Cambridge A Level Economics 9708 — 2016 May/June Paper 3 · Variant 2

Question 1

1 What action by a firm is most likely to raise its dynamic efficiency? A distributing all its current profit to its existing shareholders B maximising the labour productivity of its current workers C minimising the average cost of producing its current output D retaining its current profit for product research and development

Accepted Answer

D

Question 2

2 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? A Tariq’s goods X B C D O Samir’s goods

Accepted Answer

B

Question 3

3 The concept of allocative efficiency assumes that each individual in society is the best judge of their own economic welfare. Which example of government intervention is based on an argument which rejects this assumption? A pollution controls B subsidies for merit goods C the provision of public goods D the regulation of monopolies

Accepted Answer

B

Question 4

4 In the indifference curve diagram point M is the consumer’s initial equilibrium and MN is the substitution effect of a fall in the price of good X. If good X is a Giffen good which point will be the consumer’s new equilibrium point after the fall in the price of good X? J A B C good Y D M N I O K L good X

Accepted Answer

A

Question 5

5 To maximise the satisfaction he derives from a given level of expenditure on two goods, X and Y, a consumer should allocate his expenditure between the two goods so that A marginal utility of X = price of X and marginal utility of Y = price of Y. B marginal utility of X plus marginal utility of Y is maximised. C marginal utility of X = marginal utility of Y. marginal utility of X price of X D = marginal utility of Y price of Y.

Accepted Answer

D

Question 6

6 Which statement about the ‘kinked demand curve’ model of oligopoly is incorrect? A The kink in the demand curve of each firm is based on expectations about other firms’ responses to changes in its price. B The marginal revenue curve of the firm has a vertical segment at the market price. C The model explains how the equilibrium market price is determined. D The model suggests price stickiness within a certain range of marginal costs.

Accepted Answer

C

Question 7

7 A monopolist changes its objective from profit maximisation to sales revenue maximisation. MC H AC P1 cost, revenue P2 J K G F L AR MR O Q1 Q2 output On the diagram, which areas represent the monopolist’s total profit? original profit final profit A P1HJP2 P2KLF B P1HJP2 JKLG C P1HGF P2KLF D P1HGF JKLG

Accepted Answer

C

Question 8

8 A firm estimates that, all else remaining unchanged, an increase in its output will result in a fall in its revenue. What can be concluded from this? A The demand for the firm’s product is price-elastic. B The demand for the firm’s product is price-inelastic. C The supply of the firm’s product is price-elastic. D The supply of the firm’s product is price-inelastic.

Accepted Answer

B

Question 9

9 The diagram shows the cost and revenue curves of a firm. MC ATC cost, revenue D MR O quantity What does the diagram represent? A a firm in monopolistic competition making normal profit B a firm in monopolistic competition making short-term losses C a firm in perfect competition at long-run equilibrium D a monopoly making abnormal profits

Accepted Answer

A

Question 10

10 Which is a risk-bearing economy of scale? A greater bargaining power in purchasing from suppliers B greater diversification of the product range C lower costs in raising capital D lower distribution costs by increasing market share

Accepted Answer

B

Question 11

11 A firm wishes to eliminate competition and become a monopoly. What should it do? A maximise output B maximise profit C reduce prices D reduce the number of its suppliers

Accepted Answer

C

Question 12

12 In many developed economies, clothes are designed by small firms and retailed by large firms. What is the most likely explanation for this pattern? clothes design firms clothes retail firms A need to be flexible to cope need to exploit marketing with frequent fashion changes economies of scale B need to employ highly need to operate at a low specialised and skilled workers minimum efficient scale C need to operate at a high need to offer a wide range minimum efficient scale of products to survive D need to overcome high need to take advantage of barriers to entry into the industry technical economies of scale

Accepted Answer

A

Question 13

13 What is likely to have its cause in the separation of ownership and control in a firm? A contestable markets B diseconomies of scale C principal-agent problem D prisoner’s dilemma

Accepted Answer

C

Question 14

14 A firm employs a worker who adds less to output than the previous worker employed. What does this illustrate? A decreasing marginal costs B diseconomies of scale C increasing returns to scale D the law of diminishing returns

Accepted Answer

D

Question 15

15 To increase the number of cleaners at a local school from 10 to 11, the employer has to raise the hourly rate of pay from $8.00 to $8.50. What is the marginal cost of labour per hour to the employer? A $0.50 B $13.50 C $88.50 D $93.50

Accepted Answer

B

Question 16

16 For a firm in imperfect competition, the marginal revenue product of labour at any given level of employment is equal to A marginal revenue divided by the number employed. B marginal revenue divided by the wage rate. C the marginal physical product of labour multiplied by marginal revenue. D the marginal physical product of labour multiplied by the wage rate.

Accepted Answer

C

Question 17

17 Which policy would be most effective in achieving a more equal distribution of disposable incomes between households? A government support for trade unions B import duties on manufactured goods C minimum wage policy D progressive income taxes

Accepted Answer

D

Question 18

18 A government regulates the price charged by a monopolist. In which circumstance will such intervention improve economic efficiency? A The government sets the price where average revenue equals marginal cost. B The government sets the price where marginal cost is below average cost. C The intervention results in an increase in producer surplus. D The intervention results in predatory pricing.

Accepted Answer

A

Question 19

19 What would cause estimates of the money value of the ‘Measure of Economic Welfare’ for a country to be greater than the value of ‘Gross National Product’? A negative externalities such as pollution B property income received from abroad C regrettable necessities D the value of non-marketed activities and leisure

Accepted Answer

D

Question 20

20 In 2012 a United Nations report calculated the stock of wealth of 20 countries in terms of human, natural and produced resources. This was measured as the Inclusive Wealth Index (IWI). The diagram shows the annual percentage (%) change in the IWI between 1990 and 2008 of the economies with the fastest and the slowest growth in IWI. It also shows their 2008 GDP per head ($). change in inclusive wealth index, 1990-2008 key GDP human China 3404 natural Kenya 722 Nigeria 1401 produced Russia 11 704 inclusive wealth index –25 0 25 50 75 % What can be concluded from the diagram? A A low level of GDP per head meant an inability to build stocks of wealth. B No country was able to prevent depletion of its natural resources. C The faster the growth in a country’s IWI the higher was its GDP. D There was an increase in human resources in all four countries.

Accepted Answer

D

Question 21

21 Which combination is usually found in less developed economies? low high A capital : output ratio saving ratio B external debt capital : output ratio C population growth external debt D saving ratio population growth

Accepted Answer

D

Question 22

22 Which change is most likely to increase both economic growth and economic development in the long run? A a decrease in the saving ratio B an increase in investment in human capital C the depletion of non-renewable resources D the greater use of compulsory overtime working of labour

Accepted Answer

B

Question 23

23 Which type of unemployment occurs when aggregate demand is deficient? A cyclical unemployment B regional unemployment C seasonal unemployment D structural unemployment

Accepted Answer

A

Question 24

24 The diagram shows the annual percentage (%) change in employment and output in the UK private sector between 2000 and 2012. 4 output 10 2 5 0 0 employment output employment –2 –5 –4 –10 –6 –15 2000 02 04 06 08 10 12 In which year did labour productivity increase the most? A 2003 B 2007 C 2009 D 2012

Accepted Answer

A

Question 25

25 According to Keynesian theory, when will an increase in the money supply leave the level of output unchanged? A when the liquidity trap is operative B when the money supply increase was not anticipated C when there is a floating exchange rate D when there is an immediate adjustment to expectations about future price levels

Accepted Answer

A

Question 26

26 In a 4-sector economy, consisting of households, firms, government and foreign trade, the level of national income is in equilibrium where C + I + G + (X – M) = Y. What must Y include for an equilibrium to exist? A C + S + M B C + S + T C S + T D S + T + M

Accepted Answer

B

Question 27

27 When would an economic recession result in an increase in a government’s budget deficit? A The government increases tariffs on imports with inelastic demand and keeps the total amount it spends on unemployment benefit unchanged. B The government keeps the unemployment benefit rate and direct and indirect tax rates unchanged. C The government reduces foreign aid and widens the tax base. D The government reduces the unemployment benefit rate and decreases the tax free allowance on income tax.

Accepted Answer

B

Question 28

28 What will be most likely to rise if unemployment is increasing in an economy? A the human capital of unemployed workers B the living standards of all workers C the nominal money wage rate of employed workers D the tax burden on employed workers

Accepted Answer

D

Question 29

29 What is most likely to result from foreign direct investment in developing economies? A a deterioration in the trade balances of developing economies B a reduction in migration to urban areas in developing economies C a reduction in the transfer of technology to developing economies D a rise in per capita levels of consumption in developing economies

Accepted Answer

D

Question 30

30 What will increase the multiplier effect of an increase in government spending on national income? A an increase in direct taxation B an increase in interest rates C an increase in the marginal propensity to consume D an increase in the marginal propensity to import

Accepted Answer

C

Cambridge A Level Economics 9708 — 2016 May/June Paper 3 · Variant 2

Question paper12 pages

Mark scheme2 pages

Questions as text

Q1 · What action by a firm is most likely to raise its dynamic efficiency?

Q2 · The current distribution of goods between two individuals in a two-person economy with…

Q3 · The concept of allocative efficiency assumes that each individual in society is the best…

Q4 · In the indifference curve diagram point M is the consumer’s initial equilibrium and MN is…

Q5 · To maximise the satisfaction he derives from a given level of expenditure on two goods, X…

Q6 · Which statement about the ‘kinked demand curve’ model of oligopoly is incorrect?

Q7 · A monopolist changes its objective from profit maximisation to sales revenue maximisation

Q8 · A firm estimates that, all else remaining unchanged, an increase in its output will…

Q9 · The diagram shows the cost and revenue curves of a firm

Q10 · Which is a risk-bearing economy of scale?

Q11 · A firm wishes to eliminate competition and become a monopoly

Q12 · In many developed economies, clothes are designed by small firms and retailed by large…

Q13 · What is likely to have its cause in the separation of ownership and control in a firm?

Q14 · A firm employs a worker who adds less to output than the previous worker employed

Q15 · To increase the number of cleaners at a local school from 10 to 11, the employer has to…

Q16 · For a firm in imperfect competition, the marginal revenue product of labour at any given…

Q17 · Which policy would be most effective in achieving a more equal distribution of disposable…

Q18 · A government regulates the price charged by a monopolist

Q19 · What would cause estimates of the money value of the ‘Measure of Economic Welfare’ for a…

Q20 · In 2012 a United Nations report calculated the stock of wealth of 20 countries in terms…

Q21 · Which combination is usually found in less developed economies?

Q22 · Which change is most likely to increase both economic growth and economic development in…

Q23 · Which type of unemployment occurs when aggregate demand is deficient?

Q24 · The diagram shows the annual percentage (%) change in employment and output in the UK…

Q25 · According to Keynesian theory, when will an increase in the money supply leave the level…

Q26 · In a 4-sector economy, consisting of households, firms, government and foreign trade, the…

Q27 · When would an economic recession result in an increase in a government’s budget deficit?

Q28 · What will be most likely to rise if unemployment is increasing in an economy?

Q29 · What is most likely to result from foreign direct investment in developing economies?

Q30 · What will increase the multiplier effect of an increase in government spending on…

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