Cambridge A Level Economics 9708 — 2015 Oct/Nov Paper 3 · Variant 2

Question 1

1 The diagram shows the production possibility curve for a successful transition economy that moves from point X to point Y over time. X public sector output Y O private sector output During the transition process the population of the country expressed a strong preference for increased privatisation. What happens to economic efficiency as a result of the transition from point X to point Y? productive allocative efficiency efficiency A increases decreases B increases increases C unchanged decreases D unchanged unchanged

Accepted Answer

B

Question 2

2 The diagram shows an individual’s total utility from consuming glasses of fruit juice. total utility total utility O number of glasses of fruit juice How can this information help to derive the individual’s demand curve for fruit juice? A by revealing the individual’s marginal utility curve B by revealing the money value of marginal utility C by showing how total utility is maximised D by showing the relationship between utility and expenditure

Accepted Answer

A

Question 3

3 In the diagram, PQ is a consumer’s original budget line. 16 P quantity of Y 12 R Q S 0 10 20 quantity of X The consumer’s income increases from $80 to $120 and, at the same time, the prices of X and Y change. If the consumer’s budget line is now RS, what are the new prices of X and Y? price of X ($) price of Y ( $) A 4 12 B 6 10 C 10 8 D 12 6

Accepted Answer

B

Question 4

4 What will result from the differences in the non-pecuniary advantages of various occupations? A disequilibrium in the labour market B long-term differentials in wage rates C monopsony in particular labour markets D shortages of labour in particular occupations

Accepted Answer

B

Question 5

5 Which diagram correctly shows the relationship between the average product (AP) and the marginal product (MP) of labour, given that the quantities of other factor inputs remain constant? B A MP MP AP AP average average product, product, marginal marginal product product O labour O labour D C average average product, product, marginal marginal product product MP AP AP MP O labour O labour

Accepted Answer

D

Question 6

6 A firm currently pays its employees on an hourly basis. Even though the management acknowledges that its employees work to the best of their ability and could not work any harder, the firm decides to switch to a piece-rate system of remuneration whereby the wage paid to each employee depends on their level of output. Why might this new system of remuneration result in a significant improvement in labour productivity? A It will dispense with the need for management to monitor the actions of its employees. B It will increase the losses that workers will incur if they are dismissed for not working hard enough. C It will lead to the recruitment and retention of more highly talented workers. D It will strengthen the incentives for workers to increase their earnings.

Accepted Answer

C

Question 7

7 A fashion model is paid $500 000 a year. If the next best paid job he could get is as a teacher at $100 000 a year, what are his transfer earnings and his economic rent? transfer earnings economic rent $ $ A zero 400 000 B 100 000 400 000 C 400 000 zero D 400 000 100 000

Accepted Answer

B

Question 8

8 A fourfold increase in all of a firm’s inputs results in a threefold increase in its output. What does this illustrate? A decreasing returns to scale B economies of scale C the law of diminishing returns D the law of variable proportions

Accepted Answer

A

Question 9

9 A firm employs two factors of production. The table shows the marginal products of these factors and their respective costs at the current level of output. land labour marginal 1 5 product (units) marginal cost per unit 4 3 of factor ($) Which adjustment in factor use would be most likely to bring the firm nearer to the least-cost combination of inputs for its current output level? land labour A less less B less more C more less D more more

Accepted Answer

B

Question 10

10 Firms can grow either externally or internally. What represents internal growth? finding new merging with rival firms merging with firms export markets in the same industry in other industries A no no yes B no yes no C yes no no D yes yes yes

Accepted Answer

C

Question 11

11 A firm, operating in an imperfectly competitive market, produces at the level of output where the price elasticity of demand for its product is equal to unity. What has the firm achieved? A normal profit B maximum profits C maximum revenue D maximum sales volume

Accepted Answer

C

Question 12

12 The table shows the five-firm concentration ratios for a selection of industries in an economy. percentage of total sales industry accounted for by the five largest firms in the industry (%) tobacco 95 steel 60 water supply 60 printing 12 What can be concluded from the table? A The firms are of equal size in the steel industry and the water supply industry. B The printing industry is more competitive than the tobacco industry. C The tobacco industry is a monopoly market. D There are more firms in the tobacco industry than in the water supply industry.

Accepted Answer

B

Question 13

13 The diagram shows the initial cost and revenue curves of a profit-maximising monopolist. MC cost, revenue P AR MR O J K L M output What output will the firm produce if the government fixes the price at OP? A OJ B OK C OL D OM

Accepted Answer

B

Question 14

14 Instead of charging all of its customers the same price, a firm decides to charge different prices in different markets. How is this likely to affect consumer surplus and the firm's marketing costs? consumer surplus marketing costs A decrease decrease B decrease increase C increase decrease D increase increase

Accepted Answer

B

Question 15

15 The diagram shows the demand curve, DC, and supply curve, SC, of a perfectly competitive industry. cost, revenue PC SC = LRACM DC = ARM O QC output The industry is taken over by a monopolist. The monopolist’s long-run average cost curve, LRACM, is identical to the supply curve of the perfectly competitive industry. What will be the effects of the takeover on profit and allocative efficiency? allocative profit efficiency A decreases decreases B decreases increases C increases decreases D increases increases

Accepted Answer

C

Question 16

16 Which government microeconomic policy is not usually aimed at correcting allocative inefficiency in an economy? A anti-monopoly legislation B congestion charges for the use of roads in cities C pollution taxes imposed on various firms D subsidies for agricultural producers

Accepted Answer

D

Question 17

17 A country has a negative income tax. In the diagram, the curve NT shows the country’s initial tax schedule. + NT1 tax NT 0 income – What could cause the tax schedule to shift to NT1? A a higher marginal tax rate B a more equal distribution of income C an increase in household disposable income D an increase in the marginal propensity to consume

Accepted Answer

A

Question 18

18 The information in the table is taken from a country’s national income accounts. $ million national income 600 consumer spending 400 investment spending 80 government spending on goods and services 100 exports 140 What is the value of imports? A $100 million B $120 million C $140 million D $240 million

Accepted Answer

B

Question 19

19 Which represents an injection into a country’s circular flow of income? A corporate taxes B interest payments on government bonds C the payment of dividends to foreign shareholders D the repayment of bank loans

Accepted Answer

B

Question 20

20 Over one year the money income in an economy increased by 6%. In the same period prices rose by 4%. What can be concluded from this? A Real incomes decreased by 2%. B The velocity of circulation decreased by 2%. C The money supply increased by 10%. D The volume of output increased by 2%.

Accepted Answer

D

Question 21

21 What is likely to be the effect on interest rates and the supply of money of a purchase of government securities by a central bank? interest rates money supply A increase increase B increase decrease C decrease decrease D decrease increase

Accepted Answer

D

Question 22

22 The table shows the figures for consumption, capital formation and depreciation in four economies, all measured in US $. Assuming that the state of technology remains unchanged, which economy is most likely to experience economic growth? capital consumption capital formation economy depreciation ($ million) ($ million) ($ million) A 100 10 20 B 500 200 100 C 1 000 1 200 1 400 D 20 000 5 000 6 000

Accepted Answer

B

Question 23

23 Gross Domestic Product (GDP) per head is an indicator sometimes used to compare living standards of various countries. GDP is converted into a common currency at market exchange rates. What might cause this indicator to exaggerate the relative position of an individual country? A a high level of female participation in the labour force B a high level of foreign ownership in domestic industry C a high level of subsistence farming D relatively low hours worked by the labour force

Accepted Answer

B

Question 24

24 In the absence of offsetting changes, what will result in an increase in a government’s fiscal deficit? A a decrease in household saving B a decrease in interest rates on government bonds C a decrease in private sector investment D a decrease in the country’s trade deficit

Accepted Answer

C

Question 25

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

Accepted Answer

C

Question 26

26 What are likely to be the impacts on an economy of increased competition from abroad? impact on impact on trade impact on rate unemployment balance of inflation rate A improve raise decrease B improve reduce decrease C worsen raise increase D worsen reduce increase

Accepted Answer

D

Question 27

27 An economy has underemployed resources. Which method of financing an increase in government expenditure is likely to have the greatest expansionary effect? A borrowing from the central bank B borrowing from the non-bank private sector C increased direct taxation D increased indirect taxation

Accepted Answer

A

Question 28

28 The table shows how the government finances its budget deficit in a closed economy. $ budget deficit 200 billion sale of government securities to the central bank 50 billion sale of government securities to the non-bank private sector 150 billion If there is no change in notes and coins in circulation and commercial banks maintain a 10% cash reserve ratio, what will be the resulting increase in the money supply? A $50 billion B $150 billion C $200 billion D $500 billion

Accepted Answer

D

Question 29

29 What is likely to be the effect on developing economies of an increase in inward foreign direct investment? A an acceleration of technology transfer B an increase in the burden of debt C an increase in visible trade deficits D a slowdown of rural-urban migration

Accepted Answer

A

Question 30

30 Economists have proposed that the best policy to promote development is ‘trade not aid’. What is implied by this proposal? A Developing countries should become self-sufficient. B Developing countries should be given greater access to markets in developed countries. C Developing countries should use foreign aid to invest in their export industries. D Developing countries should use trade barriers to promote import substitution.

Accepted Answer

B

Cambridge A Level Economics 9708 — 2015 Oct/Nov Paper 3 · Variant 2

Question paper16 pages

Mark scheme2 pages

Questions as text

Q1 · The diagram shows the production possibility curve for a successful transition economy…

Q2 · The diagram shows an individual’s total utility from consuming glasses of fruit juice

Q3 · In the diagram, PQ is a consumer’s original budget line

Q4 · What will result from the differences in the non-pecuniary advantages of various…

Q5 · Which diagram correctly shows the relationship between the average product (AP) and the…

Q6 · A firm currently pays its employees on an hourly basis

Q7 · A fashion model is paid $500 000 a year

Q8 · A fourfold increase in all of a firm’s inputs results in a threefold increase in its…

Q9 · A firm employs two factors of production

Q10 · Firms can grow either externally or internally

Q11 · A firm, operating in an imperfectly competitive market, produces at the level of output…

Q12 · The table shows the five-firm concentration ratios for a selection of industries in an…

Q13 · The diagram shows the initial cost and revenue curves of a profit-maximising monopolist

Q14 · Instead of charging all of its customers the same price, a firm decides to charge…

Q15 · The diagram shows the demand curve, DC, and supply curve, SC, of a perfectly competitive…

Q16 · Which government microeconomic policy is not usually aimed at correcting allocative…

Q17 · A country has a negative income tax

Q18 · The information in the table is taken from a country’s national income accounts

Q19 · Which represents an injection into a country’s circular flow of income?

Q20 · Over one year the money income in an economy increased by 6%

Q21 · What is likely to be the effect on interest rates and the supply of money of a purchase…

Q22 · The table shows the figures for consumption, capital formation and depreciation in four…

Q23 · Gross Domestic Product (GDP) per head is an indicator sometimes used to compare living…

Q24 · In the absence of offsetting changes, what will result in an increase in a government’s…

Q25 · An economy is operating at its natural rate of unemployment

Q26 · What are likely to be the impacts on an economy of increased competition from abroad?

Q27 · An economy has underemployed resources

Q28 · The table shows how the government finances its budget deficit in a closed economy

Q29 · What is likely to be the effect on developing economies of an increase in inward foreign…

Q30 · Economists have proposed that the best policy to promote development is ‘trade not aid’

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