Cambridge A Level Economics 9708 — 2014 Oct/Nov Paper 1 · Variant 2

1 Which statement about the problem of scarcity is correct? A Continually rising productivity will increase output and solve scarcity. B Future inventions will introduce new products that remove scarcity. C Government printing of money will raise incomes and eliminate scarcity. D Human nature will make the solution of scarcity impossible.

Mark scheme: D

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2 A firm is considering whether to buy a piece of capital equipment which will cost $2000. It estimates that the equipment will last for two years. The alternative is to lend the money to a finance company at a compound rate of interest of 5%. What is the minimum increase in revenue the firm must expect to make it worthwhile buying the equipment? A $101 B $206 C $2001 D $2206

Mark scheme: D

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3 The diagram shows the production possibility curve XX of an economy that produces both consumer goods and capital goods. X M capital N goods X O consumer goods If the economy moves from point M to point N, which diagram represents the most likely position of the production possibility curve YY in the future? A B X X Y Y capital capital goods goods Y X Y X O consumer goods O consumer goods C D X Y capital Y capital X goods goods X Y X Y O consumer goods O consumer goods

Mark scheme: B

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4 Arfan and his brother Ben own and run a fishing business together. They have one boat and on the days when they fish they employ Cephas and Dipak. They sell the fish to the owner of a local shop. Which row correctly identifies the factors of production involved? land labour capital enterprise A shop Arfan and money paid shop owner Ben for the fish B shop Cephas and boat Arfan Dipak C the fish Ben money paid shop owner for the fish D the fish Cephas and boat Arfan and Dipak Ben

Mark scheme: D

More questions on Factors of production

5 The market price of a product rose from $8 to $10 and as a result the market demand fell from 20 000 to 8000 a week. Consumer X’s demand declined from 30 to 24 and consumer Y’s demand fell from 100 to 60 a week. What can be concluded from this information? A Consumer X’s demand for the product was more elastic than the market demand. B Consumer X’s percentage share of the market increased. C Producer’s total profit fell. D Producer’s total revenue rose.

Mark scheme: B

More questions on Demand and supply curves

6 A government wishes to impose a tax on a good so that the producer and not the consumer pays most of the tax increase. Which level of price elasticity of demand would it be best for the good to have to achieve this aim? A price elasticity of demand is elastic B price elasticity of demand is inelastic C price elasticity of demand is perfectly inelastic D price elasticity of demand is unitary

Mark scheme: A

More questions on Price elasticity, income elasticity and cross elasticity of demand

7 The demand for a commodity has unitary price elasticity. Which diagram shows the relationship between total expenditure on the commodity and its price? A B total total expenditure expenditure O O price price C D total total expenditure expenditure O O price price

Mark scheme: B

More questions on Price elasticity, income elasticity and cross elasticity of demand

8 The price of good X rises by 10%. As a result, the demand for a substitute good Y rises by 20%. What is the cross-elasticity of demand for good Y with respect to the price of good X? A +2 B +0.5 C –0.5 D –2

Mark scheme: A

More questions on Price elasticity, income elasticity and cross elasticity of demand

9 The diagram shows the supply curve of coffee in an economy. supply Y price X O quantity The market equilibrium is initially at point X, but a change moves it to point Y. What might explain this? A an increase in wages paid by producers of coffee B a switch in consumer tastes from coffee to tea C an increase in the price of tea D a tax imposed on coffee producers

Mark scheme: C

More questions on The interaction of demand and supply

10 In the diagram OS1 and OS2 are two straight-line supply curves. S1 S2 price O quantity As price increases, the elasticity of supply A decreases along both OS1 and OS2. B increases less rapidly along OS1 than along OS2. C increases more rapidly along OS1 than along OS2. D is constant along OS1 and along OS2.

Mark scheme: D

More questions on Price elasticity of supply

11 In which case will a given increase in the supply of a good cause the greatest fall in the price of the good? A when the demand for the good is perfectly inelastic B when the demand for the good is infinite C when the good is an inferior good D when the good’s price elasticity of demand is positive

Mark scheme: A

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12 The table shows the maximum price a consumer would be willing to pay for successive cans of fruit juice. cans first second third fourth fifth price ($) 14 10 6 4 3 The price of a can of fruit juice is $4 and, having bought three cans, the consumer decides to buy a fourth. How does buying the fourth can affect his consumer surplus? A It leaves it unchanged. B It lowers it by $2. C It raises it by $4. D It raises it by $34.

Mark scheme: A

More questions on Consumer and producer surplus

13 Which combination of changes would enable the price mechanism to allocate resources more efficiently in a monopoly market? consumer producer sovereignty sovereignty A decrease decrease B decrease increase C increase decrease D increase increase

Mark scheme: C

More questions on Resource allocation in different economic systems

14 A firm wishes to build a factory extension. Permission is required from the government because the extension may increase A comparative costs. B external costs. C opportunity costs. D private costs.

Mark scheme: B

More questions on Private costs and benefits, externalities and social costs and benefits

15 The diagram shows the private and social costs and benefits that arise from the consumption and production of a good. MSC = MPC 14 costs / 13 benefits $ 10 8 MSB MPB 0 20 25 quantity If there is no government intervention, what is the value of the marginal external benefit? A $2 B $3 C $4 D $6

Mark scheme: C

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16 What can be provided only as a public good? A road use B security services C street lighting D TV broadcasting

Mark scheme: C

More questions on Classification of goods and services

17 The diagram shows the demand for and supply of a foreign-made mobile (cell) phone. The initial position in the domestic market is X. S E S1 F price G X D1 D O quantity Importers increased the supply of the phone and there was an increase in demand for the phone. The government considered whether to protect domestic manufacturers with a limit on imports which would keep the supply at the initial quantity. How would the price change between the new equilibrium without a limit on imports and the equilibrium with a limit on imports? A a movement from E to F B a movement from F to G C a movement from G to E D a movement from G to F

Mark scheme: C

More questions on Protectionism

18 The government imposes a maximum price of P2 on a product. S P2 P1 price D O Q2 Q1 Q3 quantity What will be the position after this action? A an equilibrium with price P1 and quantity Q1 B an equilibrium with price P2 and a quantity between Q2 and Q3 C an oversupply in the market by Q2Q3 D a shortage in the market of Q2Q3

Mark scheme: A

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19 What is an effect on a country of free trade? A greater diversification of locally produced goods B greater efficiency in the resource use C greater independence in production D greater security for local industries

Mark scheme: B

More questions on The reasons for international trade

20 What is meant by dumping in international trade? A selling products in a foreign market at a price below cost B selling products in a foreign market at a price below that of other firms C selling products in a foreign market that are of a lower quality than those of domestic firms D selling products in a foreign market that are of a lower quality than those of other foreign firms

Mark scheme: A

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21 As a result of a trade agreement, toys produced in Africa can be supplied to European markets. These toys are much cheaper than similar toys produced in Europe but are not of such good quality. What will happen in Europe to expenditure on toys, employment in European toy companies and imports from Africa? expenditure employment imports A decrease decrease decrease B increase decrease uncertain C increase uncertain increase D uncertain uncertain increase

Mark scheme: D

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22 Which international transaction is correctly matched to the part of the balance of payments account in which it is recorded? transaction part of account A the outflow of funds from national balancing item reserves to foreign residents B the provision of banking financial section services to foreign companies C the purchase of shares capital section in foreign banks D the receipt of interest on income section loans to foreign companies

Mark scheme: D

More questions on Current account of the balance of payments

23 The diagram shows annual average labour productivity growth for three groups of countries during two time periods. 5 4 3 2 1 0 1975-1990 1990-2005 key agriculture Latin America East Asia 4 high-income countries 3 2 1 0 –1 1975-1990 1990-2005 industry Which activity in which country group achieved the greatest improvement in its labour productivity growth rate between 1975-1990 and 1990-2005? A agriculture in high-income countries B agriculture in Latin America C industry in East Asia D industry in Latin America

Mark scheme: D

More questions on Characteristics of countries at different levels of development

24 The diagram, which shows part of the process that causes the aggregate demand curve to slope downwards to the right, is incomplete. rate of interest ......1...... level of aggregate price consumption level rises ......3...... real value of savings ......2...... Which words correctly complete gaps 1, 2 and 3? 1 2 3 A falls falls falls B falls rises rises C rises falls falls D rises rises falls

Mark scheme: C

More questions on Aggregate Demand and Aggregate Supply analysis

25 The graph shows the rate of inflation in a country in a 5 year period. + rate of inflation 0 % 1 1 2 2 3 4 5 – year What can be concluded from the graph? A The price level fell during two years. B The price level was highest during year 4. C The value of money fell for 5 years. D The value of money rose in 1 year.

Mark scheme: D

More questions on Price stability

26 What might explain an increase in the volume of a country’s imports? A an appreciation of the country’s exchange rate B an increase in the country’s tariffs C a recession in the country D a rise in the country’s rate of income tax

Mark scheme: A

More questions on Current account of the balance of payments

27 What is the most likely consequence of an increase in a country’s balance of payments deficit? A an increase in the foreign value of the currency of the country B an increase in the level of income within the country C a reduction in the quantity of money within the country D a reduction in unemployment within the country

Mark scheme: C

More questions on Current account of the balance of payments

28 Which economic change might contribute to both cost-push and demand-pull inflation? A a fall in the exchange rate B a fall in the interest rate C a rise in the productivity of industrial workers D an improvement in the terms of trade

Mark scheme: A

More questions on Aggregate Demand and Aggregate Supply analysis

29 The diagram shows the market for Japanese Yen. S2 S1 price of Yen in terms of other currencies D O quantity of Yen What could have caused the change in the supply of Yen from S1 to S2? A a reduction in the level of international investment into Japan B a reduction in the level of Japanese tariffs C a reduction in the value of foreign goods imported into Japan D a reduction in the value of Japanese goods exported

Mark scheme: C

More questions on Exchange rates

30 To reduce a deficit on the current account of the balance of payments, a government imposes a limit on the foreign exchange its people and firms can purchase. Why may this increase the country’s inflation rate? A Firms may have to purchase more expensive, domestically-produced raw materials. B Firms may have to sell more of their output on the domestic market. C The change in demand for foreign currency on the foreign exchange market may lead to an appreciation in the exchange rate. D The change in supply of the domestic currency on the foreign exchange market may reduce the money supply in the domestic economy.

Mark scheme: A

More questions on Policies to correct imbalances in the current account of the balance of payments