Cambridge A Level Economics 9708 — 2021 May/June Paper 3 · Variant 2
9708/32/M/J/21 · 30 questions · 30 marks · ≈34 min
The question paper and its mark scheme, free to read here and free to download. This is Cambridge’s own paper, exactly as it was sat.
Question paper16 pages
Mark scheme3 pages
Answers below. Sit the paper first if you are practising.
Questions as text
Q1 · The diagram shows a monopolistically competitive firm
1 The diagram shows a monopolistically competitive firm. Which point represents allocative efficiency? MC cost and revenue AC C B D A MR D=AR O quantity
Mark scheme: C
Q2 · What is an argument against government intervention when there is market failure?
2 What is an argument against government intervention when there is market failure? A Government intervention could increase positive externalities. B Government intervention could increase the availability of merit goods. C Government intervention could lead to a less efficient outcome. D Government intervention could reduce information failure.
Mark scheme: C
Q3 · A government is choosing between four routes for a new road
3 A government is choosing between four routes for a new road. The table provides details of the costs and benefits associated with each route. The government wants to get the highest return for taxpayers in terms of the social benefit relative to the private cost. Which route will the government choose? route ($ million) private private external costs benefits benefits A 20 25 5 B 25 30 10 C 20 25 10 D 30 35 10
Mark scheme: C
More questions on Private costs and benefits, externalities and social costs and benefits
Q4 · Donald maximises his utility when buying paperback books and audio books
4 Donald maximises his utility when buying paperback books and audio books. The price of a paperback book = $3 and the price of an audio book = $6. If the marginal utility of the last paperback book was 12 units of utility (utils), what was the marginal utility of the last audio book purchased? A 2 utils B 12 utils C 16 utils D 24 utils
Mark scheme: D
Q5 · Which statement correctly describes the result of a price increase for an inferior good?
5 Which statement correctly describes the result of a price increase for an inferior good? A Both the substitution effect and the income effect cause the consumer to buy less of the good. B Both the substitution effect and the income effect cause the consumer to buy more of the good. C The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. D The substitution effect causes the consumer to buy more of the good and the income effect causes the consumer to buy less of the good.
Mark scheme: C
Q6 · Which statement about a monopoly is correct?
6 Which statement about a monopoly is correct? A Profit maximisation occurs when average cost equals average revenue. B Sales maximisation occurs when marginal cost equals marginal revenue. C Sales revenue maximisation occurs when marginal revenue is equal to zero. D Satisficing occurs when marginal cost is equal to zero.
Mark scheme: C
More questions on Differing objectives and policies of firms
Q7 · A satellite communications company is bought by an investment bank
7 A satellite communications company is bought by an investment bank. Which outcome has resulted from this purchase? A a cartel B diversification C lateral integration D vertical integration
Mark scheme: B
Q8 · The diagram shows the long-run average cost (LRAC) curve for a firm, and three short-run…
8 The diagram shows the long-run average cost (LRAC) curve for a firm, and three short-run average cost (SRAC) curves. cost SRAC1 $ LRAC SRAC2 SRAC3 O output Which statement is correct? A When the minimum point of SRAC3 is lower than the minimum point of SRAC2 it reflects the law of variable proportions. B The law of diminishing returns explains why each of the SRAC curves is U-shaped. C The position of SRAC2 shows the minimum efficient scale of production. D The rising section of SRAC1 indicates the existence of diseconomies of scale.
Mark scheme: B
More questions on Types of cost, revenue and profit, short-run and long-run production
Q9 · What is the most likely reason that barriers to entry might lead to x-inefficiency?
9 What is the most likely reason that barriers to entry might lead to x-inefficiency? A The firm does not account for any external benefits. B The firm has no incentive to cut its costs of production. C The firm’s price is set higher than its average costs. D The firm’s price is set higher than its marginal costs.
Mark scheme: B
Q10 · The diagram shows the long-run cost and revenue curves for a public sector monopoly
10 The diagram shows the long-run cost and revenue curves for a public sector monopoly. revenue and costs AR LRAC MR LRMC O output The government decides to set a price that maximises social welfare. What will be the consequence of this decision? A The firm will experience diseconomies of scale. B The firm will make a loss. C The firm will maximise profits. D The firm will maximise total revenue.
Mark scheme: B
Q11 · The information gives the characteristics for a market structure
11 The information gives the characteristics for a market structure. ● The two leading brands control 60% of the market. ● Other large firms and a few smaller firms exist in the market. ● Prices tend to be stable. ● There are significant barriers to entry. Which market structure is this most likely to be? A monopolistic competition B monopoly C oligopoly D perfect competition
Mark scheme: C
Q12 · The diagram shows a firm in imperfect competition
12 The diagram shows a firm in imperfect competition. It changed its aim from profit maximising to sales revenue maximising. cost, MC revenue AC AR MR O output Which type of profit was it making in each case? profit sales revenue maximising maximising A normal profit supernormal profit B subnormal profit normal profit C supernormal profit normal profit D supernormal profit supernormal profit
Mark scheme: D
Q13 · In various countries, the supply of public utilities such as water and electricity have…
13 In various countries, the supply of public utilities such as water and electricity have been licensed by the government to a few private firms. What should governments do to persuade these profit-seeking private firms not to overcharge consumers? A allow private firms to merge to create a monopoly B appoint a regulatory body to guarantee supplies at all times C deregulate nationalised industries to create a free market D enable customers to switch easily from one private firm to another
Mark scheme: D
Q14 · A government intends to use pollution permits to reduce environmental damage
14 A government intends to use pollution permits to reduce environmental damage. Under what circumstances is this policy most likely to fail to achieve the intended reduction? A Firms within the scheme are required to have a sufficient number of permits to cover the amount of pollution generated in production. B Firms improve their technology to reduce the number of permits they require. C Firms that do not use all of their permits can sell some of them to other firms. D The permits do not impose strict enough limits on carbon emissions.
Mark scheme: D
Q15 · A government is committed to reducing the Gini coefficient
15 A government is committed to reducing the Gini coefficient. Which policy is most likely to fail to achieve that policy objective? A a decrease in ad valorem sales tax rates B a more regressive income tax system C a more progressive income tax system D an increase in transfer payments to the unemployed
Mark scheme: B
More questions on Equity and redistribution of income and wealth
Q16 · Which calculation would give the marginal revenue product (MRP) of labour for a firm…
16 Which calculation would give the marginal revenue product (MRP) of labour for a firm selling its product in an imperfectly competitive product market? A average output produced per worker employed marginal revenue of the product B average output produced per worker employed price of the product C extra product produced by an additional worker marginal revenue of the product D extra product produced by an additional worker price of the product
Mark scheme: C
More questions on Labour market forces and government intervention
Q17 · The diagrams show the demand for and supply of labour in four markets
17 The diagrams show the demand for and supply of labour in four markets. 1 2 3 4 S S wage wage wage wage rate rate rate rate S S D D D D O number of O number of O number of O number of workers workers workers workers In which markets would labour’s transfer earnings exceed its economic rent? A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4
Mark scheme: B
More questions on Labour market forces and government intervention
Q18 · Which objective would not be suitable for a government if it were seeking sustainable…
18 Which objective would not be suitable for a government if it were seeking sustainable economic growth? A achieving the highest growth rate by using all the natural resources B careful management of the use of non-renewable resources C effective protection of the environment, wildlife and landscapes D meeting the needs of both its current and future population
Mark scheme: A
Q19 · What is the difference between a country’s gross domestic product and its gross national…
19 What is the difference between a country’s gross domestic product and its gross national income? A capital consumption B gross fixed capital formation C net property income from abroad D the value of exports less imports
Mark scheme: C
Q20 · Some individuals seek to increase their share of existing wealth without creating new…
20 Some individuals seek to increase their share of existing wealth without creating new wealth. This can be a problem in developing economies. What is an example of this behaviour? A a government official taking a bribe for special treatment for the person offering the bribe B a land owner renting a field to a farmer C a landlord being paid for the hire of a room D an entrepreneur earning a reward for setting up a firm that pays low wages
Mark scheme: A
More questions on Characteristics of countries at different levels of development
Q21 · What is necessary to include to calculate the number unemployed?
21 What is necessary to include to calculate the number unemployed? everyone of those of part-time employees working age who is pension age who seeking full-time not in employment still want to work employment A no no no B no yes yes C yes yes no D yes yes yes
Mark scheme: B
Q22 · The diagram shows changes in the numbers employed in four different industries in a city…
22 The diagram shows changes in the numbers employed in four different industries in a city between 2015 and 2020. 60 employment finance (000) 50 40 manufacturing 30 education 20 leisure 10 0 2015 2016 2017 2018 2019 2020 What can be concluded from the diagram? A Finance was always the largest employer. B Leisure had the fastest growth rate in employment. C Manufacturing was the only industry to show signs of decline. D Total employment in the four industries decreased over the period.
Mark scheme: B
Q23 · At the start of the year, the production possibility frontier for an economy is at PPF1…
23 At the start of the year, the production possibility frontier for an economy is at PPF1 and the economy is at point S. At the end of the year the production possibility frontier is at PPF2 and the economy is at point T. Which diagram shows that the economy has experienced actual growth but not potential growth? A B output Y output Y S T T S PPF1 = PPF2 PPF2 PPF1 O output X O output X C D output Y output Y T S S T PPF1 PPF2 PPF1 = PPF2 O output X O output X
Mark scheme: A
Q24 · Government spending in an economy increases by $4000 whilst at the same time investment…
24 Government spending in an economy increases by $4000 whilst at the same time investment falls by $1500. marginal propensity to save = 1 10 marginal propensity to tax = 1 5 marginal propensity to import = 1 10 What will be the increase in national income following these changes? A $2500 B $6250 C $10 000 D $25 000
Mark scheme: B
Q25 · Which change will allow an increase in an economy’s money supply?
25 Which change will allow an increase in an economy’s money supply? A An outflow of currency for trade and capital purposes becomes an inflow. B The central bank instructs commercial banks to keep higher ratios of cash to deposits. C The government budget balance moves from a deficit to a surplus. D The government replaces borrowing from the banks with borrowing from the general public.
Mark scheme: A
Q26 · In a country the initial money supply curve is given by MS0, the initial liquidity…
26 In a country the initial money supply curve is given by MS0, the initial liquidity preference curve by LP0 and the initial rate of interest by R0. If there is an increase in the precautionary motive for holding money, which diagram shows the changes that will occur? A B rate of LP0 MS0 MS1 rate of LP0 MS1 MS0 interest interest R0 R1 R1 R0 O quantity O quantity of money of money C D rate of LP1 LP0 MS0 rate of LP0 LP1 MS0 interest interest R0 R1 R1 R0 O quantity O quantity of money of money
Mark scheme: D
Q27 · The UK gives aid to the Ugandan government to spend on a school
27 The UK gives aid to the Ugandan government to spend on a school. One condition is that they must buy the materials from the UK. Which type of aid does not take place? A bilateral B multilateral C project D tied
Mark scheme: B
More questions on Relationship between countries at different levels of development
Q28 · Unemployment in an economy increases
28 Unemployment in an economy increases. What is a probable consequence? A a switch from direct to indirect taxation B an increase in demand-pull inflation C an increase in the balance of trade deficit D an increase in the government budget deficit
Mark scheme: D
More questions on Links between macroeconomic problems and their interrelatedness
Q29 · The government of Lesotho introduces a programme to promote exports and to encourage…
29 The government of Lesotho introduces a programme to promote exports and to encourage firms to expand by subsidising local entrepreneurs. Which effect is this likely to have on incomes, the balance of payments current account deficit and government expenditure in Lesotho? balance of government incomes payments current expenditure account deficit A fall reduce rise B fall uncertain rise C rise reduce no change D rise uncertain rise
Mark scheme: D
More questions on Policies to correct imbalances in the current account of the balance of payments
Q30 · A government currently has a balanced budget
30 A government currently has a balanced budget. It is considering the possible variations in tax revenue and government expenditure shown. government option tax revenue expenditure W increase increase X increase reduce Y reduce increase Z reduce reduce Which three options are likely to have the potential to move the budget into surplus? A W, X and Y B W, X and Z C W, Y and Z D X, Y and Z
Mark scheme: B
What was in this paper
The subtopics covered by these 30 questions, and how many questions each got. Open one in a new tab to see every Cambridge question on it.
4Government policies to achieve efficient resource allocation and correct market failure4Labour market forces and government intervention2Money and banking2Unemployment2Characteristics of countries at different levels of development1Demand and supply curves1Differing objectives and policies of firms1Economic growth and sustainability1Equity and redistribution of income and wealth1Fiscal policy1Growth and survival of firms1Links between macroeconomic problems and their interrelatedness1National income statistics1Policies to correct imbalances in the current account of the balance of payments1Private costs and benefits, externalities and social costs and benefits1Production possibility curves1Relationship between countries at different levels of development1The circular flow of income1Types of cost, revenue and profit, short-run and long-run production1Utility1What you needed in this session
Cambridge’s own grade thresholds for 2021 May/June, Paper 3 · Variant 2. A higher threshold means an easier paper — the bar moves with how the cohort did.