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

1 In an economy no one can be made better off without making others worse off. What can be concluded from this? A All markets are perfectly competitive. B There are no externalities. C The economy is operating on its production possibility curve. D The distribution of income reflects what each individual deserves.

Mark scheme: C

More questions on Efficiency and market failure

2 A consumer allocates his expenditure between three goods, X, Y and Z. The table shows the consumer's marginal utilities for these goods and their prices. good X Y Z marginal utility (units) 3 5 10 price ($) 10 15 30 How should the consumer's expenditure be reallocated in order to maximise his utility? X Y Z A less less more B less more more C more less less D more more less

Mark scheme: B

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3 In the diagram a consumer's budget line shifts from GH to JK. G J good Y O K H good X Which statement is correct? A There has been a decrease in the price of both X and Y. B There has been an increase in the consumer’s money income. C There has been no change in the price of X or Y. D There has been no change in the price of X relative to the price of Y.

Mark scheme: D

More questions on Indifference curves and budget lines

4 Night shift workers are often paid more than day shift workers performing the same tasks. What could explain this observed wage differential? A higher productivity of day shift workers B non-pecuniary disadvantages of working night shifts C the absence of competition between the two groups of workers D the inclusion of economic rent in the wages paid to night shift workers

Mark scheme: B

More questions on Labour market forces and government intervention

5 A firm currently employs 100 workers and its daily wage bill is $30 000. An increase in its labour force to 101 workers would result in a $502 increase in its daily wage bill. What is the marginal cost of labour per day? A $2 B $202 C $502 D $30 502

Mark scheme: C

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

6 The curve SS1 in the diagram is the supply of labour curve facing a firm before the unionisation of its workforce. S1 wage W W1 rate M S O number of workers The union negotiates a wage equal to W. What does the labour supply curve now become? A MS1 B SMW1 C WW1 D WMS1

Mark scheme: D

More questions on Labour market forces and government intervention

7 The diagram shows a worker’s supply of labour curve. S wage rate per hour y W x z 0 10 20 30 40 hours per week The worker is required to work a minimum of 40 hours a week at the hourly wage, 0W. Which area measures the economic rent obtained by the worker? A x – y B x + y C y – x D y + z

Mark scheme: A

More questions on Labour market forces and government intervention

8 The curves in the diagram show the different combinations of capital and labour a firm needs to produce given levels of output. capital Q = 300 units Q = 200 units Q = 100 units O labour What can be concluded from a comparison of curves in the diagram? A Over the 100 to 200 units output range, the firm encounters constant returns to scale. B Over the 100 to 200 units output range, the firm encounters decreasing returns to scale. C Over the 200 to 300 units output range, the firm encounters decreasing returns to scale. D Over the entire range of output, the firm encounters increasing returns to scale.

Mark scheme: C

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

9 The diagram shows a firm’s cost and revenue curves. MC AC cost, revenue AR O MR Q output What could explain why the firm produces output OQ? A It is operating in a perfectly competitive market. B It is seeking to achieve satisfying profits. C It is seeking to maximise profits. D It is seeking to maximise sales revenue.

Mark scheme: B

More questions on Differing objectives and policies of firms

10 The table shows the total revenue and marginal cost of a firm at different levels of production. production total marginal (tonnes) revenue ($) cost ($) 2 100 10 3 130 15 4 160 20 5 190 25 6 220 30 7 250 40 Given the firm wishes to maximise its profits, what is the highest output the firm will produce? A 3 tonnes B 4 tonnes C 5 tonnes D 6 tonnes

Mark scheme: D

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11 The diagram shows the percentage market share of mobile network operators in the US in January 2011. key all cellphones AT&T T-Mobile smartphones Verizon Wireless Sprint Nextel 0 20 40 60 80 100 other percent What can be concluded from the diagram? A AT&T has the largest share of both markets. B Small firms are unable to survive in either market. C The four firm concentration ratio is greater than 80% in both markets. D The market for smartphones is more competitive than the market for all cellphones.

Mark scheme: C

More questions on Different market structures

12 In the diagram, MC and AC are a profit-maximising monopolist’s marginal and average cost curves, and MR and AR, its initial marginal and average revenue curves. AC MC cost, P revenue AR MR O J K L M output Which distance will measure excess demand if the government sets a maximum price of P? A JK B KL C KM D LM

Mark scheme: C

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13 A country has a negative income tax system. The curve NT in the diagram shows the country’s initial tax schedule. + NT1 tax NT O income – A change in the tax rate causes the schedule to shift to NT1. What is likely to be the impact on efficiency and on equity? efficiency equity A improvement improvement B improvement worsening C worsening improvement D worsening worsening

Mark scheme: C

More questions on Equity and redistribution of income and wealth

14 The table shows the costs of two milk producers. cost per litre ($) firm X 10 firm Y 7 The price received by producers is $12 per litre. Both firms have been given quotas allowing them to produce 200 litres per day. Firm Y asks firm X if it can buy firm X’s quota. Assuming constant costs of production and zero costs of entry and exit, what is the minimum amount (per day) firm X would be willing to accept to sell its quota to firm Y? A $400 B $600 C $1000 D $2400

Mark scheme: A

More questions on Efficiency and market failure

15 In the diagram, DD is the demand curve for an agricultural commodity, S1 is the supply curve in period 1 and S2 is the supply curve in period 2. The broken curve XY is a rectangular hyperbola. X S1 D S2 P1 price P2 D Y O J K L M quantity The government operates a buffer stock scheme designed to keep farm revenue unchanged. In period 1 the price is fixed at P1. What action will the government need to take in period 2 to fix the price at P2? A add quantity JK to the buffer stock B add quantity KL to the buffer stock C release quantity KL from the buffer stock D release quantity KM from the buffer stock

Mark scheme: D

More questions on Methods and effects of government intervention in markets

16 What acts as a constraint on the use of income taxes to redistribute income to poorer groups in society? A the costs to employers of tax collection B the fact that poorer groups have a higher marginal propensity to save C the fact that richer and poorer groups have the same marginal propensity to consume D the likelihood that, at some point, higher marginal taxes will reduce tax revenue

Mark scheme: D

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17 Between 2008 and 2009 a country’s national income at current prices increased by 15%. At the same time the country experienced 5% inflation. Which index number most closely represents the country’s national income in 2009 at 2008 prices (2008 = 100)? A 103 B 110 C 115 D 120

Mark scheme: B

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18 Despite a government budget deficit, a country’s money supply remains unchanged. What could explain this? A The country has a balance of payments surplus equal to the government budget deficit. B The country’s foreign exchange rate is fixed. C The government budget deficit is financed by borrowing from the central bank. D The government budget deficit is financed by selling government bonds to members of the public.

Mark scheme: D

More questions on Money and banking

19 The table shows data on a country’s gross national product at market prices and on domestic spending. year 1 year 2 year 3 ($m) ($m) ($m) GNP at market prices 420 440 560 private consumption 200 260 300 government consumption 120 120 140 gross investment 90 80 130 In which of these years will the country be faced with a deficit on the current account of the balance of payments? year 1 year 2 year 3 A no yes yes B no yes no C yes no yes D yes no no

Mark scheme: A

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20 The diagram shows a shift in the economy’s saving function from S1 to S2. S1 saving S2 Y1 Y2 O income What can be deduced from the diagram? A Autonomous consumption has increased. B Equilibrium national income has increased from OY1 to OY2. C The marginal propensity to save has increased. D The multiplier has increased.

Mark scheme: D

More questions on The circular flow of income

21 A country’s government has a fiscal deficit of $200 billion which it finances by borrowing from the central bank. In the absence of offsetting factors, what will happen to aggregate expenditure and to the money supply if the government reduces the size of its deficit to $120 billion by cutting public spending? aggregate money supply expenditure A decrease decrease B increase decrease C decrease increase D increase increase

Mark scheme: C

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22 According to Keynesian theory, in which circumstance will there always be an increase in the demand for money? real income price level interest rates A constant decrease increase B constant increase decrease C increase decrease decrease D increase increase increase

Mark scheme: B

More questions on Money and banking

23 According to loanable funds theory, what will cause the rate of interest to rise? A a decrease in the demand for money B an increase in the level of savings C an increase in the rate of investment D an increase in the supply of money

Mark scheme: C

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24 What is most likely to cause a decrease in a country's long-run rate of economic growth? A an ageing population B increased inward migration C a decrease in the government's budget deficit D a decrease in the share of agriculture in the country's GDP

Mark scheme: A

More questions on Economic growth and sustainability

25 The graph shows the annual percentage changes in the prices of new houses and existing houses in the United Kingdom between 2010 and 2012. 15 10 5 % 0 –5 new houses –10 pre-owned existing houses –15 2010 Mar Apr May Jun July Aug Sep Oct Nov Dec 2011 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec 2012 Jan Feb Mar What can be concluded from the graph? A From October 2010 new houses on average were more expensive than existing houses. B The average price of new houses peaked in October 2011. C The average price of existing houses was lower in May 2011 than in May 2010. D The average price of existing houses fell to their lowest level in May 2011.

Mark scheme: C

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26 The Human Development Index (HDI) measures three dimensions of human development. What is not included as one of these dimensions? A access to knowledge B a decent standard of living C a long and healthy life D equal economic opportunity

Mark scheme: D

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27 What is the opportunity cost to society of an increase in unemployment? A the increase in taxes to pay for unemployment benefits B the loss in national output C the reduction in the disposable income of those who lose their jobs D the resulting increase in the government’s fiscal deficit

Mark scheme: B

More questions on Scarcity, choice and opportunity cost

28 Which policy to correct a balance of payments deficit would be classified as an expenditure dampening policy? A a devaluation of the exchange rate B an increase in direct taxes C an increase in import tariffs D the introduction of import quotas

Mark scheme: B

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

29 An economy with unemployed resources experiences an increase in government expenditure financed by borrowing from the non-bank private sector. What would diminish the resulting increase in GDP? A an expansion of the money supply B an increase in private investment C a reduction in the marginal propensity to save D a rise in the level of interest rates

Mark scheme: D

More questions on The circular flow of income

30 What would be an economic benefit to a major trading economy of imposing a tariff on imported goods? A It would increase labour productivity. B It would increase pressure on foreign suppliers to reduce their prices. C It would make the country’s exports more competitive. D It would reduce the prices paid by consumers for imported goods.

Mark scheme: B

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