Cambridge A Level Economics 9708 — 2017 Oct/Nov Paper 1 · Variant 3

1 What distinguishes the very long run from the long run? A the ability to change resource allocation B the ability to change the state of technology C the absence of government market intervention D the existence of variable factors of production

Mark scheme: B

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2 What is least likely to happen if a firm decides to increase automation and division of labour in its production process? A an increase in cost per unit B an increase in productivity C an increase in the firm’s profits D an increase in the number of workers employed

Mark scheme: A

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3 R1S1, R2S2, R3S3 and R4S4 are production possibility curves (PPC) for four different countries 1, 2, 3 and 4. R4 good R R3 R2 R1 O S1 S2 S3 S4 good S Which statement about the opportunity cost of good R in terms of good S is not correct? A It is greater at all points on R4S4 than on R3S3. B It is greater in country 3 than country 2. C It is lower in country 2 than country 1. D It is the same at each point on R3S3.

Mark scheme: A

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4 Many governments are concerned that the high sugar content in fizzy drinks might lead to health problems such as obesity. These governments are also concerned about the lack of public awareness of the dangers. What can be concluded from this? A Consumers of fizzy drinks have information failures. B Consumers under-consume fizzy drinks. C Fizzy drinks are merit goods. D Fizzy drinks are non-excludable.

Mark scheme: A

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5 There is a fall in the world price of tea traded on wholesale international markets. How will this most likely affect the supply curve of a major tea retailer? A It will cause a contraction along the supply curve. B It will cause an extension along the supply curve. C It will cause the supply curve to shift to the left. D It will cause the supply curve to shift to the right.

Mark scheme: D

More questions on The interaction of demand and supply

6 It was estimated in 2015 that milk had an income elasticity of demand of –0.6. What can be concluded about milk from this information? A It accounts for only a small proportion of household expenditure. B It has very few substitutes. C Household expenditure on milk will decrease if the price of milk increases. D It is an inferior good.

Mark scheme: D

More questions on Price elasticity, income elasticity and cross elasticity of demand

7 The diagram shows four supply curves. 1 2 3 4 price 4 3 2 1 O quantity Which statement about the price elasticities of the curves is correct? A Curve 1 has constant infinite elasticity. B Curve 2 has elasticity greater than curve 4 over its whole length. C Curve 3 has increasing elasticity as price rises. D Curve 4 has decreasing elasticity as price rises.

Mark scheme: D

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8 The data shows both short-term and long-term changes in the quantities of a product that are supplied to a market in response to an increase in its price from $20 to $25 per unit. quantity supplied at a price of $20 per unit 400 per week quantity supplied after short-term adjustments 440 per week when price rises to $25 per unit quantity supplied after long-term adjustments 560 per week when price rises to $25 per unit What are the short-term and long-term price elasticities of supply for the product? short-term long-term A 0.4 1.6 B 2 8 C 2.5 0.625 D 8 32

Mark scheme: A

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9 In the diagram, D is the demand curve for an agricultural commodity and S1 is the initial supply curve. A good harvest causes the supply curve to shift to S2. 6 S1 price 5 ($) 4 S2 3 2 1 D 0 0 1 2 3 4 5 6 quantity (’000 tonnes) By how much will the demand curve have to shift to leave farm incomes unchanged? A 500 tonnes at all prices B 1000 tonnes at all prices C 2000 tonnes at all prices D 4000 tonnes at all prices

Mark scheme: B

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10 A market is in an unstable disequilibrium when it does not return to its equilibrium point from a disequilibrium position. The diagram shows a market with two equilibrium points. At which price is the market in an unstable disequilibrium? D S price A B C D O quantity

Mark scheme: D

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11 In which situation will it be necessary to use an alternative to the price mechanism to allocate a good between consumers? A Supply exceeds the quantity demanded at the initial market price. B The government sets a price ceiling below the equilibrium price. C The product is excludable and rival. D There is a single monopoly producer.

Mark scheme: B

More questions on Resource allocation in different economic systems

12 The table shows the price Rashid is willing to pay for successive bottles of water. bottles of water 1st 2nd 3rd 4th price willing to pay $0.90 $0.80 $0.65 $0.50 If the price is $0.50 and Rashid buys four bottles, what is the monetary value of Rashid’s consumer surplus? A $0.15 B $0.85 C $0.90 D $1.35

Mark scheme: B

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13 A market is in equilibrium at price $5. Market supply changes from being inelastic at each price to become elastic at each price. The market equilibrium price does not change. What is the effect on consumer surplus and producer surplus? consumer producer surplus surplus A rises falls B rises unchanged C unchanged falls D unchanged unchanged

Mark scheme: C

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14 A government has introduced an effective maximum price on rice. Which combination of changes must cause an existing shortage of rice to increase the most? A a fall in the maximum price and a less price-elastic supply B a fall in the maximum price and a more price-elastic supply C a rise in the maximum price and a less price-elastic supply D a rise in the maximum price and more price-elastic supply

Mark scheme: B

More questions on Methods and effects of government intervention in markets

15 The diagram shows the market for a product before and after the introduction of a subsidy. supply before subsidy supply after S subsidy price T Y R U Q V X P W demand O T1 T2 quantity Which area represents the total amount paid in subsidies? A PRYX B QRUV C QSTV D RSTU

Mark scheme: C

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16 The graph shows the total economic welfare derived by citizens from a government’s expenditure on health and education services. total economic welfare health education 0 20 40 60 80 expenditure ($ billions) If the government has $60 billion of its budget to allocate between health and education services, which allocation will give its citizens the highest level of welfare? health spending education spending ($ billions) ($ billions) A 0 60 B 20 40 C 40 20 D 60 0

Mark scheme: C

More questions on Scarcity, choice and opportunity cost

17 The table shows the demand and supply schedules for a good before and after the imposition of a tax. price quantity quantity supplied quantity supplied ($) demanded before tax after tax 20 340 440 380 19 340 430 340 18 340 410 290 17 340 380 230 16 340 340 160 15 340 290 80 14 340 230 0 What was the tax and the price change? tax price change ($) ($) A 3 2 B 3 3 C 4 3 D 4 4

Mark scheme: B

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18 Which action by a government would not be regarded as a form of privatisation? A the contracting out of the provision of public sector services to private sector firms B the deregulation of public sector industries to allow the entry of private sector firms C the payment of subsidies from the public sector to private sector firms D the sale of shares in a public sector corporation to the private sector

Mark scheme: C

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19 The diagram shows changes in aggregate demand and aggregate supply that have resulted in a move from equilibrium point X to equilibrium point Y. SRAS2 SRAS1 price level Y X AD1 AD2 O real output Which combination of events could have caused this change? A higher interest rates and the discovery of new natural resources B increased consumer confidence and reduced raw material prices C less business confidence and higher indirect taxes D lower exchange rate and net outward migration

Mark scheme: D

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20 What would be likely to decrease inflation in an economy? A a decrease in consumer saving B a decrease in unemployment C an increase in labour productivity D an increase in taxes on imports

Mark scheme: C

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21 What is the average weighted price change illustrated by the table below? percentage of income price change product spent on product % P 10 +8 Q 15 +6 R 25 +4 S 50 –9 A –1.8% B 4.5% C 7.2% D 9.0%

Mark scheme: A

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22 The diagram shows Greece’s trade position with the EU and Russia between 2005 and 2014. 60 Greek key trade 50 imports from EU $bn 40 exports to EU imports from Russia 30 exports to Russia 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 What happened to Greek trade balances over this period? balance with the EU balance with Russia A an increased deficit an increased surplus B an increased surplus a reduced surplus C a reduced deficit an increased deficit D a reduced surplus a reduced deficit

Mark scheme: C

More questions on Current account of the balance of payments

23 The graphs show the changes in the exchange rates of the £ sterling against the US$ and against the euro. The exchange rate of sterling against the euro is shown by an inverted scale. sterling against (inverted sterling against the dollar ($ per £) scale) the euro (€ per £) 1.80 0.55 1.70 0.60 1.60 0.65 1.50 0.70 1.40 1.30 0.75 1 2 3 1 2 3 years years Which statement about the period year 1 to year 3 is correct? A The £ appreciated against the $ and the €. B The £ appreciated against the $ and depreciated against the €. C The £ depreciated against the $ and the €. D The £ depreciated against the $ and appreciated against the €.

Mark scheme: C

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24 What has happened when a country’s terms of trade are said to have moved in a favourable direction? A Each unit of imports costs more exports. B More foreign currency enters the country to pay for exports. C The monetary value of exports and imports is equalised. D The ratio of the index of export prices to the index of import prices increases.

Mark scheme: D

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25 What is the least likely outcome for participating countries of a move towards freer trade? A a greater product choice B a more equal distribution of income C greater international specialisation D higher standards of living

Mark scheme: B

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26 The diagram shows that the imposition of a tariff raises a product’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 change in domestic producers’ income as a result of the tariff? A It rose by $120 million. B It rose by $160 million. C It rose by $220 million. D It rose by $280 million.

Mark scheme: C

More questions on Protectionism

27 What is a disadvantage when a quota replaces a tariff to reduce imports? A It is harder to anticipate its impact. B It is less effective at raising revenue for the government. C It is less effective when imports are necessities. D It prevents any involvement of market forces.

Mark scheme: B

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28 All other things being equal, what will be the likely effects on the US budget deficit and the supply of US government bonds if the US government increases its expenditure? supply of US US budget deficit government bonds A decrease decrease B decrease increase C increase decrease D increase increase

Mark scheme: D

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29 A country at the beginning of a given period seeks to improve the current account of its balance of payments by devaluing its currency. The effect of this policy in the following two years is shown in the diagram. current account surplus current + 0 balance – 6 12 18 24 deficit months Which statement is likely to explain this performance? A In the short run, the price elasticity of demand for exports and imports was very low. B The domestic inflation rate fell after 12 months before having the desired result. C The elasticity of demand for imports diminished after 12 months. D The policy was ineffective and other factors must have led to an improvement in the current account.

Mark scheme: A

More questions on Policies to correct imbalances in the current account of the balance of payments

30 Suppose a country has a rate of inflation well below its target rate, high unemployment and a large balance of payments deficit. What would an economic advisor to the government be most likely to recommend? A a long-run supply side policy, aimed at improving the country’s efficiency, so improving both the unemployment and the balance of payments positions B a revaluation of its currency, because that would lead to reduced unemployment and an improved balance of payments C a rise in interest rates, because it would lead to an improved balance of payments and help achieve the inflation target D a rise in levels of direct taxation, because that would improve unemployment and move inflation in the direction of a target level

Mark scheme: A

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