Cambridge A Level Economics 9708 — 2020 Oct/Nov Paper 3 · Variant 3

Question 1

1 Which statement is correct? A marginal social benefit = marginal private benefit – marginal external benefit B marginal social cost = marginal private cost + marginal external cost C negative externality = marginal social benefit – marginal social cost D positive externality = marginal private benefit

Accepted Answer

B

Question 2

2 The diagram shows the costs and benefits of the production of a good. The firm is operating at output Q1. MPC costs, P1 V benefits MSC P2 U P3 W X MSB = MPB O Q1 Q2 quantity What would be necessary to move the production to the optimal level of output? A introducing a subsidy of UW B introducing a subsidy of VW C setting a maximum price of P2 D setting a minimum price of P3

Accepted Answer

B

Question 3

3 Which situation should not lead to market failure? A Managers in a firm have information unavailable to shareholders. B Resources such as solar energy can be continuously renewed. C Resource allocation is not always Pareto efficient. D Undesirable goods are overproduced.

Accepted Answer

B

Question 4

4 The diagram below shows a customer’s budget line for two goods, X and Y. Y Y1 O X1 X Assuming the price of X does not change, the slope of the budget line will become steeper when: A the consumer’s income falls. B the consumer’s income rises. C the price of Y falls. D the price of Y rises.

Accepted Answer

C

Question 5

5 A consumer maximises his utility by spending all his income on goods X and Y. New research reveals that good X is a merit good providing the consumer with more utility than was previously realised. The consumer’s income and the prices of goods X and Y are unchanged. If the consumer behaves rationally, how will he respond to the findings of the research? quantity of quantity of good X purchased good Y purchased A decreases increases B increases decreases C increases unchanged D unchanged increases

Accepted Answer

B

Question 6

6 The table shows a firm’s total and marginal costs. output total cost ($) marginal cost ($) 1 200 20 2 215 15 3 225 10 4 240 15 5 260 20 What is the average fixed cost of producing 6 units? A $20 B $30 C $180 D $200

Accepted Answer

B

Question 7

7 Which combination indicates monopolistic competition? freedom of entry product demand curve A high barriers differentiated downward sloping B high barriers unique downward sloping C low barriers differentiated downward sloping D low barriers homogenous horizontal

Accepted Answer

C

Question 8

8 The diagram shows the costs and revenues of a profit-maximising cartel. What is the equilibrium price? MC price AC A B C D AR O quantity MR

Accepted Answer

A

Question 9

9 Diagram 1 shows the total cost curve for a firm. Diagram 2 shows possible marginal cost curves. MC1 costs TC costs MC2 MC3 MC4 O quantity O quantity diagram 1 diagram 2 Which marginal cost curve is consistent with the total cost curve? A MC1 B MC2 C MC3 D MC4

Accepted Answer

C

Question 10

10 Two manufacturing firms in the same industry, producing similar products, are considering merging together. What would be the least convincing reason for merging? A It would enable greater bargaining power when buying raw materials. B It would enable technical economies of scale. C It would produce savings in management and administration costs. D It would reduce the dependence of the firms on the suppliers of raw materials.

Accepted Answer

D

Question 11

11 The following schedule gives information about a firm’s costs. total variable costs $6400 average fixed costs $20 average total costs $100 Which output would be consistent with these costs? A 32 units B 50 units C 64 units D 80 units

Accepted Answer

D

Question 12

12 Which objective involves the managers of a firm operating with just enough profit to keep shareholders happy whilst maintaining sales revenue above its profit-maximising level? A achieving below normal profit B maximising the quality of the output C profit satisficing D sales revenue maximisation

Accepted Answer

C

Question 13

13 Which measure to reduce the abuse of monopoly power is an example of regulation? A legislation to forbid price fixing by cartels B removal of import tariffs C subsidising small firms D taxation of monopoly profits

Accepted Answer

A

Question 14

14 The diagram shows a Lorenz curve, with two areas, X and Y, identified. 100 cumulative line of % of income perfect equality X Y Lorenz curve 0 100 cumulative % of households How is the corresponding Gini coefficient calculated? A X divided by (X plus Y) B (X plus Y) divided by X C (X plus Y) divided by Y D Y divided by (X plus Y)

Accepted Answer

A

Question 15

15 Which combination of government policies will be most likely to affect inter-generational equity? A a fall in overseas aid expenditure and a rise in domestic military spending B a fall in the top rate of income tax and a rise in the sales tax (VAT) on luxury goods C a rise in educational maintenance allowances and a fall in state pensions D a rise in unemployment benefits and a rise in national insurance contributions

Accepted Answer

C

Question 16

16 The diagram illustrates a monopsony labour market in which the government has imposed a minimum wage. MCL W4 wage rate S = ACL W3 W2 minimum wage W1 D = MRP O Q2 Q1 Q3 quantity of labour What is the difference between the wage the monopsonist wishes to pay and the wage received by labour? A W1W3 B W1W2 C W2W3 D W2W4

Accepted Answer

B

Question 17

17 Labour is the only variable factor of a profit-maximising firm which is a price-taker in the labour market. From what is the firm’s demand curve for labour derived? A its marginal factor cost curve B its marginal revenue curve C its marginal revenue product of labour curve D its short-run marginal cost curve

Accepted Answer

C

Question 18

18 A developing country receiving foreign financial aid is most likely to experience economic growth in the long run if it uses the money to: A boost welfare benefits for the poorest households. B pay for imports of capital goods. C reduce environmental pollution. D reduce income tax for all households.

Accepted Answer

B

Question 19

19 The Multidimensional Poverty Index uses benchmarks to measure the severity of poverty. Which country suffers most from deprivation in health and living standards compared with deprivation of education? deprivation contribution to overall poverty (%) country living education health standards A Bangladesh 28.4 26.1 45.5 B Burkino Faso 39.0 22.5 38.5 C Lesotho 14.8 33.8 51.4 D Yemen 29.5 32.2 38.2

Accepted Answer

C

Question 20

20 Which is the most accurate statement about developing economies? A A possible dependency on primary products for export revenues means that developing economies are reliant on the industrialised world for manufactured products. B High levels of capital per head mean that developing economies must rely on overseas trade if they are to achieve higher growth rates. C High real GDP per head, plus high rates of population growth, reduce the ability of developing economies to increase their standard of living. D Migration of labour from rural to urban areas is of significance only if it results in labour shortages in the rural economy.

Accepted Answer

A

Question 21

21 A benefit of foreign direct investment (FDI) is better training for local workers leading to improved human capital and large productivity increases. A disadvantage is that additional income gained is sent back to the country from which the FDI came. How would these changes affect the aggregate demand and aggregate supply curves? aggregate aggregate demand curve supply curve A shift left shift left B shift right shift left C shift left shift right D shift right shift right

Accepted Answer

C

Question 22

22 A director becomes redundant as the result of a company merger. His salary was $80 000. In his first year after redundancy he earns $60 000 in consultancy fees, $10 000 in dividends on shares, and saves $8000 by dismissing his gardener. What is the resulting change in measured national income in the first year? A + $70 000 B + $60 000 C – $80 000 D –$18 000

Accepted Answer

D

Question 23

23 What reduces the value of the multiplier? A an increase in government investment expenditure B an increase in consumption C an increase in the rate of taxation D an increase in the volume of exports

Accepted Answer

C

Question 24

24 The diagram shows a closed economy in which the full employment level of income is YF. J aggregate AD demand, K consumption C L 45° O M N YF income Which distance measures the deflationary gap? A JK B JL C NYF D MYF

Accepted Answer

A

Question 25

25 The table shows national income statistics for an economy. US dollars item ($) billion income from wages 300 consumption expenditure 400 investment expenditure 200 government expenditure 400 value of exports 300 value of imports 400 What is the value of aggregate demand, in billions of dollars? A 900 B 1200 C 1300 D 2000

Accepted Answer

A

Question 26

26 What can be deduced directly from the calculation of the national income? A the balance of payments position B the pattern of production in the economy C the distribution of income among the population D the standard of living in the country

Accepted Answer

B

Question 27

27 Which condition for macroeconomic equilibrium is correct? A G  –  T  =  S  +  I  +  X  –  M B I  –  S  =  G  –  T  +  M  –  X C M  –  X  =  I  –  S  +  G  –  T D X  –  M  +  G  =  S  +  I  –  T

Accepted Answer

C

Question 28

28 What describes a Keynesian measure to reduce cyclical unemployment? A adopting a supply-side policy to retrain unskilled workers B allowing the private sector to take over the supply of merit goods C increasing the ratio of capital equipment to manual labour in production D using fiscal policy to increase effective demand

Accepted Answer

D

Question 29

29 An economy imports most of the factors of production used in the manufacture of its exported goods. What effect would depreciation of this economy’s rate of exchange have? price of imported price of exported goods in the goods in the domestic currency domestic currency A fall fall B fall rise C rise fall D rise rise

Accepted Answer

D

Question 30

30 Which policy is most likely to lead to a reduction in the natural rate of unemployment? A an increase in government expenditure on goods and services B an increase in government expenditure on training schemes to address skill shortages C an increase in the period when the unemployed are eligible for welfare benefits D an increase in the minimum wage

Accepted Answer

B

Cambridge A Level Economics 9708 — 2020 Oct/Nov Paper 3 · Variant 3

Question paper12 pages

Mark scheme3 pages

Questions as text

Q1 · Which statement is correct?

Q2 · The diagram shows the costs and benefits of the production of a good

Q3 · Which situation should not lead to market failure?

Q4 · The diagram below shows a customer’s budget line for two goods, X and Y

Q5 · A consumer maximises his utility by spending all his income on goods X and Y

Q6 · The table shows a firm’s total and marginal costs

Q7 · Which combination indicates monopolistic competition?

Q8 · The diagram shows the costs and revenues of a profit-maximising cartel

Q9 · The total cost curve for a firm

Q10 · Two manufacturing firms in the same industry, producing similar products, are considering…

Q11 · The following schedule gives information about a firm’s costs

Q12 · Which objective involves the managers of a firm operating with just enough profit to keep…

Q13 · Which measure to reduce the abuse of monopoly power is an example of regulation?

Q14 · The diagram shows a Lorenz curve, with two areas, X and Y, identified

Q15 · Which combination of government policies will be most likely to affect inter-generational…

Q16 · The diagram illustrates a monopsony labour market in which the government has imposed a…

Q17 · Labour is the only variable factor of a profit-maximising firm which is a price-taker in…

Q18 · A developing country receiving foreign financial aid is most likely to experience…

Q19 · The Multidimensional Poverty Index uses benchmarks to measure the severity of poverty

Q20 · Which is the most accurate statement about developing economies?

Q21 · A benefit of foreign direct investment (FDI) is better training for local workers leading…

Q22 · A director becomes redundant as the result of a company merger

Q23 · What reduces the value of the multiplier?

Q24 · The diagram shows a closed economy in which the full employment level of income is YF

Q25 · The table shows national income statistics for an economy

Q26 · What can be deduced directly from the calculation of the national income?

Q27 · Which condition for macroeconomic equilibrium is correct?

Q28 · What describes a Keynesian measure to reduce cyclical unemployment?

Q29 · An economy imports most of the factors of production used in the manufacture of its…

Q30 · Which policy is most likely to lead to a reduction in the natural rate of unemployment?

What was in this paper

What you needed in this session

Other variants, same session

This paper, other years