Cambridge A Level Economics 9708 — 2016 Feb/March Paper 3 · Variant 2

This document consists of 10 printed pages and 2 blank pages. IB16 03_9708_32/2RP © UCLES 2016 [Turn over *1524452076* Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/32 Paper 3 Multiple Choice February/March 2016 1 hour 15 minutes 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 2016 9708/32/F/M/16 1 What is an example of market failure? A difficulties in allocating property rights B diseconomies of scale C high prices caused by increased demand D the existence of scarcity 2 Why would an economy wish to achieve economic efficiency? A to achieve an equal distribution of income B to achieve full employment C to ensure international competitiveness D to ensure resources are not wasted 3 What will happen if a firm is taxed by an amount equal to the external costs that it imposes on the rest of society? A Production will be increased. B Resource allocation will be improved. C Resource allocation will be maximised. D There will be no effect upon production. 4 The current distribution of goods between two individuals in a two-person economy with given technology and resources is at point X. According to the Pareto criterion, which point would definitely indicate increased allocative efficiency? O Sunil’s goods Fatima’s goods A B C D X

3 © UCLES 2016 9708/32/F/M/16 [Turn over 5 What represents the transfer earnings of the factor enterprise? A excess profit B normal profit C return on capital D start-up costs 6 The diagram shows two indifference curves and two budget lines for two goods X and Y. O M1 M2 good X good Y M IC2 IC1 S P R The initial position is P. P to R is a substitution effect. R to S is an income effect. What type of good is good X? A a Giffen good B a luxury good C a normal good but not a luxury good D an inferior good but not a Giffen good 7 Which explains why, in long-run equilibrium in monopolistic competition, firms make only normal profits? A consumer resistance B decreasing returns to scale C differentiated products D freedom of entry and exit

4 © UCLES 2016 9708/32/F/M/16 8 A firm has fixed costs of $300 and can produce two units per hour. Its total variable costs are $200 for one unit and $300 for two units. Which cost will fall by the lowest amount when the second unit is produced? A average fixed cost B average total cost C average variable cost D marginal cost 9 Which combination of characteristics are likely to be found in almost all high-growth firms? high productivity high market share high levels of employment high levels of innovation A     B     C     D     10 A monopolist changes its objective from sales revenue maximisation to profit maximisation. O Q1 Q2 output AR MC AC MR P1 P2 F H K L J G cost, revenue On the diagram, which areas represent the monopolist’s total profit? original profit final profit A HKLG P1HKP2 B JKLG P1HGF C P2JGF P1HJP2 D P2KLF P1HGF

5 © UCLES 2016 9708/32/F/M/16 [Turn over 11 Which is an external economy of scale? A cheaper costs from purchasing large quantities of inputs B decreased interest rates on borrowed funds C increased labour productivity D relevant training facilities at a local college 12 The diagram shows a firm’s total revenue curve. O revenue output TR What is true at the highest point on the curve? A Average revenue equals marginal revenue. B Average revenue is zero. C Marginal revenue is zero. D Maximum profits are made. 13 A backward-sloping supply curve of labour is one where, beyond a certain point, the supply of labour A decreases as the demand for labour rises. B increases as the demand for labour rises. C decreases as wages rise. D increases as wages rise.

6 © UCLES 2016 9708/32/F/M/16 14 The diagram shows a firm’s average physical product of labour and marginal physical product of labour curves. units of output L1 L2 labour hours O APPL MPPL What can be deduced from the diagram? A APPL declines beyond OL2 as a result of diseconomies of scale. B A profit-maximising firm would never hire more than OL2 labour hours. C Between OL1 and OL2, each extra labour hour hired causes both MPPL and APPL to decline. D Diminishing returns first set in when the number of labour hours hired reaches OL1. 15 Labour is the only variable factor of a profit-maximising firm which is a price taker in the labour market. From what is the firm’s demand curve for labour derived? A its marginal factor cost curve B its marginal revenue curve C its marginal revenue product of labour curve D its short-run marginal cost curve 16 Which government policy has greater equality as one of its consequences? A a cut in income tax B increased reliance on indirect taxes C payment of unemployment benefits D privatisation of transport industries

7 © UCLES 2016 9708/32/F/M/16 [Turn over 17 Which government policy to counter the effects of income inequality is correctly matched with one of its advantages and one of its disadvantages? policy advantage of policy disadvantage of policy A food stamps for the poor targets the needy high administrative costs B higher national minimum wage encourages skill training higher budget deficit C provision of free child care increases employability disincentive to work D universal monetary benefits saves on bureaucracy reduced labour mobility 18 A government uses personal disposable income per head as a measure of the standard of living. What does this measure not take into account? A changes in the average price level B the level of direct taxation C the level of national income D the size of the population 19 The table shows figures estimated at the end of a train drivers’ strike. $ (000s) loss of revenue from train journeys 600 value placed on extra leisure time by strikers 20 loss of government tax revenue 40 overtime payments to police 30 What was the reduction in the recorded level of national income resulting from the strike? A $570 000 B $610 000 C $640 000 D $690 000

8 © UCLES 2016 9708/32/F/M/16 20 The table gives the percentage of employment in the primary, secondary and tertiary sectors in four countries. Which country is most likely to be a developed country? primary sector % secondary sector % tertiary sector % A 15 40 45 B 30 40 30 C 35 45 20 D 45 35 20 21 How may outward migration from a developing economy affect its balance of payments? A It may improve its balance of payments by increasing its export capacity. B It may improve its balance of payments by increasing inflows of current transfers. C It may worsen its balance of payments by causing its currency to depreciate. D It may worsen its balance of payments by increasing consumer expenditure on imported goods. 22 Which type of unemployment might arise from a worldwide decline in the demand for electronic goods? A frictional B seasonal C structural D voluntary 23 Which pattern of labour market data is likely to indicate an increase in cyclical unemployment? changes in compulsory redundancies voluntary resignations A decrease decrease B decrease increase C increase decrease D increase increase

9 © UCLES 2016 9708/32/F/M/16 [Turn over 24 The central bank of a country creates cash to purchase government bonds from the commercial banks. What is this called? A liquidity preference B quantitative easing C supply-side policy D the transmissions mechanism 25 An upward movement in the curve relating consumption to national income could be caused by A a reduction in taxation. B an increase in investment. C an increase in national income. D an increase in savings. 26 The table shows some data for an economy. When are injections and withdrawals in equilibrium? savings $ imports $ taxation $ investment $ exports $ government expenditure $ consumption $ A 100 150 200 200 400 400 450 B 150 175 350 200 400 400 500 C 200 200 400 200 400 400 600 D 250 250 500 200 400 400 1000 27 Which policy is most likely to conflict with a government’s aim of price stability? A increasing spending on education and health B increasing the basic rate of income tax C limiting wage increases in the public sector D preventing mergers of large companies

10 © UCLES 2016 9708/32/F/M/16 28 What is not a supply-side policy measure? A deregulating industry to encourage more competitive markets B linking unemployment benefits to the obligation to look for work C tackling cyclical slump by lowering interest rates D tackling structural unemployment by giving grants for labour mobility 29 When will government success in achieving economic growth be most likely to conflict with a desire to reduce a surplus in the balance of payments? A when growth depends upon the import of capital equipment B when growth increases foreign investors’ confidence in the country C when growth requires a reduction in the level of its tariffs D when growth results from the removal of restrictions on capital outflows 30 The diagram shows details of the British Government’s estimated spending and receipts for 2010–2011. All figures in UK £bn. spending receipts welfare 226 other 114 health 122 income tax 150 education 89 housing & environment 27 law and order 35 defence 40 debt interest 44 national insurance 99 sales tax 81 excise duties 46 corporation tax 43 other 79 council tax 25 business rates 25 total: £697 billion total: £548 billion What can be concluded from the diagram? effect of largest spending item on income distribution type of largest receipt item overall budget balance A less equitable indirect tax deficit B less equitable indirect tax surplus C more equitable direct tax deficit D more equitable direct tax surplus

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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 March 2016 series 9708 ECONOMICS 9708/32 Paper 3 (Multiple Choice), 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 March 2016 series for most Cambridge IGCSE® and Cambridge International A and AS Level components.

Page 2 Mark Scheme Syllabus Paper Cambridge International AS/A Level – March 2016 9708 32 © Cambridge International Examinations 2016 Question Number Key Question Number Key 1 A 16 C 2 D 17 A 3 B 18 A 4 C 19 A 5 B 20 A 6 A 21 B 7 D 22 C 8 C 23 C 9 B 24 B 10 D 25 A 11 D 26 D 12 C 27 A 13 C 28 C 14 D 29 B 15 C 30 C