Cambridge A Level Economics 9708 — 2018 Oct/Nov Paper 1 · Variant 1

Question 1

1 The demand for a product is inversely related to its price, ceteris paribus. What does ceteris paribus mean in this context? A Factors affecting demand other than price are held constant. B Factors affecting price other than demand are held constant. C Price changes result from changes in demand. D Price falls result in increased quantity demanded.

Accepted Answer

A

Question 2

2 What is not an example of the role of the factor enterprise in a modern economy? A deciding on new export markets for the company’s goods and services B making payments to suppliers for raw materials and capital goods C reducing costs through the introduction of a new shift system for employees D transforming the production process with the introduction of robots

Accepted Answer

B

Question 3

3 The production possibility curves show the abilities of four economies to produce trucks and cars. In which economy is the opportunity cost of producing cars lowest? 6 trucks 5 (thousands) 4 3 D C 2 B 1 A 0 0 1 2 3 4 5 6 cars (thousands)

Accepted Answer

A

Question 4

4 John sells cakes for $10. Aisha offers online tutoring for $20 per hour. One hour of Aisha’s tutoring is worth two of John’s cakes. Which function of money is being illustrated? A medium of exchange B standard of deferred payment C store of value D unit of account

Accepted Answer

D

Question 5

5 In the diagram, D1 is the initial demand curve for student places at universities. fees D2 D1 O student places What could cause the demand curve to shift to D2? A a decrease in student fees for universities B a decrease in the level of youth unemployment C an increase in graduate earnings compared with non-graduate earnings D higher A Level grades demanded for university entrance

Accepted Answer

C

Question 6

6 In the diagram, area OP1M1Q1 is equal to area OP2M2Q2. price P1 M1 M2 P2 D O Q1 Q2 quantity What is the value of the price elasticity of demand if the price is halved from P1 to P2? A –1 B –0.5 C zero D infinity

Accepted Answer

A

Question 7

7 Which elasticity values indicate that cars are normal goods and that petrol is a complement to car use? cross elasticity of demand income elasticity of (XED) for petrol relative to demand (YED) for cars changes in car prices A YED is negative XED is negative B YED is negative XED is positive C YED is positive XED is negative D YED is positive XED is positive

Accepted Answer

C

Question 8

8 What is it necessary to know in order to calculate the price elasticity of supply of a product when its price changes? A the amount of the price change; the quantity demanded at the original price; the quantity supplied at the new price B the equilibrium market price; the quantity demanded at equilibrium; the quantity supplied at equilibrium C the original and new market price; the quantity supplied at the original price; the quantity supplied at the new price D the quantity demanded at the new price; the price change; the quantity supplied at the new price

Accepted Answer

C

Question 9

9 The government fixes a minimum price for a product above the current equilibrium price. Which value for the product’s price elasticity of supply will result in the smallest excess supply in its market? A between zero and one B greater than one C one D zero

Accepted Answer

D

Question 10

10 The demand for a good falls at the same time as its costs of production decrease. What will be the combined effect of these changes on the price and on the quantity supplied of the good? price quantity supplied A decrease decrease B decrease uncertain C uncertain decrease D uncertain uncertain

Accepted Answer

B

Question 11

11 The final of a major sports event is held in a stadium which has a fixed capacity of 40 000 people. The price for a seat is set at PF, but when the tickets go on sale all tickets are sold very quickly with many disappointed people unable to buy a ticket. Which diagram best represents this? A B S S price price PF PF D D O O 40 000 40 000 quantity quantity C D S S price PF price PF D D O O 40 000 40 000 quantity quantity

Accepted Answer

B

Question 12

12 In the diagram S and S1 are the supply curves for an agricultural product in years 1 and 2 respectively. D is the demand curve in years 1 and 2. In year 1 the government purchased an amount necessary to ensure that the price was OP. S S1 price (year 1) (year 2) P D O W X Y Z quantity The price is held at OP in year 2. How much more must the government buy in year 2 than it bought in year 1? A WZ B XY C XZ D YZ

Accepted Answer

D

Question 13

13 The diagram shows the European airline market. The original demand curve is D1 and the original supply curve is S1. There is then an increase in the demand for air travel. F price $ G S1 M H K N D2 J D1 O R T number of passengers Which areas show the consumer surplus and producer surplus at the new equilibrium? consumer producer surplus surplus A FMH HMJ B FMH JMTO C GNK KNJ D GNK KNRO

Accepted Answer

A

Question 14

14 The diagram shows the demand and supply curves for a good. S price P1 P D O Q1 Q Q2 quantity The government fixes a maximum price of OP1. What would happen? A Consumers would have to be rationed to quantity OQ1. B The government would have to introduce a subsidy of PP1. C The market equilibrium quantity OQ would be demanded and supplied. D The supply of quantity OQ2 would be guaranteed.

Accepted Answer

C

Question 15

15 A government decreases the tax rate on goods and services and increases the tax rate on incomes. What is the likely outcome on the distribution of income and the incentive to work? distribution incentive of income to work A less equal decreased B less equal increased C more equal decreased D more equal increased

Accepted Answer

C

Question 16

16 The diagram shows the equilibrium price, P1, and quantity bought and sold, Q1, in a market before a subsidy is granted. S1 price S2 P3 L P1 M P2 N D1 O Q1 Q2 quantity What represents the producer incidence (benefit) after the subsidy is granted and what is government expenditure on the subsidy? producer government incidence (benefit) expenditure A P1P2NM P1P2NM B P1P2NM P3P2NL C P1P3LM P1P3LM D P1P3LM P3P2NL

Accepted Answer

D

Question 17

17 When is a transfer payment most likely to be an individual’s main source of income? A when employed B when investing C when saving D when unemployed

Accepted Answer

D

Question 18

18 Which argument is used to justify a policy of nationalisation? A A firm exposed to market forces is more likely to be efficient. B It avoids the wasteful duplication of resources. C The stock market can exert effective discipline on the industry. D There are benefits from wider share ownership.

Accepted Answer

B

Question 19

19 The table illustrates macroeconomic data for an economy. All figures are in $ billions. What is the equilibrium real output? consumption investment government exports imports real output expenditure expenditure A 110 100 50 10 20 100 B 120 100 60 20 30 200 C 140 100 70 30 40 300 D 160 100 80 40 50 430

Accepted Answer

C

Question 20

20 The diagram shows an economy’s aggregate supply curve. price AS level O output What is likely to cause the curve to shift to the left? A an increase in investment due to a reduction in interest rates B an increase in the marginal rate of income tax C improvements in technology D schemes to increase the geographical mobility of labour

Accepted Answer

B

Question 21

21 The diagram shows the change in an economy’s rate of inflation over 4 years. inflation rate (%) 0 1 2 3 4 year What happened to the general price level over the 4 years? year 1 year 2 year 3 year 4 A constant constant fell constant B rose constant fell fell C rose rose rose constant D rose rose rose fell

Accepted Answer

D

Question 22

22 The table shows selected items of the balance of payments of a country in 2015. $ billions net portfolio investment +40 trade in goods –100 trade in services +50 interest, profit and dividends (primary income) +10 current transfers (secondary income) +10 transactions in financial assets –10 What was the country’s current account balance in 2015? A –$40 billion B –$30 billion C –$20 billion D –$10 billion

Accepted Answer

B

Question 23

23 What is likely to explain an increase in the deficit on a country’s current account of the balance of payments? A an increase in government foreign aid to countries abroad B an increase in government tax rates C an increase in other countries’ exchange rates D an increase in the proportion of income saved by the country’s residents

Accepted Answer

A

Question 24

24 The diagram shows the determination of the floating exchange rate between the US$ and the UK£. D is the demand curve for pounds and S is the supply curve for pounds. The initial equilibrium exchange rate is E. exchange S rate ($ per £) E D O quantity of pounds Which change might cause an increase in the UK exchange rate? A a switch by US consumers from chocolate produced in the UK to chocolate produced in the US B a switch in the destination of UK tourists from Africa to the US C a wheat crop failure in the UK leading to increased wheat imports from the US D increased investment by US residents in financial and real assets in the UK

Accepted Answer

D

Question 25

25 The table shows the ability of two countries, P and Q, to produce two goods, Y and Z. production of good Y production of good Z per person per person country P 1000 1600 country Q 1500 2000 Which statement is correct? A P has an absolute advantage in Z and Q has a comparative advantage in Y. B P has an absolute advantage in Z and Q has an absolute advantage in Y. C P has a comparative advantage in Y and Q has an absolute advantage in Z. D P has a comparative advantage in Z and Q has an absolute advantage in Y.

Accepted Answer

D

Question 26

26 Which action increases and which action decreases the level of protectionism? increases protectionism decreases protectionism A imposing an embargo reducing subsidies to domestic producers B imposing exchange controls lowering quota levels C introducing voluntary increasing subsidies to export agreements domestic producers D removing quotas introducing embargos

Accepted Answer

A

Question 27

27 Country M imposes a tariff on imports of steel. Which price elasticity values will result in the smallest reduction in steel imports into M? price elasticity of price elasticity of supply of domestic demand for steel in steel producers in country M country M A 0.2 0.4 B 1.0 0.8 C 1.5 1.0 D 2.0 1.2

Accepted Answer

A

Question 28

28 In 2012, the Indian Government stated that it aimed to reduce its budget deficit to 5.1% of GDP. Which policy is most likely to help this aim? A a decrease in import tariffs B a decrease in the rate of interest C an increase in the sale of state-owned assets D an increase in government pension payments

Accepted Answer

C

Question 29

29 Which policy is most likely to help to correct an adverse balance on the current account of the balance of payments? A abolishing tariffs B devaluing the currency C reducing direct taxes D reducing indirect taxes

Accepted Answer

B

Question 30

30 A government reduced the tax on company profits from 28% to 20%. Which statement best describes this policy? A It is both a contractionary fiscal policy and a supply-side policy. B It is both an expansionary fiscal policy and a supply-side policy. C It is both an expansionary fiscal policy and an expansionary monetary policy. D It is both an expansionary monetary policy and a supply-side policy.

Accepted Answer

B

Cambridge A Level Economics 9708 — 2018 Oct/Nov Paper 1 · Variant 1

Question paper16 pages

Mark scheme3 pages

Questions as text

Q1 · The demand for a product is inversely related to its price, ceteris paribus

Q2 · What is not an example of the role of the factor enterprise in a modern economy?

Q3 · The production possibility curves show the abilities of four economies to produce trucks…

Q4 · John sells cakes for $10

Q5 · In the diagram, D1 is the initial demand curve for student places at universities

Q6 · In the diagram, area OP1M1Q1 is equal to area OP2M2Q2

Q7 · Which elasticity values indicate that cars are normal goods and that petrol is a…

Q8 · What is it necessary to know in order to calculate the price elasticity of supply of a…

Q9 · The government fixes a minimum price for a product above the current equilibrium price

Q10 · The demand for a good falls at the same time as its costs of production decrease

Q11 · The final of a major sports event is held in a stadium which has a fixed capacity of 40…

Q12 · In the diagram S and S1 are the supply curves for an agricultural product in years 1 and…

Q13 · The diagram shows the European airline market

Q14 · The diagram shows the demand and supply curves for a good

Q15 · A government decreases the tax rate on goods and services and increases the tax rate on…

Q16 · The diagram shows the equilibrium price, P1, and quantity bought and sold, Q1, in a…

Q17 · When is a transfer payment most likely to be an individual’s main source of income?

Q18 · Which argument is used to justify a policy of nationalisation?

Q19 · The table illustrates macroeconomic data for an economy

Q20 · The diagram shows an economy’s aggregate supply curve

Q21 · The diagram shows the change in an economy’s rate of inflation over 4 years

Q22 · The table shows selected items of the balance of payments of a country in 2015

Q23 · What is likely to explain an increase in the deficit on a country’s current account of…

Q24 · The diagram shows the determination of the floating exchange rate between the US$ and the…

Q25 · The table shows the ability of two countries, P and Q, to produce two goods, Y and Z

Q26 · Which action increases and which action decreases the level of protectionism?

Q27 · Country M imposes a tariff on imports of steel

Q28 · In 2012, the Indian Government stated that it aimed to reduce its budget deficit to 5.1%…

Q29 · Which policy is most likely to help to correct an adverse balance on the current account…

Q30 · A government reduced the tax on company profits from 28% to 20%

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