Cambridge A Level Economics 9708 — 2018 Oct/Nov Paper 3 · Variant 2

1 In which situation are there definitely positive externalities? A Private benefits exceed private costs. B Private benefits exceed social benefits. C Social benefits exceed private benefits. D Social benefits exceed private costs.

Mark scheme: C

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2 A cost-benefit analysis is carried out on the construction of a hydroelectric power station. Which combination of circumstances would be most likely to lead to the scheme being approved? A Private benefits are greater than private costs. B Social benefits are greater than social costs. C Social benefits are greater than total costs. D Total costs are greater than total revenue.

Mark scheme: B

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3 What does not pose a threat to the achievement of allocative efficiency? A imperfect information on the part of consumers B income inequalities C the existence of externalities D the presence of monopolistic elements

Mark scheme: B

More questions on Efficiency and market failure

4 The diagram shows budget lines and an indifference curve. The consumer’s initial position is T. The price of good X then falls. good Y J P Q R S T U I O K L good X Which combination of statements about the movements in this diagram is correct? A T to Q represents perfect elasticity; T to P represents a Giffen good B T to R represents an income effect; R to S represents a substitution effect C T to U represents a substitution effect; T to Q represents a normal good D T to U represents a substitution effect; U to P represents an income effect

Mark scheme: D

More questions on Indifference curves and budget lines

5 The diagram shows various combinations of apples and rice which are potentially available to a consumer. apples X Z W Y O rice If standard indifference curves were added to the diagram they would show that the consumer is indifferent between combination X and combination W. What can be concluded? A The consumer is indifferent between combination Y and combination Z. B The consumer is indifferent between combination Z and combination W. C The consumer prefers combination Y to combination X. D The consumer prefers combination Z to combination W.

Mark scheme: D

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6 The schedule shows the short-run marginal cost of producing good X. units of X 1 2 3 4 5 marginal cost ($) 45 40 30 20 20 Given that the total fixed cost is $50, which level of output minimises average total cost? A 2 units B 3 units C 4 units D 5 units

Mark scheme: D

More questions on Types of cost, revenue and profit, short-run and long-run production

7 What must be found in two markets for price discrimination to be profitable? A different price elasticities of demand B different price elasticities of supply C different producers D different products

Mark scheme: A

More questions on Different market structures

8 A firm maximises its profits by maximising its total revenue. What does this imply? A Average fixed cost is zero. B Average revenue is equal to average cost. C Marginal cost is zero. D Marginal revenue is greater than marginal cost.

Mark scheme: C

More questions on Differing objectives and policies of firms

9 Technological change reduces the minimum efficient scale of production in an industry. What is likely to result? A increased number of firms and increased size of firms B increased number of firms and reduced size of firms C reduced number of firms and increased size of firms D reduced number of firms and reduced size of firms

Mark scheme: B

More questions on Types of cost, revenue and profit, short-run and long-run production

10 The diagram shows the costs and revenue for a firm in imperfect competition. Which level of output would produce only a normal profit? $ MC AC AR O A B C D B quantity MR

Mark scheme: D

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11 What would be a reason why small firms do not survive? A In certain industries, there are economies of scale. B Small firms often supply personal services to consumers. C Small firms often supply products, the size of the market for which is limited. D Small owner-managed firms involve less risk.

Mark scheme: A

More questions on Growth and survival of firms

12 What is the implication of a dominant oligopoly following a limit pricing policy? A The industry will be restricted to a target number of firms. B The industry will contract as rival oligopolists are eliminated. C The oligopolist will achieve a satisficing level of profit. D The oligopolist will sacrifice short-term profit for long-term profit.

Mark scheme: D

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13 Transport economists estimate the price elasticity of demand for private car use is very low. What would be the most effective way of reducing road traffic congestion? A banning private cars and lorries from town centres B introducing a subsidy to lower the price of using bicycles C introducing road pricing on all main roads D subsidising public transport such as trains and buses

Mark scheme: A

More questions on Government policies to achieve efficient resource allocation and correct market failure

14 What would help to explain why there was a reduction in wage inequality in a country during the post-2008 economic recession? A a decline in the share of wages in national output B a decline in trade union bargaining power C the existence of a minimum wage D the trend towards later retirement

Mark scheme: C

More questions on Labour market forces and government intervention

15 How is marginal revenue product calculated? A marginal physical product × marginal revenue B marginal physical product ÷ price C total physical product × marginal cost D total physical product ÷ marginal cost

Mark scheme: A

More questions on Labour market forces and government intervention

16 A firm currently employs 30 workers at a daily wage of $50 each. The marginal cost of employing one extra worker is $112 per day. By how much will the firm have to increase the daily wage in order to increase its labour force from 30 to 31 workers? A $2 B $4 C $62 D $112

Mark scheme: A

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17 In the diagram, HN is the initial supply of labour curve faced by a firm, and RM is its initial marginal cost of labour curve. wage, M N cost of labour J K W X R H O quantity of labour What will be the firm’s new labour supply curve if the workers join a trade union and achieve a union negotiated wage, OW? A RJX B HKX C WJM D WKN

Mark scheme: D

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18 Output per worker in an industry increases more slowly than the industry’s total output. What could explain this? A a decrease in labour productivity B an increase in employment C an increase in overtime working D an increase in the hourly wage rate

Mark scheme: B

More questions on Employment/unemployment

19 On a diagram showing a production possibility curve, what definitely represents long-run economic growth? A a change in the slope of the curve B a movement from a point below the frontier to a point on the curve C a movement from one point to another along a given curve D an outward shift of the curve

Mark scheme: D

More questions on Economic growth and sustainability

20 When is economic growth most likely to promote economic development? A when it achieves maximum rates of extraction of raw materials B when it concentrates on increasing production C when it discovers valuable new resources in remote natural environments D when it provides the funds to finance cleaner production processes

Mark scheme: D

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21 Which items in the table are classified as foreign aid? official portfolio foreign direct development investment investment assistance flows A no no yes B no yes no C yes no yes D yes yes no

Mark scheme: B

More questions on Relationship between countries at different levels of development

22 Country X’s living standards were compared with country Y’s living standards using real GNP per head converted into US dollars. Country X was ranked above country Y. Which factor might have caused this ranking to be incorrect? A Actual market exchange rates were used rather than purchasing power parity rates. B Government spending on transfer payments was higher in country Y than in country X. C Inflation was higher in country X than in country Y. D The distribution of income was more unequal in country X than in country Y.

Mark scheme: A

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23 In 2007 Turkey had a population of 73 m. Its labour force was 36 m, of which 12 m were trained for the primary sector and 24 m were trained for the secondary and tertiary sectors. The unemployment rate was 10%. What was the number of people unemployed? A 1.2 m B 2.4 m C 3.6 m D 7.3 m

Mark scheme: C

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24 An economy’s manufacturing share of real GDP fell from 30% in 1970 to 12% in 2016. What type of unemployment would result from this? A cyclical B frictional C structural D voluntary

Mark scheme: C

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25 In an open economy, when autonomous investment increases by 100, equilibrium national income increases by 300. Which conclusion can be drawn? A The accelerator is 3. 2 . B The marginal propensity to consume is 3 2 . C The marginal propensity to import is 3 1 . D The marginal propensity to save plus marginal tax rate is 3

Mark scheme: B

More questions on The circular flow of income

26 The diagram outlines the monetary transmission mechanism following an expansionary central bank intervention (quantitative easing). Key actions have been omitted from the process. central bank ......1...... government assets ↓ short-term interest rates ......2...... ↓ investment demand ......3...... ↓ real GDP rises Which words complete gaps 1, 2 and 3? 1 2 3 A buys fall rises B buys rise falls C sells fall rises D sells rise falls

Mark scheme: A

More questions on Money and banking

27 In Keynesian monetary theory, when will an increase in the supply of money not cause a fall in interest rates? A if bond prices are expected to rise B if investment demand is interest-inelastic C if the liquidity preference schedule is perfectly elastic D if the velocity of circulation of money increases

Mark scheme: C

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28 The diagram shows an economy in equilibrium at point X. SRAS price level X Y AD O real GDP What would be most likely to cause the economy to move from point X to point Y? A an increase in government spending on transfer payments B an increase in income tax C an increase in the average wage rate D an increase in the productivity of labour

Mark scheme: D

More questions on Aggregate Demand and Aggregate Supply analysis

29 The table identifies pairs of possible government aims. In which case is achievement of aim 1 likely to be consistent with the achievement of aim 2? aim 1 aim 2 A higher foreign exchange rate lower rate of unemployment B low rate of inflation balance of payments surplus C more even distribution of income higher rate of saving D rapid economic growth sustainable economic development

Mark scheme: B

More questions on Links between macroeconomic problems and their interrelatedness

30 What is most likely to result from the discovery of oil reserves in a developing economy? A a more equal distribution of income and wealth B an increase in the competitiveness of commercial agriculture C an increase in the exchange rate D a reduction in the volume of imports of manufactured goods

Mark scheme: C

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