployment below a certain level will lead to higher inflation. B An increase in the rate of inflation will lead inevitably to an increase in unemployment. C Inflation can be reduced only by increasing the level of unemployment. D Unemployment is more harmful to economic welfare than inflation.

Accepted Answer

D

Question 4

4 Meera has just finished a course at art college and has decided to set up a business on her own
producing clay figures of famous people.

Which factors of production is she likely to have to purchase from other businesses?

land labour capital enterprise
A v v v x
B v x v v
Cc v x v x
D x v x v

key
/¥ = purchased

X = not purchased

Accepted Answer

C

Question 5

5 The demand curve in the diagram shows the relationship between the number of car journeys and the cost of a car journey. cost of a car journey D O number of car journeys What would cause the demand curve to shift to the left? A a reduction in car tax B a reduction in petrol prices C a reduction in public transport prices D the introduction of tolls on motorways

Accepted Answer

C

Question 6

6 The diagram shows the market for milk. Two conditions change. The cost of cattle feed rises sharply and this is followed by the government raising the tax on cheese which uses milk in its production. Z W price Y X D D D O quantity Which changes in position on the diagram of demand curves for milk are consistent with these events? A from W to X, followed by X to Z B from W to Z, followed by Z to X C from X to Z, followed by Z to Y D from Z to X, followed by X to Y

Accepted Answer

C

Question 7

7 If the elasticity of demand for a commodity is unity, an increase in its price will A decrease the quantity purchased. B have no effect on consumer surplus. C increase total expenditure on the commodity. D leave the quantity purchased unchanged.

Accepted Answer

A

Question 8

8 The table shows a consumer’s expenditure on a range of goods at different levels of income. For which good does the consumer have an income elasticity of demand greater than zero, but less than one? consumer’s income ($) 40 50 100 good consumer’s expenditure ($) A 10 18 40 B 10 11 20 C 10 10 10 D 10 8 6

Accepted Answer

B

Question 9

9 What might cause a market supply curve to shift to the right? A increased government subsidies B increased labour costs C increased product advertising D lower income tax rates

Accepted Answer

A

Question 10

10 The diagram shows four different straight line supply curves. S1 S2 S3 S4 price O quantity What can be concluded from the diagram? A S1 has unitary elasticity. B S2 has zero elasticity. C S3 has a constant elasticity. D S4 has infinite elasticity.

Accepted Answer

D

Question 11

11 The diagram illustrates the effects of placing a specific tax equal to JM on a good. S2 S1 J X price K L Y Z M D O quantity Which area represents total tax receipts? A JKM B XJKY C XJLY D XJMZ

Accepted Answer

D

Question 12

12 What is consumer surplus? A the difference between the cost of producing a good and what consumers would be willing to pay for it B the difference between what consumers actually pay for a good and its cost of production C the difference between what consumers actually pay for a good and the maximum amount they would be willing to pay for it D the difference between what consumers are willing to pay for a good and the amount required by producers to supply the good

Accepted Answer

C

Question 13

13 In a market for a good both demand and supply change at the same time. Which combination of changes would enable an economist to predict with confidence that more resources will be needed in its production but not the direction of the associated price change? demand supply A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

D

Question 14

14 The existence of a positive externality is possible when A consumers are not the best judges of the future benefits from consuming a product. B groups of consumers act together to negotiate a discount on the sale of a product. C producers use a government scheme to clear waste from their offices at no cost to themselves. D social costs of production exceed private costs of production.

Accepted Answer

A

Question 15

15 A firm opens a new factory on derelict ground on the outskirts of a town. What will be included among the externalities arising from the opening of the new factory? an increase in the change in an increase in the rents of the appearance air pollution neighbouring of the factory sites neighbourhood A no no yes B no yes no C yes no yes D yes yes no

Accepted Answer

C

Question 16

16 A firm owns a bridge and charges all vehicle users who cross it. How might the charge be classified? A a private benefit and a private cost B a private benefit and an external cost C an external benefit and a private cost D an external benefit and an external cost

Accepted Answer

A

Question 17

17 The table shows the results of a cost-benefit analysis into the building of a new runway at an airport. costs benefits US$m US$m private 100 125 external 25 20 Which statement about the new runway is correct? A The net external benefit is US$5 million. B The net private benefit is US$25 million. C The net social benefit is US$105 million. D The net social benefit is US$145 million.

Accepted Answer

B

Question 18

18 In the diagram, the initial quantity traded was Q and the price was P. D S1 S P1 price P S1 S D O Q Q1 quantity The price then rose to P1 and the quantity traded rose to Q1. Which combination of government policy measures could explain this change? A the removal of a maximum price and the imposition of an income tax on consumers B the removal of a maximum price and the removal of a subsidy to producers C the removal of a minimum price and the granting of a subsidy to producers D the removal of a minimum price and the imposition of an indirect tax on the product

Accepted Answer

B

Question 19

19 The table shows the output of cars and televisions per worker per week before trade and specialisation. country X country Y cars 2 8 televisions 6 48 Each country specialises in the product where it has a comparative advantage and trades on the basis of an exchange rate which lies between their opportunity cost ratios. Which change would stop the countries specialising and trading? A The exchange rate moves to one car for five televisions. B The exchange rate moves to one car for eight televisions. C The productivity of workers in country X rises to three cars per week. D The productivity of workers in country Y rises to fifty six televisions per week.

Accepted Answer

B

Question 20

20 A country produces washing machines. The government lowered both the tax on washing machines produced in its country and the quota on imports of foreign washing machines. What is the likely result? A Government revenue increased. B Home production decreased. C Prices of foreign washing machines fell. D The balance of trade in goods improved.

Accepted Answer

D

Question 21

21 The diagram shows the effect on the quantity of an import to the domestic market of the removal of a tariff that reduces the import’s price to P1. S (domestic) P S (world with tariff) price P1 S (world no tariff) D (domestic) O 15 30 40 48 quantity (000s) By how much will the quantity of imports increase? A 8000 tonnes B 10 000 tonnes C 23 000 tonnes D 33 000 tonnes

Accepted Answer

C

Question 22

22 A group of countries join together to form a single market with a single common currency. Which term best describes the resulting organisation? A customs union B economic union C free trade area D trade union

Accepted Answer

B

Question 23

23 The table shows the unemployment rate and the size of the labour force in four countries in 2012. Which country had the highest number of people in employment in 2012? unemployment size of the labour country rate (%) force (millions) A Egypt 12.6 27.7 B Iran 15.3 26.4 C Italy 9.3 25.1 D Turkey 8.0 27.4

Accepted Answer

D

Question 24

24 The diagram shows an economy’s aggregate demand curve and two short-run aggregate supply curves. SRAS1 SRAS2 price level AD O Y1 Y2 real output What could cause the change in real output from Y1 to Y2? A a decrease in bank lending B a decrease in world oil prices C an increase in indirect taxation D an increase in wage rates

Accepted Answer

B

Question 25

25 The table shows a country’s rate of inflation for four years. rate of inflation year % 2009 4.0 2010 3.0 2011 2.5 2012 2.0 What fell between 2009 and 2012? A average prices B the cost of living C the exchange rate D the value of money

Accepted Answer

D

Question 26

26 What is not a possible cause of cost-push inflation? A an increase in firms’ profit margins B an increase in raw material prices C an increase in the supply of money D an increase in trade union power

Accepted Answer

C

Question 27

27 What would lead a country to move from a surplus to a deficit 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

C

Question 28

28 What determines the purchasing power parity of a currency? A relative costs of living B relative rates of interest C the balance of payments current account D the volume of trade creation

Accepted Answer

A

Question 29

29 With an exchange rate of 5 Egyptian pounds (EGP) = 1 US dollar ($), an American product sells in Egypt for EGP 100. Assuming that the dollar price remains unchanged, what will be the price of the product in Egypt if the Egyptian pound appreciates to 4 EGP = 1 US$? A EGP 75 B EGP 80 C EGP 120 D EGP 125

Accepted Answer

B

Question 30

30 The US Central Bank raises its interest rate to improve its balance of payments position. The diagram shows the resulting changes in the demand for and supply of US$ in the foreign exchange market. W X exchange rate of US$ Y Z O quantity of US$ What should curves W, X, Y and Z be labelled to show the effect of the interest rate rise on the exchange rate? (Assume a change is shown by a move from a curve numbered 1 to a curve numbered 2.) W X Y Z A S1 S2 D1 D2 B S1 S2 D2 D1 C S2 S1 D1 D2 D S2 S1 D2 D1

Accepted Answer

D

Cambridge A Level Economics 9708 — 2014 May/June Paper 1 · Variant 2

Question paper16 pages

Mark scheme2 pages

Questions as text

Q1 · By 2030, as the human population grows, the world will need at least 50% more food, 45%…

Q2 · A country was at point P on its production possibility curve

Q3 · Which is a normative statement?

Q4 · Meera has just finished a course at art college and has decided to set up a business on…

Q5 · The demand curve in the diagram shows the relationship between the number of car journeys…

Q6 · The diagram shows the market for milk

Q7 · If the elasticity of demand for a commodity is unity, an increase in its price will A…

Q8 · The table shows a consumer’s expenditure on a range of goods at different levels of income

Q9 · What might cause a market supply curve to shift to the right?

Q10 · The diagram shows four different straight line supply curves

Q11 · The diagram illustrates the effects of placing a specific tax equal to JM on a good

Q12 · What is consumer surplus?

Q13 · In a market for a good both demand and supply change at the same time

Q14 · The existence of a positive externality is possible when A consumers are not the best…

Q15 · A firm opens a new factory on derelict ground on the outskirts of a town

Q16 · A firm owns a bridge and charges all vehicle users who cross it

Q17 · The table shows the results of a cost-benefit analysis into the building of a new runway…

Q18 · In the diagram, the initial quantity traded was Q and the price was P

Q19 · The table shows the output of cars and televisions per worker per week before trade and…

Q20 · A country produces washing machines

Q21 · The diagram shows the effect on the quantity of an import to the domestic market of the…

Q22 · A group of countries join together to form a single market with a single common currency

Q23 · The table shows the unemployment rate and the size of the labour force in four countries…

Q24 · The diagram shows an economy’s aggregate demand curve and two short-run aggregate supply…

Q25 · The table shows a country’s rate of inflation for four years

Q26 · What is not a possible cause of cost-push inflation?

Q27 · What would lead a country to move from a surplus to a deficit on the current account of…

Q28 · What determines the purchasing power parity of a currency?

Q29 · With an exchange rate of 5 Egyptian pounds (EGP) = 1 US dollar ($), an American product…

Q30 · The US Central Bank raises its interest rate to improve its balance of payments position

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