Cambridge A Level Economics 9708 — 2016 May/June Paper 1 · Variant 3

Question 1

1 The diagram shows different production possibilities for a bakery. 100 70 bread 50 0 15 25 50 cakes They wish to increase production of cakes from 15 units to 25 units. What is the opportunity cost? A 10 units of cake B 15 units of cake C 20 units of bread D 50 units of bread

Accepted Answer

C

Question 2

2 Which statement is the most valid reason for government intervention in a free market economy? A Consumers are well informed, making it difficult for producers to make profits. B Health and education are not available in sufficient quantities. C Producers are motivated by profit maximisation. D There are many competitive firms and not enough sole suppliers.

Accepted Answer

B

Question 3

3 The curve PP in the diagram is the production possibility curve for a country producing goods X and Y. The production of X is more labour-intensive than the production of Y. R Q P S good Y T O S T P R Q good X The working hours of the labour force are reduced by law. Which curve could be the country’s new production possibility curve? A TT B SS C QQ D RR

Accepted Answer

B

Question 4

4 The provision of which service by governments could be explained by the concept of public goods? A education B health services C law enforcement D public libraries

Accepted Answer

C

Question 5

5 Which change does not have an immediate effect on the position of the demand curve for a product? A a fall in the price of a complementary product B a range of new products entering the market C a rise in the labour costs of its production D an increase in the price of a substitute product

Accepted Answer

C

Question 6

6 What is correct about market supply? A Market supply can increase only when all individual firms increase their output. B Market supply is effective when consumers have sufficient income to buy the good. C Market supply is the result of aggregating the supply of all individual firms. D Market supply of an inferior good falls as price increases.

Accepted Answer

C

Question 7

7 In which circumstances must the total expenditure by consumers on a good increase when its price increases? A if demand for the good is income-elastic B if demand for the good is price-inelastic C if the price of a complementary good also increases D if the price of substitute goods also increases

Accepted Answer

B

Question 8

8 The price elasticity of demand for good X is 1. At a price of $12, quantity demanded is 4000 units. What will be the price when the quantity demanded is 20 000 units? A $2.00 B $2.40 C $12.00 D $20.00

Accepted Answer

B

Question 9

9 The cross-elasticity of demand of good S with respect to the price of good P is +1.5. The cross-elasticity of demand of good S with respect to the price of good R is –1.5. The cross-elasticity of demand of good P with respect to the price of good R is –1.5. What can be concluded about goods P, R and S? A S and P are complements; P and R are substitutes. B S and P are complements; R is an inferior good. C S and P are substitutes; P and R are complements. D S and P are substitutes; R is an inferior good.

Accepted Answer

C

Question 10

10 A manufacturer’s ability to increase supply in the short run will be greater A if labour is immobile. B if spare capacity exists. C if the product is perishable. D if unemployment is low.

Accepted Answer

B

Question 11

11 In the market for a good the quantity supplied (QS) and the quantity demanded (QD) are given by QS = P – 30 and QD = 240 – 2P where P = price in dollars. A change in the tax on the good makes QS = P – 36. How will the change affect equilibrium price? A It will fall by $2. B It will fall by $6. C It will rise by $2. D It will rise by $6.

Accepted Answer

C

Question 12

12 The diagram shows a market for a good which is supplied partly from domestic production and partly from imports. Sh1 shows domestic supply and Sw shows world supply. Domestic supply then shifts to Sh2. Sh1 Sh2 price Sw D O R T U V quantity What will be the level of consumption and the associated volume of imports after the supply shift? volume consumption of imports A OU TU B OU UV C OV TV D OV UV

Accepted Answer

C

Question 13

13 In the diagram, D is the demand curve for Indian tea exports and S1 is the initial supply curve. S1 S2 price x z w y D O quantity The Indian government removes the tax on tea exports, which causes the supply curve to shift to S2. Which areas in the diagram measure the resulting loss in tax revenue to the Indian government and the resulting gain in consumer surplus? loss in tax gain in revenue consumer surplus A x w + y B x y C x + y z D x + y z + x

Accepted Answer

D

Question 14

14 In a country, the standard rate of sales tax is 10%, but food is not taxed and luxury goods are taxed at 20%. The table shows the patterns of expenditure of three family types. family type by income commodity group low medium high food 50% 40% 30% standard-rated goods 40% 30% 20% luxury goods 10% 30% 50% Which combination correctly describes the sales taxes in this country? tax on tax on tax on standard-rated goods luxury goods all goods A progressive regressive progressive B progressive regressive regressive C regressive progressive regressive D regressive progressive progressive

Accepted Answer

D

Question 15

15 In 2009 the Chinese government faced decreased demand in export markets and wished to increase the sales of electrical goods made in China. Which policy would have achieved this aim? A increasing income tax B increasing the restrictions on the manufacture of electrical goods C removing a tariff on imported products D subsidising the sales of electrical goods in China’s poorer rural areas

Accepted Answer

D

Question 16

16 Which is a transfer payment? A dividend payments to shareholders B payments of rent C unemployment benefit D wages of government employees

Accepted Answer

C

Question 17

17 In the diagram, D is the demand curve of an agricultural commodity and S is the initial supply curve. The government promises to maintain farmers’ incomes at least at their initial level. The harvests in four subsequent years are shown by supply curves S1 – S4. 6 S1 S 5 S2 4 S3 price 3 ($) S4 2 1 D 0 1 2 3 4 5 6 quantity (’000 tonnes) In which years will the government not need to provide extra income to farmers? A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4

Accepted Answer

C

Question 18

18 Governments reduce their stock of assets by privatisation. They increase their stock of assets by nationalisations. The diagram shows global sales of state-owned assets and global state purchases of private stock between 1988 and 2013 in US$ billion. 350 key privatisations 300 nationalisations 250 200 US$ billion 150 100 50 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 What can be concluded from the diagram? A By the end of the period the private sector owned more assets than the state sector. B Over the period governments raised more revenue from privatisations than they spent on nationalisations. C The first year in which nationalisations exceeded privatisations was 2007. D The greatest annual increase in government ownership of assets was in 2009.

Accepted Answer

B

Question 19

19 In the diagram AD1 and AD2 are aggregate demand curves for an economy. price level AD1 AD2 O output What could cause an economy’s aggregate demand to shift from AD1 to AD2? A Consumers spend more. B Interest rates rise. C More output is sent abroad as exports. D The government switches expenditure from roads to hospitals.

Accepted Answer

B

Question 20

20 What must be true if an economy is experiencing inflation? A Aggregate demand is increasing. B Aggregate supply is decreasing. C The interest rate is increasing. D The real value of money is decreasing.

Accepted Answer

D

Question 21

21 Suppose the average consumer’s expenditure is divided between bread, meat, milk and vegetables in the ratio 4 : 3 : 2 : 1. During the course of a year, the price of bread falls by 10%, the price of meat increases by 20% and the prices of both milk and vegetables increase by 10%. What is the increase in the average price level during the year? A 5% B 7.3% C 10% D 12.5%

Accepted Answer

A

Question 22

22 In August 2013, a Dutch insurer announced it wished to sell its South Korean Life Insurance group to a South Korean company for $1.65 billion. How would such a sale be recorded on the Dutch balance of payments? A a negative entry in the direct investment section of the financial account B a negative entry in the investment income section of the current account C a positive entry in the direct investment section of the financial account D a positive entry in the investment income section of the current account

Accepted Answer

C

Question 23

23 In the diagram D1 and S1 are the initial demand and supply curves of the UK pound (£) on the foreign exchange markets. D1 S1 D2 S2 price of £ (in US$) O quantity of £ What will cause the demand curve to shift to D2 and the supply curve to S2? A an appreciation of the pound B an increase in incomes in the US C an increase in the price level in the US D a decrease in UK interest rates

Accepted Answer

D

Question 24

24 There was an increase in the value of the US dollar against the Australian dollar. What might be a result of this? A an increase in the volume of exports from the US to Australia B an increase in the volume of imports to the US from Australia C fewer people from the US take holidays in Australia D more people from Australia take holidays in the US

Accepted Answer

B

Question 25

25 Which combination of changes in export prices and import prices would result in an improvement in a country’s terms of trade? average export prices average import prices A decrease by 5% decrease by 10% B decrease by 10% decrease by 5% C decrease by 10% increase by 5% D increase by 5% increase by 10%

Accepted Answer

A

Question 26

26 Countries X and Y produce the world supply of computers and wheat. Each country divides its resources equally between the two products and produces the following. computers wheat units units X 2000 1400 Y 1000 200 How would total output be altered if each country specialised completely in the product in which it has a comparative advantage? computers wheat units units A –1000 +1200 B –1000 +1600 C +1000 +400 D +1000 +1600

Accepted Answer

A

Question 27

27 Why might a government decide to increase the quota set on imports? A to cut a deficit on the trade balance in goods and services B to encourage diversification in home industry C to lower domestic unemployment D to raise the level of international trade

Accepted Answer

D

Question 28

28 What can be considered an expansionary supply-side policy? A an increase in government expenditure on training B an increase in sales tax C an increase in the rate of interest D an increase (revaluation) of the exchange rate

Accepted Answer

A

Question 29

29 In an attempt to correct a balance of trade deficit, the government of Indonesia has decided to employ expenditure-dampening methods. Which policy would best fit this description? A introducing quotas on imported goods B raising income tax rates C subsidising home-produced goods D taxing imported goods

Accepted Answer

B

Question 30

30 Country X is an open economy with a floating exchange rate. It changes to a fixed exchange rate. Which combination of policy changes would be most effective in reducing inflation? fiscal policy new fixed exchange rate A higher direct taxes above purchasing power parity B higher direct taxes below purchasing power parity C higher indirect taxes above purchasing power parity D higher indirect taxes below purchasing power parity

Accepted Answer

A

Cambridge A Level Economics 9708 — 2016 May/June Paper 1 · Variant 3

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · The diagram shows different production possibilities for a bakery

Q2 · Which statement is the most valid reason for government intervention in a free market…

Q3 · The curve PP in the diagram is the production possibility curve for a country producing…

Q4 · The provision of which service by governments could be explained by the concept of public…

Q5 · Which change does not have an immediate effect on the position of the demand curve for a…

Q6 · What is correct about market supply?

Q7 · In which circumstances must the total expenditure by consumers on a good increase when…

Q8 · The price elasticity of demand for good X is 1

Q9 · The cross-elasticity of demand of good S with respect to the price of good P is +1.5

Q10 · A manufacturer’s ability to increase supply in the short run will be greater A if labour…

Q11 · In the market for a good the quantity supplied (QS) and the quantity demanded (QD) are…

Q12 · The diagram shows a market for a good which is supplied partly from domestic production…

Q13 · In the diagram, D is the demand curve for Indian tea exports and S1 is the initial supply…

Q14 · In a country, the standard rate of sales tax is 10%, but food is not taxed and luxury…

Q15 · In 2009 the Chinese government faced decreased demand in export markets and wished to…

Q16 · Which is a transfer payment?

Q17 · In the diagram, D is the demand curve of an agricultural commodity and S is the initial…

Q18 · Governments reduce their stock of assets by privatisation

Q19 · In the diagram AD1 and AD2 are aggregate demand curves for an economy

Q20 · What must be true if an economy is experiencing inflation?

Q21 · Suppose the average consumer’s expenditure is divided between bread, meat, milk and…

Q22 · In August 2013, a Dutch insurer announced it wished to sell its South Korean Life…

Q23 · In the diagram D1 and S1 are the initial demand and supply curves of the UK pound (£) on…

Q24 · There was an increase in the value of the US dollar against the Australian dollar

Q25 · Which combination of changes in export prices and import prices would result in an…

Q26 · Countries X and Y produce the world supply of computers and wheat

Q27 · Why might a government decide to increase the quota set on imports?

Q28 · What can be considered an expansionary supply-side policy?

Q29 · In an attempt to correct a balance of trade deficit, the government of Indonesia has…

Q30 · Country X is an open economy with a floating exchange rate

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