Cambridge A Level Economics 9708 — 2025 Feb/March Paper 3 · Variant 2

Question 1

1 Which cost will continually decrease as a firm’s output increases in the short run? A average cost B average fixed cost C average variable cost D marginal cost

Accepted Answer

B

Question 2

2 What is an example of market failure? A a firm incurring a loss by selling goods at prices below the average cost B a guaranteed price that results in the accumulation of unsold stocks C low income earners being unable to buy high-priced goods D under-provision of a socially desirable good

Accepted Answer

D

Question 3

3 What is likely to prevent the development of an effective cartel in an industry? A a high concentration ratio B a limit-pricing policy C high fixed costs D low barriers to entry

Accepted Answer

D

Question 4

4 The diagram shows a firm’s cost and revenue curves. The firm changes its objective from profit maximising to revenue maximisation. MC price Z X Y AR = P = D O MR quantity Which area on the diagram will show the increase in total revenue? A X + Y + Z B Y C Y + Z D Z

Accepted Answer

B

Question 5

5 Which statement about the downward sloping demand curve of an inferior good is correct? A Negative income effect and substitution effect move in opposite directions, leading to a steeper demand curve. B Negative income effect and substitution effect move in the same direction, leading to a flatter demand curve. C Positive income effect and substitution effect move in opposite directions, leading to a steeper demand curve. D Positive income effect and substitution effect move in the same direction, leading to a flatter demand curve.

Accepted Answer

A

Question 6

6 The diagram shows the private and social costs and benefits of production in a free market that result in market failure. MSC costs, benefits MPC MSB MPB O K L M N output Which change in output would be necessary to overcome this market failure? A from K to M B from M to N C from M to L D from N to L

Accepted Answer

C

Question 7

7 A profit-maximising monopoly makes an abnormal profit and decides to reinvest some of this profit to improve its capital stock. What are the most likely outcomes from this change? allocative dynamic productive efficiency efficiency efficiency A improves improves improves B unchanged improves improves C improves unchanged unchanged D unchanged unchanged improves

Accepted Answer

B

Question 8

8 What is not an example of government failure? A decreased maximum price causing producers to leave the market B higher guaranteed price encouraging suppliers to overproduce C increased minimum wage leading to employers dismissing workers D increased subsidies encouraging the consumption of a socially desirable product

Accepted Answer

D

Question 9

9 When does a more equal distribution of income occur? A when a country’s income tax system is made more progressive B when someone is made better off without making someone else worse off C when the best use is made of scarce resources D when there is an increase in the Gini coefficient

Accepted Answer

A

Question 10

10 What is not a reason for imposing a tax on producers based on the amount of pollution caused in the production process? A Firms have a financial incentive to reduce pollution. B It is relatively hard to administer and monitor this tax scheme. C Some firms cause less pollution than others. D Taxes on pollution reduce negative production externalities.

Accepted Answer

B

Question 11

11 A government introduced a tax on soft drinks containing sugar. It was forecast that the tax would raise £520m per year for the government. However, the tax received was £240m. What is the most likely reason why the tax collected was lower than forecast? A a specific tax instead of an ad valorem tax was introduced B fewer drinks than originally forecast contained sugar C most retailers did not increase the price of soft drinks D the demand for soft drinks was price inelastic

Accepted Answer

B

Question 12

12 A government’s aim is to reduce real wage rates. Which policy should be used to achieve this aim? A Award public sector workers pay increases below the rate of inflation. B Encourage private sector pay awards to be in line with company profits. C Introduce a minimum hourly wage for non-unionised, low-paid workers. D Remove any restrictions on trade unions to bargain for wages.

Accepted Answer

A

Question 13

13 How is marginal revenue product calculated? A marginal physical product × marginal revenue B marginal physical product ÷ price C total physical product × marginal cost D total physical product ÷ marginal cost

Accepted Answer

A

Question 14

14 A teacher currently earns $30000. She would be willing to continue in that teaching job, provided she earned at least $25000. Also, she would prefer to remain a teacher than change to her next best alternative employment as an accountant where she could earn $40000. Which statement is correct? A Her economic rent as a teacher is $5000. B Her economic rent as an accountant is $10000. C Her transfer earnings as a teacher are $30000. D Her transfer earnings as an accountant are $15000.

Accepted Answer

A

Question 15

15 What does the accelerator principle explain? A how changes in consumption lead to changes in income B how changes in income lead to changes in consumption C how changes in income lead to changes in investment D how changes in investment lead to changes in income

Accepted Answer

C

Question 16

16 The diagram shows an economy’s production possibility curve. output of capital Y goods X O output of consumer goods What causes a movement from point X to point Y? A a positive output gap B a recession C actual economic growth D potential economic growth

Accepted Answer

C

Question 17

17 In the quantity theory of money equation, MV = PT, V is defined as the income velocity of circulation. Which change would tend to reduce the value of V? A a move to monthly rather than weekly salary payments by firms B an increase in interest rates C an increase in the use of cash machines to reduce money balances held D a decrease in the use of credit cards by individuals

Accepted Answer

A

Question 18

18 What is likely to improve the occupational mobility of labour? A a decrease in income tax that increases aggregate demand B a decrease in unemployment benefit C an increase in retraining schemes for the unemployed D more advertising of employment vacancies in the economy

Accepted Answer

C

Question 19

19 The diagram shows a closed economy with no government. It is in initial equilibrium when the national income is $1000 million. 45° planned C + I expenditure C = 100 + 0.8Y $million I = 100 0 500 1000 national income $million If the full employment national income occurs at $800 million, what is the value of the inflationary gap? A $40 million B $160 million C $260 million D $840 million

Accepted Answer

A

Question 20

20 If prices increase in country X but stay the same in country Y, what will be the most likely impact on the internal and external value of money in country X? internal value external value of money of money A falls falls B falls rises C rises falls D rises rises

Accepted Answer

A

Question 21

21 Which policy may increase economic growth without causing inflation? A giving subsidies to producers B increasing government spending C lowering direct taxes D lowering interest rates

Accepted Answer

A

Question 22

22 The current account on the balance of payments moves into deficit. What is a possible reason for this? A a decrease in tax revenue B export-led growth C repayment of debts to other countries D the import of new technology

Accepted Answer

D

Question 23

23 Which policy would not lead to an increase in the value of a country’s currency? A an increase in domestic inflation B an increase in domestic interest rates C an increase in incomes abroad D an increase in tourists visiting the country

Accepted Answer

A

Question 24

24 In an economy with unemployed resources the marginal propensity to consume is 0.2. The government increases its budget deficit and finances it by selling bonds to the non-bank private sector. What is the likely consequence of this? A The currency will depreciate, increasing exports and reducing the trade deficit. B The increase in real output will be limited as the value of the multiplier is low. C The money supply will fall, leading to a reduction in aggregate demand. D There will be a decrease in the rate of interest, causing demand-pull inflation.

Accepted Answer

B

Question 25

25 Which components are included in the current account and financial account of the balance of payments? current account financial account A official reserve assets and trade in services and transactions trade in goods in official reserve assets B primary income and official reserve assets and trade in goods secondary income C trade in goods and foreign direct investment and trade in services secondary income D trade in services and portfolio investment and secondary income official reserve assets

Accepted Answer

D

Question 26

26 The graph plots the Gini coefficient and GDP per head for three countries, X, Y and Z. What can be concluded from the graph? 0.75 Y Gini coefficient X 0.50 Z 0.25 0 GDP per head A Average incomes are higher in country X than in country Z. B Country X is the least developed country. C Income is equally distributed in country Y. D The distribution of income in country Y is more even than in country X.

Accepted Answer

B

Question 27

27 What is least likely to lead to an increase in optimum population? A an improvement in labour productivity B an improvement in the quality of capital and technology C an increase in birth rate and a fall in death rate D an increase in the availability of natural resources

Accepted Answer

C

Question 28

28 What is not included as a weighted indicator of poverty in the Multidimensional Poverty Index (MPI)? A cooking fuel B electricity C medication D water

Accepted Answer

C

Question 29

29 Which role is performed by the World Bank but not by the International Monetary Fund (IMF)? A facilitating free trade among member countries B providing assistance to member countries to plan fiscal policies C providing bailout packages to countries facing external account challenges D providing monetary assistance to member countries to build infrastructure

Accepted Answer

D

Question 30

30 Some economists argue there is little evidence of the value of aid in improving economic development in less-developed countries. Which situation supports this claim? A Capacity to benefit from transfer of communications technology has increased. B Investment in infrastructure has created transport links and port facilities. C Over-reliance on technical assistance has impaired local initiatives and innovation. D Projects for education and training have helped to enhance the supply side.

Accepted Answer

C

Cambridge A Level Economics 9708 — 2025 Feb/March Paper 3 · Variant 2

Question paper12 pages

Mark scheme3 pages

Questions as text

Q1 · Which cost will continually decrease as a firm’s output increases in the short run?

Q2 · What is an example of market failure?

Q3 · What is likely to prevent the development of an effective cartel in an industry?

Q4 · The diagram shows a firm’s cost and revenue curves

Q5 · Which statement about the downward sloping demand curve of an inferior good is correct?

Q6 · The diagram shows the private and social costs and benefits of production in a free…

Q7 · A profit-maximising monopoly makes an abnormal profit and decides to reinvest some of…

Q8 · What is not an example of government failure?

Q9 · When does a more equal distribution of income occur?

Q10 · What is not a reason for imposing a tax on producers based on the amount of pollution…

Q11 · A government introduced a tax on soft drinks containing sugar

Q12 · A government’s aim is to reduce real wage rates

Q13 · How is marginal revenue product calculated?

Q14 · A teacher currently earns $30000

Q15 · What does the accelerator principle explain?

Q16 · The diagram shows an economy’s production possibility curve

Q17 · In the quantity theory of money equation, MV = PT, V is defined as the income velocity of…

Q18 · What is likely to improve the occupational mobility of labour?

Q19 · The diagram shows a closed economy with no government

Q20 · If prices increase in country X but stay the same in country Y, what will be the most…

Q21 · Which policy may increase economic growth without causing inflation?

Q22 · The current account on the balance of payments moves into deficit

Q23 · Which policy would not lead to an increase in the value of a country’s currency?

Q24 · In an economy with unemployed resources the marginal propensity to consume is 0.2

Q25 · Which components are included in the current account and financial account of the balance…

Q26 · The graph plots the Gini coefficient and GDP per head for three countries, X, Y and Z

Q27 · What is least likely to lead to an increase in optimum population?

Q28 · What is not included as a weighted indicator of poverty in the Multidimensional Poverty…

Q29 · Which role is performed by the World Bank but not by the International Monetary Fund…

Q30 · Some economists argue there is little evidence of the value of aid in improving economic…

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