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

This document consists of 11 printed pages and 1 blank page. IB17 11_9708_31/2RP © UCLES 2017 [Turn over *3520188135* Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/31 Paper 3 Multiple Choice October/November 2017 1 hour 15 minutes Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, glue or correction fluid. Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. DO NOT WRITE IN ANY BARCODES. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet.

2 © UCLES 2017 9708/31/O/N/17 1 Which is the most likely reason for the privatisation of state-owned industries? A to achieve a more equitable distribution of income B to achieve economies of scale C to achieve marginal cost pricing D to achieve productive efficiency 2 A town council estimated the costs and benefits of operating a bus service in 2015 and 2016. These are shown in the table. 2015 $000 2016 $000 private costs 2000 2200 external costs 500 900 private benefits 1500 2300 external benefits 1000 800 What can be concluded from the table? A Between 2015 and 2016, social costs fell and social benefits rose. B Between 2015 and 2016, social costs rose and social benefits fell. C In both years, positive externalities exceeded negative externalities. D In both years, social costs equalled social benefits. 3 At major sporting events, unofficial markets occur where tickets originally sold by the event organiser are resold at prices higher than the original ticket price. What might be the conclusion of an economist considering these markets? A Allocation of tickets by ballot would be preferable. B The market for the resold tickets is more equitable. C The new allocation of tickets better reflects consumers’ utility. D This is a case of monopoly exploitation.

3 © UCLES 2017 9708/31/O/N/17 [Turn over 4 Which statement describes the operation of the law of variable proportions? A As all factors are increased in proportion, the marginal cost of production increases. B As all factors are increased in proportion, total product rises at a diminishing rate. C As more of a variable factor is added to a fixed factor, the marginal cost of production diminishes. D As more of a variable factor is added to a fixed factor, total product rises at a diminishing rate. 5 The diagram shows two indifference curves and two budget lines relating to two goods X and Y. O M good Y good X M1 IC1 IC2 M2 R S T The consumer’s initial position is at point R. The money price of good X decreases and the consumer’s preferred position becomes point T. What is good X? A a Giffen good B a luxury good C a normal good D an inferior good 6 Firms can grow internally or externally. What is a characteristic of external growth? A direct investment in productive facilities in foreign countries B growth that results in external economies benefiting other firms C growth that results from mergers with, or acquisitions of, other firms D the financing of investment by the issue of bonds rather than retained profits

4 © UCLES 2017 9708/31/O/N/17 7 The diagram shows a firm’s cost and revenue curves. cost, revenue output O MC AC AR MR The firm embarks on a successful $100 million advertising campaign. How will this affect its costs and revenue curves? MR curve AR curve MC curve AC curve A shifts to right shifts to right shifts up unchanged B shifts to right shifts to right unchanged shifts up C unchanged unchanged shifts up unchanged D unchanged unchanged unchanged shifts up 8 What would encourage an increase in the number of small firms? A increasing government regulation of conditions in the workplace B more risk-averse (safety first) lending policies by banks C stronger government laws against the growth of monopoly D tougher penalties in the case of personal bankruptcy

5 © UCLES 2017 9708/31/O/N/17 [Turn over 9 The diagram shows a firm’s cost and revenue curves. cost, revenue output O MR MC AC AR The firm changes its objective from sales revenue maximisation to profit maximisation. How will this affect the following groups in the short run? customers workers A benefit benefit B benefit lose C lose benefit D lose lose 10 The firms in an industry decide to collude informally and follow a price leader. What will reduce the likelihood that the collusion will succeed? A The firms produce close substitutes. B The firms have similar cost structures. C There are low barriers to entry into the industry. D There are only a few firms in the industry. 11 The theory of contestable markets can be applied to A monopolistic competition, monopoly and oligopoly. B monopolistic competition only. C monopoly and oligopoly only. D monopoly only.

6 © UCLES 2017 9708/31/O/N/17 12 According to the law of diminishing returns, what happens as more of a variable factor is combined with a fixed factor? A An increase in the price of the variable factor will eventually result in an increase in production costs. B A reduction in the quality of the variable factor will eventually result in an increase in production costs. C Fewer units of the variable factor will be needed to produce equal increases in output. D The proportions in which the factors are combined will eventually result in progressively smaller increases in output. 13 Firm X is considering whether to co-operate with its rival so that their joint profit is $4000 a month ($2000 each). It calculated that, if it did not co-operate, its own profit would be $2800 a month provided it kept all its customers itself. However, if its rival undercut X’s price and took some of X’s customers then X’s profit would be $1200. It has no knowledge of what the rival’s policy will be. What describes the situation that the firm is facing? A monopoly profit maximisation B principal agent problem C prisoner’s dilemma D satisficing 14 Governments intent on improving living standards for individuals with low incomes sometimes impose rent controls (maximum prices) on houses rented from private landlords. What might be the effects of rent controls in the long run? A The long-run supply of rental houses will contract. B The number of unoccupied privately rented houses will increase over time. C The price of owner-occupied houses will increase. D There will be no effect on the supply of the rental housing. 15 In certain countries benefits are provided to individuals on low income. As their income rises the benefits are reduced and income tax has to be paid. What can result from this? A price stabilisation B poverty trap C replacement ratio D unemployment trap

7 © UCLES 2017 9708/31/O/N/17 [Turn over 16 What would help a trade union to negotiate an increase in the wage rates of its members without causing a reduction in the numbers employed? A Labour costs are a major proportion of total costs. B The demand for the labour employed is elastic. C The demand for the good produced is elastic. D The demand for the good is increasing. 17 An increase in the world price of oil increases the demand for deep sea divers from D1 to D2 as shown. O V Y X R Q M N W T S D1 D2 number of divers wage What is the change in the economic rent earned by the divers? A OQTM to OQWN B ORTM to OXWN C QRT to QXW D QYT to QVW 18 What could lead to an increase in the size of a country’s labour force? A a decrease in unemployment B a decrease in the retirement age C an increase in the participation rate D an increase in the school-leaving age

8 © UCLES 2017 9708/31/O/N/17 19 The table gives unemployment rates (%) for four countries in 1993 and 2002. UK Japan France Italy 1993 10.5 2.5 11.4 10.1 2002 5.0 5.4 8.8 8.5 What can be deduced from the table? A France had the lowest rate of employment in both years. B Italy had the most employed people in 2002. C Japan more than doubled its labour productivity between 1993 and 2002. D The UK created the most jobs between 1993 and 2002. 20 The diagram shows the saving and investment curves of a closed economy with no government. output O YP K S J H G L I saving, investment 45° The potential level of output is OYP. Which distance measures the gap between actual and potential output? A KJ B JH C LG D GH

9 © UCLES 2017 9708/31/O/N/17 [Turn over 21 The table shows the values of selected macroeconomic variables over a two-year period. year 1 ($m) year 2 ($m) investment 250 350 saving 280 340 government expenditure 150 200 taxation 140 200 exports 200 250 imports 180 260 equilibrium national income 3600 4200 What is the value of the multiplier? A 3 B 4 C 6 D 12 22 During a year, a country’s national income in money terms increased by 3%, prices increased by 4% and total population increased by 1%. What was the approximate change in real income per head? A a decrease of 1% B a decrease of 2% C an increase of 2% D an increase of 3% 23 What will cause a fall in the quantity of money demanded? A a rise in interest rates B a rise in national income C a rise in the price level D a rise in wealth 24 What is not included in the measurement of national income? A dividends paid to shareholders B overtime payments C rents from government-owned houses D welfare benefit payments

10 © UCLES 2017 9708/31/O/N/17 25 Which row correctly identifies net injections into a country’s circular flow of income? government expenditure > taxation savings > investment exports > imports A no no yes B no yes no C yes no yes D yes yes no 26 Rapid economic growth is claimed by some to harm the environment. Which outcome would not harm the environment? A the greater mobility of workers resulting from increased vehicle ownership B the increased levels of income that reduce fertility rates and family size C the relocation of workers from agricultural to manufacturing employment D the use of improved technology to access previously inaccessible natural resources 27 A country has labour shortages in some areas and high unemployment in others. Which government policy would help remove this imbalance? A abandoning national wage rates in favour of local agreements B granting subsidies to exporting firms C increasing welfare payments to the unemployed D reducing government expenditure and increasing taxation 28 Which is likely to hinder a supply-side stimulus to the economy? A an imposition of maximum hours in a working week B an increase in public sector spending C the provision of new training schemes D the relaxation of import controls on raw materials

11 © UCLES 2017 9708/31/O/N/17 29 What is most likely to influence subsequent increases in national income as a result of a government policy of reduced interest rates? A marginal cost B marginal efficiency of capital C marginal product D marginal utility 30 What might influence the ability of a government to use income taxation to redistribute income from richer to poorer groups? A the Laffer curve B the Law of diminishing returns C the Pareto principle D the Phillips curve

12 Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after the live examination series. Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge. © UCLES 2017 9708/31/O/N/17 BLANK PAGE

® IGCSE is a registered trademark. This document consists of 3 printed pages. © UCLES 2017 [Turn over Cambridge Assessment International Education Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/31 Paper 3 Multiple Choice October/November 2017 MARK SCHEME Maximum Mark: 30 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge International will not enter into discussions about these mark schemes. Cambridge International is publishing the mark schemes for the October/November 2017 series for most Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level components.

9708/31 Cambridge International AS/A Level – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 2 of 3 Question Answer Marks 1 D 1 2 D 1 3 C 1 4 D 1 5 D 1 6 C 1 7 B 1 8 C 1 9 D 1 10 C 1 11 A 1 12 D 1 13 C 1 14 A 1 15 B 1 16 D 1 17 C 1 18 C 1 19 A 1 20 D 1 21 A 1 22 B 1 23 A 1 24 D 1 25 C 1 26 B 1 27 A 1 28 A 1

9708/31 Cambridge International AS/A Level – Mark Scheme PUBLISHED October/November 2017 © UCLES 2017 Page 3 of 3 Question Answer Marks 29 B 1 30 A 1