Cambridge A Level Economics 9708 — 2014 Oct/Nov Paper 3 · Variant 1

1 Which statement about efficiency is correct? A Allocative efficiency occurs when marginal revenue equals marginal cost. B An economy is productively efficient when it is producing at a point on its production possibility curve. C An economy will improve its allocative efficiency when its production possibility curve moves outward. D Productive efficiency occurs when the prices of goods equal their marginal cost of production.

Mark scheme: B

More questions on Efficiency and market failure

2 The schedule shows the total utility derived by a consumer of a good X at different levels of consumption. quantity of X consumed 1 2 3 4 5 6 7 total utility (units) 30 50 65 75 80 83 84 The consumer obtains two units of utility from the last $ she spends on each good that she purchases. What is the maximum number of units of X that she will consume if the price of X is $5? A 3 B 4 C 5 D 6

Mark scheme: B

More questions on Utility

3 In the diagram a consumer’s budget line shifts from GH to JK. J G good Y O K H good X Which statement must be correct? A The price of good X has increased relative to the price of good Y. B The prices of both goods have fallen. C There has been an increase in the consumer’s real income. D There has been an increase in the consumer’s money income.

Mark scheme: A

More questions on Indifference curves and budget lines

4 The short-run production function in the diagram shows the relationship between the total product of labour and labour hours worked. TPL output O labour hours What is held constant when drawing this function? A the average price level B the hourly wage C the size of the labour force D the stock of capital

Mark scheme: D

More questions on Types of cost, revenue and profit, short-run and long-run production

5 What is an example of a wage differential that compensates for the disadvantages associated with particular jobs? A a tendency for wage rates negotiated by trade unions to exceed those for non-unionised labour B government office workers being paid more than private sector office workers C labourers on off-shore oil rigs earning more than those employed on-shore D male workers earning more than female workers in the same job

Mark scheme: C

More questions on Labour market forces and government intervention

6 To increase the labour force from 30 to 31 workers, an entrepreneur is forced to increase the daily wage rate from $40 to $41. What is the marginal cost of labour per day? A $1 B $31 C $71 D $1271

Mark scheme: C

More questions on Labour market forces and government intervention

7 The workers in a firm have not previously belonged to a trade union but now join one. In which circumstance is this most likely to raise their wages? A Capital is highly substitutable for labour. B Labour costs constitute a large fraction of the firm’s costs. C The demand for the firm’s product is price-inelastic. D The firm operates in a perfectly competitive labour market.

Mark scheme: C

More questions on Labour market forces and government intervention

8 The diagram shows the relationship between a firm’s output and the number of workers employed at different levels of capital stock (K). K4 K3 K2 output K1 O number employed What does the diagram show? A the firm’s long-run production function B the firm’s long-run rate of return on capital C the firm’s long-run total cost function D the firm’s short-run rate of return on capital

Mark scheme: A

More questions on Types of cost, revenue and profit, short-run and long-run production

9 Which diagram shows the short-run marginal cost (MC) of providing a service where the total costs of production in the short run are fixed? A B C D MC MC costs costs costs costs MC MC O number O number O number O number of users of users of users of users

Mark scheme: A

More questions on Types of cost, revenue and profit, short-run and long-run production

10 Which is a financial economy of scale? A greater bargaining power in purchasing from suppliers B greater diversification of the product range C lower costs in raising capital D lower distribution costs by increasing market share

Mark scheme: C

More questions on Growth and survival of firms

11 The diagram shows a firm’s average revenue curve. revenue AR O output What can be deduced from the average revenue curve about the firm’s total revenue as it increases output? A It will rise continuously. B It will fall continuously. C It will rise initially then fall. D It will fall initially then rise.

Mark scheme: C

More questions on Types of cost, revenue and profit, short-run and long-run production

12 What is an assumption underlying the kinked demand curve in oligopoly? A A firm will increase its price in response to a price increase by a rival. B A firm will not match a price cut by a rival. C Consumers are less sensitive to price increases than price decreases. D Rivals are expected to match any reduction in price.

Mark scheme: D

More questions on Different market structures

13 At its current level of output a monopolist is on the price-inelastic part of its demand curve. What would happen to price and output if it maximised its profits? price output A decrease decrease B decrease increase C increase decrease D increase increase

Mark scheme: C

More questions on Differing objectives and policies of firms

14 In many countries, laws exist which prohibit firms from copying innovations introduced by other firms. What is the economic reason behind these laws? A A degree of monopoly power can help to achieve allocative efficiency. B A degree of monopoly power may be helpful in achieving technical progress. C Research and development is best conducted by government organisations. D The prices of goods produced by monopolies need to be regulated.

Mark scheme: B

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15 Which policy change will make some individuals better off without making anyone worse off? A allowing farmers to buy and sell milk quotas B introducing a national minimum wage C introducing free bus travel for those over 60 D removing restrictions on the opening hours of supermarkets

Mark scheme: A

More questions on Efficiency and market failure

16 A good gives rise to external benefits and is produced under conditions of monopolistic competition. Which statement must be correct? A Output of the good is at the socially optimum level. B Output of the good is above the socially optimum level. C Private costs exceed social benefits. D Social benefits exceed private benefits.

Mark scheme: D

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

17 A woman joins the labour force earning a salary of $25 000 per annum. Her partner, who is already employed, earns $18 000 per annum. The couple pay a childminder $8000 per annum to look after their baby. What will be the increase in GDP? A $17 000 B $25 000 C $33 000 D $51 000

Mark scheme: C

More questions on National income statistics

18 A central bank purchases government securities as part of a policy of quantitative easing. What is likely to be the effect on interest rates and the supply of money? interest rates money supply A decrease decrease B decrease increase C increase decrease D increase increase

Mark scheme: B

More questions on Money and banking

19 An economy is operating at its natural rate of unemployment. According to monetarist theory, what will be the effect of an unanticipated increase in the money supply on unemployment in the short run and in the long run? short run long run A no change no change B no change reduction C reduction no change D reduction reduction

Mark scheme: C

More questions on Employment/unemployment

20 In an economy in which there is full employment, the marginal propensity to consume of pensioners is greater than that of taxpayers. Government expenditure on pensions is decreased by $20 billion. To maintain full employment, taxation must be A increased by more than $20 billion. B increased by less than $20 billion. C reduced by less than $20 billion. D reduced by more than $20 billion.

Mark scheme: D

More questions on Fiscal policy

21 The table shows some data for an economy. government national investment exports savings imports taxation expenditure income $m $m $m $m $m $m $m 200 100 100 100 120 100 700 200 100 100 120 140 100 800 200 100 100 130 170 100 900 200 100 100 140 200 280 1000 What is the equilibrium level of national income? A $700 m B $800 m C $900 m D $1000 m

Mark scheme: C

More questions on The circular flow of income

22 Assuming a constant income velocity of circulation of money, if the rate of inflation is 10% and the rate of growth of the money supply is 7%, what will be the approximate change in the volume of national output? A –7% B –3% C +3% D +13%

Mark scheme: B

More questions on Money and banking

23 The diagram shows two liquidity preference demand curves for money (LP). The money supply is M and the initial equilibrium rate of interest is r1. LP2 LP1 M rate of r1 interest r2 O quantity of money What could have caused the fall in the rate of interest from r1 to r2? A an increase in output B an increase in savings C an increase in unemployment D a rise in the price level

Mark scheme: C

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24 What would be most likely to increase a country’s long-run trend rate of growth? A an appreciation of the currency B an increase in import tariffs C an increase in the money supply D a reduction in the ratio of Government Debt to GDP

Mark scheme: D

More questions on Economic growth and sustainability

25 The chart shows the rates of economic growth and unemployment in a country for the period 2007 to 2010. 10 9 8 7 6 percentage change in real GDP % 5 4 percentage rate of unemployment 3 2 1 0 2007 2008 2009 2010 year What does the chart show? A Real GDP was lowest in 2010. B The standard of living fell between 2009 and 2010. C The total labour force declined between 2007 and 2009. D The unemployment rate fell when the growth rate increased.

Mark scheme: D

More questions on Employment/unemployment

26 The number of people employed in a country and the level of unemployment both decrease. What could explain this? A an increase in the age at which state pensions are payable B an increase in the number of students C an increase in the population of working age D net inward immigration

Mark scheme: B

More questions on Employment/unemployment

27 Which combination of government interventions would be intended to support the lower income group in an economy? welfare payment tax system type of subsidy system A means tested progressive food B means tested proportional private transport C universal proportional food D universal progressive private transport

Mark scheme: A

More questions on Equity and redistribution of income and wealth

28 The government of a major trading country imposes a tariff on imported goods. What is likely to be the impact on the prices paid to the foreign producers of the goods and on the prices paid for the goods by domestic consumers? prices paid to prices paid by foreign domestic producers consumers A decrease decrease B decrease increase C increase decrease D increase increase

Mark scheme: B

More questions on Protectionism

29 In which set of circumstances is an economy likely to experience both falling inflation and, at the same time, falling unemployment? unemployment actual growth rate in output A above the natural rate above long-term trend rate of growth B above the natural rate below long-term trend rate of growth C below the natural rate above long-term trend rate of growth D below the natural rate below long-term trend rate of growth

Mark scheme: A

More questions on Links between macroeconomic problems and their interrelatedness

30 If the unemployment that exists in a country is judged to be mainly structural, which is the most effective policy the government could implement? A increase subsidies for training B increase the money supply C reduce tax rates D raise interest rates

Mark scheme: A

More questions on Supply-side policy