Cambridge A Level Economics 9708 — 2020 May/June Paper 1 · Variant 3

Question 1

1 An economist knows the current point at which an economy is operating within its production possibility curve. What can the economist judge from this knowledge about the economy? A its degree of self-sufficiency B its international competitiveness C its level of output of two goods D its rate of economic growth

Accepted Answer

C

Question 2

2 Abdul earns $50 000 a year working as a teacher. He owns a house valued at $250 000 and has shares worth $20 000. He has a current bank account with a balance of $1500 and $200 in his wallet. In his house there is a jar containing $100, which he has saved to spend on his forthcoming holiday. What is the value of Abdul’s liquid assets? A $200 B $300 C $1800 D $21 500

Accepted Answer

C

Question 3

3 Which type of good is healthcare? A demerit B free C merit D public

Accepted Answer

C

Question 4

4 Which is a normative statement? A If interest rates fall consumption is likely to increase. B If interest rates fall consumption will definitely increase. C Interest rates and consumption are usually inversely related. D The rate of interest should be reduced.

Accepted Answer

D

Question 5

5 In a free market there is a surplus of a good. Which change would cause the market to come to an equilibrium? A a decrease in demand B a fall in price C a government minimum price D an increase in supply

Accepted Answer

B

Question 6

6 What is most likely to increase the quantity of houses supplied? A a policy to help house buyers on modest incomes B a restriction on the level of rent that can be charged C a rise in the tax on materials used for building houses D the removal of a subsidy to house builders

Accepted Answer

A

Question 7

7 The diagram shows two demand curves and two supply curves for a product. Which equilibrium point is most likely to represent the long-run equilibrium in the market? S price S A B D C D D O quantity

Accepted Answer

B

Question 8

8 The equilibrium price of a product is $10. The government introduces an effective minimum price of $12 for the product. Under which condition will the value of the producer surplus increase the most? price elasticity of demand A 0 B between 0 and 1 C 1 D greater than 1

Accepted Answer

A

Question 9

9 Diesel engines are a major cause of air pollution in cities. A city authority placed a charge on diesel taxis entering the city. What would be the most likely effects on the demand and supply of taxi journeys into the city? demand for supply of taxi journeys taxi journeys A fall fall B fall remain unchanged C remain unchanged fall D rise fall

Accepted Answer

A

Question 10

10 Which combination of the classification of a good and market change will cause the demand curve for the good to shift right? classification of good market change A inferior good income decrease B inferior good price decrease C normal good income decrease D normal good price decrease

Accepted Answer

A

Question 11

11 The supply (S) of a product is determined by the equation S = 10 + 10P when P is the price of the product in $. What is the product’s price elasticity of supply when its price rises from $1 to $2? A 0.5 B 1.0 C 2.0 D 5.0

Accepted Answer

A

Question 12

12 The table gives estimates of the price elasticities and cross elasticities of demand for bus and rail travel. elasticity with respect to the price of service bus travel rail travel bus travel –0.37 +0.13 rail travel +0.16 –0.43 What would be the change in the volume of rail travel resulting from a 1% increase in bus fares? A a decrease of 0.13% B a decrease of 0.37% C an increase of 0.16% D an increase of 0.43%

Accepted Answer

C

Question 13

13 Which combination is most likely to result in the demand for a product being highly price-elastic? number of close % of income substitutes spent on product A large large B large small C small large D small small

Accepted Answer

A

Question 14

14 What is most likely to occur when the government privatises public sector organisations? A Consumer choice will increase. B Employment will increase in the short run. C Innovation will be discouraged. D The production of public goods will increase.

Accepted Answer

A

Question 15

15 The diagram shows the market for bus services before and after a government subsidy. supply before subsidy price supply after subsidy G P3 L H P1 J P2 I K demand O Q1 Q2 number of bus journeys Which area on the diagram shows the incidence of the subsidy for the consumer? A P1HIP2 B P1JKP2 C P2IGP3 D P2KLP3

Accepted Answer

B

Question 16

16 The diagram shows the market for eye tests. price of eye S tests ($) P3 P2 P1 D O Q1 Q2 quantity of eye tests Which policy would enable the government to increase the number of eye tests from OQ1 to OQ2? A a maximum price of OP3 per test B a minimum price of OP2 per test C a subsidy paid to opticians of P3–P2 per test D a subsidy paid to opticians of P3–P1 per test

Accepted Answer

D

Question 17

17 In November 2017, the Scottish government introduced a minimum price for alcohol because of the detrimental health effects of alcohol consumption. Which combination of actions is most likely to lead to a failure with respect to reducing the detrimental effects of the consumption of alcohol? action 1 action 2 A minimum price is set too high effective information provision regarding the health effects of consuming alcohol B minimum price is set too high effective subsidisation of non-alcoholic beverages C minimum price is set too low health benefits of reduced alcohol consumption have been overestimated D minimum price is set too low stricter enforcement of the regulations relating to the sale of alcohol

Accepted Answer

C

Question 18

18 What is an example of direct provision by a government? A The government introduces a subsidy on renewable fuels to help the environment. B The government introduces a unit tax on cigarettes to discourage consumption. C The government sets a maximum rent on housing to protect tenants. D The government takes over a private library to improve local services.

Accepted Answer

D

Question 19

19 The graph shows the annual percentage change in the prices of services and in the prices of goods between 2007 and 2012. 10 % annual 8 price change 6 services 4 2 0 2007 2008 2009 2010 2011 2012 –2 goods –4 What can be deduced from the graph? A On average the price of services was higher than the price of goods throughout the period. B The average price of goods was higher in 2012 than in 2010. C The average price of services was higher in 2012 than in 2010. D There was a fall in the general price level between 2008 and 2010.

Accepted Answer

C

Question 20

20 A government decides to devalue the country’s currency to remove the deficit on its current account of the balance of payments. What is the most likely reason why this would not work? A The country gains a competitive advantage from the devaluation. B The country has a surplus on its capital and financial accounts. C The price elasticities of demand for the country’s exports and imports are greater than one. D There are high trade barriers with the country’s main trading partners.

Accepted Answer

D

Question 21

21 What will increase if aggregate demand rises when aggregate supply is perfectly elastic? A labour shortages B real output C the price level D wage rates

Accepted Answer

B

Question 22

22 A country operates a floating exchange rate. What will cause the demand curve for the country’s currency to shift left in the foreign exchange market? A a decrease in the country’s interest rate B a decrease in the country’s money supply C an increase in the country’s export sales D an increase in the country’s import purchases

Accepted Answer

A

Question 23

23 The table shows the relative price of exports compared with imports expressed as an index number for an economy (2013 = 100). date index 2013 100 2014 97 2015 95 Which statement about the period 2013–2015 is correct? A Export prices have increased each year. B The general level of prices has fallen. C The terms of trade have deteriorated. D The volume of imports increasingly exceeds the volume of exports.

Accepted Answer

C

Question 24

24 The table shows an extract from a country’s balance of payments. exports imports $ billion $ billion trade in goods 150 200 trade in services 70 50 primary (investment) income 120 100 secondary (transfer) income 15 20 What is the current account balance? A –$10 bn B –$15 bn C –$30 bn D –$50 bn

Accepted Answer

B

Question 25

25 The real national income of a country fell by 3%. What could have caused this? A Money national income fell by 3% when the rate of inflation was 6%. B Money national income fell by 6% when the rate of inflation was 3%. C Money national income rose by 3% when the rate of inflation was 6%. D Money national income rose by 6% when the rate of inflation was 3%.

Accepted Answer

C

Question 26

26 An economy with a long history of extensive barriers to trade decides to switch to totally free trade. What is most likely to increase in the short term? A consumer surplus B government revenue C inflationary pressure D profits of all domestic companies

Accepted Answer

A

Question 27

27 Why is a balance of payments deficit a potential problem for an economy with a fixed exchange rate? A Domestic money supply will increase. B Rival economies may react with trade protection measures. C The economy’s foreign exchange reserves may decrease. D The economy’s short-run standard of living will be reduced.

Accepted Answer

C

Question 28

28 What would be a positive effect on the growth of an economy in the short run, if the government reduced a direct tax on individual earnings? A food prices would increase due to shortages B imports of luxury cars would increase to satisfy a change in demand C savings would increase due to additional disposable income D the consumption of domestically produced goods would increase

Accepted Answer

D

Question 29

29 Which combination of fiscal and monetary policies is most likely to be effective in the short run for tackling deflation in a closed economy? fiscal policy monetary policy A decreasing the budget deficit decreasing the interest rate B decreasing the budget deficit decreasing the money supply C increasing the budget deficit decreasing the interest rate D increasing the budget deficit decreasing the money supply

Accepted Answer

C

Question 30

30 Which policy measure is an expenditure-switching measure designed to reduce a current account surplus? A a cut in income tax rates B a depreciation of the exchange rate C the removal of limits on bank lending D the removal of subsidies to exporters

Accepted Answer

D

Cambridge A Level Economics 9708 — 2020 May/June Paper 1 · Variant 3

Question paper12 pages

Mark scheme3 pages

Questions as text

Q1 · An economist knows the current point at which an economy is operating within its…

Q2 · Abdul earns $50 000 a year working as a teacher

Q3 · Which type of good is healthcare?

Q4 · Which is a normative statement?

Q5 · In a free market there is a surplus of a good

Q6 · What is most likely to increase the quantity of houses supplied?

Q7 · The diagram shows two demand curves and two supply curves for a product

Q8 · The equilibrium price of a product is $10

Q9 · Diesel engines are a major cause of air pollution in cities

Q10 · Which combination of the classification of a good and market change will cause the demand…

Q11 · The supply (S) of a product is determined by the equation S = 10 + 10P when P is the…

Q12 · The table gives estimates of the price elasticities and cross elasticities of demand for…

Q13 · Which combination is most likely to result in the demand for a product being highly…

Q14 · What is most likely to occur when the government privatises public sector organisations?

Q15 · The diagram shows the market for bus services before and after a government subsidy

Q16 · The diagram shows the market for eye tests

Q17 · In November 2017, the Scottish government introduced a minimum price for alcohol because…

Q18 · What is an example of direct provision by a government?

Q19 · The graph shows the annual percentage change in the prices of services and in the prices…

Q20 · A government decides to devalue the country’s currency to remove the deficit on its…

Q21 · What will increase if aggregate demand rises when aggregate supply is perfectly elastic?

Q22 · A country operates a floating exchange rate

Q23 · The table shows the relative price of exports compared with imports expressed as an index…

Q24 · The table shows an extract from a country’s balance of payments

Q25 · The real national income of a country fell by 3%

Q26 · An economy with a long history of extensive barriers to trade decides to switch to…

Q27 · Why is a balance of payments deficit a potential problem for an economy with a fixed…

Q28 · What would be a positive effect on the growth of an economy in the short run, if the…

Q29 · Which combination of fiscal and monetary policies is most likely to be effective in the…

Q30 · Which policy measure is an expenditure-switching measure designed to reduce a current…

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