Cambridge A Level Economics 9708 — 2019 May/June Paper 1 · Variant 3

Question 1

1 What is the opportunity cost to a person of spending $20 on a new pair of sports shoes? A all the other things the person could have bought B the cost of getting to the sports shop C the current value of his old pair of shoes D the next best thing that could have been bought with the $20

Accepted Answer

D

Question 2

2 Which statement is correct? A In the short run all factors of production are fixed; in the long run all factors are varied. B In the short run at least one factor is fixed; in the long run all factors can be varied. C In the short run at least one factor is varied; in the long run all factors are fixed. D In the short run at least one factor is varied; in the long run at least one factor is fixed.

Accepted Answer

B

Question 3

3 What is correct at any point along an economy’s production possibility curve? existing resources existing technology are fully employed is fully used A correct correct B correct false C false correct D false false

Accepted Answer

A

Question 4

4 ‘The local government of Tokyo should use a policy of taxation to reduce traffic congestion in the city centre.’ What can be concluded about this statement and the type of economic policy? statement type of policy A normative macro B normative micro C positive macro D positive micro

Accepted Answer

B

Question 5

5 Which statement about market disequilibrium is correct? A Price is likely to change. B Supply is equal to demand. C The government must intervene. D There must be shortages.

Accepted Answer

A

Question 6

6 In the diagram, D1 and S1 represent the demand for and supply of luxury watches. Equilibrium is initially at point X. The cost of raw materials for manufacturing watches rises. At the same time the incomes of the rich increase. Which point on the diagram is most likely to represent the new equilibrium? S2 B price S1 A S3 X C D D3 D1 D2 O quantity

Accepted Answer

B

Question 7

7 The equation for the quantity demanded (QD) of a product is QD = 400 – 20P where P = price in dollars. The quantity supplied (QS) is given by QS = 100 + 40P. What can be concluded about the market when price is $5? A Consumers will face a shortage. B Government will intervene in the market. C Producers will have a surplus of the product. D The market will be in equilibrium.

Accepted Answer

D

Question 8

8 When is the supply curve for a car manufacturing firm most likely to be price elastic? A when the firm finds it difficult to recruit new labour B when the firm has a large quantity of stock C when the firm is operating in the short run D when the firm is operating near to full capacity

Accepted Answer

B

Question 9

9 The diagram shows a market for wheat. 100 price of wheat S P2 P1 D 0 0 Q2 Q1 Q3 100 quantity of wheat What is the response of demand for and supply of wheat when the price of wheat falls from P2 to P1? demand supply A elastic elastic B elastic inelastic C inelastic elastic D inelastic inelastic

Accepted Answer

C

Question 10

10 The table shows the demand schedule for avocados in a market on a particular day. The supply of avocados was fixed on that day. $ per quantity avocado demanded 2.60 500 2.40 640 2.20 740 2.00 820 1.80 900 Which statement is correct? A If the supply was 490, at a price of $2.60 there was an excess demand of 10 avocados. B If the supply was 650, at a price of $2.40 there was an excess demand of 10 avocados. C If the supply was 810, at a price of $2.00 there was an excess supply of 10 avocados. D If the supply was 890, at a price of $1.80 there was an excess supply of 10 avocados.

Accepted Answer

A

Question 11

11 The diagram shows the demand and supply curves of a normal good (X). Q1P1 is the initial equilibrium. S2 price S1 P2 P1 D2 D1 O Q1 Q2 quantity Other things being equal, what may cause the change in the market equilibrium to Q2P2? A a fall in household incomes and an increase in interest rates B a rise in workers’ real wages in all sectors of the economy C an increase in income tax and a rise in the specific tax levied on X D an increase in the price of a substitute product for X and a fall in the costs of producing X

Accepted Answer

B

Question 12

12 The diagrams show the supply curves in four different markets. In which market is the price elasticity of supply always equal to one? A B price price S S O O quantity quantity C D S price price S O O quantity quantity

Accepted Answer

D

Question 13

13 The diagram represents the market for electric cookers. S price Y X D2 D1 O quantity What is most likely to explain the change in the equilibrium from point X to point Y? A a fall in the price of electric cookers B an increase in a specific tax on electric cookers C an increase in the number of households D an increase in the price of electricity

Accepted Answer

C

Question 14

14 The diagram shows the effect on the market for rice of a change in government policy that causes a shift in the supply curve from S to S1. price S S1 L K J M D O quantity What does the area JKLM represent? A the cost to the government of a subsidy to rice growers B the extra saving to importers of the removal of a tariff on rice C the increase in consumer surplus from the introduction of a maximum price for rice D the loss in government revenue from the reduction in a lump sum tax on rice

Accepted Answer

A

Question 15

15 Which statement is not an argument in support of the process of privatisation? A Private companies are motivated to make the best use of their resources. B Privatisation allows more firms to enter an industry, increasing competition in the market. C Privatisation can create companies that exploit the consumer. D Selling state-owned assets to the private sector raises significant revenue for the government.

Accepted Answer

C

Question 16

16 Governments are trying to reduce the burden of transfer payments in economies with an ageing population. Which policy would help to achieve this aim? A introducing financial support for university students B linking pension increases to the consumer price index during inflation C raising the retirement age D reducing state pensions to finance an equal rise in unemployment benefit

Accepted Answer

C

Question 17

17 Doctors are concerned about the negative health effects of sugary drinks. When would a tax on sugary drinks be least effective in improving health? A when the demand for sugary drinks is income elastic B when the demand for sugary drinks is income inelastic C when the demand for sugary drinks is price elastic D when the demand for sugary drinks is price inelastic

Accepted Answer

D

Question 18

18 The diagram illustrates what happens to aggregate demand (AD) and aggregate supply (AS) in an economy during a year. AS general price level P1 P AD1 AD O Q Q1 real output What explains the rise in the general price level? A boom in consumer spending B higher taxes on company profits C reduction in government-financed projects D rising costs of raw materials

Accepted Answer

A

Question 19

19 How is a rate of inflation that is lower than that expected likely to affect lenders and borrowers in an economy? effect on lenders effect on borrowers A beneficial beneficial B beneficial harmful C harmful beneficial D harmful harmful

Accepted Answer

B

Question 20

20 A country devalues its currency in the expectation that a deficit on the current account of the balance of payments will be reduced. What is necessary to make this happen? A any tariff on imports must be matched by a subsidy on goods to be exported B the elasticity of demand for imports and the elasticity of demand for exports must both be greater than 1 C the rate of domestic inflation is equal to the rate of inflation in the foreign market D the sum of the elasticities of demand for domestic imports and the foreign demand for exports is greater than 1

Accepted Answer

D

Question 21

21 The current account of the balance of payments for Nigeria changed from US$899 m in 2014 to US$ –15 763 m in 2015. Assuming that nothing else changes, what is likely to be the impact in 2015 on GDP and the exchange rate in Nigeria? GDP exchange rate A falls appreciates B falls depreciates C rises appreciates D rises depreciates

Accepted Answer

B

Question 22

22 Australia’s aggregate demand decreased over the last year. What might have been the cause of this? A a reduction in consumer saving B a reduction in direct taxes C a reduction in imports D a reduction in investment

Accepted Answer

D

Question 23

23 The diagram shows the effect of introducing an import quota on the market for good X. Sdomestic Sdomestic + quota price of X pQ p Sworld Ddomestic O q1 q2 q3 q4 quantity of X What is the change in domestic supply and the size of the import quota? change in size of domestic supply import quota A q1q2 q2q3 B q1q3 q1q4 C q1q4 q1q2 D q2q3 q3q4

Accepted Answer

A

Question 24

24 Country X joins a customs union with country Y and will remove the tariff on its imports of good M from country Y. Under which conditions will trade creation in country X be the smallest? existing size of price elasticity country X’s tariff on of demand for imports of good M good M in country X A large –0.8 B large –1.4 C small –0.8 D small –1.4

Accepted Answer

C

Question 25

25 An Australian family purchases a holiday to New Zealand and an Australian mining company sells coal to China. Four students, A, B, C and D, are asked where these transactions appear in the current account of Australia’s balance of payments. Which student is correct? holiday to coal to China New Zealand A service export good export B service export good import C service import good export D service import good import

Accepted Answer

C

Question 26

26 What is likely to be the least effective store of value during a period of rapid inflation? A antique furniture B fixed interest government securities C houses D shares of industrial companies

Accepted Answer

B

Question 27

27 An increase in what will shift the aggregate demand curve in an economy to the right? A budget deficit B consumer savings C general price level D interest rate

Accepted Answer

A

Question 28

28 A country’s balance of payments current account is in deficit. How can this be restored to equilibrium, assuming the Marshall-Lerner condition holds? A increase the exchange rate B reduce income tax C reduce primary income D subsidise domestic producers

Accepted Answer

D

Question 29

29 Monetary policy does not usually work immediately. Which time lag is likely to be the least concern to a government whose priority is a rapid domestic impact? A the time it takes for policymakers to recognise the cause of a problem B the time it takes for the economy to respond to the introduction of the policy C the time it takes for the foreign exchange rate to respond to the effect of the policy D the time it takes to put the chosen policy measure into place

Accepted Answer

C

Question 30

30 What is the best example of an expansionary supply-side policy? A the Argentinian central bank’s decision to cut the interest rate in 2018 B the US president’s plan to cut income tax rates in 2017 C the UK government’s plan to build 500 new schools by 2020 D the Chinese government’s decision to devalue their currency by almost 7% in 2016

Accepted Answer

C

Cambridge A Level Economics 9708 — 2019 May/June Paper 1 · Variant 3

Question paper12 pages

Mark scheme3 pages

Questions as text

Q1 · What is the opportunity cost to a person of spending $20 on a new pair of sports shoes?

Q2 · Which statement is correct?

Q3 · What is correct at any point along an economy’s production possibility curve?

Q4 · ‘The local government of Tokyo should use a policy of taxation to reduce traffic…

Q5 · Which statement about market disequilibrium is correct?

Q6 · In the diagram, D1 and S1 represent the demand for and supply of luxury watches

Q7 · The equation for the quantity demanded (QD) of a product is QD = 400 – 20P where P =…

Q8 · When is the supply curve for a car manufacturing firm most likely to be price elastic?

Q9 · The diagram shows a market for wheat

Q10 · The table shows the demand schedule for avocados in a market on a particular day

Q11 · The diagram shows the demand and supply curves of a normal good (X)

Q12 · The diagrams show the supply curves in four different markets

Q13 · The diagram represents the market for electric cookers

Q14 · The diagram shows the effect on the market for rice of a change in government policy that…

Q15 · Which statement is not an argument in support of the process of privatisation?

Q16 · Governments are trying to reduce the burden of transfer payments in economies with an…

Q17 · Doctors are concerned about the negative health effects of sugary drinks

Q18 · The diagram illustrates what happens to aggregate demand (AD) and aggregate supply (AS)…

Q19 · How is a rate of inflation that is lower than that expected likely to affect lenders and…

Q20 · A country devalues its currency in the expectation that a deficit on the current account…

Q21 · The current account of the balance of payments for Nigeria changed from US$899 m in 2014…

Q22 · Australia’s aggregate demand decreased over the last year

Q23 · The diagram shows the effect of introducing an import quota on the market for good X

Q24 · Country X joins a customs union with country Y and will remove the tariff on its imports…

Q25 · An Australian family purchases a holiday to New Zealand and an Australian mining company…

Q26 · What is likely to be the least effective store of value during a period of rapid…

Q27 · An increase in what will shift the aggregate demand curve in an economy to the right?

Q28 · A country’s balance of payments current account is in deficit

Q29 · Monetary policy does not usually work immediately

Q30 · What is the best example of an expansionary supply-side policy?

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