Cambridge A Level Economics 9708 — 2020 Oct/Nov Paper 1 · Variant 1

Question 1

1 The diagram shows an economy’s production possibility curve. 1000 consumer goods 0 50 capital goods It has been employing its resources in the ratio of 80% consumer goods production and 20% capital goods production. What will be the result if it decides to double its output of capital goods? A a gain of 20 capital goods B a gain of 40 capital goods C a loss of 200 consumer goods D a loss of 600 consumer goods

Accepted Answer

C

Question 2

2 Which comment relating to the introduction of charges for previously free medical treatment is normative? A Fewer people will be able to afford treatment. B It will be unfair on lower income groups. C Richer citizens will pay the higher charges. D Workers’ health and productivity will fall.

Accepted Answer

B

Question 3

3 Which characteristic of money is the most important if it is to function as a medium of exchange? A acceptable B divisible C durable D portable

Accepted Answer

A

Question 4

4 What is not a characteristic of a planned economy? A Consumers have limited influence on what is produced. B Profit is the motive for increasing output. C Resources are owned by the government. D There is limited competition in the market.

Accepted Answer

B

Question 5

5 Good X is a substitute for good Y and a complement to good Z. What would happen after a fall in the price of good X? A Only the demand for X will rise. B Demand for X, Y and Z will rise. C Demand for Y will fall and for Z will rise. D Demand for Y will rise and for Z will fall.

Accepted Answer

C

Question 6

6 The table shows how an individual’s weekly consumption of biscuits and coffee varies with income. income ($) biscuits (packs) coffee (cups) 100 0 5 150 5 10 Which statement about the income elasticity of demand over the range of income shown is true? A For biscuits it is greater than 1. B For biscuits it is zero. C For coffee it is less than 1. D For coffee it is unitary.

Accepted Answer

A

Question 7

7 The diagram shows four supply curves. W X price Y Z O quantity Which statement about the price elasticity of these supply curves is correct? A W has elasticity of 0 that will rise as price rises. B X has elasticity greater than 1 that will be constant as price rises. C Y has elasticity greater than 1 that will fall as price rises. D Z has elasticity of 0 that is constant as quantity rises.

Accepted Answer

C

Question 8

8 The diagram shows the market for a good with an initial equilibrium price of $10. The demand for the good increases by 40 units at every price causing the equilibrium price to rise to $12. 24 price $ 20 S1 12 10 D2 D1 0 80 100 120 140 quantity What is the value of the producer surplus after the price increase? A $500 B $720 C $1000 D $1440

Accepted Answer

B

Question 9

9 The equation for the quantity demanded (QD) for a product is QD = 400 – 20P where P = price in dollars. The quantity supplied (QS) is given by QS = 100 + 40P. What change will occur if the price rises from $5 to $6? A the market will move from equilibrium to shortage B the market will move from equilibrium to surplus C the market will move from shortage to surplus D the market will move from surplus to shortage

Accepted Answer

B

Question 10

10 A farmer divides his land between growing two crops – wheat and oats. To increase production of one he must reduce production of the other. What would cause the farmer to increase his supply of wheat? A A subsidy is given for the production of oats. B A unit tax is imposed on the production of wheat. C There is an increase in wages for all farm workers. D There is improved efficiency in the harvesting of wheat.

Accepted Answer

D

Question 11

11 What would cause the demand curve for vegetables to shift from D1 to D2 as shown? S price P2 P1 D1 D2 O Q1 Q2 quantity A a change in supply from Q1 to Q2 B a poor harvest due to unfavourable weather C a price change from P1 to P2 D an increase in real incomes

Accepted Answer

D

Question 12

12 The demand curve for new cars in a country shifted to the left. Which change could have caused such a shift? A an increase in real disposable income B an increase in the cost of borrowing C an increase in the price of new cars D an increase in the price of train travel

Accepted Answer

B

Question 13

13 What is correct about market supply? A Market supply can increase only when all individual firms increase their output. B Market supply is effective when consumers have sufficient income to buy the good. C Market supply is the result of aggregating the supply of all individual firms. D Market supply of an inferior good falls as price increases.

Accepted Answer

C

Question 14

14 Which statement best describes a transfer payment? A It is a loan from the government to help firms. B It is a payment to individuals not linked to economic activity. C It is the redistribution of income from government to individuals for work done. D It is the redistribution of income from households to firms for goods purchased.

Accepted Answer

B

Question 15

15 The diagram shows the impact of a unit tax imposed by a government on a good. The original supply curve is S1 and the supply curve after the unit tax is S2. price S2 $ S1 80 70 60 50 D 0 100 120 quantity What would be the amount of tax paid by the consumer? A $500 B $1000 C $1500 D $2400

Accepted Answer

B

Question 16

16 The diagram shows the demand and supply curves for healthcare in a private market. supply price P demand O Q quantity What would happen if the government provides the same amount of healthcare free of charge? A Healthcare will become a public good. B Healthcare will no longer have external benefits. C There will be over-consumption of healthcare. D There will need to be rationing.

Accepted Answer

D

Question 17

17 A good is provided by the government. Consumption by one person does not affect the amount of the good available for others. Which type of good must this be? A complementary good B merit good C private good D public good

Accepted Answer

D

Question 18

18 A government imposes an income tax on individuals. The first $100 000 of earned income is taxed at a rate of 20%, and all further earned income above $100 000 is taxed at a marginal rate of 50%. Which statement is not valid? A The average income tax rate is 20% at an income of $80 000 and 35% at an income of $200 000. B The tax is a direct tax for incomes above $100 000. C The tax is a proportional tax for incomes between $20 000 and $40 000. D The tax is regressive when incomes change from below to above $100 000.

Accepted Answer

D

Question 19

19 Agricultural economies have faced a deterioration in their terms of trade. What might have contributed to this? A falling exchange rates of agricultural economies B falling productivity in agricultural production C increasing productivity in manufacturing economies D the high income elasticity of demand for foodstuffs

Accepted Answer

A

Question 20

20 The table shows the output of rice and cotton for countries X and Y. units of output of units of output of rice per year cotton per year country X 5000 5000 country Y 4000 2000 Each country divides its resources equally between the production of rice and cotton. Based upon the law of comparative advantage, which statement is correct? A Country X has the higher opportunity cost in producing cotton. B Country Y has the lower opportunity cost in producing rice. C Country X should produce both goods as the opportunity cost is the same. D Country Y should produce both goods as it has an absolute advantage in both.

Accepted Answer

B

Question 21

21 An economy is represented by the AD / AS diagram, which is initially in macroeconomic equilibrium. AS price level AD O real output Which change will definitely result in a rise in real output? A a fall in personal taxation and a fall in government expenditure B a rise in consumption and a rise in the cost of raw materials C a rise in export revenues and a fall in import expenditure D a rise in government expenditure and a fall in investment

Accepted Answer

C

Question 22

22 The data shows the consumer prices index (CPI) and an index of money wages in an economy during four years. year 1 2 3 4 CPI 100 102 105 110 index of money wages 100 102 107 110 Which statement is not correct? A Inflation was at its greatest between years 3 and 4. B Real wages remained constant between years 1 and 2. C Real wages rose between years 3 and 4. D The rate of inflation increased over the whole period.

Accepted Answer

C

Question 23

23 A country has a deficit of $300 million on the current account of its balance of payments. It devalues its currency in an attempt to reduce the deficit. Which row is consistent with the idea that the J-curve operates in the short run but the Marshall-Lerner condition is satisfied in the long run? short-run deficit long-run deficit ($ million) ($ million) A 200 100 B 200 400 C 600 100 D 600 400

Accepted Answer

C

Question 24

24 A family takes a holiday abroad. Four students are asked to show where the cost of the
accommodation would be recorded in the current account of the balance of payments of the
country visited.

Which student is correct?

trade in goods trade in services export/ credit import/ debit
A v x Jv x
B J x x J
Cc x Jv Jv x
D x Jv x Jv

Accepted Answer

C

Question 25

25 The diagram shows the imposition of a tariff on imports. domestic supply price U T world supply after tariff P2 P1 world supply before tariff P Q R S domestic demand O Q1 Q2 Q3 Q4 output Which set of values is correct? imports imports tax revenue before tariff after tariff A OQ4 OQ3 PUTS B OQ4 OQ3 QUTR C Q1Q4 Q2Q3 PUTS D Q1Q4 Q2Q3 QUTR

Accepted Answer

D

Question 26

26 When is a deficit on the current account of the balance of payments likely to worsen? A when a government adopts a deflationary macroeconomic policy B when a government subsidises exports C when prices of essential imported raw materials increase significantly D when tariffs are placed on imported products with a wide range of domestic substitutes

Accepted Answer

C

Question 27

27 A government with a floating exchange rate wishes to encourage a rise in the international value of its currency. What should it do? A lower the level of domestic interest rates B reduce the amount of foreign currency available to its citizens C reduce subsidies to its exporters D remove trade barriers on imports

Accepted Answer

B

Question 28

28 Greece had an unemployment rate of over 20% in 2016. Which combination of policies would be best for the Greek government to try to reduce unemployment? government profit monetary policy expenditure tax A decrease interest rates increase decrease B decrease interest rates decrease increase C increase interest rates increase increase D increase interest rates decrease decrease

Accepted Answer

A

Question 29

29 The diagram shows the relationship between the income tax rate and tax revenue. tax X revenue W O Z Y income tax rate (%) Which statement is correct? A A tax rate cut from Y to Z will cause tax revenue to decrease. B At tax rates below Z a tax rate cut will cause tax revenue to increase. C The greater the rate of tax increases beyond Z, the smaller will be the tax revenue generated. D Tax revenue will always increase as the rate of income tax increases.

Accepted Answer

C

Question 30

30 What would be classified as a supply-side policy measure? A a law to reduce the power of trade unions B a reduction in the government’s fiscal deficit C an open market sale of securities D the imposition of a tariff on imported goods

Accepted Answer

A

Cambridge A Level Economics 9708 — 2020 Oct/Nov Paper 1 · Variant 1

Question paper12 pages

Mark scheme3 pages

Questions as text

Q1 · The diagram shows an economy’s production possibility curve

Q2 · Which comment relating to the introduction of charges for previously free medical…

Q3 · Which characteristic of money is the most important if it is to function as a medium of…

Q4 · What is not a characteristic of a planned economy?

Q5 · Good X is a substitute for good Y and a complement to good Z

Q6 · The table shows how an individual’s weekly consumption of biscuits and coffee varies with…

Q7 · The diagram shows four supply curves

Q8 · The diagram shows the market for a good with an initial equilibrium price of $10

Q9 · The equation for the quantity demanded (QD) for a product is QD = 400 – 20P where P =…

Q10 · A farmer divides his land between growing two crops – wheat and oats

Q11 · What would cause the demand curve for vegetables to shift from D1 to D2 as shown?

Q12 · The demand curve for new cars in a country shifted to the left

Q13 · What is correct about market supply?

Q14 · Which statement best describes a transfer payment?

Q15 · The diagram shows the impact of a unit tax imposed by a government on a good

Q16 · The diagram shows the demand and supply curves for healthcare in a private market

Q17 · A good is provided by the government

Q18 · A government imposes an income tax on individuals

Q19 · Agricultural economies have faced a deterioration in their terms of trade

Q20 · The table shows the output of rice and cotton for countries X and Y

Q21 · An economy is represented by the AD / AS diagram, which is initially in macroeconomic…

Q22 · The data shows the consumer prices index (CPI) and an index of money wages in an economy…

Q23 · A country has a deficit of $300 million on the current account of its balance of payments

Q24 · A family takes a holiday abroad

Q25 · The diagram shows the imposition of a tariff on imports

Q26 · When is a deficit on the current account of the balance of payments likely to worsen?

Q27 · A government with a floating exchange rate wishes to encourage a rise in the…

Q28 · Greece had an unemployment rate of over 20% in 2016

Q29 · The diagram shows the relationship between the income tax rate and tax revenue

Q30 · What would be classified as a supply-side policy measure?

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