Cambridge A Level Economics 9708 — 2022 Oct/Nov Paper 3 · Variant 3

Question 1

1 When is Pareto efficiency achieved? A at a level of output that is productively and allocatively efficient B when everyone has equal amounts of goods and services C when social benefits are greater than private benefits D when social marginal benefit is greater than social marginal cost

Accepted Answer

A

Question 2

2 The transport authority in a city is considering building an underground railway to reduce traffic congestion on the roads. Which combination would represent an external cost and an external benefit of the use of this railway? external cost external benefit A compensation is paid to businesses foreign tourists pay to use the railway displaced by construction work B nearby residents suffer there are fewer admissions to noise from passing trains hospital as air quality improves C overtime payments are made to workers productivity increases as employees to finish building the railway on time arrive at work more punctually D reduced traffic means there are motorists spend less on fuel fewer road improvements needed

Accepted Answer

B

Question 3

3 The diagram shows the marginal private benefit (MPB), the marginal private cost (MPC) and the marginal social cost (MSC) of a firm producing chemicals. In a free market, price is at P1. price MSC MPC P2 P1 MPB O Q1 Q2 Q3 Q4 quantity Which quantity measures the overproduction of chemicals resulting in the negative production externality? A Q1,Q2 B Q1,Q3 C Q2,Q3 D Q3,Q4

Accepted Answer

C

Question 4

4 The diagram shows the market price and equilibrium quantity of coffee consumed by an individual, Jo. Jo buys X cups of coffee at $2 per cup when she visits her favourite café. supply price $ 2 demand 0 X Y quantity When she is there, the café owner says it is offering unlimited free refills. How is her consumption most likely to change? A Jo’s demand for coffee will increase from X to Y where her total utility for coffee is zero. B Jo’s demand for coffee will increase from X to Y where her marginal utility for coffee is zero. C Jo will not drink extra coffee because its marginal utility is less than $2. D Jo will not drink extra coffee because her total utility will fall.

Accepted Answer

B

Question 5

5 The diagram shows a consumer’s initial budget line is GH and a set of indifference curves IC1, IC2 and IC3 for goods R and S. The original equilibrium for the consumer is point X. The inflation rate is rising faster than money incomes. What will be the most likely new equilibrium for the consumer if all real income is spent? good R G B A X D IC2 IC1 C IC3 O H good S

Accepted Answer

D

Question 6

6 The diagram shows an individual’s budget lines and indifference curves. The initial budget line is JL. There is then an increase in the price of good Y. good X J I1 I2 O R S T K L good Y Which distance represents the substitution effect of the increase in price of good Y? A LK B SR C TS D TR

Accepted Answer

C

Question 7

7 In which type of market structure are commercial banks usually found? A perfect competition, because they all link their interest rates to that of the central bank B perfect competition, because they offer identical products and services C monopolistic competition, because a competitive market prevents them making excess profits D oligopoly, because they are affected by the actions of other banks

Accepted Answer

D

Question 8

8 The manufacture of some sports equipment is dominated by very large firms but there are also smaller firms in the industry. What enables a small firm to exist in such an industry? A high concentration ratio that reduces competition B high start-up costs that occur in a contestable market C decreasing average cost as a large firm expands D a requirement for personalised equipment

Accepted Answer

D

Question 9

9 The marginal cost curve of a firm passes through the lowest point of the firm’s A average fixed cost curve. B average variable cost curve. C marginal revenue curve. D total cost curve.

Accepted Answer

B

Question 10

10 What would definitely be abnormal profits? A the extra revenue received from the sale of a farmer’s land to a house-building firm B the extra revenue received by a firm from an unexpectedly large increase in demand C the total revenue from the sale of a firm’s products in excess of the total variable costs of the firm D the total revenue in excess of  total costs of the firm above the minimum needed to keep the firm in business in the long run

Accepted Answer

D

Question 11

11 The diagram shows the long-run average cost curves (LRAC) for a firm. costs LRAC1 Z W X LRAC2 Y O quantity Which combination of movements correctly describes each type of economy or diseconomy of scale? internal internal external economies diseconomies economies of scale of scale of scale A W to Y X to W Z to W B W to Y Y to W Z to W C X to Y W to Z W to Y D X to Y Y to X W to Y

Accepted Answer

C

Question 12

12 The diagram shows the cost and revenue curves for a monopoly market structure. price MC P1 P2 P3 MR AR O Q1 Q2 Q3 quantity A monopoly was producing at P1Q1 but changed its aim and now produces at P2Q2. What would not have caused this change? A It has stock it wants to sell. B It is concerned about new entrants. C It wants to benefit from greater economies of scale. D It wants to maximise profits.

Accepted Answer

D

Question 13

13 A government regards fresh fruit and vegetables as merit goods, and subsidises agriculture to boost their production. What could be a government failure arising from these subsidies? A cheaper fresh fruit and vegetables B land clearance reducing wildlife C lower spending on treating dietary illnesses D more jobs picking fruit and vegetables

Accepted Answer

B

Question 14

14 The table shows a firm that has four possible methods of production. Each method has a different cost and causes a different amount of pollution. The government decides that polluting firms must buy pollution permits that cost $90 each. Each permit allows the firm to emit 1 tonne of pollution. No pollution can be emitted without a permit. Which method of production has least total cost? cost of production pollution caused ($ per day) (tonnes per day) A 320 3 B 380 2 C 480 1 D 700 0

Accepted Answer

B

Question 15

15 The table shows the average incomes of the richest 20% of households and the poorest 20% of households in the UK (2015–2016), and the effects of government taxation and benefits on average income. average income average income (£) of (£) of richest 20% poorest 20% before taxes and benefits 85 000 7 000 after direct taxes and cash benefits 68 000 13 000 after all taxes (direct and indirect) and all benefits 63 000 17 000 What can be concluded from the information in the table? A The effects of direct taxation have affected the rich less than the poor. B The government’s policy achieved income equality across households. C The government redistributed all income taken from the rich to the poor. D The government’s policy reduced the income inequality between the poor and the rich.

Accepted Answer

D

Question 16

16 A fashion model is paid $500 000 a year. If the next best paid job he could get is as a teacher at $100 000 a year, what are his transfer earnings and his economic rent? transfer earnings economic rent $ $ A zero 400 000 B 100 000 400 000 C 400 000 zero D 400 000 100 000

Accepted Answer

B

Question 17

17 What would be the most likely effect of the imposition of a national maximum wage below the market equilibrium on the labour market for famous television celebrities? A a reduction in the number of jobs for television celebrities B an increase in other methods of rewarding television celebrities C greater movement of celebrities between television channels D increased employment of foreign television celebrities

Accepted Answer

B

Question 18

18 Which government measure is most likely to encourage faster and more sustainable economic growth in a country? A subsidies to firms using recycled materials in production B grants for the exploration and exploitation of new oil deposits C increased spending on environmental education in schools D tougher legislative controls on emissions of air and water pollution

Accepted Answer

A

Question 19

19 Which statement about National Income accounting is correct when Gross Domestic Product (GDP) is converted into Net National Income (NNI)? A An allowance for depreciation has to be made, because the NNI does not include output that replaces capital that has been used up. B Both GDP and NNI have to be calculated by the incomes method, because that is what NNI is measuring. C Double counting is not a problem if the conversion uses the output method, but it is when using the expenditure method. D The value of exports needs to be added, because exports generate income for citizens.

Accepted Answer

A

Question 20

20 Real GNP per capita is often used when comparisons of living standards are made between a developed and a developing country. What is not a good reason to question the accuracy of this comparison of living standards? A It is not possible to use price indices accurately when computing real figures because spending patterns are different. B People in developed countries enjoy very different amounts of leisure time to people in developing countries. C The extent of the unrecorded economy is very different in the two countries. D The purchasing power parity theory has been used to make comparisons.

Accepted Answer

D

Question 21

21 Based on the International Labour Office definition of unemployment, which individual is most likely to be classified as unemployed? A a single parent who would like to work but cannot afford to pay for child-care facilities B a teacher who has decided to retire permanently C a redundant steel worker who is not actively seeking alternative work D a student who is desperately seeking any weekend job to supplement his income

Accepted Answer

D

Question 22

22 What is most likely to lead to an increase in labour productivity? A encouraging women to enter the workforce B increasing automation C raising the retirement age D reducing the division of labour

Accepted Answer

B

Question 23

23 Which components of the Quantity Theory of Money are considered constant and which are considered variable? money velocity of price level transactions supply circulation A constant variable constant variable B constant constant variable constant C variable constant variable constant D variable variable constant variable

Accepted Answer

C

Question 24

24 Four students are asked to complete a table showing the aggregate demand equation and the multiplier formula for a closed economy without a government. Which student is correct? aggregate demand multiplier 1 A C  +  I marginal propensity to consume 1 B C  +  I marginal propensity to save 1 C C  +  I  –  S marginal propensity to consume 1 D C  +  I  –  S marginal propensity to save

Accepted Answer

B

Question 25

25 Keynesian and Monetarist economists believe different things about the way the economy works. Which combination is correct? Keynesian Monetarist A decreasing AD will always lead to economic growth is achieved an increase in economic growth using fiscal policy B increasing AD brings the the economy always tends to economy out of recession full employment in the long run C increasing AD will always lead economic growth is achieved to increased employment by cutting taxation D increasing AS brings the full employment will always economy out of recession be achieved in the long run

Accepted Answer

B

Question 26

26 The table shows real GDP and unemployment for an economy. economic indicators 2019 2021 real GDP ($ billions) 40 000 38 000 unemployment (millions) 2 3 What can be concluded from the data? A Demand-pull inflation is likely to increase. B Potential output is likely to increase. C The balance of payments deficit is likely to increase. D The budget deficit is likely to increase.

Accepted Answer

D

Question 27

27 The diagram shows data on various aspects of four countries. Which country is likely to be most developed? % of population in rural areas key country A country B country C country D average years life expectancy of schooling at birth (years) GDP per capita (US$ PPP)

Accepted Answer

A

Question 28

28 What is illustrated by the Laffer curve? A As income increases, fewer hours will be worked. B As income increases, tax revenue will increase. C As the tax rate increases, tax revenue always increases. D As the tax rate increases, tax revenue will eventually fall.

Accepted Answer

D

Question 29

29 A government decides to increase direct taxation. Which combination would describe the impact of this policy on unemployment, growth and balance of payments? unemployment growth balance of payments A improves improves improves B improves improves worsens C worsens worsens improves D worsens worsens worsens

Accepted Answer

C

Question 30

30 How will inflation and unemployment most likely be affected by a rise in the rate of income tax if government expenditure does not change? inflation unemployment A falls rises B falls falls C rises rises D rises falls

Accepted Answer

A

Cambridge A Level Economics 9708 — 2022 Oct/Nov Paper 3 · Variant 3

Question paper12 pages

Mark scheme3 pages

Questions as text

Q1 · When is Pareto efficiency achieved?

Q2 · The transport authority in a city is considering building an underground railway to…

Q3 · The diagram shows the marginal private benefit (MPB), the marginal private cost (MPC) and…

Q4 · The diagram shows the market price and equilibrium quantity of coffee consumed by an…

Q5 · The diagram shows a consumer’s initial budget line is GH and a set of indifference curves…

Q6 · The diagram shows an individual’s budget lines and indifference curves

Q7 · In which type of market structure are commercial banks usually found?

Q8 · The manufacture of some sports equipment is dominated by very large firms but there are…

Q9 · The marginal cost curve of a firm passes through the lowest point of the firm’s A average…

Q10 · What would definitely be abnormal profits?

Q11 · The diagram shows the long-run average cost curves (LRAC) for a firm

Q12 · The diagram shows the cost and revenue curves for a monopoly market structure

Q13 · A government regards fresh fruit and vegetables as merit goods, and subsidises…

Q14 · The table shows a firm that has four possible methods of production

Q15 · The table shows the average incomes of the richest 20% of households and the poorest 20%…

Q16 · A fashion model is paid $500 000 a year

Q17 · What would be the most likely effect of the imposition of a national maximum wage below…

Q18 · Which government measure is most likely to encourage faster and more sustainable economic…

Q19 · Which statement about National Income accounting is correct when Gross Domestic Product…

Q20 · Real GNP per capita is often used when comparisons of living standards are made between a…

Q21 · Based on the International Labour Office definition of unemployment, which individual is…

Q22 · What is most likely to lead to an increase in labour productivity?

Q23 · Which components of the Quantity Theory of Money are considered constant and which are…

Q24 · Four students are asked to complete a table showing the aggregate demand equation and the…

Q25 · Keynesian and Monetarist economists believe different things about the way the economy…

Q26 · The table shows real GDP and unemployment for an economy

Q27 · The diagram shows data on various aspects of four countries

Q28 · What is illustrated by the Laffer curve?

Q29 · A government decides to increase direct taxation

Q30 · How will inflation and unemployment most likely be affected by a rise in the rate of…

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