Cambridge A Level Economics 9708 — 2015 May/June Paper 3 · Variant 2

Question 1

1 What need not pose a potential threat to allocative efficiency in a market economy? A externalities B differentiated products C monopolistic elements D perfect knowledge

Accepted Answer

D

Question 2

2 A utility-maximising consumer spends the whole of his disposable income of $40 on food and clothing. The table shows the price of food, the quantity purchased by the consumer, and the marginal utility he derives from food consumption. food price per unit $5 quantity demanded 5 marginal utility (units) 10 His marginal utility from clothing is 2 units. What is the price of clothing per unit and the quantity purchased by the consumer? clothing price quantity ($) (units) A 0.5 30 B 1.0 15 C 3.0 5 D 5.0 3

Accepted Answer

B

Question 3

3 For the purposes of measuring the income effect of a change in the price of a good, what is not held constant? A consumer preferences B relative prices C the consumer’s money income D the consumer’s real income

Accepted Answer

D

Question 4

4 The diagram shows the total product of labour (TPL) curve for a firm whose only variable factor input is labour. TPL total product of labour O number of workers employed What explains the shape of the curve? A diminishing marginal disutility of work B increasing marginal disutility of work C technical diseconomies of scale D the law of variable proportions

Accepted Answer

D

Question 5

5 A firm operates under perfect competition in both product and factor markets with labour as the only variable factor input. In the diagram, the line JK shows the relationship between the marginal physical product of labour and the hours worked: J 10 8 marginal physical 6 product of labour (units) 4 2 K 0 0 1 2 3 4 5 thousand hours When the price of the product is $1.60, the firm uses 3000 hours of labour. What is the hourly wage? A $0.40 B $2.40 C $5.60 D $6.40

Accepted Answer

D

Question 6

6 The diagram shows an individual’s supply of labour curve. S 80 w x 60 z hourly wage ($) 40 y 20 0 40 number of hours He is offered a job which would require him to work a standard 40-hour week. Which area measures the lowest amount he would have to be paid per week to get him to accept this job offer? A w + z B x + y C x + y - z D w + x + z + y

Accepted Answer

B

Question 7

7 What relationship does a firm’s long-run production function describe? A the firm’s output and the quantities of factor inputs employed B the firm’s long-run average cost of production and the level of output C the firm’s long-run average cost of production and the quantities of factor inputs employed D the prices of factor inputs and the quantities of factor inputs employed

Accepted Answer

A

Question 8

8 The table shows a firm’s total and marginal costs. output total cost ($) marginal cost ($) 1 340 40 2 375 35 3 400 25 4 435 35 5 475 40 What is the average fixed cost of producing 6 units? A $50 B $60 C $180 D $300

Accepted Answer

A

Question 9

9 A firm experiences external diseconomies of scale and decreasing returns to scale. How would these changes be illustrated on a cost curve diagram? shift in long-run movement along long- average cost curve run average cost curve A downward downward B downward upward C upward downward D upward upward

Accepted Answer

D

Question 10

10 The diagram shows the demand curve for a firm’s product. price D O quantity Which diagram depicts the shape of the firm’s corresponding total revenue (TR) curve? A B C D TR TR revenue revenue revenue revenue TR TR O O O O quantity quantity quantity quantity

Accepted Answer

C

Question 11

11 The firms in an industry all produce a homogeneous product, but each firm is able to influence the price it charges for its own product. In which market structure do the firms operate? A perfect competition B monopolistic competition C oligopoly D monopoly

Accepted Answer

C

Question 12

12 The diagram shows the cost and revenue curves of a monopoly. MC AC cost, revenue MR AR O X output What is the firm’s objective if it produces output OX? A to achieve normal profit B to maximise profit C to maximise total revenue D to minimise average cost

Accepted Answer

C

Question 13

13 The table shows information about a profit-maximising firm. price per unit $1.70 fixed costs $10 000 variable costs per unit $1.75 What can be concluded about the firm’s behaviour? A It should close down immediately because it is not covering its average costs. B It should close down immediately because it is not covering its variable costs. C It should continue production in the long-run because it is covering its total costs. D It should continue production in the short-run because it is covering its fixed costs.

Accepted Answer

B

Question 14

14 When will a society have achieved an equitable distribution of income? A when all individuals have equal job opportunities B when all workers are paid wages equal to their marginal value product C when the incomes within the society are equally distributed D when the society believes that the distribution of income is fair

Accepted Answer

D

Question 15

15 The government introduces a minimum wage above the equilibrium market wage rate. How will this affect low-paid workers? A All those initially in employment will receive the new guaranteed minimum wage. B Fewer of those not already in employment will enter the labour force. C There will be an increase in the number of low-paid workers in employment. D Some low-paid workers will lose their job.

Accepted Answer

D

Question 16

16 A country’s steel producers are members of a cartel. Each member is allocated a production quota and initially produces the maximum allowed under its quota. What will be the effect on productive efficiency and on the industry’s profits if the producers are allowed to trade the quotas amongst themselves? effect on effect productive on profits efficiency A improvement increase B improvement no change C no change increase D no change no change

Accepted Answer

A

Question 17

17 Which government policy would not be classified as regulation? A bans on heroin and cocaine consumption B compulsory wearing of seatbelts in cars and coaches C licences for the extraction of water from lakes and rivers D taxation of cigarettes and tobacco products

Accepted Answer

D

Question 18

18 Other things being equal, the money supply in an open economy will increase if A domestic banks increase their lending to foreign borrowers. B the central bank buys foreign currency in the foreign exchange market. C the government sells bonds to domestic residents. D there is an increase in the volume of imports to the economy.

Accepted Answer

B

Question 19

19 Which is not an injection into a country’s circular flow of national income? A inward direct investment by multinational corporations B private gross domestic fixed capital formation C the sale of government bonds to members of the public D wages paid to civil servants

Accepted Answer

C

Question 20

20 The national income is initially in equilibrium. If there is an increase in exports, which change of equivalent value will restore national income to its initial equilibrium level? A a decrease in imports B a decrease in investment C an increase in government expenditure on goods and services D a reduction in taxation

Accepted Answer

B

Question 21

21 In a closed economy with no government, investment increases by $400. At the new equilibrium level of income, consumption has increased by $1200. What is the value of the investment multiplier? A 2 B 3 C 4 D 8

Accepted Answer

C

Question 22

22 Assuming a constant income velocity of circulation of money, if the price level increases by 5% and the money supply grows by 2%, what will be the approximate change in real output (transactions)? A –3% B –2.5% C +3% D +7%

Accepted Answer

A

Question 23

23 Why will an inflationary process be brought to a halt if the money supply is held constant? A Consumption will decrease as money incomes decline. B Government expenditure will have to be reduced as government revenues decline. C The rate of interest will rise as more money is required for transactions purposes. D The stimulus to invest will decline as the real burden of company debt rises.

Accepted Answer

C

Question 24

24 The diagram shows the determination of the rate of interest in the economy, where M represents the money supply and LP represents liquidity preference. LP1 LP2 M rate of r2 interest r1 O quantity of money What could cause the rise in the rate of interest from r1 to r2? A an increase in national income B an increase in the money supply C a reduction in investment expenditure D a reduction in the loans made by the private sector

Accepted Answer

A

Question 25

25 An economy is experiencing economic growth. What will be the effect on its rate of inflation, level of unemployment and current account surplus? level of current account rate of inflation unemployment surplus A lower lower lower B raise lower raise C raise raise uncertain D uncertain uncertain uncertain

Accepted Answer

D

Question 26

26 The diagram shows a country’s production possibility curve and a number of alternative production points. X U V capital goods Y Z O consumer goods Which change in the country’s output would be most likely to lead to a fall in potential growth? A U to V B U to X C Y to X D Y to Z

Accepted Answer

D

Question 27

27 A developing country receiving foreign financial aid is most likely to experience economic growth in the long-run if it uses the money to A boost welfare benefits for the poorest households. B pay for imports of capital goods. C reduce environmental pollution. D reduce income tax for all households.

Accepted Answer

B

Question 28

28 Increased borrowing by the government results in higher interest charges and this leads to less private investment expenditure. Of what is this an example? A an automatic stabiliser B crowding out C the accelerator D the substitution effect

Accepted Answer

B

Question 29

29 The data below relate to a particular country for the four years shown: Year 1 2 3 4 real GNP / head (Year 1 = 100) 100 110 121 121 life expectancy at birth (years) 65 64 65 67 % of age group enrolled in secondary 40 38 42 42 education What can definitely be concluded from these data? A Economic growth between Year 2 and Year 3 was 11%. B The level of economic development was better in Year 2 than in Year 1. C There was both economic growth and an improvement in economic development between Year 2 and Year 3. D No conclusions can be drawn as to whether the level of economic development was better in Year 4 than Year 3.

Accepted Answer

C

Question 30

30 A government’s budget is balanced at a time when the economy is fully employed, but an aggregate demand shock causes a decline in national income. What will be the result if the government keeps its tax rates and level of spending unchanged? A a cyclical budget deficit B a cyclical budget surplus C a structural budget deficit D a structural budget surplus

Accepted Answer

A

Cambridge A Level Economics 9708 — 2015 May/June Paper 3 · Variant 2

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · What need not pose a potential threat to allocative efficiency in a market economy?

Q2 · A utility-maximising consumer spends the whole of his disposable income of $40 on food…

Q3 · For the purposes of measuring the income effect of a change in the price of a good, what…

Q4 · The diagram shows the total product of labour (TPL) curve for a firm whose only variable…

Q5 · A firm operates under perfect competition in both product and factor markets with labour…

Q6 · The diagram shows an individual’s supply of labour curve

Q7 · What relationship does a firm’s long-run production function describe?

Q8 · The table shows a firm’s total and marginal costs

Q9 · A firm experiences external diseconomies of scale and decreasing returns to scale

Q10 · The diagram shows the demand curve for a firm’s product

Q11 · The firms in an industry all produce a homogeneous product, but each firm is able to…

Q12 · The diagram shows the cost and revenue curves of a monopoly

Q13 · The table shows information about a profit-maximising firm

Q14 · When will a society have achieved an equitable distribution of income?

Q15 · The government introduces a minimum wage above the equilibrium market wage rate

Q16 · A country’s steel producers are members of a cartel

Q17 · Which government policy would not be classified as regulation?

Q18 · Other things being equal, the money supply in an open economy will increase if A domestic…

Q19 · Which is not an injection into a country’s circular flow of national income?

Q20 · The national income is initially in equilibrium

Q21 · In a closed economy with no government, investment increases by $400

Q22 · Assuming a constant income velocity of circulation of money, if the price level increases…

Q23 · Why will an inflationary process be brought to a halt if the money supply is held…

Q24 · The diagram shows the determination of the rate of interest in the economy, where M…

Q25 · An economy is experiencing economic growth

Q26 · The diagram shows a country’s production possibility curve and a number of alternative…

Q27 · A developing country receiving foreign financial aid is most likely to experience…

Q28 · Increased borrowing by the government results in higher interest charges and this leads…

Q29 · The data below relate to a particular country for the four years shown: Year 1 2 3 4 real…

Q30 · A government’s budget is balanced at a time when the economy is fully employed, but an…

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