Cambridge A Level Economics 9708 — 2017 May/June Paper 1 · Variant 3

1 What is an example of the use of ceteris paribus? A The rate of increase in wage rates equals the rate of increase in price levels. B There is a constant rise in both wage rates and price levels. C Wage rates and the price level remain constant at their original levels. D Wage rates rise when the only change is a rise in prices.

Mark scheme: D

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2 What is always true of a positive statement? A It is based on statistical data. B It is possible to test its validity. C It is the only basis for economic policy. D It overrides any normative statement.

Mark scheme: B

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3 The diagram shows a production possibility curve for an economy that is producing at point P. 150 good Y P 100 50 0 0 50 100 150 good X Which quantity of Y is given up to produce the quantity of X shown? A 40 B 50 C 100 D 110

Mark scheme: A

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4 What is an accurate statement about different types of goods? A Free goods are offered for sale at a loss-making price. B Merit goods generate more consumer surplus than producer surplus. C Private goods can be consumed with no opportunity cost. D Public goods can be used by additional consumers with no extra production cost.

Mark scheme: D

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5 Why does an individual’s demand curve generally slope downwards to the right? A The additional satisfaction an individual gets from consuming most goods decreases as consumption increases. B The additional satisfaction an individual gets from consumption decreases as income rises. C The individual has finite income which is used to attempt to satisfy many wants. D For most goods the price charged by producers falls as the quantity purchased increases.

Mark scheme: A

More questions on Demand and supply curves

6 Ethiopia is Africa’s largest producer of coffee. S1 and D1 are the original supply and demand curves for Ethiopian coffee. D2 is a new demand curve. S1 price of coffee P1 P2 D1 D2 O Q2 Q1 quantity of coffee What would have caused the change shown in the diagram? A a fall in incomes worldwide B a fall in the cost of producing Ethiopian coffee C a rise in output from Ethiopian coffee harvests D a rise in the price of coffee produced in Kenya

Mark scheme: A

More questions on The interaction of demand and supply

7 The diagram shows the relationship between total expenditure and price for three products, 1, 2 and 3. 1 2 price 3 O total expenditure Which curves represent the products with price elastic and unitary price elastic demand? elastic unitary A 1 2 B 2 3 C 3 1 D 3 2

Mark scheme: C

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8 A firm has a perfectly elastic supply curve at the market price of $10. Which statement about the firm is correct? A At any price above $10 quantity supplied is zero. B At any price below $10 quantity supplied is infinite. C At price $10 the firm will supply any quantity. D At price $10 the firm will break even.

Mark scheme: C

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9 The supply function for a good can be written as Q = 2P + 10, where Q is the quantity supplied in kilos and P is the price per kilo in dollars. The price rises from $10 to $15 per kilo. The value of price elasticity of supply for this price increase lies in a range from A 1 to 4 1 . B 3 to 2 1 . C 2 to 4 3 . D 1 4 1 to 1 2 1 . 6 8 3

Mark scheme: C

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10 In a free market in disequilibrium, which combination of price and quantity will lead to a fall in price and a contraction in output to reach equilibrium? S P1 price P2 P3 D O Q1 Q2 Q3 quantity A P1Q1 B P1Q3 C P3Q1 D P3Q3

Mark scheme: B

More questions on The interaction of demand and supply

11 A change in market conditions causes a reduction in supply. This results in a higher price for the product, which has a downward-sloping demand curve. What must be the outcome of this higher price? A a decrease in the demand for substitutes B a decrease in the quantity demanded C an increase in the factors employed in the industry D an increase in producer’s revenue

Mark scheme: B

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12 The soap industry consists of several firms. Firm X produces a small percentage of total output. What is likely to cause the supply curve for firm X to shift to the right while the market supply curve shifts to the left? A Firm X has improved technology while other firms have higher input costs. B Firm X has to pay a large fine for polluting a river while other firms have a tax reduction. C Firm X is involved in a strike while other firms enter the industry. D Firm X’s rent and interest charges increase while other firms receive a government subsidy.

Mark scheme: A

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13 D1 and S1 represent the initial demand and supply curves for a product. D2 and S2 are the equivalent curves after changes in market conditions. S2 price of product P Q D2 R S S1 T U D1 V O quantity of product What are resulting changes in consumer and producer surplus? change in change in consumer surplus producer surplus A from R to P from U to Q B from R + T to P from U to Q + R C from R + T to P from V to Q D from R to P + S from V to Q + R

Mark scheme: B

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14 The diagram shows a market subject to a maximum price. S price P maximum price D O Q1 Q Q2 quantity What will happen if the maximum price is removed? A There will be allocation by a queuing system. B There will be allocation by government rationing. C There will be allocation by seller’s preference. D There will be allocation by the price system.

Mark scheme: D

More questions on Methods and effects of government intervention in markets

15 The diagram illustrates the effect of a government action that shifts S1 to S2. S2 S1 price W X Z Y D O quantity What does the area of the rectangle WXYZ represent? A the consumer tax burden B the government tax revenue C the government subsidy payment D the producer subsidy income

Mark scheme: B

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16 The table shows the demand and supply schedules for a product before and after the government pays a subsidy of $4 per unit to the producers. quantity quantity quantity price demanded supplied before supplied after ($) (units) subsidy (units) subsidy (units) 6 140 60 100 8 120 80 120 10 100 100 140 12 80 120 160 14 60 140 180 What is the total government spending on the subsidy? A $240 B $400 C $480 D $960

Mark scheme: C

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17 Which government transaction is a transfer payment? A a fee paid for a service supplied by government B a payment to a private firm for goods supplied to the government C a pension paid to a former government employee D a salary payment to a government tax official

Mark scheme: C

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18 Following deregulation, state-owned enterprises in an economy are to be privatised. What is least likely to result? A Private companies will put customer needs before profits. B Private companies will raise their own share capital. C The level of incentive for the enterprises will rise. D The number of companies will increase.

Mark scheme: A

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19 From the initial position of equilibrium shown, there is an increase in government expenditure on goods and services and simultaneously a reduction in the overall efficiency in the production of goods and services. full employment price AS level AD O real output What best describes the likely impact on the economy? equilibrium level equilibrium level of national income of prices A falls uncertain B no change no change C rises rises D uncertain rises

Mark scheme: D

More questions on Aggregate Demand and Aggregate Supply analysis

20 What does an aggregate demand curve show? A the level of aggregate demand corresponding to different levels of aggregate supply B the aggregate output demanded corresponding to different average price levels C the equilibrium price level corresponding to different levels of aggregate expenditure D the equilibrium level of income corresponding to different levels of aggregate expenditure

Mark scheme: B

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21 The table shows the year-on-year percentage changes for a country’s consumer price index from 2009 to 2015. year % change 2009 18.0 2010 11.7 2011 8.6 2012 4.6 2013 4.9 2014 6.1 2015 4.5 Which statement about the price level is correct? A It fell over the first half of the period. B It was at its highest at the start of the period. C It was at its lowest at the end of the period. D It was at its lowest at the start of the period.

Mark scheme: D

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22 An Indian multinational company receives profits from its factories based in the UK. It then buys a US-owned firm based in the UK. How will these transactions appear in India’s balance of payments? the remittance of profit the purchase of the US-owned firm A a credit item in the current account a debit item in the financial account B a credit item in the financial account a debit item in the current account C a debit item in the current account a credit item in the financial account D a debit item in the financial account a credit item in the current account

Mark scheme: A

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

Mark scheme: A

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24 An economy’s terms of trade fell from the base year of 100 to 90. Which changes in the export price index and the import price index would have caused this? export price import price index change index change A 0 –10 B 0 +10 C –10 0 D –10 +10

Mark scheme: C

More questions on The reasons for international trade

25 Kenya produces some of the finest teas much of which it exports. Its climate is not so suited to producing olives but the olives can be sold for a higher price per sack. What would definitely happen if a Kenyan company used some of the land where tea is grown to plant olive trees? A The company would have a comparative advantage in trade. B The company’s revenue would increase. C There would be a decrease in the credit side of the trade in goods and services. D There would be an opportunity cost from lost tea production.

Mark scheme: D

More questions on Scarcity, choice and opportunity cost

26 The diagram shows that the imposition of a tariff raises a good’s world price from $10 to $14. domestic supply price D $ 14 10 domestic demand S 0 20 30 70 100 quantity (millions) What was the effect on total expenditure on the good? A It fell by $20 million B It fell by $160 million C It rose by $220 million D It rose by $560 million

Mark scheme: A

More questions on Protectionism

27 Which government measure would reduce protectionism? A an increase in product safety standards B an increase in subsidies to domestic firms C an increase in the level of import quotas D an increase in the rate of import duties

Mark scheme: C

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28 What is a deflationary fiscal measure? A reducing interest rates B reducing the money supply C increasing taxes D increasing government expenditure

Mark scheme: C

More questions on Fiscal policy

29 Policies to correct a balance of payments deficit fall into two categories: expenditure-dampening policies and expenditure-switching policies. Which pair of policies are classified correctly? expenditure-dampening policy expenditure-switching policy A an increase in the rate devaluation of of income tax the currency B an increase in the rate the imposition of of value added tax import quotas C devaluation of an increase in the rate the currency of value added tax D the imposition of an increase in the import quotas rate of income tax

Mark scheme: A

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30 The US Federal Reserve has a stable price (2% inflation) target and a full employment (5 to 5.2% unemployment) target. The diagram shows the inflation rate and unemployment rate that existed between 2007 and 2014. 10 key 8 unemployment rate (%) consumer prices 6 % increase on a year earlier full employment rate 4 2 inflation target 0 2007 2008 2009 2010 2011 2012 2013 2014 What can be concluded about the performance of Federal Reserve economic policy, 2007 to 2014? A The continuing deflation meant failure in the inflation target. B The inflation target was achieved less frequently than the employment target. C The least successful period for economic policy was experienced in 2007. D The nearest to complete policy success was achieved in 2008.

Mark scheme: D

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