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

This document consists of 11 printed pages and 1 blank page. IB15 06_9708_33/2RP © UCLES 2015 [Turn over *4448422690* Cambridge International Examinations Cambridge International Advanced Level ECONOMICS 9708/33 Paper 3 Multiple Choice (Supplement) May/June 2015 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, glue or correction fluid. Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. DO NOT WRITE IN ANY BARCODES. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet.

2 © UCLES 2015 9708/33/M/J/15 1 When is economic efficiency achieved in an economy? A when nobody can become better off without somebody else becoming worse off B when the economy is operating at its natural rate of unemployment C when the level of social costs is minimised D when the rate of economic growth is maximised 2 The diagram shows the marginal utility (MU) an individual derives from consuming different quantities of good X. 0 1 2 3 quantity of good X (units) utility (utils) 4 5 6 12 10 8 6 4 2 0 MU At the margin, the individual derives two units of utility from every $1 that he spends. Which quantity of good X will he purchase if the price of X is $2? A 1 B 2 C 4 D 5 3 Why will the quantity demanded increase when the price of a normal good falls? A The income and substitution effects are both positive. B The income and substitution effects are both negative. C The negative income effect is greater than the positive substitution effect. D The positive income effect is greater than the negative substitution effect.

3 © UCLES 2015 9708/33/M/J/15 [Turn over 4 A firm in a perfectly competitive industry employs two factors of production, X and Y. The table shows the factor price and the current marginal physical product of these two factors. factor X factor Y factor price $2.50 $6.00 marginal physical product 2 8 If the firm sells its product for $1 and aims to maximise profits, what should it do? A employ less of both X and Y B employ less of X and more of Y C employ more of both X and Y D employ more of X and less of Y 5 In which situation is it likely that the demand for labour would be inelastic? A Labour and capital are close substitutes. B Labour costs are only a small proportion of total costs. C Demand for the final product that the labour produces is elastic. D A large quantity of unemployed labour is available in the economy. 6 An actor is paid $100 000 a year. The next best paid job he could get would be as a lecturer. He estimates that he currently earns an economic rent of $40 000. What wage could he earn as a lecturer and what are his transfer earnings? wage as a lecturer ($) transfer earnings ($) A 40 000 60 000 B 40 000 140 000 C 60 000 60 000 D 60 000 140 000

4 © UCLES 2015 9708/33/M/J/15 7 The schedule shows the short-run marginal cost of producing good X. units of X 1 2 3 4 5 6 marginal cost ($) 45 40 30 20 20 50 Given that the total fixed cost is $50, what level of output minimises average total cost? A 2 units B 3 units C 4 units D 5 units 8 The table shows the quantity of inputs needed to produce different levels of output. output inputs 100 5 200 10 300 15 400 19 500 25 Over which output range do increasing returns to scale occur? A 100–200 B 200–300 C 300–400 D 400–500 9 In many developed economies, large and small firms often exist side by side in the same industry. What is most likely to explain the survival of these small firms? A They each offer a much wider range of products. B They have a higher minimum efficient scale. C They pay much higher wages to their staff. D They provide a more personal level of consumer service. 10 A bad harvest for an agricultural crop results in an increase in the total revenue received collectively by farmers. If the demand schedule remains the same, what can be concluded from this? A Demand is price elastic. B Demand is price inelastic. C Supply is price elastic. D Supply is price inelastic.

5 © UCLES 2015 9708/33/M/J/15 [Turn over 11 What is the necessary characteristic of an oligopolistic industry? A mutual interdependence B non-price competition C price leadership by a dominant firm D price rigidity 12 The table shows a firm’s average variable cost of producing different levels of output. There are no fixed costs. units of output 1 2 3 4 5 6 7 average variable cost ($) 22 18 15 13 14 16 18 If the market price were $18, within what range of output would a profit-maximising firm in a perfectly competitive industry produce in the short-run? A 1–2 units B 3–4 units C 4–5 units D 6–7 units 13 The diagram illustrates the working of a negative income tax system (NIT), where households with incomes above Yt pay tax and those with incomes below Yt receive a tax credit. + 0 _ household income tax paid Yt NIT1 NIT2 What would be the effects of decreasing the effective tax rate, thereby causing the NIT schedule to shift from NIT1 to NIT2? effect on work incentives effect on net tax revenue A decrease increase B decrease uncertain C increase increase D increase uncertain

6 © UCLES 2015 9708/33/M/J/15 14 The table shows the costs of two milk producers. costs per litre firm X $9 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. Assuming constant costs of production and zero costs of entry and exit, what is the maximum price firm Y would be willing to pay (per day) to buy X’s quota? A $400 B $600 C $1000 D $1400 15 Which trade-off do governments face when they embark upon the privatisation of a state monopoly? A between allocative and productive efficiency B between introducing competition and maximising revenue from the privatisation C between productive and technical efficiency D between pursuing short-run and long-run profit maximisation

7 © UCLES 2015 9708/33/M/J/15 [Turn over 16 The graphs show how consumer prices and real GDP changed in a country between 2000 and 2010. 2000 01 02 03 04 05 06 07 08 09 2010 2000 01 02 03 04 05 06 07 08 09 2010 6 4 2 0 consumer prices (% increase on a year earlier) 6 4 2 0 real GDP (% increase on a year earlier) Which conclusion may be drawn from the graphs? A The level of real GDP was lower in 2010 than in 2005. B The price level fell between 2005 and 2008. C Living standards remained roughly constant between 2000 and 2010. D The country experienced continuous economic growth between 2000 and 2010. 17 What will be the short-run effect on the level of output of an increase in the money supply, according to Keynesian theory (assuming the liquidity trap does not apply) and according to monetarist theory (assuming the increase is unanticipated)? effect on output Keynesian theory monetarist theory A increase increase B increase decrease C unchanged increase D unchanged decrease

8 © UCLES 2015 9708/33/M/J/15 18 What, according to the accelerator principle, will cause the level of investment to fall? A a decrease in confidence B a decrease in the rate of growth of national income C an increase in the price of capital equipment D an increase in the rate of interest 19 A developing economy’s exports are price inelastic in demand, while its imports are price elastic. What would cause a rise in GDP and a fall in the deficit on the current account of the balance of payments? A a devaluation of its currency B a fall in the price of its imports C a reduction in the existing quota limits imposed on its exports D the development abroad of synthetic substitutes for its exports 20 In a closed economy with no government, the value of the investment multiplier is 4. By how much will consumption increase, if investment increases by $200? A $50 B $350 C $600 D $800 21 In a banking system, all banks maintain 10% of deposits as cash. Customers withdraw $20 000 in cash. Assuming no subsequent net change in notes and coins in circulation, by how much will the banks have to reduce their net loans? A $2000 B $18 000 C $180 000 D $220 000 22 If the money supply is fixed, an increase in economic activity A increases the transactions demand for money. B lowers the liquidity preference schedule. C reduces interest rates. D reduces the income velocity of circulation.

9 © UCLES 2015 9708/33/M/J/15 [Turn over 23 What will be the likely effects on interest rates and bond prices of a decrease in the demand for money? interest rates bond prices A fall fall B fall rise C rise fall D rise rise 24 In an economy, the volume of output falls by 2% in a year, while the quantity of money rises by 3%. If the velocity of circulation of money remains the same, what will be the approximate increases in the price level and the money value of national income? increase in price level increase in money value of national income A 1% 3% B 1% 5% C 5% 3% D 5% 5% 25 A country has a high ratio of investment to GDP and rapid economic growth. If the net capital inflow from abroad is zero, what will be a necessary cost of such growth? A an increase in taxation B increased consumption of luxury goods by richer residents C increased imports of goods from abroad D the sacrifice of present consumption by residents of the country 26 Why may an economy experience an increase in potential economic growth despite net investment remaining unchanged? A Capital consumption exceeds net investment. B Net investment exceeds gross investment. C The new capital equipment embodies more advanced technology. D The new capital equipment is longer lasting than the capital equipment it replaces.

10 © UCLES 2015 9708/33/M/J/15 27 It is often argued that the UN Human Development Index is a better indicator of economic development than income per capita because it adjusts for A average hours worked by the population. B environmental pollution. C inequality in income distribution. D life expectancy at birth. 28 The table shows the labour market for an economy in four different years. In which year was there excess demand in the labour market? working population (millions) unemployment rate (%) job vacancies (thousands) A 19 1.0 180 B 19 2.0 80 C 20 1.1 240 D 20 1.5 100 29 The table gives details of the inflation and unemployment rates for different countries in 2008 and 2011. country inflation rate (% per annum) unemployment rate (% of workforce) 2008 2011 2008 2011 Canada 2.38 2.89 6.15 7.47 France 3.16 2.29 7.81 9.68 Germany 2.75 2.48 7.60 5.98 Japan 1.37 –0.28 3.99 4.55 Which country or countries experienced a trade-off between their inflation and unemployment rates? A Canada and Germany B Canada only C France and Japan D France only

11 © UCLES 2015 9708/33/M/J/15 30 A country experiences an increase in unemployment due to deficiency of aggregate demand. Assuming that tax rates and rates of unemployment benefit remain unchanged, what will be the effect on tax revenue and government expenditure? tax revenue government expenditure A decrease increase B decrease no change C increase decrease D no change increase

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® IGCSE is the registered trademark of Cambridge International Examinations. CAMBRIDGE INTERNATIONAL EXAMINATIONS Cambridge International Advanced Subsidiary and Advanced Level MARK SCHEME for the May/June 2015 series 9708 ECONOMICS 9708/33 Paper 3 (Multiple Choice – Supplement), maximum raw mark 30 Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the May/June 2015 series for most Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level components.

Page 2 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2015 9708 33 © Cambridge International Examinations 2015 Question Number Key Question Number Key 1 A 16 D 2 C 17 A 3 A 18 B 4 B 19 A 5 B 20 C 6 C 21 C 7 D 22 A 8 C 23 B 9 D 24 C 10 B 25 D 11 A 26 C 12 C 27 D 13 D 28 C 14 C 29 C 15 B 30 A