Cambridge IGCSE Economics 0455 — 2006 Oct/Nov Paper 3 · Variant 1

1 A government decides to spend more on defence and, therefore, cannot spend as much on improving the country’s infrastructure. What economic idea is illustrated by this decision? A budget surplus B monetary policy C opportunity cost D specialisation 2 Countries that have changed from command to market economies will expect to find an increase in A choice. B price control. C rationing. D subsidies. 3 What makes an industry capital-intensive? A It employs many unskilled workers. B It manufactures expensive products. C It occupies sites on cheap land. D It uses a large amount of equipment and a small labour force. 4 What is an example of the factor of production enterprise? A a shop assistant B a shop’s profits C a shop owner D a shopping centre 5 What makes Barclays Bank a public limited company? A It experiences economies of scale. B It has more than two directors. C It is quoted on the London Stock Exchange. D It operates in more than one country. 6 Why might a country’s central bank raise its interest rate? A to encourage saving B to increase the money supply C to raise funds for the government D to reduce the level of employment 7 A trade union is negotiating a wage rise for its members. What will increase the chance of the wage rise being granted? A The company’s product has many substitutes. B The economy is entering a period of recession. C The government has made strike action illegal. D Wages are a small part of the company’s costs. 8 The diagram shows a change in the demand for a company’s products as a result of a change in advertising. D1 S1 D2 price D1 S1 D2 O quantity What has increased? A the cost of advertising to the company B the cost of advertising to a rival company C the expenditure on advertising by the company D the expenditure on advertising by a rival company 9 The demand for and supply of a good both change. As a result the price of the good rises but the quantity traded remains the same. What must have happened to demand and supply? demand supply A fallen fallen B fallen risen C risen fallen D risen risen 10 In a market there is a shortage of a good. What change would cause the market to come to an equilibrium? A an increase in demand B a decrease in supply C a fall in price D a rise in price 11 The diagram shows the supply curve for a good. supply 4 price ($) 2 0 10 20 30 quantity (units) What is the price elasticity of supply when the price rises from $2 to $4? A 0.2 B 0.5 C 1 D 2

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