Cambridge A Level Economics 9708 — 2023 May/June Paper 3 · Variant 3

1 What does the marginal utility diagram show? utility O X Y Z quantity marginal utility A Total utility becomes negative if the quantity consumed increases from Y to Z. B Total utility decreases if the quantity consumed increases from X to Y. C Total utility decreases if the quantity consumed increases from Y to Z. D Total utility is maximised at X.

Mark scheme: C

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2 The initial allocation of goods between three consumers is shown. consumer 1 consumer 2 consumer 3 total 2 5 10 17 Which row shows a Pareto improvement in the allocation of goods between consumers? consumer 1 consumer 2 consumer 3 total A 2 5 11 18 B 4 5 9 18 C 4 4 10 18 D 6 6 6 18

Mark scheme: A

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3 Which assumption in relation to an indifference theory diagram is not correct? A The consumer’s income may change. B The consumer may change their satisfaction-maximising objective. C The consumers may change their tastes and preferences. D The relative prices of products may change.

Mark scheme: B

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4 Which type of efficiency is shown by the shift from long-run average cost curve 1 (LRAC1) to long-run average cost curve 2 (LRAC2)? price LRAC1 LRAC2 O quantity A allocative B dynamic C Pareto D productive

Mark scheme: B

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5 A firm wishes to maximise its revenue. Which condition must be met to achieve this goal? A average cost = average revenue B marginal cost = average revenue C marginal cost = marginal revenue D marginal revenue = zero

Mark scheme: D

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6 The costs and revenue of four firms operating in a monopolistically competitive market are shown. total total total firm variable cost fixed cost revenue $m $m $m W 20 10 15 X 40 50 80 Y 300 300 500 Z 600 100 550 Which firms will continue to operate in the short run but will shut down in the long run? A X and W B X and Y C W and Z D Y and Z

Mark scheme: B

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7 A firm at its current level of production finds that its short-run marginal cost is less than its short-run average variable cost. Which conclusion about the firm can be drawn from this information? A Average variable cost is constant. B Average variable cost is falling. C Average variable cost is greater than its average total cost. D Average variable cost is rising.

Mark scheme: B

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

8 Steel producer X takes over its main competitor, steel producer Y. What would X expect to happen to the price elasticity of demand for its product and its long-run average cost as a result of this takeover? price elasticity long-run of demand average cost A decrease decrease B decrease increase C increase decrease D increase increase

Mark scheme: A

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9 What is an example of an external cost? A distribution costs B energy costs C labour costs D road congestion costs

Mark scheme: D

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

10 The diagram shows the demand for and supply of a good and the marginal social costs (MSC) for that good. MSC costs, revenue S y x z w D O Q output Assuming there are no external benefits, which area measures the net social benefit at output OQ? A x B x – y C x + y D x – y – z

Mark scheme: B

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11 What would definitely result from the divorce of ownership and control? A decreased moral hazard B the principal agent problem C greater productive efficiency D increased profit maximisation

Mark scheme: B

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12 One reason for market failure is the existence of public goods. Which policy option is appropriate for addressing such a market failure? A direct provision of the good by the government B provision of detailed information to consumers C subsidising firms that currently produce the good D the adoption of maximum price controls

Mark scheme: A

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

13 In 2020, the governor of California issued an order to ban the sale of new vehicles from 2035 that are powered by petrol or diesel fuel. Which type of government policy is this? A a nudge B a permit to pollute C nationalisation D regulation

Mark scheme: D

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14 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

Mark scheme: B

More questions on Labour market forces and government intervention

15 Economics textbooks state that labour is a derived demand for a firm in imperfect competition. How is the demand curve for labour derived? A by multiplying the average physical product by the average revenue B by multiplying the average physical product by the marginal revenue C by multiplying the marginal physical product by the marginal cost D by multiplying the marginal physical product by the marginal revenue

Mark scheme: D

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16 The diagram shows the Lorenz curves for Norway (N) and India (I). 100 cumulative percentage line of of income perfect equality N I 0 0 100 cumulative percentage of households What can be concluded from a comparison of the Lorenz curves? A India is more likely to have lower indirect taxes and a public sector education system than Norway. B India is more likely to have a progressive income tax system and means tested benefits than Norway. C Norway is more likely to have a progressive tax system and public sector pensions than India. D Norway is likely to have a higher percentage of tax generated from indirect taxes and privately funded pensions than India.

Mark scheme: C

More questions on Equity and redistribution of income and wealth

17 A reason for government intervention in the workings of the economy is to attempt to correct a market failure. Sometimes, though, government failure may occur. What is not a possible reason for government failure? A Governments may have to make decisions on the basis of out-of-date information. B Governments may make decisions that reduce negative externalities. C The extent of the market failure may be difficult to judge. D When circumstances change, a government may be unable to respond quickly.

Mark scheme: B

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18 A government wishes to support growth in the economy’s fishing industry. Which policy is likely to achieve sustainable growth in the fishing industry? A giving more modern fishing boats with larger nets to workers who fish for a living B paying bonus payments for larger fish catches to workers who fish for a living C setting up a fish cooperative so that workers who fish for a living receive a higher price for the fish that they catch D subsidising the building of a fish farm in order to encourage workers who fish for a living to switch from sea fishing

Mark scheme: D

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19 Four citizens have each been unemployed for the past six months. Which citizen would not be characterised as being structurally unemployed? A worked as a coal miner but coal-fired power stations are now being closed and is not willing to retrain B no longer works in a town centre coffee shop because fewer people are buying goods in the town centre since a pandemic C cannot move with the firm that has relocated because of changing demand for its products D has many skills and is waiting to decide which job might be the most suitable

Mark scheme: D

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20 In the diagram, OP is the equilibrium level of income and OQ is the full employment level of income in a closed economy. expenditure V U C + I + G T C + I R C 45° O P Q income What is the deflationary gap? A PQ B RV C TV D UV

Mark scheme: D

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21 What is the most effective policy a government could introduce to reduce frictional unemployment? A cut welfare spending on benefits B improve information about job vacancies C reduce tax rates D raise interest rates

Mark scheme: B

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22 In a closed economy with no government sector, when will an increase in investment spending generate the largest increase in equilibrium national income? A when households have a high level of autonomous consumption B when households have a high level of compulsory saving C when households have a high marginal propensity to consume D when households have a high marginal propensity to save

Mark scheme: C

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23 Which combination of policies is most likely to increase output? fiscal policy monetary policy A decrease budget deficit decrease interest rates B decrease budget deficit increase interest rates C increase budget deficit decrease interest rates D increase budget deficit increase interest rates

Mark scheme: C

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24 A country is a net importer of oil. World oil prices have risen over the year. Assuming that all other factors remain the same, how is this likely to affect inflation, trade balance and unemployment in this country? inflation trade balance unemployment A decrease no change increase B increase improve decrease C increase worsen increase D decrease no change decrease

Mark scheme: C

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25 What would reduce the effectiveness of a supply-side stimulus to the economy? A an imposition of maximum hours in a working week B an increase in public sector spending C the provision of new training schemes D the relaxation of import controls on raw materials

Mark scheme: A

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26 A multinational company (MNC) shifts its manufacturing capacity to a developing country. What is likely to be the short-run effect of this in the developing country? short-run balance employment investment of payments increases increases current account improves A no no yes B no yes no C yes no yes D yes yes no

Mark scheme: D

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27 To indicate the changing income distribution, the Kuznets curve plots gross domestic product per capita against an economic variable X. What is variable X? A the exchange rate B the level of income inequality C the price level D the rate of interest

Mark scheme: B

More questions on Characteristics of countries at different levels of development

28 Economists define the unemployed as being those who are not in work but are actively seeking work. Other groups of people in the population of working age include those classed as inactive or self-employed. Which groups of people are included as part of a country’s labour force? unemployed inactive self-employed A no no no B yes no yes C yes yes no D no yes yes

Mark scheme: B

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29 The table shows some United Nations population statistics for 2010 and estimates for 2050. total total urban urban population population type of region population population population population urbanised urbanised (m) 2010 (m) 2050 (m) 2010 (m) 2050 (%) 2010 (%) 2050 more developed 1237 1275 930 1100 75 86 less developed 5671 7875 2556 5186 45 66 least developed 855 1673 249 914 29 55 Which relationship can be confirmed from the table? A The least developed regions have the largest urban populations, actual or predicted, in both years. B The more developed regions have the lowest growth rate of urbanisation between 2010 and 2050. C The type of region with the greatest total population in 2010 is predicted to have the greatest rate of population growth by 2050. D The type of region with the greatest urban population in 2010 is predicted to have the highest level of urbanisation by 2050.

Mark scheme: B

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30 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 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)

Mark scheme: A

More questions on Equity and redistribution of income and wealth