Cambridge A Level Economics 9708 — 2018 May/June Paper 1 · Variant 2
9708/12/M/J/18 · 30 questions · 30 marks · ≈34 min
The question paper and its mark scheme, free to read here and free to download. This is Cambridge’s own paper, exactly as it was sat.
Question paper16 pages
Mark scheme3 pages
Answers below. Sit the paper first if you are practising.
Questions as text
Q1 · The statements refer to the proposal to build another runway at London’s Heathrow airport
1 The statements refer to the proposal to build another runway at London’s Heathrow airport. Which statement is normative? A Heathrow is the UK’s busiest airport and has more flights than any other European airport. B The airport is highly competitive but there is spare capacity. C The potential net benefit of expansion is around £5 billion over 70 years. D We should concentrate on improving the use of existing capacity not build another runway.
Mark scheme: D
Q2 · YX is an economy’s production possibility curve (PPC)
2 YX is an economy’s production possibility curve (PPC). The equation of the curve is qY = 1000 – 2qX. 1000 Y output of good Y (qY) X O 500 output of good X (qX) What is the opportunity cost of producing one extra unit of good X? A 1 unit of good Y 2 B 2 units of good Y C 500 units of good Y D 1000 units of good Y
Mark scheme: B
Q3 · A farmer picks 10 kg of strawberries in each hour
3 A farmer picks 10 kg of strawberries in each hour. The farmer is twice as productive at picking raspberries. Which diagram shows the farmer’s daily production possibility curve when working 8 hours a day? A B 20 160 raspberries raspberries picked (kg) picked (kg) O 10 O 80 strawberries strawberries picked (kg) picked (kg) C D raspberry raspberry picking (hours) picking (hours) 4 8 O 8 O 16 strawberry strawberry picking (hours) picking (hours)
Mark scheme: B
Q4 · Governments provide public goods
4 Governments provide public goods. What is an example of a public good? A the services provided by a defence force B the services provided by a hospital C the services provided by a leisure centre D the services provided by a toll road
Mark scheme: A
Q5 · India is one of the largest producers of tractors in the world
5 India is one of the largest producers of tractors in the world. S1 and D1 are the original supply and demand curves for Indian tractors. S1 price of tractors S2 P1 P2 D1 O Q1 Q2 quantity of tractors What would cause the supply curve to move to S2? A a rise in the incomes of Indian farmers B a rise in the price of electricity paid by Indian tractor manufacturers C a rise in the price of tractors produced in the US D a rise in the productivity of workers in Indian tractor factories
Mark scheme: D
Q6 · The diagram shows the demand curve for a product
6 The diagram shows the demand curve for a product. price D O quantity Which statement is correct? A Consumer expenditure on the product always rises when price falls. B Demand is less elastic at higher prices than at lower prices. C Price elasticity of demand differs at every price. D Price elasticity of demand equals one at every price.
Mark scheme: C
More questions on Price elasticity, income elasticity and cross elasticity of demand
Q7 · The cross-elasticity of demand between two goods will be higher A the greater the…
7 The cross-elasticity of demand between two goods will be higher A the greater the difference in price between the two goods. B the greater the income elasticities of demand for the two goods. C the greater the price elasticities of demand for the two goods. D the more they are regarded as similar by consumers.
Mark scheme: D
More questions on Price elasticity, income elasticity and cross elasticity of demand
Q8 · The price elasticity of supply of a good is +2
8 The price elasticity of supply of a good is +2. The quantity supplied originally was 200 units. The price increases by 30%. What will the quantity supplied be after the price increase? A 80 units B 140 units C 260 units D 320 units
Mark scheme: D
Q9 · The diagram shows S1 and D1, the original supply and demand curves for fast food in an…
9 The diagram shows S1 and D1, the original supply and demand curves for fast food in an economy. Point X is the original equilibrium. Fast food is an inferior good. What would be the new equilibrium position following a tax imposed on fast food and a fall in real income? S2 price S1 A S3 D X B C D2 D1 D3 O quantity
Mark scheme: A
Q10 · When will the price mechanism not function as a system for allocating goods?
10 When will the price mechanism not function as a system for allocating goods? A when the government bans advertising B when the government maintains an effective maximum price C when there is a limited supply of the good D when there is a powerful company able to set the market price
Mark scheme: B
More questions on Resource allocation in different economic systems
Q11 · During a certain period, 10 000 units of a normal good are sold at a price of US$20
11 During a certain period, 10 000 units of a normal good are sold at a price of US$20. During a later period, 12 000 units are sold at a price of US$22. What could explain this change? A an increase in indirect taxation B an increase in the cost of raw materials C an increase in the price of a substitute commodity D an increase in the productivity of factors of production
Mark scheme: C
Q12 · A free market is in disequilibrium with a shortage of a product
12 A free market is in disequilibrium with a shortage of a product. As the market moves towards equilibrium, what will happen to the price, the quantity demanded and the quantity supplied? price quantity demanded quantity supplied A decrease decrease increase B decrease increase decrease C increase decrease increase D increase increase decrease
Mark scheme: C
Q13 · In the diagram, D and S represent the domestic demand and supply curves for a product
13 In the diagram, D and S represent the domestic demand and supply curves for a product. Sw represents world supply of the product at a world price of Pw. The initial domestic market equilibrium of the product is at E1. If foreign trade were to be banned completely, the domestic market equilibrium would be at E2. X S price E2 Y E1 Pw Sw Z D O Q1 quantity of products What would be the loss of consumer surplus if all foreign trade were banned? A PwXE1 B PwYE2E1 C YXE2 D ZYE2
Mark scheme: B
Q14 · A government wishes to impose a tax on a good so that the producer and not the consumer…
14 A government wishes to impose a tax on a good so that the producer and not the consumer pays most of the tax. Which type of elasticity would it be best for the good to have to achieve this aim? A high price elasticity of demand B low price elasticity of demand C totally inelastic price elasticity of demand D unitary price elasticity of demand
Mark scheme: A
More questions on Methods and effects of government intervention in markets
Q15 · The diagram shows the effect on the supply curve of a product when the government…
15 The diagram shows the effect on the supply curve of a product when the government provides a subsidy. 25 price ($) 20 S1 15 10 S2 5 0 0 10 20 30 40 50 60 quantity What can be concluded about the nature of the subsidy as the quantity supplied increases? A It is a falling percentage (%) of the price of each unit. B It is a fixed percentage (%) of the price of each unit. C It is a fixed sum on each unit. D It is a rising percentage (%) of the price of each unit.
Mark scheme: B
More questions on Methods and effects of government intervention in markets
Q16 · What is not an example of a transfer payment?
16 What is not an example of a transfer payment? A pocket money from parents B private donations to charities C salary paid to a teacher in a government school D unemployment benefit
Mark scheme: C
Q17 · In 2016–2017 a government spent $135 billion on the health service
17 In 2016–2017 a government spent $135 billion on the health service. The diagram shows the provision of healthcare in that country. S price ($) P D O Q quantity What can we deduce about healthcare provision in the country if it were provided at zero price? A At price P the benefits to society are maximised. B It is non-rival in consumption. C It is unlimited in supply due to government funding. D It will need rationing as it will be overconsumed.
Mark scheme: D
More questions on Reasons for government intervention in markets
Q18 · A government privatises the telecommunications industry
18 A government privatises the telecommunications industry. What is least likely to increase? A choice of telecommunications services for consumers B development of new telecommunications products C employment in the telecommunications industry D productivity in the supply of telecommunications
Mark scheme: C
More questions on Resource allocation in different economic systems
Q19 · The diagram shows short-run aggregate supply and demand in an economy, where the initial…
19 The diagram shows short-run aggregate supply and demand in an economy, where the initial equilibrium is at S. SRAS3 price level SRAS1 SRAS2 T S AD2 AD1 AD3 O real output What is most likely to cause a movement from S to T? A an increase in consumer expenditure and an increase in productivity B an increase in consumer expenditure and a reduction in imports C an increase in education and training and an increase in income tax D an increase in the exchange rate and a reduction in corporation tax
Mark scheme: B
More questions on Aggregate Demand and Aggregate Supply analysis
Q20 · The diagrams show the inflation rate over time in four countries
20 The diagrams show the inflation rate over time in four countries. Which country experiences a falling cost of living throughout the period? A B inflation inflation rate rate + + O time O time – – C D inflation inflation rate rate + + O time O time – –
Mark scheme: D
Q21 · A government statistical office measured changes in income from employment, pensions and…
21 A government statistical office measured changes in income from employment, pensions and benefits, then subtracted income tax and welfare contributions and adjusted for inflation. What did the final figure represent? A changes in nominal income B changes in nominal net earnings C changes in real disposable income D changes in real gross earnings
Mark scheme: C
Q22 · The table shows all of the items on the current account of a country’s balance of payments
22 The table shows all of the items on the current account of a country’s balance of payments. $ million exports of goods 143 imports of goods 156 exports of services 75 imports of services 72 net transfers +5 What is the value of the current account balance? A $5 m deficit B $10 m deficit C $13 m deficit D $3 m surplus
Mark scheme: A
More questions on Current account of the balance of payments
Q23 · Following a long period of depreciation of the US$, both the US and UK monetary…
23 Following a long period of depreciation of the US$, both the US and UK monetary authorities raised their domestic interest rate. What will happen to the value of the exchange rate of the US$ in terms of UK£? A It will fall. B It will remain unchanged. C It will rise. D The outcome is uncertain.
Mark scheme: D
Q24 · Country P exports goods and imports goods
24 Country P exports goods and imports goods. Export prices and import prices are set to an index of 100 in year 1. The table shows corresponding prices indices for years 2 and 3. year 2 year 3 export price index 120 132 import price index 110 121 Which statement is correct? A It is not possible to say how the terms of trade changed without further information. B The terms of trade improved between years 1 and 2, and improved again between years 2 and 3. C The terms of trade improved between years 1 and 2, and then remained unchanged between years 2 and 3. D The terms of trade worsened throughout the whole period.
Mark scheme: C
Q25 · In the diagram, MN is the production possibility curve of a country that has a…
25 In the diagram, MN is the production possibility curve of a country that has a comparative advantage in the production of good Y. M quantity of good X R O N quantity of good Y What might enable the country to consume the quantities of X and Y indicated by point R? A a reduction in unemployment B increased specialisation in the production of good X C increased specialisation in the production of good Y D more participation in international trade
Mark scheme: D
Q26 · What is the difference between a customs union and a free trade area?
26 What is the difference between a customs union and a free trade area? A Only the customs union has a common external tariff with the rest of the world. B Only the customs union requires fixed exchange rates between member countries. C Only the free trade area needs to eliminate tariffs between member countries. D Only the free trade area requires freedom of movement for labour and capital between member countries.
Mark scheme: A
Q27 · Which statement about trade protection is correct?
27 Which statement about trade protection is correct? A A tariff will result in a greater decrease in demand for an import the lower its price elasticity of demand is. B Embargoes are only an effective trade barrier against imports in price-elastic demand. C Export subsidies to domestic firms will prevent the dumping of foreign products in the domestic market. D Quotas are less effective than tariffs for raising government revenue.
Mark scheme: D
Q28 · What is an example of expansionary monetary policy?
28 What is an example of expansionary monetary policy? A the central bank buying government bonds in the money market B the central bank causing an appreciation of the country’s foreign exchange rate C the central bank increasing controls on credit lending D the central bank increasing the minimum lending rate of interest
Mark scheme: A
Q29 · China had a US$155 billion current account surplus in 2012
29 China had a US$155 billion current account surplus in 2012. Which combination of policies might the Chinese Government use to reduce the surplus? A decrease income tax and raise the value of the Chinese currency, the Yuan B increase income tax and lower the value of the Chinese currency, the Yuan C increase subsidies to Chinese firms and reduce income tax D increase tariffs on imports and increase income tax
Mark scheme: A
More questions on Policies to correct imbalances in the current account of the balance of payments
Q30 · In an economy, prices are rising
30 In an economy, prices are rising. The government wishes to limit further increases in prices. Which policies would it be likely to use? A decrease goods and services (sales) tax and put a quota on cheap imports B decrease income tax and decrease interest rates C increase interest rates and decrease government spending D withdraw industry subsidies and impose a minimum wage
Mark scheme: C
What was in this paper
The subtopics covered by these 30 questions, and how many questions each got. Open one in a new tab to see every Cambridge question on it.
3The reasons for international trade3Methods and effects of government intervention in markets2Price elasticity, income elasticity and cross elasticity of demand2Production possibility curves2Resource allocation in different economic systems2Addressing income and wealth inequality1Aggregate Demand and Aggregate Supply analysis1Classification of goods and services1Consumer and producer surplus1Current account of the balance of payments1Demand and supply curves1Economic methodology1Exchange rates1Fiscal policy1Monetary policy1National income statistics1Policies to correct imbalances in the current account of the balance of payments1Price elasticity of supply1Price stability1Protectionism1Reasons for government intervention in markets1What you needed in this session
Cambridge’s own grade thresholds for 2018 May/June, Paper 1 · Variant 2. A higher threshold means an easier paper — the bar moves with how the cohort did.