Cambridge A Level Economics 9708 — 2015 May/June Paper 3 · Variant 1

Question 1

1 An economy reallocates resources and moves along its production possibility frontier. It increases production of necessity goods and reduces production of luxury goods. The marginal utility of the consumers of the additional necessity goods produced is greater than the marginal utility of the consumers of the luxury goods that are no longer produced. What is the effect on the economic efficiency of the economy? productive allocative efficiency efficiency A increases increases B increases unchanged C unchanged increases D unchanged unchanged

Accepted Answer

C

Question 2

2 A household which spends all of its income on bananas and apples makes the following purchases. price per fruit unit ($) bananas 2.50 apples 1.00 The household derives twice as much utility from the last unit of bananas consumed as from the last unit of apples consumed. What should the household do to maximise utility from the consumption of these fruits? consumption consumption of bananas of apples A decrease increase B increase decrease C no change decrease D no change increase

Accepted Answer

A

Question 3

3 The curve JK in the diagram is a consumer’s initial budget line. G J good Y O H K good X Which combination could cause the budget line to shift to GH? price of consumer’s good X money income A increase increase B decrease decrease C increase decrease D decrease increase

Accepted Answer

A

Question 4

4 The diagram shows a perfectly competitive firm’s average product of labour (APL) and marginal product of labour (MPL) curves. J K wage, labour product M L APL MPL O number of workers employed The market price of the firm’s product is $1. Which segment of the curves represents the firm’s demand for labour curve? A OJ B JK C KL D KM

Accepted Answer

C

Question 5

5 The table shows the main characteristics of employment in two alternative occupations. occupation X occupation Y average annual wage $80 000 $100 000 number of weeks annual leave 10 weeks 5 weeks average length of working week 44 hours 48 hours job security low high length of training course to obtain job qualification 2 years 1 year What can definitely be deduced from the table? A Occupation Y has greater non-financial advantages than occupation X. B There will be more competition for places on training courses to enter occupation X than occupation Y. C Those who choose occupation X attach more importance to leisure activities than those who choose occupation Y. D Those who choose occupation Y attach greater importance to job security than those who choose occupation X.

Accepted Answer

C

Question 6

6 A trade union seeks to increase the wages a firm pays to its workers while at the same time preserving jobs. What will strengthen the union’s negotiating position? A Capital and labour are close substitutes. B The demand for the good produced by the firm is price elastic. C The supply of labour to the firm is perfectly elastic. D The trade union operates in a monopsonistic labour market.

Accepted Answer

D

Question 7

7 When a firm increases all its inputs by 300%, its output increases by 400%. What does this illustrate? A diseconomies of scale B increasing returns to scale C the law of diminishing returns D the law of variable proportions

Accepted Answer

B

Question 8

8 The average variable costs of a firm are constant over the relevant range of output. Assuming that fixed costs are incurred, which curve on the diagram could be the firm’s average total cost curve over this range? A B costs C D O output

Accepted Answer

D

Question 9

9 Which is an example of an external diseconomy? A difficulties in coordinating activities in a large organisation B difficulties in motivating workers in a large organisation C higher transport costs as a firm’s market expands D increased traffic congestion as industries expand

Accepted Answer

D

Question 10

10 What makes it easier for a small firm to compete against large firms in the same industry? A The nature of the industry’s product is highly standardised. B The product specification demanded by each customer is different. C There are significant barriers facing potential new entrants. D Transport costs are low relative to the value of the product.

Accepted Answer

B

Question 11

11 The diagram shows a firm’s average revenue (AR) curve. average revenue v z w AR O X X+1 output The firm currently produces output OX. Which area(s) will measure the firm’s marginal revenue if it produces an additional unit of output? A w + v B w + z C w – v D w only

Accepted Answer

C

Question 12

12 The diagram shows the cost and revenue curves for the production of a textbook. Which price would maximise the publisher’s revenue from the book? cost, A revenue B C AC D MC AR O MR number of copies

Accepted Answer

B

Question 13

13 The diagram shows the cost and revenue curves of a monopolistically competitive firm in long-run equilibrium. LRAC LRMC cost, revenue AR MR O output Which statements correctly describe the performance of this firm? the firm is the firm is fully operating with exploiting available excess capacity economies of scale A no no B no yes C yes yes D yes no

Accepted Answer

D

Question 14

14 In the diagram, D is the demand curve for cigarettes, S is the supply curve and MSC is the marginal social cost curve. MSC S1 S price P D O Q quantity The introduction of a specific tax on cigarettes causes the supply curve to shift to S1. What are likely to be the impacts of the tax on economic efficiency and the tax system? economic efficiency tax system A improves less regressive B improves more regressive C worsens less regressive D worsens more regressive

Accepted Answer

B

Question 15

15 Which combination of policy changes is most likely to redistribute income from the richest households to the poorest households in an economy? means-tested universal excise duties benefits benefits A decrease increase decrease B decrease increase increase C increase decrease increase D increase decrease decrease

Accepted Answer

A

Question 16

16 In order to reduce milk production, all producers are given a quota which limits the amount of milk each producer is allowed to produce. Initially, the quotas cannot be traded. What will be the effect on the total volume of milk production and on the overall profits of milk producers if they are allowed to trade the quotas among themselves? effect on effect on total volume profits A increase increase B increase decrease C unchanged increase D unchanged decrease

Accepted Answer

C

Question 17

17 During a year, a country’s national income in money terms increased by 5%, prices increased by 4% and the total population increased by 2%. What was the approximate change in real income per head? A a decrease of 1% B a decrease of 2% C an increase of 1% D an increase of 2%

Accepted Answer

A

Question 18

18 Which represents an injection into an economy’s circular flow of income? A a balance of trade deficit B a government budget deficit C household saving D the retained profits of private companies

Accepted Answer

B

Question 19

19 In a closed economy with no government sector, investment is increased by $100 million and real income increases by $500 million. What is the marginal propensity to consume? A 0.2 B 0.4 C 0.8 D 5.0

Accepted Answer

C

Question 20

20 The income velocity of circulation is equal to 2.0. If the rate of growth of the money supply is 8% and the average price level increases by 4%, what will be the change in real output (transactions)? A +4% B +8% C +12% D +16%

Accepted Answer

A

Question 21

21 The diagram shows the demand curves and supply curves of loanable funds. The market is in equilibrium at point X. What would be the new equilibrium point if there were an increase in business confidence and a reduction in the propensity to save? S1 D3 D2 S2 D1 B S3 A rate of C X interest D O loanable funds

Accepted Answer

B

Question 22

22 What will be most likely to decrease a country’s national output in the short-run but to increase its potential for long-run growth? A a decrease in the level of import tariffs B a decrease in the rate of immigration C an increase in female participation in the labour force D an increase in the money supply

Accepted Answer

A

Question 23

23 Which change would best indicate that a country has experienced economic development? A an appreciation in the country’s currency B an improvement in the average citizen’s quality of life C an improvement in the country’s trade balance D an increase in the country’s real GDP

Accepted Answer

B

Question 24

24 The diagram shows the relationship between the rate of inflation and the rate of unemployment. F J inflation rate G K O unemployment rate What would cause the curve FG to shift to JK? A a lower exchange rate B a lower expected rate of inflation C an increase in government expenditure D a rise in the level of employment

Accepted Answer

B

Question 25

25 What is the best measure of the economic cost of an increase in unemployment? A the additional social security benefits paid plus the loss of tax revenue from newly unemployed workers B the loss of potential exports C the money value of the additional social security benefits paid D the output the unemployed workers could have produced

Accepted Answer

D

Question 26

26 The diagram shows the actual output and expected output of an economy. expected output output actual output O time What would help to reduce the divergence of actual output from expected output? A a balanced budget B a stable exchange rate C automatic stabilisers D stable interest rates

Accepted Answer

C

Question 27

27 In an economy with a fixed exchange rate, which combination of policies is likely to be most effective at tackling both a growing current account deficit on the balance of payments and rising inflationary pressure? A a budget deficit and higher interest rates B a budget deficit and lower interest rates C a budget surplus and higher interest rates D a budget surplus and lower interest rates

Accepted Answer

C

Question 28

28 The table gives details of a government’s budget over two years. 2012 / 13 2013 / 14 (US$ millions) (US$ millions) government revenue 2 630 000 3 730 000 government spending 3 000 300 3 770 000 What happened to government finances between 2012 / 13 and 2013 / 14? A The annual budget deficit rose. B The annual budget surplus fell. C The national debt fell. D The national debt rose.

Accepted Answer

D

Question 29

29 In an open economy, what is most likely to cause the money supply to fall? A a balance of payments surplus B an increase in the ratio of cash reserves to total deposits in the commercial banking sector C central bank bond purchases from the non-bank private sector D government borrowing from the commercial banking sector

Accepted Answer

B

Question 30

30 A government responds to a fall in national income by increasing its spending. It finances the increased spending by issuing bonds to the non-bank private sector. What is likely to be one of the consequences of this policy? A a crowding out of private investment B a decreased balance of trade deficit C a reduction in the money supply D an increase in the cash reserves of the commercial banks

Accepted Answer

A

Cambridge A Level Economics 9708 — 2015 May/June Paper 3 · Variant 1

Question paper16 pages

Mark scheme2 pages

Questions as text

Q1 · An economy reallocates resources and moves along its production possibility frontier

Q2 · A household which spends all of its income on bananas and apples makes the following…

Q3 · The curve JK in the diagram is a consumer’s initial budget line

Q4 · The diagram shows a perfectly competitive firm’s average product of labour (APL) and…

Q5 · The table shows the main characteristics of employment in two alternative occupations

Q6 · A trade union seeks to increase the wages a firm pays to its workers while at the same…

Q7 · When a firm increases all its inputs by 300%, its output increases by 400%

Q8 · The average variable costs of a firm are constant over the relevant range of output

Q9 · Which is an example of an external diseconomy?

Q10 · What makes it easier for a small firm to compete against large firms in the same industry?

Q11 · The diagram shows a firm’s average revenue (AR) curve

Q12 · The diagram shows the cost and revenue curves for the production of a textbook

Q13 · The diagram shows the cost and revenue curves of a monopolistically competitive firm in…

Q14 · In the diagram, D is the demand curve for cigarettes, S is the supply curve and MSC is…

Q15 · Which combination of policy changes is most likely to redistribute income from the…

Q16 · In order to reduce milk production, all producers are given a quota which limits the…

Q17 · During a year, a country’s national income in money terms increased by 5%, prices…

Q18 · Which represents an injection into an economy’s circular flow of income?

Q19 · In a closed economy with no government sector, investment is increased by $100 million…

Q20 · The income velocity of circulation is equal to 2.0

Q21 · The diagram shows the demand curves and supply curves of loanable funds

Q22 · What will be most likely to decrease a country’s national output in the short-run but to…

Q23 · Which change would best indicate that a country has experienced economic development?

Q24 · The diagram shows the relationship between the rate of inflation and the rate of…

Q25 · What is the best measure of the economic cost of an increase in unemployment?

Q26 · The diagram shows the actual output and expected output of an economy

Q27 · In an economy with a fixed exchange rate, which combination of policies is likely to be…

Q28 · The table gives details of a government’s budget over two years

Q29 · In an open economy, what is most likely to cause the money supply to fall?

Q30 · A government responds to a fall in national income by increasing its spending

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