Cambridge A Level Economics 9708 — 2023 Oct/Nov Paper 3 · Variant 1

1 Economists normally assume that the marginal utility from consuming additional goods is positive and diminishing. What is the effect on total satisfaction of consuming extra units of the good? A Total satisfaction falls at a decreasing rate. B Total satisfaction falls at an increasing rate. C Total satisfaction rises at a decreasing rate. D Total satisfaction rises at an increasing rate.

Mark scheme: C

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2 A budget line (b–b) shows the combinations of two goods, X and Y, that a consumer can obtain within a fixed income of $60 per week, when the price of Y = $1 and X = $2. 60 b good Y b1 b2 b b3 b4 0 0 10 20 30 45 60 good X If the price of X rises to $3, what will be the new budget line? A b–b1 B b–b2 C b–b3 D b–b4

Mark scheme: B

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3 Which market structures are contestable? perfect monopolistic pure monopoly competition competition A no no yes B no yes yes C yes no no D yes yes no

Mark scheme: D

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4 The diagram shows a long-run average cost curve (LRAC), and three short-run average cost curves (SRAC1, SRAC2 and SRAC3) for an individual firm. Each short-run average cost curve represents a fixed factor of production. SRAC2 costs SRAC1 SRAC3 LRAC O L M output Between levels of output OL and OM, which statement is not correct? A Average fixed costs are falling. B Economies of scale are being experienced. C The law of diminishing returns is operative. D There are decreasing returns to scale.

Mark scheme: D

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

5 Which combination of reactions by rivals results in a kinked demand curve for an oligopolist when a price is changed? A copying both a price rise and a price fall B copying a price rise and ignoring a price fall C ignoring a price rise and copying a price fall D ignoring both a price rise and a price fall

Mark scheme: C

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6 What is a key condition for effective price discrimination? A The product cannot be resold to another consumer. B The product must be price inelastic. C The profits from one market can be used to subsidise another market. D There are low barriers to entry into the market.

Mark scheme: A

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7 Which combination of cost conditions is most likely to act as a barrier to entry to a new firm wanting to join an industry? fixed costs as minimum efficient level of a proportion of scale of firms in sunk costs total costs the industry A high high output high B high low output high C low high output low D low low output low

Mark scheme: A

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8 How is dynamic efficiency represented on a diagram? A a downward move to the minimum point of a long-run average cost curve B a downward shift in the long-run average cost curve C a move from a point inside a production possibility curve to a point on it D a reduction in marginal revenue so that it equals long-run marginal cost

Mark scheme: B

More questions on Efficiency and market failure

9 A city council is considering building a passenger terminal at its port so that the city can benefit from large cruise ships that could then dock there. It undertakes a cost–benefit analysis. What would be included as an external cost in the city council’s cost–benefit analysis? A the cost of a ticket for a passenger to travel on a cruise ship B the cost of fuel to operate the cruise ships C the costs paid by cruise ships when they dock at the port D the cost to a fishing fleet of relocating to another port

Mark scheme: D

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

10 Some multinational oil companies extracting oil in developing countries are now required to repair the damage they do to the environment. What best describes the total costs incurred by the oil companies in such circumstances? A external costs B private costs plus external costs C social costs plus external costs D social costs plus private costs

Mark scheme: B

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11 Which statement is not an example of government failure? A government intervention leading to a less efficient allocation of resources B government intervention leading to a net loss of economic welfare C government intervention leading to an increase in consumer surplus D government intervention leading to social costs exceeding social benefits

Mark scheme: C

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

12 The diagram shows the demand for and supply of labour. wage SL W1 X We Z Y DL O N2 N1 quantity of labour The government announces a minimum wage of W1. Which area represents the increase in the economic rent of workers who will continue to be employed at the minimum wage? A X B Y C X + Y D X + Y + Z

Mark scheme: A

More questions on Labour market forces and government intervention

13 A firm is faced with a shortage of labour. It decides to introduce its own training scheme for school leavers. Which effect is this most likely to have on the firm? A a decrease in the number of workers it employs B a decrease in the productivity of its workforce C an increase in the geographical mobility of its labour D a shift of the supply curve for its labour to the right

Mark scheme: D

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14 What is likely to result if a government introduces a new regressive tax? A Aggregate demand will increase. B Employment opportunities will increase. C Income equality will improve. D Tax revenues will increase.

Mark scheme: D

More questions on Equity and redistribution of income and wealth

15 Which government policy to counter the effects of income inequality is correctly matched with one of its advantages and one of its disadvantages? policy advantage of policy disadvantage of policy A food subsidies for the poor targets those in need high administrative costs B higher national minimum wage encourages skill training higher budget deficit C provision of free child care increases employability disincentive to work D universal monetary benefits saves on bureaucracy reduced labour mobility

Mark scheme: A

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16 Under which circumstances will a subsidy from the government be most beneficial if there are externalities from producing good X? externality caused price elasticity of by good X demand of good X A negative <1 B negative >1 C positive <1 D positive >1

Mark scheme: D

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17 What might decrease if a closed economy with a government sector decides to allow international trade? A components of aggregate expenditure B number of injections into the circular flow of income C number of leakages from the circular flow of income D value of the economy’s multiplier

Mark scheme: D

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18 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

Mark scheme: A

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19 Which policy to counter climate change is considered to be regulatory rather than market based? A the introduction of carbon taxes on pollution B the operation of tradable pollution permits C the provision of government subsidies D the setting of industrial emission standards

Mark scheme: D

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20 Which cause of economic growth is most likely to ensure that the growth is sustainable? A deregulation of industrial production that uses mineral resources and fossil fuel B increased government spending on environmental education, financed through taxes on harmful goods C increased trade barriers on imports to protect domestic jobs and incomes D reduced planning regulations to encourage construction in areas of natural beauty

Mark scheme: B

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21 In all major towns in a country, a government adopts a policy of opening centres where job vacancies are advertised. Which type of unemployment is the government aiming to reduce with this policy? A cyclical B frictional C regional D seasonal

Mark scheme: B

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22 What is the basic assumption underlying the accelerator theory? A Investment depends on the level of business confidence. B Investment depends on the level of savings. C Investment depends on the rate of change in national income. D Investment depends on the rate of change of interest rates.

Mark scheme: C

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23 What shows the correct outcome for the policy option? policy option outcome A depreciation of the exchange rate encourages more exports, which also means greater employment B higher interest rates attracts hot money inflows, and is an incentive for more consumer spending C decreased government spending more workers will be employed, and more imports will be bought D reduction in income taxes increases consumer spending, with increased demand for exports

Mark scheme: A

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24 The Laffer curve shows expected tax revenues at different tax rates. R1 tax R2 revenue 0 50 60 tax rate / % An increase in the tax rate above 50% is expected to decrease tax revenue. What is the reason for this? A decreased incentive for emigration B decreased incentive for tax evasion C increased incentive for people to work D increased incentive for people to work fewer hours

Mark scheme: D

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25 A government wishes to improve the income distribution between the richest and poorest in society. It introduces means tested benefits for workers on low incomes. To pay for this, income tax rates for the highest paid will increase. What is the most significant strength and weakness of this policy approach? strength weakness A benefits are only given poor non-workers to those in need will be no better off B intergenerational tax avoidance equity is improved is more likely C workers will be encouraged to taxation has become work more hours more regressive D the policy approach will be wealth distribution will be affected efficient to operate more than income distribution

Mark scheme: A

More questions on Equity and redistribution of income and wealth

26 The table shows data on the unemployment and inflation rates for four countries in 2010 and 2014. unemployment rate inflation rate country (% of workforce) (% per annum) 2010 2014 2010 2014 Australia 5.2 6.1 2.7 1.6 Canada 8.0 6.9 2.2 1.9 Japan 5.1 3.6 –0.3 2.5 United States 9.6 6.2 1.7 0.6 Which countries had a typical Phillips curve? A Australia and Japan B Australia only C Japan only D Canada and the United States

Mark scheme: A

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27 Which adjustment is made to gross domestic product (GDP) to calculate a measure of economic welfare (MEW)? environmental the value of the value of costs and leisure activity unpaid work benefits A no no yes B yes no no C yes yes no D yes yes yes

Mark scheme: D

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28 Purchasing power parity (PPP) allows a comparison of the purchasing power in two countries. What is a definition of PPP? A the amount of the domestic currency needed to purchase a unit of foreign currency B the quantity of a currency required to purchase the same basket of goods in both countries C the quantity of goods and services that can be purchased by a person on an average income D the value of expenditure by households on goods and services in a country

Mark scheme: B

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29 A Lorenz curve measures the income distribution in a country. The further the Lorenz curve is from the line of absolute equality, the greater the level of inequality. 100 cumulative line 1 percentage line of of income absolute equality line 2 F G H 0 0 100 cumulative percentage of households What is the value of the Gini coefficient when the Lorenz curve is at line 2? F + G F + G G H A B F + G + H C G + H D F + G + H H

Mark scheme: B

More questions on Equity and redistribution of income and wealth

30 The turning point on the Kuznets curve for income inequality has been estimated to be in the region of US$10 500. For a country that has a GDP per capita of $8000, what is most likely? A A reduction in GDP per capita will have no effect on income inequality. B A reduction in GDP per capita will increase income inequality. C An increase in GDP per capita will have no effect on income inequality. D An increase in GDP per capita will increase income inequality.

Mark scheme: D

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