Cambridge A Level Economics 9708 — 2018 May/June Paper 3 · Variant 2

This document consists of 11 printed pages and 1 blank page. IB18 06_9708_32/RP © UCLES 2018 [Turn over *3891506080* Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/32 Paper 3 Multiple Choice May/June 2018 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 2018 9708/32/M/J/18 1 How is social cost calculated? A external cost minus external benefit B external cost minus private cost C external cost plus private cost D social cost minus social benefit 2 Which government policy is not aimed at correcting inefficiency in resource allocation? A marginal cost pricing in state owned industries B permits restricting the pollution of rivers by private firms C requiring firms to pay a minimum wage D the provision of public goods at zero price 3 The table shows some of the costs and benefits, in $ millions, associated with a road building project. Both a government department and a profit-maximising private firm are considering building the road. private costs external costs external benefits social benefits 450 75 50 550 Who would be willing to build the road? A Both would be willing to build it. B Neither would be willing to build it. C Only the government department would be willing to build it. D Only the private firm would be willing to build it.

3 © UCLES 2018 9708/32/M/J/18 [Turn over 4 In the diagram, Q1 is the quantity produced of a good as the result of market forces. price quantity O S1 (private cost) S2 (social cost) Q1 D Which concept is present at output Q1? A a government subsidy B a negative externality C a positive externality D a specific tax 5 What would not affect the budget line of an individual consumer? A the individual’s preference for various goods B the level of income tax C the money prices of goods D the wages earned by the individual

4 © UCLES 2018 9708/32/M/J/18 6 The diagram shows the demand curve for a product. O price quantity D X What is maximised at X? A marginal revenue B total revenue C marginal utility D total utility 7 The diagram shows a firm’s cost and revenue curves. O Q costs, revenue output MR MR D MC P Which features are associated with the diagram? A economies of scale and allocative efficiency B interdependence and allocative efficiency C price rigidity and economies of scale D price rigidity and interdependence

5 © UCLES 2018 9708/32/M/J/18 [Turn over 8 In the year ending July 2016, airline fuel prices fell by 20.4% while the price of passenger aircraft increased by around 1.1%. Assuming no other changes in the passenger airline industry, what was the outcome for fixed costs and variable costs? fixed costs variable costs A decreased decreased B decreased increased C increased decreased D increased increased 9 Which feature of production would make it more likely that an industry is a contestable market? A advertising has established consumer loyalty B all firms in the industry share research and development C low fixed costs D market rivals aim to reduce product differentiation 10 What is an example of backward vertical integration? A a bakery buying a wheat farm B a car manufacturer buying a car showroom C a vineyard buying an apple orchard D two rival supermarkets joining together

6 © UCLES 2018 9708/32/M/J/18 11 The diagram shows a firm in imperfect competition. It changed its aim from profit maximising to sales revenue maximising. cost, revenue output O MC AC AR MR Which type of profit was it making in each case? profit maximising sales revenue maximising A normal profit supernormal profit B subnormal profit normal profit C supernormal profit normal profit D supernormal profit supernormal profit 12 An airline sells seats at $100 each three months before a flight, at $150 each one month before the flight and at $200 each the day before the flight. What describes this type of market behaviour by the firm? A limit pricing to deter entry in an imperfect market B price discrimination by a monopoly supplier C price leadership by an oligopolist D pricing where price equals average cost under perfect competition 13 What would not be an indication of a divergence between the interests of the managers and the shareholders of a company? A an emphasis on sales maximisation B management salaries which are linked to the long-run growth of the company’s share price C the acceptance of ‘X’ inefficiency in the company’s production process D the purchase of artwork for a company’s headquarters

7 © UCLES 2018 9708/32/M/J/18 [Turn over 14 The total cost to a school of employing ten cleaners is $60 per hour. The school estimates that the hourly marginal cost of employing an eleventh cleaner would be $11.50. By how much would the hourly wage have to increase to employ an additional cleaner? A $0.50 B $0.65 C $2.25 D $11.50 15 What would cause a rise in the productivity of labour? A an increase in indirect taxes B an increase in the quality of capital C a rise in consumer surplus D a rise in the elasticity of supply of labour 16 In the diagram D1 and S are the initial demand and supply curves for building workers. U T R O V W Y X Z S D1 D2 quantity of labour wage If the demand for building workers increases to D2 by how much does the economic rent earned by building workers rise? A RUZ B TUZX C VXZW D XYZ 17 Under which circumstances will a subsidy from the government be most beneficial if there are externalities from producing good X? externality caused by good X price elasticity of demand of good X A negative <1 B negative >1 C positive <1 D positive >1

8 © UCLES 2018 9708/32/M/J/18 18 Which tax would help a government achieve a more equal distribution of income after tax? A a constant rate sales tax applicable to all goods and services B a constant rate tax per person C an income tax with a constant marginal rate over the whole income range D an income tax with a tax-free allowance and a constant marginal rate thereafter 19 A country has a population of 100 million. There are 5 million people unemployed and the country has an unemployment rate of 10%. What is the size of the labour force? A 10 million B 50 million C 90 million D 95 million 20 Which type of unemployment is correctly linked to the description of its cause? type of unemployment description of the cause A cyclical a change in demand due to holiday periods B frictional a lack of sufficient information C structural a temporary change in consumers’ expenditure D technological a general decrease in the demand for goods 21 Growth rates can be calculated using changes in the value of GDP from year to year. Why is real GDP per head considered to be a better indicator than nominal GDP per head for this calculation? A Real GDP adjusts for price changes by using a base year. B Real GDP ignores the effects of fluctuations in exchange rates on purchasing power. C Real GDP includes changes in the size of the population. D Real GDP measures GDP at factor cost rather than market prices. 22 What would not exist in a free market, open economy? A autonomous investment B household saving C import spending D indirect taxation

9 © UCLES 2018 9708/32/M/J/18 [Turn over 23 The information in the table is taken from a country’s national income accounts. income US $ (millions) wages 8000 salaries 7000 unemployment benefit 1000 pensions 1000 rent 3000 interest 2000 What is the value of national income? A 17 000 B 19 000 C 20 000 D 21 000 24 What is a part of Keynesian economic analysis? A a liquidity trap below which interest rates are ineffective B an equilibrium price that always clears the market C a small value for the government expenditure multiplier D a vertical short-run aggregate supply curve 25 What will definitely increase a country’s Gross National Product? A an increase in income taxes B an increase in the marginal propensity to import C an increase in the value of a country’s currency D increased government expenditure on education 26 According to the accelerator theory, what determines this year’s net investment? A last year’s consumption B last year’s output C the change in last year’s investment D the change in last year’s national income

10 © UCLES 2018 9708/32/M/J/18 27 Which diagram shows an economy experiencing an increase in actual output but a decline in potential output? AD2 Y2 P2 P1 P1 P2 Y1 AD1 LRAS1 LRAS2 price level A real GDP Y1 P1 Y2 price level B AD2 AD1 LRAS1 LRAS2 C real GDP Y1 Y2 price level real GDP D O O O O AD2 AD1 LRAS2 LRAS1 AD2 Y2 P1 Y1 AD1 LRAS2 LRAS1 price level real GDP 28 What is likely to follow if a central bank sets negative interest rates? A an increase in government revenue B an increase in the rate of inflation C a reduction in bank lending D deflation in the economy

11 © UCLES 2018 9708/32/M/J/18 29 The Consumer Prices Index (CPI) fell by 3% in a year. Unemployment was regarded as unacceptably high. Which combination of policies would a government be most likely to adopt in such circumstances? A an appreciation of the currency, together with an increase in the rate of interest B increased government expenditure on education, together with an increase in taxes to pay for it C increased indirect taxes, together with a depreciation in the exchange rate D reduced income taxes, together with a cut in the rate of interest 30 Other things being equal, what is most likely to result from an increase in a country’s interest rates? A a capital inflow B a depreciation of the currency C an increase in consumption D an increase in investment

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IGCSE™ is a registered trademark. This document consists of 3 printed pages. © UCLES 2018 [Turn over Cambridge Assessment International Education Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/32 Paper 3 Multiple Choice May/June 2018 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 May/June 2018 series for most Cambridge IGCSE™, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components.

9708/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 2 of 3 Question Answer Marks 1 C 1 2 C 1 3 A 1 4 B 1 5 A 1 6 D 1 7 D 1 8 C 1 9 C 1 10 A 1 11 D 1 12 B 1 13 B 1 14 A 1 15 B 1 16 B 1 17 D 1 18 D 1 19 B 1 20 B 1 21 A 1 22 D 1 23 C 1 24 A 1 25 D 1 26 D 1 27 C 1 28 B 1

9708/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED May/June 2018 © UCLES 2018 Page 3 of 3 Question Answer Marks 29 D 1 30 A 1