Cambridge A Level Economics 9708 — 2016 Feb/March Paper 1 · Variant 2

Question 1

1 An individual has an appointment with his bank manager. He has a choice between travelling to the appointment by car, or leaving the car at home and travelling by bus and then by train. The costs of the journey are given below. $ bus fare 2 train fare 3 car parking charge 4 petrol 2 car wear and tear costs 1 Given this information, what is the opportunity cost to the individual of travelling by car rather than by bus and train? A $2 B $4 C $7 D $12

Accepted Answer

A

Question 2

2 What confirms that scarcity exists? A A product has an opportunity cost. B The demand for a product has risen. C The government has set a minimum price for a product. D The supply of a product has fallen.

Accepted Answer

A

Question 3

3 The diagram shows the production possibility frontier of a desert island economy where the inhabitants live off just two commodities, coconuts and fish. coconuts O fish What explains the shape of the production possibility frontier? A Coconuts and fish are perfect complements. B Coconuts and fish are perfect substitutes. C The inhabitants consume more fish than coconuts. D The opportunity cost of fish is constant as more time is devoted to fishing.

Accepted Answer

D

Question 4

4 In 2014, there was an outbreak of ebola, a deadly disease, in West Africa. People obtained information from hospitals, radio broadcasts and notices posted by the roadside on how to prevent the disease from spreading. How can these sources of information be classified? hospitals radio broadcasts notices A private good private good public good B private good public good public good C public good private good private good D public good public good private good

Accepted Answer

B

Question 5

5 A rise in the price of a good is accompanied by an increase in the quantity demanded. What could explain this? A Consumers spend a high proportion of disposable income on the good. B The price of a complementary good has also increased. C The price of the good is taken to be an indication of the level of quality. D The substitute goods are all very much more expensive.

Accepted Answer

C

Question 6

6 What causes the demand curve for an inferior good to shift to the right? A a decrease in consumer incomes B a decrease in income tax C a decrease in the price of a substitute good D a decrease in the price of the good

Accepted Answer

A

Question 7

7 In a town, bus fares fall by 50% and this leads to an increase in bus use by 30%. The effect on car use is very low with only a 1% reduction. What is the value of the cross-elasticity of demand between car travel and bus travel? A –0.60 B –0.02 C +0.02 D +0.60

Accepted Answer

C

Question 8

8 In the diagram the rectangular hyperbola, DD, represents a firm’s demand curve. D price D O quantity What can be deduced from the diagram? A An increase in the quantity supplied causes a fall in total revenue. B The price elasticity of demand decreases as we move down the demand curve. C The sale of an extra unit gains no extra revenue. D Total expenditure on the commodity decreases as the price falls.

Accepted Answer

C

Question 9

9 What is price elasticity of supply? A the change in the quantity supplied when a price changes B the change in the quantity supplied when demand changes C the comparison of the proportionate change in supply to the proportionate change in demand D the comparison of the proportionate change in supply to the proportionate change in price

Accepted Answer

D

Question 10

10 The demand for tablets increases, while the cost of producing them decreases. What will be the effect on the price of tablets and on the quantity supplied? price quantity A fall uncertain B rise increase C uncertain increase D uncertain uncertain

Accepted Answer

C

Question 11

11 A specific tax is placed upon each bottle of perfume sold. In the diagram, SS is the supply curve before tax, StSt is the supply curve after tax. D St S W R price U Q X P T St D S O Y Z quantity Which area represents that part of the tax revenue paid by producers? A ORWY B PQUT C PRWT D QRWU

Accepted Answer

B

Question 12

12 In which market would equilibrium not be achieved at point E if price were above Op? A B S D S price price p E p E D O q O q quantity quantity C D S D D S price price p E p E O q O q quantity quantity

Accepted Answer

C

Question 13

13 A company opened a garden to the public and charged for entry. The government then provided a grant to improve the garden on the condition that entry became free. What would result from the government’s action? A The consumer surplus would increase. B The demand curve would shift to the left. C The supply curve would be infinitely elastic. D There would be no equilibrium position as the garden is free.

Accepted Answer

A

Question 14

14 The diagram shows the percentages of those on low pay and those on extremely low pay in the UK from 1976 to 2012. A national minimum wage was introduced in 1999. 25 low paid 20 15 introduction of % minimum wage 10 extremely low paid 5 0 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 year What conclusion is consistent with the diagram? A The minimum wage helped the low paid more than the extremely low paid. B The minimum wage reduced the numbers of both low paid and extremely low paid. C The minimum wage reversed the trend in low pay of the previous 20 years. D The minimum wage was responsible for the largest reduction of low pay in the period.

Accepted Answer

C

Question 15

15 A 10% tax is placed on a good. What type of product would be most likely to face the biggest impact on its equilibrium price as a result? A one with elastic demand B one with inelastic demand C one with infinite elasticity of demand D one with unitary elasticity of demand

Accepted Answer

B

Question 16

16 In 2009 the Australian government made a payment of $900 to those who earned less than $100 000 per year. How would the effect of this transfer payment be described? A neutral B progressive C proportional D regressive

Accepted Answer

B

Question 17

17 The diagram shows the market for wheat. S P2 price P1 D O X Y Z quantity If the government wishes to fix the price at OP2 what quantity of wheat must the government buy? A OZ B XY C XZ D YZ

Accepted Answer

C

Question 18

18 As part of a privatisation policy, a government deregulates bus services and sells off its public sector bus services to the private sector. What is least likely to occur following these changes? A Bus fares are increased. B Bus service companies invest in new buses. C Extra bus service companies enter the market. D Loss-making bus services are retained.

Accepted Answer

D

Question 19

19 A government decided to reduce income tax and increase sales tax. The initial equilibrium point is shown by X on the aggregate demand (AD) and aggregate supply (AS) diagram. What would be the equilibrium point after these tax changes? AS1 AS C AS2 price X B level D A AD2 AD AD1 O real output

Accepted Answer

C

Question 20

20 The table gives data for an economy. 2010 2011 2012 2013 2014 Gross Domestic Product (GDP) 200 220 240 300 320 at current prices ($ billion) GDP deflator (price index) 100 109 125 149 154 In which year did real GDP decline compared with the previous year? A 2011 B 2012 C 2013 D 2014

Accepted Answer

B

Question 21

21 What always happens when there is an increase in the Consumer Price Index? A an increase in consumer expenditure B an increase in the cost of living C a reduction in living standards D a reduction in real disposable income

Accepted Answer

B

Question 22

22 What would identify a country with a fundamental balance of payments disequilibrium? A alternate annual deficits and surpluses in the current account B a continually growing balancing item C a large short-term outflow of foreign direct investment D a persistent rise in foreign currency reserves

Accepted Answer

D

Question 23

23 At present, one unit of a country’s currency exchanges for US$1.20. The country aims to set its exchange rate at US$1.00. Which combination of government actions in the foreign exchange market must achieve this aim? A buying US currency and buying its own currency B buying US currency and selling its own currency C selling US currency and buying its own currency D selling US currency and selling its own currency

Accepted Answer

B

Question 24

24 The diagram shows the exchange rate for the UK£ in terms of the US$. The original equilibrium exchange rate is at X. What will be the new exchange rate equilibrium of the UK£ following a rise in UK interest rates? S2 S S1 A price of UK£ (in US$) D X B C D2 D1 D O quantity of UK£

Accepted Answer

A

Question 25

25 A country’s terms of trade increased from a base year value of 100 to 120 in the following year. If export prices had increased by 50%, what was the change in the price of the country’s imports? A –30% B –25% C +25% D +30%

Accepted Answer

C

Question 26

26 In each country, P and Q, one person can either produce the quantity of X or the quantity of Y shown. In which case does country P have absolute advantage in the production of Y and country Q have comparative advantage in the production of X? country product X product Y A P 6 7 Q 6 9 B P 10 8 Q 7 9 C P 12 6 Q 8 4 D P 16 15 Q 14 8

Accepted Answer

D

Question 27

27 A government removes the tariff on a product as shown in the diagram. D domestic supply P price P1 world supply with tariff P2 world supply without tariff S domestic demand O V W X Y Z quantity What will be the change in domestic production? A a reduction of W V B a reduction of XV C a reduction of XW D a reduction of ZY

Accepted Answer

A

Question 28

28 What would be increased by an expansionary fiscal policy? A budget deficit B exchange rate C money supply D rate of direct taxation

Accepted Answer

A

Question 29

29 Possible policies a government might use to reduce a deficit on the current account of the balance of payments include devaluation, government spending cuts, interest rate rises and tariffs on imports. Which two policies would be classified as expenditure-switching? A devaluation and government spending cuts B government spending cuts and interest rate rises C interest rate rises and tariffs on imports D tariffs on imports and devaluation

Accepted Answer

D

Question 30

30 In March 2014, Sweden had a change in its Consumer Price Index of –0.6%. Which combination of policies might the government use to restore price stability? A increase interest rates and increase indirect taxes B increase interest rates and reduce government expenditure C reduce government spending and increase income tax D reduce interest rates and increase government expenditure

Accepted Answer

D

Cambridge A Level Economics 9708 — 2016 Feb/March Paper 1 · Variant 2

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · An individual has an appointment with his bank manager

Q2 · What confirms that scarcity exists?

Q3 · The diagram shows the production possibility frontier of a desert island economy where…

Q4 · In 2014, there was an outbreak of ebola, a deadly disease, in West Africa

Q5 · A rise in the price of a good is accompanied by an increase in the quantity demanded

Q6 · What causes the demand curve for an inferior good to shift to the right?

Q7 · In a town, bus fares fall by 50% and this leads to an increase in bus use by 30%

Q8 · In the diagram the rectangular hyperbola, DD, represents a firm’s demand curve

Q9 · What is price elasticity of supply?

Q10 · The demand for tablets increases, while the cost of producing them decreases

Q11 · A specific tax is placed upon each bottle of perfume sold

Q12 · In which market would equilibrium not be achieved at point E if price were above Op?

Q13 · A company opened a garden to the public and charged for entry

Q14 · The diagram shows the percentages of those on low pay and those on extremely low pay in…

Q15 · A 10% tax is placed on a good

Q16 · In 2009 the Australian government made a payment of $900 to those who earned less than…

Q17 · The diagram shows the market for wheat

Q18 · As part of a privatisation policy, a government deregulates bus services and sells off…

Q19 · A government decided to reduce income tax and increase sales tax

Q20 · The table gives data for an economy

Q21 · What always happens when there is an increase in the Consumer Price Index?

Q22 · What would identify a country with a fundamental balance of payments disequilibrium?

Q23 · At present, one unit of a country’s currency exchanges for US$1.20

Q24 · The diagram shows the exchange rate for the UK£ in terms of the US$

Q25 · A country’s terms of trade increased from a base year value of 100 to 120 in the…

Q26 · In each country, P and Q, one person can either produce the quantity of X or the quantity…

Q27 · A government removes the tariff on a product as shown in the diagram

Q28 · What would be increased by an expansionary fiscal policy?

Q29 · Possible policies a government might use to reduce a deficit on the current account of…

Q30 · In March 2014, Sweden had a change in its Consumer Price Index of –0.6%

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