Cambridge A Level Economics 9708 — 2021 Oct/Nov Paper 3 · Variant 1

1 What is a necessary condition required to achieve Pareto efficiency? A when it is not possible for some people to become better off without others becoming worse off B when it is possible to produce greater output with the same quantity of inputs C when resources have spare capacity D when resources can be re-allocated and total consumer satisfaction can be increased

Mark scheme: A

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2 What is an example of a negative externality? A the non-provision of public goods by the market B indirect taxation that fails to internalise the external cost C monopoly power leading to reduced output and a higher price D the production of a good that has a harmful effect on a third party

Mark scheme: D

More questions on Private costs and benefits, externalities and social costs and benefits

3 A government deregulates several industries with the aim to increase allocative and productive efficiency. Which change makes it less likely that the government will meet its aim? A an increase in the availability of cheap loans to start new businesses B an increase in merger and takeover activity in the industries C an increase in information about prices for consumers available on the internet D a reduction in fixed costs in the deregulated industries

Mark scheme: B

More questions on Government policies to achieve efficient resource allocation and correct market failure

4 A rational consumer maximises satisfaction by buying three units of good X and four units of good Y which are the same dollar price. What does this indicate? A Marginal utility per dollar spent is equal for both goods. B The total utility of 3X is equal to the total utility of 4Y. C The consumer should buy one more unit of good X to maximise utility. D Good Y has greater marginal utility than good X.

Mark scheme: A

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5 What does a budget line on an indifference curve diagram show? A the amount that a household has available to spend plotted against time B the combinations of two goods that can be purchased when all income is spent C the difference between a government’s income and expenditure plotted against time D the relationship between the price of a good and the amount demanded

Mark scheme: B

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6 Firm X, which currently specialises in producing cars, takes over firm Y, which owns a number of car retail outlets. How may this be described? A horizontal integration B the formation of a cartel C vertical integration backwards D vertical integration forwards

Mark scheme: D

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7 In large cities there are streets where many sellers of similar hot foods compete for sales. Which type of market structure does this represent? A monopoly B monopolistic competition C oligopoly D perfect competition

Mark scheme: B

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8 A firm always operates with economies of scale in the long run. What is the shape of its long-run average cost curve? A It is horizontal. B It is ‘U’ shaped. C It slopes downwards. D It slopes upwards.

Mark scheme: C

More questions on Types of cost, revenue and profit, short-run and long-run production

9 A multinational firm seeks to minimise costs and maximise profits. What would least assist the multinational to achieve these objectives? A achieving a near monopoly status to control outputs and prices B locating the firm’s home base in a country with a low level of corporation tax C operating as a member of a cartel with production quotas D owning subsidiary firms in different countries to achieve economies of scale

Mark scheme: C

More questions on Differing objectives and policies of firms

10 What is the most likely combination of income elasticity of demand and price elasticity of demand that explains why a firm can make higher profits in specialised luxury product markets? income elasticity price elasticity of demand of demand A high high B high low C low high D low low

Mark scheme: B

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11 The diagram shows a firm’s cost and revenue curves. cost, revenue MC AC AR MR O output The firm embarks on a single successful $100 million advertising campaign. How will this affect its costs and revenue curves? MR curve AR curve MC curve AC curve A shifts to right shifts to right shifts up unchanged B shifts to right shifts to right unchanged shifts up C unchanged unchanged shifts up unchanged D unchanged unchanged unchanged shifts up

Mark scheme: B

More questions on Types of cost, revenue and profit, short-run and long-run production

12 In which circumstances are a firm’s objectives most likely to differ from profit maximisation? A when a firm finances new investment largely by retained profits B where firms are companies with very active shareholders C where investment banks make takeovers easy to implement D when a firm has many shareholders and is managed by employees

Mark scheme: D

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13 Which combination of policies is most likely to reduce the inequality of the income distribution? availability direct tax indirect tax of benefit A decrease decrease decrease B decrease increase increase C increase decrease increase D increase increase decrease

Mark scheme: C

More questions on Equity and redistribution of income and wealth

14 To tackle pollution, some governments set standards, such as production limits, while others use tradeable pollution permits. What is a correct comparison of the two approaches? A Standards give more incentive for continued pollution reduction. B Standards make greater use of the market mechanism. C Tradeable pollution permits are simpler to devise and administer. D Tradeable pollution permits provide a more equitable treatment of firms.

Mark scheme: D

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15 The diagram shows an economy’s Lorenz curve (VW). W 100 cumulative 45° % of income X Y V 00 100 cumulative % of population The area of Y is three times bigger than the area of X. What is the value of the economy’s Gini coefficient? A 3 1 B 4 1 C 3 4 D 3 4

Mark scheme: B

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16 What will not shift the demand curve for labour to the right? A improvement in marginal productivity of labour B increase in demand for the product C increase in the price of the product D increase in the wage rate

Mark scheme: D

More questions on Labour market forces and government intervention

17 The diagram shows an individual’s supply of labour curve. S 80 hourly wage ($) w x 60 z 40 y 20 0 40 number of hours per week He is offered a job which would require him to work a standard 40-hour week. Which area measures the amount he would need to get him to accept this job offer? A w + z B x + y C x + y – z D w + x + z + y

Mark scheme: B

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18 The aggregate demand in country X is calculated by the equation AD = C + I + (X – M). Four students are asked to fill in the two gaps in the following sentence describing the economy of country X. ‘Country X is ......1...... economy ......2...... a government.’ Which student is correct? gap 1 gap 2 A a closed with B a closed without C an open with D an open without

Mark scheme: D

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19 The diagram shows the Kuznets curve. income inequality Q R P S O per capita income Which statement is correct with respect to the description of an economy and the corresponding letter on the Kuznets curve? A P is a market economy. B Q is a developed economy. C R is a developing economy. D S is an economy with a Gini coefficient = 0.

Mark scheme: D

More questions on Characteristics of countries at different levels of development

20 When measuring the value of total output of a country, economists use the concept of value added. What could explain this? A They want to avoid double counting. B They want to avoid the impact of inflation. C They want to find the value of the hidden economy. D They want to include indirect taxes and subsidies.

Mark scheme: A

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21 A government uses personal disposable income per head as a measure of the standard of living. What does this measure not take into account? A changes in the average price level B the level of direct taxation C the level of national income D the size of the population

Mark scheme: A

More questions on Economic development

22 Which policy would be most likely to increase employment? A decreasing duties on imports B decreasing unemployment benefits C increasing income tax D increasing interest rates

Mark scheme: B

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23 Low income countries that approached the IMF for loan assistance were usually required to introduce structural adjustment programmes (SAPs) which involve policies to promote a free-market economy. Which action would have been included in a SAP? A deregulation of agricultural markets B extension of food subsidies C nationalisation of water supply D restrictions and regulations on the flow of international capital

Mark scheme: A

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24 In a closed economy with no government there is an initial equilibrium level of national income of $500 billion. The economy’s households always spend a constant fraction of every $1 of income they receive. When investment spending increases by $20 billion the economy moves to a new equilibrium level of national income of $600 billion. What is the marginal propensity to consume of the economy’s households? A 0.20 B 0.80 C 0.83 D 1.00

Mark scheme: B

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25 The Keynesian theory states that the demand for money (Md) is influenced by the personal level of income (L1) and by the rate of interest (L2) so that Md = L1 (Y) + L2 (r) What do L1 and L2 represent in the aggregate demand for money function? L1 L2 A precautionary motive transactions motive B speculative motive transactions and precautionary motives C transactions and speculative motive precautionary motives D transactions motive precautionary motive

Mark scheme: C

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26 What are the assumptions made by Keynesians in relation to wages and investment? wages investment A flexible interest rates elastic B flexible interest rates inelastic C not flexible interest rates elastic D not flexible interest rates inelastic

Mark scheme: D

More questions on Aggregate Demand and Aggregate Supply analysis

27 What are the characteristics of most developing economies? ratio of government average debt to GDP propensity to save A high high B high low C low high D low low

Mark scheme: B

More questions on Characteristics of countries at different levels of development

28 Money given by the US government to certain African countries to fight AIDS/HIV requires their governments to purchase expensive drugs from the US rather than cheaper products from South Africa, India or Brazil. What is this an example of? A bilateral aid B debt relief C multilateral aid D tied aid

Mark scheme: D

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29 Why do economists draw a distinction between economic development and economic growth? A because a country’s stage of economic development depends on its level of output rather than its growth rate B because it is the allocation rather than the overall level of a country’s resources which determines its economic well-being C because of the concern about quality of life rather than quantity of output D because the prime determinant of economic development is investment rather than consumption

Mark scheme: C

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30 In an economy operating below full employment, which combination of changes will definitely result in an increase in national income? A a fall in the rate of taxation together with a rise in the saving rate B a rise in government expenditure together with a fall in the propensity to import C a rise in investment expenditure together with a rise in the rate of taxation D a rise in the propensity to save together with a rise in exports

Mark scheme: B

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