Cambridge A Level Economics 9708 — 2017 May/June Paper 1 · Variant 1

Question 1

1 What must follow when scarcity exists? A Consumers have to make choices. B Governments are unable to supply public goods. C Producers must be misallocating resources. D Workers must be earning low wages.

Accepted Answer

A

Question 2

2 What is likely to be introduced in the market for bus travel if an economy moved from a mixed economy to a market economy? A allowing companies to bid for bus routes B free bus travel for school children C maximum prices for bus travel D subsidies to bus operators

Accepted Answer

A

Question 3

3 The diagram shows that the production possibility frontier of maize and beans has changed from PPF1 to PPF2. 100 output of maize (tonnes) PPF2 PPF1 0 0 100 200 output of beans (tonnes) What has happened to the opportunity cost of maize and the returns to factors producing beans? opportunity cost returns to factors of maize producing beans A fallen fallen B fallen risen C risen fallen D risen risen

Accepted Answer

D

Question 4

4 An individual buys a ticket to visit a government-owned art gallery. How would this visit be classified by an economist? A private and demerit good B private and merit good C public and demerit good D public and merit good

Accepted Answer

B

Question 5

5 The diagram shows a shift in a firm’s supply curve from S1 to S2. price S2 S1 O quantity What may have caused the shift from S1 to S2? A a decrease in the costs of production of the firm B a decrease in the popularity of the firm’s product C a decrease in the subsidy on the good D a decrease in the tax on the good

Accepted Answer

C

Question 6

6 A change in the price of a good causes an increase in the quantity of the good demanded. What would be the nature of the good and the direction of price change for this to be certain to happen? nature of good price change A inferior fall B inferior rise C normal fall D normal rise

Accepted Answer

C

Question 7

7 Which combination is most likely to result in the demand for a product being highly price elastic? number of close % of income substitutes spent on product A large large B large small C small large D small small

Accepted Answer

A

Question 8

8 A manufacturer increases the price of his product from $4 in an attempt to increase total revenue. The table shows the outcome of the policy. price total revenue ($) 000’s ($) 4 400 5 500 6 600 What is the price elasticity of demand for the product? A perfectly elastic B perfectly inelastic C relatively elastic D relatively inelastic

Accepted Answer

B

Question 9

9 A firm establishes that the price elasticity of supply of its product has a value of 0.3. What is likely to be true about the firm? A It has unused productive capacity. B It has unsold stock of its product. C It uses a high proportion of perishable raw materials. D It uses factors of production that are easily substituted.

Accepted Answer

C

Question 10

10 There is a reduction in world oil supplies due to war in some supplying countries at a time when the winter in some importing countries was much colder than usual. The diagram shows the original equilibrium price, P. S1 price of oil S S2 P4 P P3 P2 P1 D1 D D2 O quantity of oil What will be the equilibrium price of oil in these circumstances? A P1 B P2 C P3 D P4

Accepted Answer

D

Question 11

11 Good X is a substitute for good Y and a complement to good Z. What would happen after a fall in the price of good X? A Only the demand for X will rise. B Demand for X, Y and Z will rise. C Demand for Y will fall and for Z will rise. D Demand for Y will rise and for Z will fall.

Accepted Answer

C

Question 12

12 A government imposes a specific indirect tax on a product. When will the tax cause the greatest reduction in consumer surplus for the buyers of the product? A The product has price elastic demand and price elastic supply. B The product has price elastic demand and price inelastic supply. C The product has price inelastic demand and price elastic supply. D The product has price inelastic demand and price inelastic supply.

Accepted Answer

C

Question 13

13 The table shows the maximum amount three students would each be willing to pay for a taxi to take them home from a nightclub. $ Jane 10.00 Sara 8.00 Yasmin 6.00 Assume they share the taxi fare as shown in the table below. Which shows how much they each should pay so that they each obtain the same consumer surplus? Jane Sara Yasmin $ $ $ A 2.00 4.00 6.00 B 4.00 4.00 4.00 C 5.00 4.00 3.00 D 6.00 4.00 2.00

Accepted Answer

D

Question 14

14 A government fixes a minimum price for a service. What will be the outcome of such a policy? A Demand will fall if the minimum price is below the equilibrium price. B Demand will rise if the minimum price is above the equilibrium price. C Production will fall if the minimum price is above the equilibrium price. D Production will stay the same if the minimum price is below the equilibrium price.

Accepted Answer

D

Question 15

15 The diagram illustrates the effects of placing a specific tax equal to JM on a good. S2 price S1 J X L K Y Z M D O quantity Which area represents total tax receipts? A JKM B XJKY C XJLY D XJMZ

Accepted Answer

D

Question 16

16 The diagram shows the demand curve, D1, and the supply curve, S1, for a good. S3 price S1 S2 S4 D2 D1 O quantity The government decides to pay producers a specific subsidy for each unit supplied to the market. Which curve shows the new effective demand or supply curve? A D2 B S2 C S3 D S4

Accepted Answer

B

Question 17

17 Planned government expenditure for the UK in the fiscal year 2016 is estimated at £760 billion. The top five areas of expenditure are given in the table. £ billion pensions 153 healthcare 138 welfare 111 education 89 defence 45 total top five 536 What is the total amount spent on transfer payments shown in the table? A £89 billion B £111 billion C £264 billion D £536 billion

Accepted Answer

C

Question 18

18 What is likely to occur when the government privatises public sector monopolies? A Consumer choice will increase. B Employment will increase in the short run. C Innovation will be discouraged. D The production of public goods will increase.

Accepted Answer

A

Question 19

19 In a closed economy a rise in aggregate demand is needed to increase output in the country. What is necessary to achieve this increase in output in the economy? A enough capacity to produce the extra goods and services demanded B free trade to allow imports to make up any shortages in supply C government spending to be less than tax revenue D reduced credit to lower inflation

Accepted Answer

A

Question 20

20 The diagram shows the long-run aggregate supply (LRAS) curve of an economy. At which equilibrium level of national income is a balance of trade surplus likely to cause the greatest inflationary increase for the economy? price LRAS level O A B C D real national income

Accepted Answer

D

Question 21

21 A government succeeds in changing a current account deficit into a current account surplus. Why might this current account surplus increase the country’s inflation rate? A It raises aggregate demand. B It raises production costs. C It reduces the exchange rate. D It reduces the money supply.

Accepted Answer

A

Question 22

22 The diagram shows Greece’s trade position with the EU and Russia between 2005 and 2014. 60 key Greek 50 imports from EU trade 40 exports to EU $bn imports from Russia 30 exports to Russia 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 What can be concluded about the period 2005 to 2014? A Greece’s annual trade deficit with the EU rose continuously. B Greece’s annual trade deficit with the EU was lower in 2014 than in 2005. C Greece’s annual trade deficit with the EU fell continuously. D Greece’s annual trade deficit with the EU was smaller than its deficit with Russia.

Accepted Answer

B

Question 23

23 There is a rise in the exchange rate of the US$. Which would cause the greatest increase in the US current account deficit? A a high level of domestic unemployment B a high price elasticity of demand for imports C a low price elasticity of demand for exports D a low rate of domestic inflation

Accepted Answer

B

Question 24

24 Since 2000 a country’s export prices have increased on average by 50% and its import prices by 25%. What is the current figure for the country’s terms of trade (2000 = 100)? A 75 B 83 C 120 D 125

Accepted Answer

C

Question 25

25 Each diagram shows the production possibility curves of two economies, X and Y, which produce food and clothes. In which diagram would both economies benefit by specialising in the good in which they have comparative advantage and trading at an exchange rate of 1 unit of clothes to 1.5 units of food? A B C D 5 5 food food food food 4 4 4 4 3 Y Y Y Y 2 X X X X 0 0 0 0 0 1 2 0 4 5 0 2 5 0 4 clothes clothes clothes clothes

Accepted Answer

C

Question 26

26 Four countries, A, B, C and D, trade internationally. Each circle in the diagram represents a free trade area between the countries within the circle. A country can belong to more than one free trade area. Countries outside of a circle face trade barriers. Which country has the greatest opportunity to benefit from free international trade? A C B D

Accepted Answer

B

Question 27

27 A small trading country decides on a policy of import substitution by producing for itself. What is the most likely reason for this policy? A to follow the principle of absolute advantage B to influence world prices in international markets C to protect local industries from foreign competition D to substitute imported machines for local labour

Accepted Answer

C

Question 28

28 The diagram shows a government’s revenue and expenditure for three years. revenue 2008 expenditure revenue 2009 expenditure revenue 2010 expenditure 0 1 2 3 4 $m What can be concluded from the diagram? A A budget deficit was replaced by a budget surplus. B A government borrowing requirement emerged. C The economy moved from a recession into a boom period. D The yield from taxation continuously increased.

Accepted Answer

B

Question 29

29 A country with a fixed exchange rate has a current account surplus on its balance of payments. What is most likely to reduce this surplus? A higher interest rates B higher investment spending C higher tariffs D higher taxes

Accepted Answer

B

Question 30

30 In recent years an economy has experienced changes in its price level as shown. 6 percentage change of 4 price level 2 0 2010 2015 –2 Which government policy is most effective in reversing the trend shown in the price level? A encourage firms to expand production through tax incentives B introduce an incomes policy to directly control wage increases C promote household savings by issuing savings bonds D reduce interest rates and increase money supply

Accepted Answer

D

Cambridge A Level Economics 9708 — 2017 May/June Paper 1 · Variant 1

Question paper12 pages

Mark scheme3 pages

Questions as text

Q1 · What must follow when scarcity exists?

Q2 · What is likely to be introduced in the market for bus travel if an economy moved from a…

Q3 · The diagram shows that the production possibility frontier of maize and beans has changed…

Q4 · An individual buys a ticket to visit a government-owned art gallery

Q5 · The diagram shows a shift in a firm’s supply curve from S1 to S2

Q6 · A change in the price of a good causes an increase in the quantity of the good demanded

Q7 · Which combination is most likely to result in the demand for a product being highly price…

Q8 · A manufacturer increases the price of his product from $4 in an attempt to increase total…

Q9 · A firm establishes that the price elasticity of supply of its product has a value of 0.3

Q10 · There is a reduction in world oil supplies due to war in some supplying countries at a…

Q11 · Good X is a substitute for good Y and a complement to good Z

Q12 · A government imposes a specific indirect tax on a product

Q13 · The table shows the maximum amount three students would each be willing to pay for a taxi…

Q14 · A government fixes a minimum price for a service

Q15 · The diagram illustrates the effects of placing a specific tax equal to JM on a good

Q16 · The diagram shows the demand curve, D1, and the supply curve, S1, for a good

Q17 · Planned government expenditure for the UK in the fiscal year 2016 is estimated at £760…

Q18 · What is likely to occur when the government privatises public sector monopolies?

Q19 · In a closed economy a rise in aggregate demand is needed to increase output in the country

Q20 · The diagram shows the long-run aggregate supply (LRAS) curve of an economy

Q21 · A government succeeds in changing a current account deficit into a current account surplus

Q22 · The diagram shows Greece’s trade position with the EU and Russia between 2005 and 2014

Q23 · There is a rise in the exchange rate of the US$

Q24 · Since 2000 a country’s export prices have increased on average by 50% and its import…

Q25 · Each diagram shows the production possibility curves of two economies, X and Y, which…

Q26 · Four countries, A, B, C and D, trade internationally

Q27 · A small trading country decides on a policy of import substitution by producing for itself

Q28 · The diagram shows a government’s revenue and expenditure for three years

Q29 · A country with a fixed exchange rate has a current account surplus on its balance of…

Q30 · In recent years an economy has experienced changes in its price level as shown

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