CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level

ECONOMICS
PAPER 3 Multiple Choice (Extension)

9708/3
MAY/JUNE SESSION 2002
1 hour

Additional materials: Multiple choice answer sheet Soft clean eraser Soft pencil (type B or HB is recommended)

TIME

1 hour

INSTRUCTIONS TO CANDIDATES Do not open this booklet until you are told to do so. Write your name, Centre number and candidate number on the answer sheet in the spaces provided unless this has already been done for you. There are thirty questions in this paper. Answer all questions. For each question there are four possible answers, A, B, C and D. Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet. Read very carefully the instructions on the answer sheet. INFORMATION FOR CANDIDATES Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet.

This question paper consists of 12 printed pages.
SP (KN/SLC) S23100/2 © CIE 2002

http://www.xtremepapers.net

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2 1 Which condition defines productive efficiency? A B C D All factors of production are fully employed. All firms are producing at their profit maximising levels of output. The output of all goods is produced at minimum cost. There are no further opportunities for substituting capital for labour.

2

The diagram shows a firm’s cost and revenue curves. At which level of output will the firm be making only normal profit?

marginal cost average cost revenue/cost

average revenue

O

A

BC quantity

D marginal revenue

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3 3 The table shows the marginal utility derived by a consumer who devotes the whole of his weekly income of $32 to two goods X and Y, whose unit prices are $2 and $4 respectively.

unit

marginal utility of X (units) 9 8 7 6 5 4 3 2

marginal utility of Y (units) 28 26 24 22 20 18 16 14

1 2 3 4 5 6 7 8

In order to maximise his utility, which quantities of X and Y should the consumer purchase? X A B C D 2 4 6 8 Y 7 6 4 3

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4 4 The diagram shows a consumer’s budget line PQ when the consumer’s income was $20 per day and the prices of X and Y were $2 and $1.25 respectively.

Y

16 P 12 R

Q 0 10

S 20 X

The consumer’s income increases to $30 and, at the same time, the prices of X and Y change. If the consumer’s budget line is now RS, what are the new prices of X and Y? X A B C D $1.50 $1.80 $2.50 $3.00 Y $2.50 $1.00 $1.50 $2.50

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5 5 In the diagram, the curve shows the various combinations of labour and capital that can be employed to produce a given volume of output. A firm initially chooses the combination of labour and capital shown by point X on the curve. In a subsequent period the firm chooses the combination of labour and capital shown by point Y.

X labour Y

O

capital

What could explain this change? A B C D a decrease in capital productivity an increase in labour productivity an increase in the cost of labour an increase in the cost of capital

6

What could cause a perfectly competitive firm’s marginal revenue product of labour curve to shift to the right? A B C D an increase in wages a higher rate of sales tax an increase in labour supply a rise in the price of the final product

7

The workers in a firm have not previously belonged to a trade union but now join one. In which circumstance is this most likely to raise their wages? A B C D Capital is highly substitutable for labour. Labour costs constitute a large fraction of the firm’s costs. The demand for the firm’s product is price-elastic. The firm has enjoyed monopsony power in the market for its labour.

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6 8 Which of the following is an assumption underlying the kinked demand curve in oligopoly? A B C D A firm will increase its price in response to a price increase by a rival. A firm will not match a price cut by a rival. Consumers are less sensitive to price increases than price decreases. Rivals are expected to match any reduction in price.

9

What is the essential feature of a contestable market? A B C D ease of entry and exit interdependence between firms large number of buyers and sellers product homogeneity

10 A firm earns supernormal profit when its profit is above that A B C D earned by competing firms. needed to cover its fixed costs. needed to keep the firm in production in the short run. required to keep its resources in their present use.

11 A firm is producing at the level of output at which its average variable cost is equal to its marginal cost. What will happen initially to its average variable cost and to its average total cost if it increases its output? average variable cost A B C D decreases decreases increases increases average total cost decreases increases decreases increases

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7 12 The table below shows the relationship between total output and total costs of a firm given constant factor prices and fixed factor proportions. output 100 200 300 400 500 costs ($) 80 180 300 440 600

It follows that, over this range of output, the firm experiences A B C D decreasing returns for output between 100 and 300 and increasing returns for output larger than 300. increasing returns for output between 100 and 300 and decreasing returns for output larger than 300. decreasing returns throughout. increasing returns throughout.

13 Which of the following characteristics is most likely to be present when collusion occurs between firms in an industry? A B C D low barriers to entry a large number of firms the absence of significant economies of scale product homogeneity

14 A firm produces only one product. Under which condition is it most likely to be able to pursue a policy of price discrimination? A B C D Both price and marginal revenue are identical in all markets. It is benefiting from economies of scale. Its product has a low elasticity of demand. There are separate and distinct markets for its product.

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8 15 The diagram shows the cost and revenue curves of a profit-maximising monopolist. There was an increase in the income velocity of circulation. the nominal value of a country’s national income increased by 20% and the rate of inflation was 10%. revenue y z w AR MR O A B C D x+y y y+z w+y+z output AC 16 Which of the following elements of a tax and benefits system is regressive? A B C D the taxation of capital gains the payment of child benefits to families specific taxes on beer and tobacco rent subsidies to tenants of publicly owned housing 17 Over a given period. Which of the following statements is correct? A B C D There was an increase in the volume of output. The country’s money supply increased by 10%. Which area measures the deadweight loss arising from the exercise of monopoly power? MC x cost. There was a reduction in the demand for money. 9708/3/M/J/02 .

Commercial bank lending to the private sector is held constant. Their population growth rates are different. a reduction in interest rates.1 B 1.9 and the average propensity is 0. be a poor indicator of their comparative standards of living? A B C D Their exchange rates are different from purchasing power parities. The rate of interest is held constant.9 18 In which circumstance will an increase in the public sector deficit not lead to an increase in the money supply. One reason for this is that a reduction in the average price level will lead to A B C D a reduction in the real value of money balances. the expectation of further price falls. 20 Which of the following is not a leakage from the circular flow of income? A B C D corporation tax expenditure on foreign goods personal saving retirement pensions 21 The marginal propensity to consume in a country is 0. other things being equal? A B C D The deficit is financed by an increase in government borrowing from private individuals.25 C 5 D 10 22 An aggregate demand curve slopes downwards from left to right. Their rates of inflation are different.8. measured in US$. a decline in the country’s international competitiveness. Their ratios of imports to national income are different. 19 Why might GNP per capita of different countries. There is large-scale unemployment. 9708/3/M/J/02 [Turn over . What is the value of the multiplier? A 1.

10 23 The diagram shows the aggregate demand and aggregate supply curves for an economy. LP1 LP2 M rate of interest r2 r1 O quantity of money What could cause the rise in the rate of interest from r1 to r2? A B C D an increase in national income an increase in the money supply a reduction in investment expenditure a reduction in the loans made by the private sector 9708/3/M/J/02 . AD AS2 AS1 price level O output What could cause the aggregate supply to shift from AS1 to AS2? A B C D an increase in the balance of payments deficit an increase in the price level an increase in raw material costs an increase in labour market flexibility 24 The diagram shows the determination of the rate of interest in the economy where M represents the money supply and LP represents liquidity preference.

compared to the initial position.11 25 Which of the following combinations is usually found in less developed economies? low A B C D capital:output ratio external debt population growth saving ratio high saving ratio capital:output ratio external debt population growth 26 An economy is operating initially at its natural rate of unemployment. what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run A B C D no change no change reduction reduction long run no change reduction no change reduction 27 What is likely to increase a country’s actual output but may reduce its long-run rate of growth of potential output? A B C D an increase in the size of the labour force increased government spending on education an increase in the size of the government’s budget deficit increased female participation in the labour force 9708/3/M/J/02 [Turn over . According to monetarist theory.

12 28 A country has a floating exchange rate. If the central bank adopts a zero inflation target. The government decides to make the central bank independent with the power to determine monetary policy. full employment and an expansionary fiscal policy. what is likely to happen to interest rates and the exchange rate? interest rates A B C D fall fall rise rise exchange rate fall rise fall rise 29 Which measure could be expected to reduce the pressure of demand-pull inflation in an open economy? A B C D a depreciation of the foreign exchange rate a reduction in interest rates a reduction in the rate of tax on goods and services a removal of import controls 30 What is most likely to increase as a result of a rise in interest rates in a country? A B C D the level of house prices the inflow of short-term foreign capital the level of private investment the return on capital investment 9708/3/M/J/02 .

Any rough working should be done in this booklet. glue or correction fluid.net . Each correct answer will score one mark. There are thirty questions on this paper. C. This document consists of 12 printed pages. Ó CIE 2003 [Turn over www.CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Extension) May/June 2003 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 READ THESE INSTRUCTIONS FIRST Write in soft pencil. paper clips. For each question there are four possible answers A. B. and D. Centre number and candidate number on the answer sheet in the spaces provided unless this has been done for you. Do not use staples. Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet. Read the instructions on the answer sheet very carefully. Answer all questions. A mark will not be deducted for a wrong answer. highlighters. Write your name.xtremepapers.

The economy is operating at a point on its production possibility frontier.2 1 In an economy. What should the household do to maximise utility from the purchase of these fruits? purchase of bananas A B C D increase decrease increase no change purchase of apples decrease increase increase no change 9708/3 Jun03 www. The conditions for allocative efficiency have been met.net . no one can be made better off without making someone else worse off. A household makes the following purchases of fruit. The conditions for productive efficiency have been met. What does not necessarily follow from this? A B C D 2 The distribution of income is socially acceptable.xtremepapers.50 The household derives twice as much utility from the fifth kg of bananas as from the tenth kg of apples. fruit bananas apples quantity purchased (kg) 5 10 price per kg ($) 1.00 0.

Which diagram shows the effect of a fall in the price of X.3 3 The diagrams show a change in a consumer's budget line from an initial position of LL1 to LL2.net . money income remaining unchanged? A B L2 L all 1 other goods O units of X L L all other goods O L 2 L1 units of X C D L1 L all 2 other goods O units of X L L all other goods O L1 L 2 units of X 4 A given production process uses both labour and capital. What will be the effect on the quantities of labour and capital employed if the government introduces a subsidy on capital investment? quantity of labour A B C D decrease uncertain decrease uncertain quantity of capital uncertain uncertain increase increase 9708/3 Jun03 [Turn over www.xtremepapers.

$(000) wages and salaries opportunity cost of owner's time materials rent marketing fees interest on bank loans interest forgone on finance provided by owner depreciation 150 40 80 30 20 25 15 20 What would an accountant calculate to be the total cost incurred by the firm? A $275 000 B $305 000 C $325 000 D $340 000 9708/3 Jun03 www.xtremepapers.net . What will be the most likely effect of this increase? A B C D a reduction of the rate of female unemployment a reduction in the wages of male workers an expansion in the supply of female workers substitution of female workers for male workers 7 Which of the following is an internal economy of scale? A B C D improved communications as a result of the growth of local industry lower risk associated with supplying a wider range of customers the training of skilled labour at a technical college financed by all local firms trade information from a new trade journal 8 An economist calculates that a firm has incurred the following costs over the course of a year.4 5 Which of the following will necessarily cause the supply curve of labour in a particular industry to shift to the right? A B C D 6 a fall in wages paid in similar occupations a greater use of machinery an increase in demand for the product a strengthening of trade union influence in the industry The introduction of equal pay legislation in a country increases the wages of female workers.

Which diagram shows his total revenue curve (TR)? A B total revenue TR O output total revenue TR O output C D TR total revenue TR total revenue O output O output 10 The diagram shows the cost and revenue curves for the production of a textbook.5 9 A monopolist faces a downward sloping.net .xtremepapers. straight-line demand curve. The contract with the publisher entitles the author to a fixed percentage of the value of sales. Which price would maximise the author's income from the book? A cost / B revenue C D O AC AR number of copies MC MR 9708/3 Jun03 [Turn over www.

6 11 The diagram shows a firm's cost and revenue curves. MC2 P MC1 AC2 AC1 cost / revenue AR MR O Q output What should the firm do to maximise profit in this new situation? A B C D leave both price and output unchanged leave price unchanged and increase output leave price unchanged and reduce output raise price and leave output unchanged 9708/3 Jun03 www. MC cost / P revenue S Q R AC O MR output AR What does the shaded area SPQR measure? A B C D abnormal profit consumer surplus total revenue transfer earnings 12 The diagram shows the cost and revenue curves of an oligopolist. MC1 is its marginal cost curve and the firm is in equilibrium at output OQ and price OP.net . The cost of labour rises. so that AC2 and MC2 become the relevant cost curves. In the initial situation.xtremepapers. AC1 is its average cost curve.

14 A perfectly competitive industry becomes a profit maximising monopoly.net . The marginal cost curve of the monopolist is identical to the supply curve of the perfectly competitive industry. the marginal cost of X is less than the marginal cost of Y. there is a fall in average costs of production.xtremepapers. How will output and price be affected? output A B C D increases increases decreases decreases price increases decreases decreases increases 15 In the diagram the imposition of a tax on a commodity causes its supply curve to shift from S1 to S2. D S2 S1 P2 price P1 J K N M O Q2 Q1 quantity Which area measures the resulting deadweight loss? A P1P2JK B JKQ1Q2 C JKM D JKN 9708/3 Jun03 [Turn over www. A permanent increase in demand for X occurs. the cost of producing more X is offset by a decrease in the cost of producing Y. The entrepreneur will increase output of X as long as A B C D the addition to revenue in the X and Y markets combined is greater than the addition to costs.7 13 A firm produces both X and Y in fixed proportions.

At no time did industrial production. The entry of the new boats reduces the overall fish stock. GDP or prices fall.8 16 In what circumstances will the entry of additional fishing boats into the fishing industry necessarily result in a net loss in welfare? A B C D The entry of the new boats reduces fish caught by other boats. yearly % increase in industrial production 16 12 % 8 4 0 yearly % increase in consumer prices yearly % increase in GDP % 12 8 4 0 96 97 98 99 96 97 98 99 6 4 % 2 0 96 97 98 99 Which conclusion may be drawn from the graphs? A B C D Between 1996 and 1997 industrial production and GDP fell but prices rose.xtremepapers. 9708/3 Jun03 www. GDP and industrial production were at their lowest in 1997. What does the experience of the former Communist states suggest is likely to happen in the early stages of the transition process to national output and to the inflation rate? national output A B C D decrease decrease increase increase inflation rate decrease increase increase decrease 18 The graphs indicate economic performance in a country between 1996 and 1999. 17 The government of a centrally planned economy decides to replace central planning with a market system. Between 1997 and 1998 the rates of growth of industrial production. The entry of the new boats reduces the profits of other boat owners. The value of the increase in the fish caught is less than the loss in value of output elsewhere in the economy.net . GDP and prices all increased.

Money wages in the economy in the short run are perfectly flexible. 9708/3 Jun03 [Turn over www. OP is the equilibrium level of income and OQ the full employment level of income in a closed economy. V U T R C+I+G C+I C expenditure 45 O O P income Q What is the deflationary gap? A RV B TV C UV D PQ 20 Which statement is consistent with a Keynesian view of the workings of the macroeconomy? A B C D Recessions can result from fluctuations in private investment expenditure. increases in investment will cause a more than proportionate increase in national income.xtremepapers. Interest rates move to ensure continuous equality between savings and investment plans. 21 According to the accelerator theory A B C D net investment is positive if output is rising at an increasing rate.net . increases in investment occur when interest rates are falling. Changes in aggregate demand cannot occur without equivalent changes in the money supply. net investment may rise even if output rises at a declining rate.9 19 In the diagram.

if real output grows by 3 %.xtremepapers. The government increases spending on education. C1 shows the initial relationship between consumption and national income. Which point shows the most likely new equilibrium of the economy? C D price level X B AS2 AS AS1 A AD1 AD2 O real output AD 24 Assuming a constant income velocity of circulation of money. what will be the approximate change in the price level? A –7% B +7% C + 10 % D + 13 % 9708/3 Jun03 www. This coincides with an increase in wage rate inflation. C1 C2 consumption O national income What could cause the consumption function to shift to C2? A B C D an increase in exports an increase in investment a decrease in the rate of unemployment benefits a decrease in the standard rate of income tax 23 In the diagram an economy is initially in equilibrium at point X.net .10 22 In the diagram. and the rate of growth of the money supply is 10 %.

What would be most likely to remedy this situation? A B C D an increase in the saving ratio in poor countries increased investment in education in poor countries increased freedom of migration from poor countries to rich countries the removal of trade barriers imposed by rich countries on imports from poor countries 28 Real output in an economy grows by 1. What can be deduced from this information? A B C D Labour productivity has decreased.11 25 Which of the following is most likely to be found in a developing economy? A B C D a low capital : labour ratio a high capital : labour ratio a high capital : output ratio a low labour : output ratio 26 A government uses monetary policy in an attempt to keep actual unemployment continuously below the ‘natural’ rate of unemployment. 9708/3 Jun03 [Turn over www.xtremepapers. Actual output has grown more slowly than potential output.5 % but at the same time the level of unemployment increases. What is likely to be a consequence of this policy? A B C D a high but constant rate of inflation a low but constant rate of inflation a decelerating rate of inflation an accelerating rate of inflation 27 Workers in poor countries are often less productive than workers using the same technology in rich countries. There has been an increase in the rate of inflation. Population of working age has fallen.net .

xtremepapers. but if we have inadvertently overlooked any we will be pleased to make the necessary arrangements at the first opportunity.12 29 If the unemployment that exists in a country is judged to be mainly cyclical.net . Cambridge International Examinations has made every effort to trace copyright holders. 9708/3 Jun03 www. which is the most effective policy the government could implement? A B C D cut welfare spending on benefits improve information about job vacancies reduce tax rates raise interest rates 30 Which policy is likely to reduce a balance of payments deficit without causing inflation? A B C D a reduction in government spending a devaluation of the exchange rate an increase in import tariffs an increase in indirect taxes Copyright Acknowledgements: Question 18 © The Economist.

Answer all questions. highlighters. This document consists of 10 printed pages and 2 blank pages.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Extension) May/June 2004 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 READ THESE INSTRUCTIONS FIRST Write in soft pencil. Each correct answer will score one mark. Any rough working should be done in this booklet. Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet. Write your name. A mark will not be deducted for a wrong answer. paper clips. There are thirty questions on this paper. Centre number and candidate number on the answer sheet in the spaces provided unless this has been done for you.xtremepapers. B. glue or correction fluid. IB04 06_9708_03/3RP Ó UCLES 2004 [Turn over www.net . and D. Read the instructions on the answer sheet very carefully. C. For each question there are four possible answers A. Do not use staples.

net . What will be the likely effect on male and female wages? male wages A B C D decrease decrease increase increase female wages decrease increase decrease increase © UCLES 2004 9708/03/M/J/04 www. Its marginal physical product and its marginal revenue both fall. What is the marginal cost of labour per day? A $10 B $510 C $610 D $1110 5 There is an increase in the supply of female labour. 4 To increase its labour force from 50 to 51 workers.xtremepapers. a firm has to increase the daily wage rate from $600 to $610. Why does the marginal revenue product of a factor of production employed by the firm fall as more of the factor is employed? A B C D Its marginal physical product alone falls. The supply price of the factor rises.2 1 What does not pose a threat to the achievement of allocative efficiency? A B C D 2 imperfect information on the part of consumers income inequalities the existence of externalities the presence of monopolistic elements What is not held constant when calculating the income effect of a change in the price of a good? A B C D the consumer’s money income the consumer’s preferences the consumer’s real income the prices of other goods 3 A firm is operating in an imperfectly competitive market. Its marginal revenue alone falls.

and MCL its marginal cost of labour curve.net . Which statement correctly describes the firm’s conduct? A B C D It will set a price to maximise profits in the short run. S is its supply of labour curve. all of which produce an identical product.3 6 In the diagram. how many workers will the firm employ and what wage will it pay? number employed A B C D 7 N1 N1 N2 N2 wage W3 W1 W2 W4 An industry consists of a large number of firms. It will produce at minimum average cost. MCL W4 W3 W2 W1 MRPL O S $ N1 N2 labour Assuming profit maximisation. 9708/03/M/J/04 © UCLES 2004 [Turn over www.xtremepapers. It will set a price to maximise its revenue. It will set a price to deter the entry of new firms. MRPL is a firm’s marginal revenue product of labour curve. What could explain why the demand curve facing each individual firm is downward-sloping? A B C D diminishing marginal utility freedom of exit and entry imperfect knowledge on the part of consumers a limit on the amount consumers have available to spend 8 A firm operates in a contestable market.

How might the monopolist make a profit? A B C D by adopting marginal cost pricing by maximising sales revenue by practising price discrimination by reducing output to OQ2 and charging price OP2 10 The diagram shows a firm’s total revenue curve. TR revenue O output At the curve’s highest point A B C D marginal revenue is equal to marginal cost.4 9 The diagram shows the cost and revenue curves of a monopolist.net . © UCLES 2004 9708/03/M/J/04 www.xtremepapers. revenue P2 P1 AR O Q2 output Q1 MR The monopolist is currently producing output OQ1 and charging a price OP1. MC AC cost. marginal revenue is zero. average revenue is equal to average cost. marginal revenue is equal to average revenue.

the industry produces output OV. revenue T Y Z W LRAC. what should the firm do to maximise its profits or minimise its losses? A B C D cease production altogether increase its output lower its price maintain its output at the present level © UCLES 2004 9708/03/M/J/04 [Turn over www. The table shows the firm’s costs. X cost.50 per box.5 11 The diagram shows an industry producing under conditions of constant average costs. which it sells for $2.xtremepapers. Which area measures the increase in the industry’s profits if it were to become a monopoly? A XYSO B XYWT C XYZT D YZW V 12 A perfectly competitive firm is producing 2000 boxes of biscuits per week. LRMC AR O S MR output Under perfect competition. total fixed cost total variable cost marginal cost $2000 $4000 $2.50 In the short run.net .

revenue AC D O output If the monopolist were required by the government to adopt marginal cost pricing.net . The table shows the marginal products of these factors and their respective costs at the current level of output. land marginal product (units) marginal cost per unit of factor ($) 1 4 labour 2 6 capital 9 3 Which adjustment in factor use would be most likely to bring the firm nearer to the least-cost combination of inputs for its current output level? land A B C D less less more more labour no change no change less less capital more no change no change more 14 The diagram shows the demand and cost curves of a monopolist who initially produces at his profit-maximising level of output. MC cost.xtremepapers.6 13 A firm employs three factors of production. what would be the effect on the price charged and the output produced? price A B C D increase increase decrease decrease output increase decrease increase decrease © UCLES 2004 9708/03/M/J/04 www.

net . but there is a rise in consumption. investment on national income.xtremepapers. © UCLES 2004 9708/03/M/J/04 [Turn over www. national income on investment. national income on consumption. What could explain this? A B C D a decrease in the net property income from abroad a fall in population an increase in the trade deficit a rise in negative externalities 17 In a closed economy with no government sector the multiplier shows the impact of a change in A B C D consumption on investment.7 15 The diagram shows the market supply and demand curves for corn. D P2 P1 price S O K L output R What should a government do if it is to maintain a minimum price of OP2? A B C D buy quantity KR buy quantity LR sell quantity KL sell quantity OL 16 A country's national income per head falls.

The marginal propensity to consume falls as income increases. 19 In an economy. the marginal propensity to consume of the unemployed is higher than that of taxpayers.8 18 The diagram shows an economy's consumption function.net . 20 A closed economy is initially in equilibrium with a national income of $100 million.xtremepapers. What will be the impact on aggregate demand? A B C D It will be unchanged. by how much will net investment increase? A $10 m B $5 m C $2. It will decrease by $10 million. and a capital stock of $25 million. It will increase by $10 million. Aggregate demand increases by $10 million. C consumption O income What might explain why the consumption function shifts over time? A B C D Autonomous consumption is greater than zero. Income is only one of several variables that affect consumption. The average propensity to consume falls as income increases.5 m D $2 m 21 What will cause interest rates to rise? A B C D an unexpected increase in the prices of bonds an increase in the nominal money supply an increase in the volume of output a reduction in the price level 9708/03/M/J/04 © UCLES 2004 www. According to the accelerator principle. The government increases both expenditure on unemployment benefits and taxation by $10 million. It will increase by less than $10 million.

9 22 According to monetarist theory. There was a decrease in the size of the labour force. Over the same period the unemployment rate increased from 4 % to 6 %. Potential growth in national output was above actual growth.net . What would explain this? A B C D There was a decrease in labour productivity.xtremepapers. Assuming no subsequent change in notes and coins in circulation what is the maximum amount of loans that the bank can create? A $1000 B $9000 C $90 000 D $100 000 25 Between 2000 and 2002 national output in the United States increased by 2 %. what will be the short-run effect of an unexpected increase in the money supply? A B C D an appreciation of the foreign exchange rate an increase in employment an increase in real wages an increase in the rate of interest 23 What is likely to cause a decrease in aggregate supply? A B C D a decrease in consumption expenditure an increase in labour productivity a decrease in rates of unemployment benefit an increase in wage costs per unit of output 24 A closed economy has a banking system consisting of a single bank. There was a fall in the rate of inflation. The bank operates with a cash ratio of 10 %. © UCLES 2004 9708/03/M/J/04 [Turn over www. Customers deposit $10 000 in cash.

What will happen if a government persists in trying to achieve a target rate of unemployment of 3 % by expansionary monetary policy? A B C D an accelerating rate of inflation a diminishing rate of inflation a high but constant rate of inflation a negative rate of inflation 27 Which policy is most likely to result in a decrease in the natural rate of unemployment? A B C D a reduction in interest rates an increase in government expenditure on goods and services an increase in trade union membership a decrease in the level of government payments to the unemployed 28 The monetary authorities increase interest rates in order to control inflation. What is likely to increase as a result of this? A B C D firms' sales revenue investment expenditure net capital outflows the exchange rate 29 What is most likely to be increased by a policy of increased direct taxes and lower government spending? A B C D the balance of payments deficit the budget deficit the rate of inflation the level of unemployment 30 What would represent a monetarist anti-inflationary policy? A B C D an increase in indirect taxation direct foreign exchange rate intervention the introduction of maximum prices the sale of securities on the open market © UCLES 2004 9708/03/M/J/04 www.xtremepapers.net .10 26 The natural rate of unemployment in an economy is 5 %.

net .11 BLANK PAGE 9708/03/M/J/04 www.xtremepapers.

xtremepapers. 9708/03/M/J/04 www.12 BLANK PAGE University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES).net . which is itself a department of the University of Cambridge.

B.net . IB05 06_9708_03/RP  UCLES 2005 [Turn over http://www. A mark will not be deducted for a wrong answer. Write your name. Each correct answer will score one mark. highlighters. Do not use staples. glue or correction fluid. Answer all questions. C and D.xtremepapers. paper clips. Read the instructions on the answer sheet very carefully. This document consists of 12 printed pages. Centre number and candidate number on the answer sheet in the spaces provided unless this has been done for you. There are thirty questions on this paper. Any rough working should be done in this booklet.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Extension) May/June 2005 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 READ THESE INSTRUCTIONS FIRST Write in soft pencil. Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet. For each question there are four possible answers A.

What is explained by this statement? A B C D the law of diminishing returns the limitations of marginal utility theory the paradox of value the role of prices as a rationing mechanism 3 In the diagram a consumer's budget line shifts from GH to JK. There has been an increase in the consumer's real income. There has been an equal proportionate increase in the price of X and Y.2 1 Which condition defines productive efficiency? A B C D 2 All factors of production are fully employed. There are no further opportunities for substituting capital for labour. All firms are producing at their profit-maximising levels of output. © UCLES 2005 9708/03/M/J/05 . The output of all goods is produced at minimum cost. what must be correct? A B C D There has been an increase in the consumer's money income. The relative prices of goods reflect their marginal utilities rather than their total utilities. There has been an equal proportionate decrease in the price of X and Y. J G good Y O H K good X Regardless of any other changes that might occur.

what happens as more of a variable factor is combined with a fixed factor? A B C D An increase in the price of the variable factor will eventually result in an increase in production costs. A reduction in the quality of the variable factor will eventually result in an increase in production costs. S2 S1 wage rate O hours of work What could cause the curve to shift to S2? A B C D an increase in the hourly wage rate an increased preference for leisure an increase in the opportunity cost of leisure an increase in work satisfaction © UCLES 2005 9708/03/M/J/05 [Turn over . 5 When would a trade union be most likely to secure a wage rise for its members? A B C D when labour costs are a small proportion of total costs when the demand for the product is price-elastic when there are a large number of small producers when the supply of labour is elastic 6 In the diagram S1 is an individual worker's initial supply of labour curve.3 4 According to the law of diminishing returns. The proportions in which the factors are combined will eventually result in progressively smaller increases in output. Fewer units of the variable factor will be needed to produce equal increases in output.

Trade union organisation in industry Y is relatively strong. There are non-pecuniary advantages to working in industry Y. Industries X and Y compete with each other for workers. What is generally thought to be the main reason why firms might experience decreasing returns to scale when they grow beyond a certain size? A B C D financial diseconomies managerial diseconomies marketing diseconomies technical diseconomies 9 In the diagram. What could explain this difference? A B C D 8 Workers in industry Y are highly mobile. Y total costs X O output What happens to the firm’s costs as output is increased? average fixed costs A B C D decrease decrease constant constant marginal costs constant increase constant increase © UCLES 2005 9708/03/M/J/05 .4 7 Wages in industry X are significantly higher than in industry Y. XY is a firm’s total cost curve.

It slopes upwards. 11 The diagram shows a firm’s demand curve and its marginal revenue curve. price P D O MR quantity What is the price elasticity of demand at price OP? A B C D zero 0. It slopes downwards.5 1.5 10 What is the shape of the long run average cost curve for a firm with economies of scale? A B C D It is horizontal. It is ‘U’ shaped.0 infinity 12 What determines the contestability of a market? A B C D the degree of differentiation of the product the costs of entry and exit the price elasticity of demand for the product the number of firms in the industry © UCLES 2005 9708/03/M/J/05 [Turn over .

What can be deduced from this? A B C D All markets are perfectly competitive.20 increases by $0. The distribution of income reflects what each individual deserves. There are no externalities. 15 In the diagram D is a country's demand curve for an imported good. Pc price Pw z O quantity D x y Which area measures the deadweight loss to the country of imposing an import tariff equal to PW PC on the good? A x B y C x+y D y+z © UCLES 2005 9708/03/M/J/05 . What will be the effect on the price charged by the monopoly and on the quantity it produces? price A B C D increases by $0.20 per unit on the output of a monopoly producer. The economy is operating on its production possibility curve.20 increases by less than $0.6 13 The government imposes a specific tax equal to $0. The world price of the good is OPW.20 quantity decreases decreases unchanged unchanged 14 In an economy no one can be made better off without making others worse off.20 increases by less than $0.

consumption is three-quarters of income at all levels of income. By how much would investment have to increase to reach full employment? A $5 million B $15 million C $20 million D $30 million © UCLES 2005 9708/03/M/J/05 [Turn over . The present equilibrium level of income is $220 million. The full employment level of income is $240 million. which policy objectives are in conflict in the short run. $ million national income consumer spending investment spending government spending taxation exports What is the value of imports? A $125 million B $75 million C $50 million D $25 million 500 200 75 150 140 125 17 According to monetarist theory.7 16 The information in the table is taken from a country’s national income accounts. but not in the long run? A B C D economic growth and full employment economic growth and price stability full employment and price stability price stability and equilibrium in the balance of payments 18 In a closed economy with no government.

S2 S1 saving O Y2 Y1 income What can be deduced from the diagram? A B C D The multiplier has increased.8 19 The diagram shows a shift in the economy's saving function from S1 to S2. J price level K AD O output Which change will occur as the economy moves from point J to point K? A B C D an increase in the money supply a decrease in the money supply an increase in interest rates a decrease in interest rates © UCLES 2005 9708/03/M/J/05 . The marginal propensity to save has increased. Equilibrium national income has fallen from OY1 to OY2. 20 The diagram shows an economy's aggregate demand curve. Autonomous consumption has increased.

what will be the result of an increase in the money supply? A B C D a proportionate increase in the level of money income a proportionate increase in the level of output a proportionate increase in the rate of growth of money income a proportionate increase in the rate of growth of output © UCLES 2005 9708/03/M/J/05 [Turn over .9 21 The diagram shows the market for loanable funds. if the income velocity of circulation of money remains constant. D2 D1 rate of interest E1 S1 S2 E2 O loanable funds Which changes could cause the equilibrium to move from E1 to E2? A B C D an increase in the propensity to save and an increase in bank lending the discovery of oil reserves and an increase in the propensity to save advances in technology and a decrease in bank lending a decrease in the propensity to save and the introduction of new products 22 In a closed economy.

Which policy might be used to try to maintain the rate at r1? A B C D the purchase of bonds in the open market reductions in income tax rates increases in indirect taxes increased government expenditure 24 A developing economy experiences a rapid growth in labour productivity. What is likely to result from this? A B C D an increase in the country's balance of trade deficit an increase in the country's relative labour costs a depreciation of the country's currency an increase in real income per head 25 What will assist a country's potential growth in national output? A B C D a reduction in cyclical unemployment an increase in the rate of inflation an increase in the government's budget deficit increased participation in the labour force © UCLES 2005 9708/03/M/J/05 . MS LP1 LP2 rate of interest r2 r1 O quantity of money The rate of interest rises as a result of a shift in the liquidity preference curve from LP1 to LP2.10 23 The diagram shows the determination of the rate of interest in an economy where MS represents the money supply and LP represents liquidity preference.

What is likely to be the effect on interest rates and on the level of net exports? effect on interest rates A B C D increase increase decrease decrease effect on net exports increase decrease decrease increase 27 Which of the following is an appropriate government policy for closing a deflationary gap? A B C D an increase in the rate of interest an open market sale of bonds an increase in government spending an increase in income tax 28 In an economy with unemployed resources the government increases its expenditure. 29 What is most likely to increase as a result of a rise in interest rates in a country? A B C D the inflow of short-term foreign capital the level of company profits the level of private investment the level of share prices © UCLES 2005 9708/03/M/J/05 [Turn over .11 26 In an economy with flexible exchange rates an increase in government spending is financed by borrowing from the public. marginal propensity to save is reduced. This would be least likely to increase national income by the full multiplier effect if the A B C D level of autonomous private investment is increased. government allows money supply to expand. level of interest rates rises.

The suppliers of imported goods charge market-clearing prices.e.12 30 A country introduces import quotas. what will be the impact on the country’s balance of trade and on its terms of trade? balance of trade A B C D improves improves worsens worsens terms of trade improve worsen worsen improve Every reasonable effort has been made to trace all copyright holders where the publishers (i. UCLES) are aware that third-party material has been reproduced. University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES). Assuming the demand for imports is price-elastic. The publishers would be pleased to hear from anyone whose rights they have unwittingly infringed. © UCLES 2005 9708/03/M/J/05 . which is itself a department of the University of Cambridge.

Each correct answer will score one mark. A mark will not be deducted for a wrong answer. There are thirty questions on this paper. C and D. Answer all questions.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) May/June 2006 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 READ THESE INSTRUCTIONS FIRST Write in soft pencil. For each question there are four possible answers A. paper clips. This document consists of 11 printed pages and 1 blank page.xtremepapers.net . glue or correction fluid. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Do not use staples. B. Read the instructions on the Answer Sheet very carefully. Any rough working should be done in this booklet. Write your name. IB06 06_9708_03/RP  UCLES 2006 [Turn over www. highlighters.

L good Y O good X What might make it possible for consumers in this economy to consume the combination of goods X and Y indicated by the point L? A B C D 2 a reduction in unemployment the attainment of productive efficiency the elimination of a monopoly in the production of good X trade with other economies In the diagram a consumer's budget line shifts from JK to GH. © UCLES 2006 9708/03/M/J/06 www. G good Y J O K good X H What can definitely be deduced from the diagram? A B C D There has been an increase in the consumer's money income. There has been no change in the price of X or Y.xtremepapers. There has been a reduction in the price of both X and Y.net .2 1 The diagram shows the production possibility curve for an economy. There has been no change in the price of X relative to the price of Y.

the quantities of all other factors of production remaining constant’. 5 The table shows the main characteristics of employment in two occupations.xtremepapers. occupation A average annual wage number of weeks annual leave average length of working week job security length of training course to obtain job qualification What can be deduced from the table? A B C D Those employed in occupation B attach greater importance to job security. A large quantity of unemployed labour is available in the economy. Demand for the final product that the labour produces is elastic. What does this define? A B C D 4 marginal factor cost marginal revenue marginal revenue product the law of diminishing returns In which situation is it likely that the demand for labour would be inelastic? A B C D Labour and capital are close substitutes.3 3 ‘The addition to revenue which results from employing one additional unit of a factor of production. There will be more competition for places on training courses to enter occupation A than occupation B. Those employed in occupation A attach less importance to leisure activities. Labour costs are only a small proportion of total costs.net . $100 000 5 weeks 48 hours low 1 year occupation B $60 000 10 weeks 44 hours high 2 years © UCLES 2006 9708/03/M/J/06 [Turn over www. Occupation B has greater non-pecuniary advantages than occupation A.

Which economies of scale will the firm be less able to benefit from? A B C D 7 financial marketing risk-bearing technical What is included in an economist’s definition of costs but not an accountant’s? A B C D advertising expenditure depreciation insurance normal profit 8 Samsung Electronics. it specialises in a narrower range of products.xtremepapers. it has applied its strength in semiconductors to other markets including televisions and mobile phones. In addition. has used continuous research and investment to emerge as an industry leader. What has taken place? A B C D external growth and diversification external growth and sales revenue maximisation internal growth and diversification internal growth and sales revenue maximisation 9 A firm in perfect competition currently sells 100 units at $5 each.4 6 As firm X grows in size.net . What will be the revenue obtained by the firm if it increases its price to $6? A zero B $100 C $500 D $600 © UCLES 2006 9708/03/M/J/06 www. which began as a semiconductor firm making simple memory chips.

a computer retailer. © UCLES 2006 9708/03/M/J/06 [Turn over www. MC AC $ MR O X quantity AR What is the firm’s objective if it produces output OX? A B C D to achieve normal profit to maximise profit to maximise total revenue to minimise average cost 11 A firm charges the maximum price it is able to charge without attracting competition from new entrants. In which type of market does this firm operate? A B C D a contestable market a monopolistically competitive market a monopsonistic market a perfectly competitive market 12 An example of forward vertical integration for a computer manufacturer would be a merger with A B C D another computer manufacturer.5 10 The diagram shows the cost and revenue curves of a monopoly. a silicon chip manufacturer.xtremepapers. a software developer.net .

xtremepapers. What will be the likely effect on workers under 21? unemployment for under 21s A B C D falls rises falls rises average wages for under 21s fall fall rise rise © UCLES 2006 9708/03/M/J/06 www. There are significant barriers to prevent new firms entering the industry.net . how will an increase in productive efficiency affect customers and the company's shareholders? customers A B C D gain gain no effect no effect shareholders gain no effect gain no effect 15 The introduction of a minimum hourly wage for all workers over 21 years of age is expected to increase the average wages of these workers. 14 The maximum price that a privatised natural monopoly is allowed to charge its customers is determined by the following formula: the price charged in the previous year plus the annual % change in the consumer price index minus 2 %.6 13 What will increase the likelihood that the firms in an industry will collude to maximise their joint profits? A B C D The industry has many differentiated products. The industry is characterised by rapid technological change. Assuming the firm charges the maximum price allowed. The industry consists of a large number of producers.

Major recessions can occur despite an unchanged money supply.xtremepapers. © UCLES 2006 9708/03/M/J/06 [Turn over www. The velocity of circulation of money is unstable over time. The money supply dominates the determination of aggregate monetary expenditure.net .7 16 The table gives data for an economy. 2000 Gross Domestic Product (GDP) at current prices ($ billion) GDP deflator 200 100 2001 220 109 2002 240 118 2003 300 149 2004 320 154 In which year did real GDP decline compared with the previous year? A 2001 B 2002 C 2003 D 2004 17 Which of the following are injections into the circular flow of income? trade surplus A B C D     government budget deficit     private sector surplus (saving – investment)     18 What is a central assertion of ‘Monetarist’ economics? A B C D Fiscal policy should be used for the continuous management of the economy.

Investment is a function of the rate of change of income.8 19 The diagram shows an aggregate demand curve. Assuming that the MPC = APC what will be the change in national income following an increase in investment of $100 million? A $100 m B $120 m C $400 m D $500 m 21 What does the accelerator principle state? A B C D Consumption is a function of the rate of change of income. 20 A closed economy with no government has an equilibrium level of national income of $10 000 million. Income is a function of the rate of change of investment. Investment is a function of the rate of interest. When the price level increases there will be an increase in interest rates.net . © UCLES 2006 9708/03/M/J/06 www. Consumption expenditure is $8000 million. price level AD O national output What helps to explain why the curve is downward sloping? A B C D When exports increase there will be an increase in national income. When government expenditure increases there will be an increase in national output.xtremepapers. When investment increases there will be an increase in consumption.

xtremepapers. D2 D1 rate of interest E1 S1 S2 E2 O loanable funds Which changes could cause the equilibrium in the market for loanable funds to move from E1 to E2? A B C D an increase in the money supply combined with a decrease in the propensity to save a decrease in bank lending combined with an increase in the productivity of capital an increase in bank lending combined with an increase in business confidence a decrease in the money supply combined with an increase in the propensity to save 23 What is most likely to cause the public to hold less cash in relation to the level of money income? A B C D a fall in interest rates a fall in the level of output a greater availability of cash substitutes a rise in the general price level 24 Which change would best indicate that a country has experienced economic development? A B C D an improvement in the average citizen’s quality of life an increase in the country’s real GDP an improvement in the country’s trade balance an appreciation in the country’s currency 25 What is likely to increase a country’s actual output in the short run but may reduce its long-run rate of growth of potential output? A B C D an increase in the size of the labour force increased government spending on education an increase in the size of the government’s budget deficit increased female participation in the labour force 9708/03/M/J/06 © UCLES 2006 [Turn over www.9 22 The diagram shows the demand curves and supply curves of loanable funds.net .

net .xtremepapers. Which combination of changes in policy instruments is consistent with this? government expenditure A B C D decrease decrease increase increase interest rate decrease decrease increase increase taxation increase decrease decrease increase © UCLES 2006 9708/03/M/J/06 www.10 26 What is most likely to lead in the long run to an increase in world real GDP per head? A B C D faster population growth trade liberalisation a lower propensity to save faster growth of the money supply 27 Which type of unemployment is associated with a deficiency in aggregate demand? A B C D cyclical frictional structural voluntary 28 Which combination indicates that a country has a freely floating exchange rate? nominal exchange rate A B C D depreciates by 20 % depreciates by 20 % unchanged unchanged foreign currency reserves decrease by $1 billion unchanged decrease by $1 billion unchanged 29 A government decides to pursue a more deflationary fiscal policy and a more reflationary monetary policy.

net .xtremepapers.11 30 What is likely to be the effect of an oil price increase on the global economy? A B C D a strengthening of demand inflation a weakening of cost inflation a decrease in the rate of growth a decrease in unemployment © UCLES 2006 9708/03/M/J/06 www.

9708/03/M/J/06 www. University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES). Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders.net . the publisher will be pleased to make amends at the earliest possible opportunity.xtremepapers. but if any items requiring clearance have unwittingly been included. which is itself a department of the University of Cambridge.12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible.

xtremepapers. IB07 06_9708_03/4RP © UCLES 2007 [Turn over www. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. Each correct answer will score one mark. glue or correction fluid. B. Write your name. Answer all questions. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB recommended) 9708/03 May/June 2007 1 hour *5390638888* READ THESE INSTRUCTIONS FIRST Write in soft pencil. highlighters. There are thirty questions on this paper. Read the instructions on the Answer Sheet very carefully. Any rough working should be done in this booklet. C and D. For each question there are four possible answers A. This document consists of 12 printed pages. Do not use staples.net . paper clips. A mark will not be deducted for a wrong answer.

© UCLES 2007 9708/03/M/J/07 www. The conditions for productive efficiency have been met. A consumer seeks to maximise their utility. Up to what point should they continue to consume each good? A B C D until the marginal utility from each good is the same until the marginal utility per dollar from each good is the same until the marginal utility from each good reaches a maximum until the marginal utility from each good is zero 3 In the diagram a consumer's budget line shifts from JK to JH.xtremepapers. The distribution of income is socially acceptable. The economy is operating at a point on its production possibility frontier.net . There has been an increase in the consumer's real income. no one can be made better off without making someone else worse off. What does not necessarily follow from this? A B C D 2 The conditions for allocative efficiency have been met.2 1 In an economy. There has been a reduction in the price of good X. There has been an increase in the consumer's money income. J good Y O K good X H What can definitely be concluded from the diagram? A B C D There has been no change in the price of good Y.

assuming all other factor inputs are held constant. total product TP O quantity of variable factor In which order do the total product (TP). average product (AP) and marginal product (MP) begin to decrease as the input of the variable factor is increased? first A B C D 5 AP AP MP MP second MP TP AP TP third TP MP TP AP For a firm in imperfect competition. the marginal physical product of labour multiplied by marginal revenue. the marginal physical product of labour multiplied by the wage rate.3 4 The diagram shows the total product curve for a single variable factor.net .xtremepapers. marginal revenue divided by the wage rate. © UCLES 2007 9708/03/M/J/07 [Turn over www. the marginal revenue product of labour at any given level of employment is equal to A B C D marginal revenue divided by the number employed.

S is a monopsonist’s supply of labour curve. Which area measures the lowest amount he would have to be paid per week to get him to accept this job offer? A 7 w+z B x+y C x+y-z D w+x+z+y In the diagram. MCL S wage rate W MRPL O number employed The firm's workers join a trade union which negotiates a wage rate. What will be the effect on the firm's total wage bill and on the number of workers employed? total wage bill A B C D © UCLES 2007 number employed increase decrease decrease increase 9708/03/M/J/07 increase increase decrease decrease www.4 6 The diagram shows an individual’s supply of labour curve. MCL its marginal cost of labour curve and MRPL its marginal revenue product of labour curve. S 80 w 60 hourly wage ($) 40 x z y 20 0 40 number of hours He is offered a job which would require him to work a standard 40-hour week.net . OW.xtremepapers. with the firm's owners.

5 8 Which of the following is a financial economy of scale? A B C D 9 lower risk due to diversification lower costs in raising capital lower costs of marketing lower variable costs of production The short-run total costs of a firm are given by the formula SRTC = $(10 000 + 5X2) where X is the level of output.net . $ total revenue raw material costs wages and salaries salary that the owner could have earned elsewhere interest paid on bank loan interest forgone on owner's capital What is the firm’s profit according to an economist? A –$10 000 B $40 000 C $80 000 D $100 000 250 000 30 000 110 000 40 000 30 000 50 000 © UCLES 2007 9708/03/M/J/07 [Turn over www. What are the firm’s average fixed costs? A B C D $10 000 $(10 000 + 5X 2 ) X $10 000 X $(5 X 2 − 10 000) X 10 The table shows data for an owner-managed firm for a particular year.xtremepapers.

© UCLES 2007 9708/03/M/J/07 www.net . Its aim is to maximise sales revenue. above that needed to keep the firm in production in the short run. 13 The diagram shows a firm’s cost and revenue curves. above that needed to cover its fixed costs.6 11 How might a firm benefit from external economies? A B C D by increasing its expenditure on advertising by increasing its scale of production by locating in an area in which the industry is already established by merging with another domestic firm engaged in the same industry 12 A firm earns supernormal profit when its profit is A B C D above that earned by competing firms.xtremepapers. It is operating in a perfectly competitive market. above that required to keep its resources in their present use in the long run. cost / revenue MC AC O MR Q output AR What could explain why the firm produces output OQ? A B C D Its aim is to maximise profits. It is operating in a contestable market.

7 14 An industry consists of a dominant producer and a number of smaller producers.50. The dominant producer joins with some of the other producers to form a cartel with a view to maximising their joint profits. 16 Which combination of fiscal policy measures would be most effective in reducing income inequality? top rates of income tax A B C D increase reduce increase reduce indirect taxes increase increase reduce reduce value of state benefits increase reduce increase reduce 17 In 1995 the Canadian government increased the specific tax on each packet of cigarettes by $3. What is the most likely explanation for the resulting fall in tax revenue from cigarette sales? A B C D Consumers switched to cheaper brands. What would prevent a deadweight welfare loss resulting? A B C D The government converts it to a profit-maximising nationalised industry. The government places an indirect tax on the monopolist’s product. There was an increase in illegal imports of cigarettes from the USA.net . Who will derive the greatest short-run benefit from this arrangement? A B C D the industry's suppliers the dominant firm smaller producers within the cartel the producers who do not join the cartel 15 A perfectly competitive industry becomes a monopoly. The monopolist charges the same price to all consumers. The whole of the increase in tax was borne by the cigarette manufacturers. The demand for cigarettes is price-inelastic. © UCLES 2007 9708/03/M/J/07 [Turn over www. The monopolist uses marginal cost pricing.xtremepapers.

GDP or prices fall.net . 19 Why might GNP per capita of different countries in a given year.8 18 The graphs indicate economic performance in a country between 2001 and 2004. GDP and industrial production were at their lowest in 2002. annual % increase in industrial production 12 8 % 4 0 01 02 03 04 16 12 % 8 4 0 annual % increase in consumer prices 6 4 % 2 0 01 02 03 04 annual % increase in GDP 01 02 03 04 Which conclusion may be drawn from the graphs? A B C D Between 2001 and 2002 industrial production and GDP fell but prices rose. Their rates of inflation are different. measured in US dollars.xtremepapers. GDP and prices all increased. © UCLES 2007 9708/03/M/J/07 www. Between 2002 and 2003 the rates of growth of industrial production. be a poor indicator of their comparative standards of living? A B C D Their exchange rates are different from purchasing power parities. Their ratios of imports to national income are different. At no time did industrial production. Their population growth rates are different.

I1 and I2. at two levels of investment. The money supply is the main determinant of aggregate monetary expenditure. 22 The diagram shows the equilibrium levels of national income in a closed economy with no government.9 20 The diagram shows a government’s revenue and expenditure for three years. 2002 revenue expenditure revenue expenditure revenue expenditure 0 1 2 $m What can be concluded from the diagram? A B C D A budget deficit was replaced by a budget surplus. The interest elasticity of investment expenditure is close to zero. 3 4 2003 2004 21 Which assertion could be described as monetarist rather than Keynesian? A B C D Central banks must directly control interest rates to influence the money supply.net . A government net borrowing requirement emerged. The velocity of circulation of money is unstable over time. The economy moved from a recession into a boom period. S X T O U Y Z I2 I1 saving / investment national income Which ratio gives the value of the multiplier? A TX UZ B UZ TX C UZ XY D XY UZ © UCLES 2007 9708/03/M/J/07 [Turn over www.xtremepapers. The yield from taxation continuously increased.

This raises the productivity of the trainees.xtremepapers.10 23 An economy is currently in equilibrium at point X. Government expenditure is increased on retraining programmes for those out of work. Which point shows the new equilibrium in the economy? A B price level X D AS2 AS1 AS3 C AD2 AD1 O output 24 What is likely to happen to interest rates and aggregate demand when a central bank sells government securities? interest rates A B C D fall fall rise rise aggregate demand fall rise fall rise 25 What will be most likely to decrease a country’s national output in the short run but to increase its potential for long-run growth? A B C D a decrease in the level of import tariffs a decrease in the rate of immigration an increase in female participation in the labour force an increase in the money supply © UCLES 2007 9708/03/M/J/07 www.net .

An increase in monetary growth moves the economy to point V.xtremepapers.net . Why is it that the economy cannot stay at point V? rate of inflation at point V A B C D above the expected rate above the expected rate below the expected rate below the expected rate unemployment rate at point V above the natural rate below the natural rate above the natural rate below the natural rate 27 What is most likely to lead to an increase in the natural rate of unemployment? A B C D more rapid technological change a widening in inter-regional wage differentials a narrowing in inter-regional house price differentials a decrease in the number of workers who are members of trade unions 28 What is likely to be the effect on developing economies of an increase in inward foreign direct investment? A B C D an increase in the burden of debt a slowdown of rural-urban migration an increase in visible trade deficits an acceleration of technology transfers © UCLES 2007 9708/03/M/J/07 [Turn over www. SRPC LRPC rate of inflation V W O unemployment rate The economy is initially at point W.11 26 In the diagram SRPC is an economy's short-run Phillips curve and LRPC is its long-run Phillips curve.

Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES).net . which is itself a department of the University of Cambridge.xtremepapers. © UCLES 2007 9708/03/M/J/07 www.12 29 Legal reforms to reduce the power of trade unions have in many countries reduced inflationary pressures. Of which policy is this an example? A B C D monetary policy demand side policy fiscal policy supply side policy 30 Which combination of policy measures is most likely to reduce unemployment? A B C D lowering both the exchange rate and domestic interest rates lowering the exchange rate and increasing direct taxation raising both the exchange rate and domestic interest rates raising both the exchange rate and direct taxation Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. the publisher will be pleased to make amends at the earliest possible opportunity. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. University of Cambridge International Examinations is part of the Cambridge Assessment Group. but if any items requiring clearance have unwittingly been included.

B.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 May/June 2008 1 hour *3564294667* READ THESE INSTRUCTIONS FIRST Write in soft pencil. paper clips. highlighters. glue or correction fluid. C and D. Each correct answer will score one mark. Answer all questions. Any rough working should be done in this booklet. There are thirty questions on this paper.xtremepapers. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. A mark will not be deducted for a wrong answer. Write your name.net . Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. This document consists of 12 printed pages. IB08 06_9708_03/2RP © UCLES 2008 [Turn over www. Do not use staples. For each question there are four possible answers A. Read the instructions on the Answer Sheet very carefully.

The table shows the total utility that an individual derives from consuming different quantities of a good. The firm will produce less.net . There will be a misallocation of resources.xtremepapers. There will be no effect upon production. quantity of good (units) 1 2 3 4 5 6 total utility (units) 24 45 63 78 90 99 The individual’s marginal utility of money is $1 = 2 units of utility.2 1 What will happen if a firm is subsidised by an amount equal to the external benefits that it confers on the rest of society? A B C D 2 Resource allocation will be improved. What is the maximum quantity of the good that the individual will buy when its price is $6? A 2 units B 3 units C 4 units D 5 units © UCLES 2008 9708/03/M/J/08 www.

00 If the firm sells its product for $1 and aims to maximise profits.3 3 In the diagram a consumer’s initial budget line is JK.xtremepapers.net . J G quantity of good Y O K quantity of good X H Assuming no change in the price of Y. what could explain a shift in the consumer’s budget line to GH? price of good X A B C D 4 decrease decrease increase increase consumer’s money income decrease increase decrease increase The table shows the current position of a firm in a perfectly competitive industry. factor X marginal physical product factor price 2 $5. what should it employ? A B C D more of both X and Y more of X and less of Y more of Y and less of X less of both X and Y © UCLES 2008 9708/03/M/J/08 [Turn over www.00 factor Y 8 $10.

xtremepapers. All firms in the industry produce identical products. Firms that assemble the final product buy component parts from other specialist firms. © UCLES 2008 9708/03/M/J/08 www.4 5 The government imposes a maximum earnings limit on recording artists. What must result in the short run if the measure is effective? A B C D 6 a decrease in the economic rent earned by recording artists a decrease in the transfer earnings of recording artists a decrease in the supply of recording artists a decrease in the profits of record companies What is the name for the relationship between a firm’s output and the quantities of factor inputs that it employs? A B C D a long-run production function a long-run average cost function productive efficiency returns to scale 7 Which diagram shows a firm’s total fixed cost curve? A B C D costs costs costs costs O output O output O output O output 8 What explains why both large and small firms are often found within the same industry? A B C D There are significant barriers to the entry of new firms into the industry. Production is subject to diseconomies of scale.net .

5 9 The table shows some of the assumptions of perfect competition and monopolistic competition. How will output and price be affected? output A B C D increases increases decreases decreases price increases decreases decreases increases 11 Why might a firm introduce a policy of price discrimination? A B C D to achieve allocative efficiency to achieve productive efficiency to avoid diseconomies of scale to turn consumer surplus into producer surplus © UCLES 2008 9708/03/M/J/08 [Turn over www.xtremepapers. Which pairing is correct? perfect competition A B C D barriers to entry differentiated products freedom of entry and exit large number of firms monopolistic competition small number of firms large number of firms differentiated products barriers to entry 10 A perfectly competitive industry becomes a profit-maximising monopoly.net . The marginal cost curve of the monopolist is identical to the supply curve of the perfectly competitive industry.

Private costs of production exceed social costs. Total tax revenue is left unchanged. D S2 S1 P2 price P1 J K N M O Q2 Q1 quantity Which area measures the resulting deadweight loss? A P1P2JK B JKQ1Q2 C JKM D JKN 13 A good gives rise to external costs and is produced under conditions of monopolistic competition. Social costs of production exceed private costs.net . What is likely to be the impact on the distribution of income and on work incentives? distribution of income A B C D more equal more equal less equal less equal work incentives increase decrease increase decrease © UCLES 2008 9708/03/M/J/08 www.xtremepapers.6 12 In the diagram the imposition of a tax on a commodity causes its supply curve to shift from S1 to S2. Output of the good is below the socially optimum level. 14 The government of a country decides to increase the proportion of its tax revenue that it obtains from income tax and to reduce the proportion it obtains from indirect taxes. Which statement must be true? A B C D Output of the good is at the socially optimum level.

consumer prices % increase on a year earlier 6 4 2 0 1995 96 97 98 99 00 01 02 03 04 05 GDP % increase on a year earlier 6 4 2 0 1995 96 97 98 99 00 01 02 03 04 05 Which conclusion may be drawn from the graphs? A B C D Living standards remained roughly constant between 1995 and 2005. © UCLES 2008 9708/03/M/J/08 [Turn over www. What should the government do to try to ensure that this will result in an improvement in efficiency? A B C D allocate vouchers to all citizens entitling them to a share in the ownership of the monopoly encourage competition impose a maximum profit margin privatise the monopoly as a going concern 16 The graphs show how consumer prices and real GDP changed in a country between 1995 and 2005.7 15 A government decides to privatise a state monopoly.net . The level of GDP was lower in 2005 than in 2000. The country experienced continuous economic growth between 1995 and 2005. The price level fell between 2000 and 2003.xtremepapers.

year 1 ($m) GDP at market prices private consumption government consumption gross investment 630 480 160 20 year 2 ($m) 650 470 160 30 year 3 ($m) 680 480 150 40 In which of these years will the country be faced with a balance of trade deficit? year 1 A B C D no yes no yes year 2 no yes yes no year 3 yes no yes no 19 An economy is operating initially at its natural rate of unemployment.8 17 During a year. what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run A B C D no change no change reduction reduction long run no change reduction no change reduction © UCLES 2008 9708/03/M/J/08 www.net . prices increased by 4 % and total population increased by 2 %.xtremepapers. a country’s national income in money terms increased by 8 %. According to monetarist theory. What was the approximate change in real income per head? A B C D a decrease of 2 % nil an increase of 2 % an increase of 4 % 18 The table shows data on a country’s gross domestic product at market prices and on domestic spending.

9 20 In a closed economy. where C = consumption. the full employment level of income is $200 million. C = 3 4 Y. r = the rate of interest.net .xtremepapers. what rate of interest would be required for there to be full employment? A B C D 2 % per annum 4 % per annum 6 % per annum 8 % per annum 21 In the diagram. C1 shows the initial relationship between consumption and national income. I = $(50 – 5r) million. Y = income. C2 C1 consumption O national income What could cause the consumption function to shift to C2? A B C D an increase in exports an increase in investment a decrease in the rate of unemployment benefits a decrease in the standard rate of income tax © UCLES 2008 9708/03/M/J/08 [Turn over www. I = investment. If planned government expenditure is $30 million.

10 22 The diagram shows an aggregate demand curve (AD).xtremepapers. price level AD O X What is measured on the horizontal (X) axis? A B C D money national output nominal national income real disposable income real GDP 23 In a banking system. What will be the resulting increase in bank loans and the total increase in bank deposits? increase in bank loans A B C D $160 $160 $800 $1000 total increase in deposits $200 $360 $1000 $1000 24 What is likely to result in an increase in GDP per worker in a developing economy? A B C D an increase in the employment rate an increase in the population of working age a shift from working in subsistence agriculture to working in manufacturing a shift from working in manufacturing to working in subsistence agriculture © UCLES 2008 9708/03/M/J/08 www. Subsequent net withdrawals of cash from the banking system are zero. One bank receives a new cash deposit of $200.net . all banks maintain 20 % of deposits as cash.

capital formation and depreciation in four economies. which economy is most likely to experience economic growth? consumption ($ m) A B C D 100 500 1 000 20 000 capital formation ($ m) 20 200 1 200 5 000 depreciation ($ m) 10 200 1 400 6 000 27 The number of people employed in a country and the level of unemployment both increase.11 25 The diagram shows the market for loanable funds.xtremepapers. D2 D1 rate of interest E1 S1 S2 E2 O loanable funds Which changes could cause the equilibrium to move from E1 to E2? A B C D an increase in the propensity to save and an increase in bank lending the discovery of oil reserves and an increase in the propensity to save advances in technology and a decrease in bank lending a decrease in the propensity to save and the introduction of new products 26 The table shows the figures for consumption. What could make this possible? A B C D net inward immigration a decrease in the level of unemployment benefits a decrease in the age at which state pensions are payable an increase in the number of students © UCLES 2008 9708/03/M/J/08 [Turn over www. all measured in US $.net . Assuming that the state of technology remains unchanged.

Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. the publisher will be pleased to make amends at the earliest possible opportunity. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). It will reduce the amount of interest paid to foreign holders of the country’s financial assets. There will be an outflow of capital from the country. Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible.12 28 The diagram shows the relationship between the rate of inflation and the rate of unemployment. The resulting higher level of economic activity is likely to increase imports. J F inflation rate K G O unemployment rate What would cause the curve FG to shift to JK? A B C D a decrease in government expenditure a fall in the level of employment an increase in the rate of change of wages the expectation of an increase in inflation 29 Other things being equal. which is itself a department of the University of Cambridge.net . © UCLES 2008 9708/03/M/J/08 www. but if any items requiring clearance have unwittingly been included. University of Cambridge International Examinations is part of the Cambridge Assessment Group. what is likely to result from an increase in interest rates in a country? A B C D a capital outflow from the country a depreciation of the country’s currency a decrease in consumption an increase in investment 30 Why might a reduction in domestic interest rates improve the current account of a country’s balance of payments? A B C D It will cause an appreciation in the exchange rate.xtremepapers.

Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. C and D. A mark will not be deducted for a wrong answer. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.xtremepapers. highlighters. Do not use staples.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 May/June 2009 1 hour *0273803258* READ THESE INSTRUCTIONS FIRST Write in soft pencil. Each correct answer will score one mark. For each question there are four possible answers A. Any rough working should be done in this booklet. There are thirty questions on this paper. Answer all questions. Write your name. IB09 06_9708_03/4RP © UCLES 2009 [Turn over www. glue or correction fluid. Read the instructions on the Answer Sheet very carefully.net . paper clips. B. This document consists of 12 printed pages.

net .xtremepapers. The table shows the marginal utility derived by a consumer who devotes the whole of his weekly income of $42 to two goods X and Y. which quantities of X and Y should the consumer purchase? X A B C D 2 4 6 8 Y 6 5 4 3 © UCLES 2009 9708/03/M/J/09 www. It could produce its current level of output at a lower cost. It is operating below its cost-minimising level of output. It is productively inefficient. the firm is operating at point X on its long-run average cost curve. LRAC X cost O output Which statement about the firm is correct? A B C D 2 It is operating at its optimal level of output. whose unit prices are $3 and $6 respectively. unit 1 2 3 4 5 6 7 8 marginal utility of X (units) 12 11 10 9 8 7 6 5 marginal utility of Y (units) 34 30 26 22 18 14 10 6 In order to maximise his utility.2 1 In the diagram.

xtremepapers. There has been a decrease in the consumer’s real income. a firm has to increase its daily wage rate from $400 to $405. The price of good X has increased. $(000) wages and salaries opportunity cost of owner’s time materials rent marketing fees interest on bank loans interest forgone on finance provided by owner 150 40 80 30 20 25 15 By how much does total cost as defined by an economist exceed the total cost as defined by an accountant? A $15 000 B $40 000 C $55 000 D $85 000 [Turn over © UCLES 2009 9708/03/M/J/09 www. J G quantity of good Y O K quantity of good X H Which statement must be correct? A B C D 4 There has been an increase in the consumer’s money income. To increase its labour force from 100 to 101 workers.net . Good Y has become relatively more expensive.3 3 In the diagram a consumer’s budget line shifts from JK to GH. What is the marginal cost of labour per day? A $5 B $405 C $905 D $40 905 5 An economist calculates that a firm has incurred the following costs over the course of a year.

What could account for the change in its long-run average cost? A B C D 7 diminishing returns external diseconomies of scale managerial diseconomies of scale technical diseconomies of scale A firm estimates that. It is perfectly elastic. It is perfectly inelastic. MC costs. It is +1. an increase in its output will result in an equal proportionate increase in its revenue.net . 8 The diagram shows the initial cost and revenue curves of a profit-maximising monopolist. all else remaining unchanged.xtremepapers. revenue P AR MR O J K L M output What output will the firm produce if the government fixes the price at OP? A OJ B OK C OL D OM © UCLES 2009 9708/03/M/J/09 www. The firm builds a second plant identical to its first plant. What can be deduced from this about the price elasticity of demand for the firm’s product? A B C D It is –1.4 6 A manufacturing firm has one plant of optimum size. The firm then finds that its long-run average cost has risen.

but not of perfect competition? A B C D a small number of buyers product differentiation the existence of abnormal profits the existence of barriers to entry 10 Which assumption is essential for a market to be contestable? A B C D The market is supplied by a large number of firms. Its average revenue is less than its average cost. Its average revenue is less than its average variable cost.5 9 What is a feature of monopolistic competition.xtremepapers. cost Dindustry O output Which market structure is most likely to occur in this industry? A B C D monopolistic competition monopoly oligopoly perfect competition 12 In which circumstance will a firm cease production in the short run? A B C D It makes a profit that is less than its total variable costs. 11 The diagram shows the long-run average cost curve of a typical firm in an industry and the demand curve for the industry’s product. It makes a profit that is less than its total fixed costs. Firms cannot earn abnormal profits in the short run. LRACfirm Dindustry revenue. Firms produce differentiated goods.net . © UCLES 2009 9708/03/M/J/09 [Turn over www. Firms are free to enter and leave the market.

MC J revenue. S1 D N L K J S2 P1 price P2 O Q1 Q2 quantity Which area measures the resulting deadweight loss to society? A P1NKP2 B JKN C NLK D Q1Q2JN © UCLES 2009 9708/03/M/J/09 www. cost K M ATC AR MR O Q output What measures the monopoly profit per unit of output made by the firm? A JM B JK C JM × OQ D JK × OQ 14 In the diagram the introduction of a government subsidy causes an industry’s supply curve to shift from S1 to S2.6 13 The diagram shows the cost and revenue curves of a profit-maximising monopolist.xtremepapers.net .

7 15 A country’s national income per head increases. What could explain why this is accompanied by a fall in households’ standard of living? A B C D an increase in personal taxes an increase in the trade deficit an increase in population a rise in the exchange rate

16 Which of the following correctly identifies net leakages from the circular flow of income? trade surplus (exports - imports) A B C D     government budget deficit (government spending - taxes)     private sector surplus (saving - investment)    

17 According to monetarist theory, which policy objectives are in conflict in the short run, but not in the long run? A B C D economic growth and full employment economic growth and price stability price stability and full employment price stability and equilibrium in the balance of payments

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8 18 A country’s initial consumption function is C1.

C1 consumption C2

O

personal disposable income

What would be most likely to cause the consumption function to shift from C1 to C2? A B C D a decrease in personal disposable income a decrease in the expected future rates of income tax an increase in interest rates an increase in wealth

19 In a closed economy with no government C = 30 + 0.7Y, where C is consumption and Y is income. The equilibrium level of income is 300. What is the level of investment? A 60 B 100 C 210 D 270

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9 20 The diagram shows the saving and investment curves of a closed economy with no government.

K S J L 45° O YP output G H I

saving, investment

The potential level of output is OYP. Which distance measures the gap between actual and potential output? A LG B GH C JH D KJ

21 The diagram shows a country’s aggregate demand curve.

price level

AD 0 national output

What could explain why the curve slopes downwards? A B C D A fall in the price level increases the real value of money balances. A fall in the price level leads to an increase in interest rates. A fall in the price level leads to a rise in the real exchange rate. A fall in the price level leads to the expectation of a further decrease in the price level.

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10 22 According to Keynesian theory, in which circumstance would there always be an increase in the demand for money? real income A B C D increase constant increase constant price level decrease constant increase decrease interest rates increase increase decrease decrease

23 How is outward migration from a developing economy likely to affect its balance of payments? A B C D It may improve its balance of payments by increasing its export capacity. It may improve its balance of payments by increasing inflows of current transfers. It may worsen its balance of payments by causing a currency depreciation. It may worsen its balance of payments by increasing consumer expenditure on imported goods.

24 The table shows the figures for consumption, gross capital formation and depreciation in four economies, all measured in US $. Assuming that the state of technology remains unchanged, which economy is most likely to experience economic growth? economy consumption ($ m) 200 500 1 000 20 000 gross capital formation ($ m) 40 200 1 200 6 000 depreciation ($ m) 50 150 1 400 6 000

A B C D

25 Which change would best indicate that a country has experienced economic development? A B C D an improvement in the average citizen’s quality of life an increase in the country’s real GDP an improvement in the country’s trade balance an appreciation in the country’s currency

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11 26 Which combination of factors is most likely to result in more rapid economic growth? A B C D increases in employment and in the balance of payments deficit increases in the level of investment and in the size of the working population more equal distribution of wealth and a higher level of unemployment benefits more rapid inflation and an increase in the national debt

27 How might a developing economy gain from a multilateral reduction in import tariffs and the removal by developed economies of subsidies on food exports? A B C D through increased specialisation leading to higher productivity through increased ability to protect infant industries through a reduction in the cost to the economy of imported food through increased tariff revenues

28 An economy with a floating exchange rate is in recession and at the same time has a deficit on the current account of its balance of payments. Which policy combination would be most likely to help with both of these problems? interest rates A B C D decrease decrease increase increase tax rates unchanged increase unchanged increase

29 In 2004 China’s ability to exploit its comparative advantage in cotton production increased. What could explain this change? A B C D a fall in the value of the currency of India, a major cotton producer a reduction of the import quota on Chinese cotton into the European Union a rise in the wages of Brazilian cotton workers matched by an increase in their productivity the removal of the United States of America’s subsidy to its cotton growers

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12 30 In the diagram D is the demand curve for Indian tea exports and S1 is the initial supply curve.
D S2 S1 price x y O w

quantity

The Indian government imposes a tax on tea exports, which causes the supply curve to shift to S2. Which areas in the diagram measure the resulting gain in tax revenue to the Indian government and the resulting loss in producer surplus to its tea producers? gain in tax revenue A B C D x x+y x x+y loss in producer surplus w+y y y w+y

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

© UCLES 2009

9708/03/M/J/09

www.xtremepapers.net

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level

ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended)

9708/31
May/June 2010 1 hour

*6320949213*

READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, highlighters, glue or correction fluid. Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet.

This document consists of 13 printed pages and 3 blank pages.
IB10 06_9708_31/3RP © UCLES 2010

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www.XtremePapers.net

which quantity will he purchase if the price of the good is $10? A 4 kilos B 5 kilos C 6 kilos D 7 kilos © UCLES 2010 9708/31/M/J/10 www. An economy is productively efficient when it is producing at a point on its production possibility curve.XtremePapers. Productive efficiency occurs when the prices of goods equal their marginal cost of production. An economy will improve its allocative efficiency when its production possibility curve moves outward.net . 2 The diagram shows the marginal utility (MU) that an individual derives from a good at different levels of consumption. Assuming the marginal utility of money is constant. 80 70 60 50 utility 40 (units) 30 20 10 0 1 2 3 4 5 6 quantity (kilos) 7 8 MU The utility he derives from the last $ he spends on every good is 3 units.2 1 Which is a correct statement about efficiency? A B C D Allocative efficiency occurs when marginal revenue equals marginal cost.

What could cause the demand curve for labour to shift to the left? A B C D a decrease in immigration a decrease in labour productivity a fall in real wages a rise in the money wage rate © UCLES 2010 9708/31/M/J/10 [Turn over www. J G good Y O K good X H Which statement must be correct? A B C D 4 The price of good X has increased relative to the price of good Y.3 3 In the diagram a consumer’s budget line shifts from GH to JK. There has been an increase in the consumer’s real income.net .XtremePapers. There has been an increase in the consumer’s money income. The prices of both goods have fallen.

XtremePapers. What could explain this? A B C D The demand for the firm’s product is price-elastic. There is a high degree of substitutability between capital and labour. S1 S2 wage rate O hours of work What could cause the curve to shift from S1 to S2? A B C D 6 a decrease in the hourly wage rate a decrease in work satisfaction a decrease in the opportunity cost of leisure a decreased preference for leisure A firm’s workers join a trade union which negotiates an increase in the workers’ wage rate. The firm operates in a perfectly competitive labour market. The firm is a monopsonist within its local labour market. units of X marginal cost ($) 1 40 2 30 3 30 4 60 5 120 Given that the total fixed cost is $20.4 5 In the diagram S1 is an individual worker’s supply of labour curve. 7 The schedule shows the short-run marginal cost of producing good X. what level of output minimises average total cost? A 2 units B 3 units C 4 units D 5 units © UCLES 2010 9708/31/M/J/10 www. The increase in the wage rate results in an increase in the number employed by the firm.net .

The airline industry’s capacity to expand its operations in the short-run is limited.XtremePapers.5 8 Which is an example of an external diseconomy? A B C D 9 difficulties in co-ordinating activities in a large organisation difficulties in motivating workers in a large organisation higher transport costs as a firm’s market expands increased traffic congestion as industries expand The diagram shows a firm’s demand curve and its marginal revenue curve.25 B 0. There is no effective substitute for air travel for journeys between Singapore and Sydney.net . why is it likely that the market for air travel on the Singapore-Sydney route would be highly contestable? A B C D An airline entering the market would lose little if it later exited that market.5 C 1 D 2 10 In the absence of regulation. P price D O MR quantity What is the approximate price elasticity of demand at price OP? A 0. © UCLES 2010 9708/31/M/J/10 [Turn over www. The demand for air travel on the Singapore-Sydney route is price-elastic.

70 12 The diagram shows a firm’s marginal and average cost curves. The firm is allocated a production quota.6 11 The table shows information about a profit-maximising firm. Oq. output price per unit fixed costs variable costs per unit What should the firm do? A B C D close down immediately because it is not covering its fixed costs close down immediately because it is not covering its average costs close down immediately because it is not covering its total costs continue production in the short run because it is covering its variable costs 17 000 units $1. What is its short-run increase in profits? A B C D PGKL PHJL PHJL minus PGNM PGKL minus LKNM © UCLES 2010 9708/31/M/J/10 www. It is agreed that each firm will charge a common price.75 $10 000 $1. MC P $ L M K N J G H AC O q quantity The firm decides to cheat in order to maximise its profits. and will restrict the level of its output to a production quota set by the industry cartel.net .XtremePapers. OP. The firm enters a collusive agreement with other firms in the industry.

XtremePapers. Producer surplus will be reduced by the amount of the deadweight loss. 14 A government requires all its young citizens to undertake community service for a period of 6 months. What effect will this have on recorded GDP and on national welfare? effect on GDP A B C D reduction reduction unchanged unchanged effect on national welfare increase uncertain increase uncertain 15 Between 2008 and 2009 a country’s national income at current prices increased by 15 %. What is likely to happen? A B C D Consumer surplus will be reduced by the amount of the deadweight loss. The wages paid to those on the community service are below what they would otherwise have earned. At the same time the country experienced 5 % inflation. Which index number most closely represents the country’s national income in 2009 at 2008 prices (2008 = 100)? A 103 B 110 C 115 D 120 © UCLES 2010 9708/31/M/J/10 [Turn over www.net . The loss in consumer surplus will be balanced by the increase in producer surplus. There will be a transfer of surplus from consumer to producer.7 13 A competitive market becomes a monopoly.

net . The velocity of circulation of money is unstable over time. Narrow money 12 9 % 6 3 0 –3 key 2004 2005 2006 Euro area Britain Broad money Japan United States 16 12 % 8 4 0 2004 2005 2006 Which is the only area to have experienced a contraction in either of its measures of money supply? A B C D Euro area Britain Japan United States 17 What is a central assertion of monetarist economics? A B C D Fiscal policy should be used for the continuous management of the economy.XtremePapers. © UCLES 2010 9708/31/M/J/10 www.8 16 The diagram shows changes in broad and narrow measures of money supply between 2004 and 2006. Major recessions can occur despite an unchanged money supply. The money supply is the main determinant of aggregate monetary expenditure.

C consumption 45° O Y income What can be concluded from the diagram? A B C D At income levels below OY. The equilibrium level of income is OY.XtremePapers.net . © UCLES 2010 9708/31/M/J/10 [Turn over www. The marginal propensity to consume increases as income increases. C2 C1 household consumption O household income What would be likely to cause the household consumption curve to shift from C1 to C2? A B C D a decrease in household income a decrease in the value of household assets an increase in interest rates an increase in the expected future level of household income 19 The diagram shows a consumption function for a closed economy with no government. there is an inflationary gap.9 18 The diagram shows the relationship between household income and household consumption. At income levels below OY. saving is negative.

an economy is in equilibrium below full employment. Out of every increase of $100 in national income. To raise national income to the full employment level of $50 000 million.XtremePapers.net . AS1 AS2 price level 0 national output What will cause the aggregate supply curve to shift from AS1 to AS2? A B C D an increase in consumer spending an increase in inflation an increase in productivity an increase in net exports © UCLES 2010 9708/31/M/J/10 www.10 20 When national income equals $40 000 million and government spending equals $15 000 million. $15 is taken in taxes. $30 is spent on imports and $5 is saved. to which level will the government need to raise its own spending? A B C D $15 500 million $20 000 million $25 000 million $35 000 million 21 In the diagram AS1 is an economy’s long-run aggregate supply curve.

They produce a narrower range of goods than developed economies. © UCLES 2010 9708/31/M/J/10 [Turn over www. They impose lower barriers on imports than developed economies. increases the transactions demand for money. reduces the income velocity of circulation. D1 D2 rate of interest E2 S2 S1 E1 O loanable funds Which changes could cause the equilibrium in the market for loanable funds to move from E1 to E2? A B C D a decrease in bank lending combined with a decrease in business confidence a decrease in the money supply combined with an increase in the propensity to consume an increase in bank lending combined with an increase in the productivity of capital an increase in the money supply combined with a decrease in the productivity of labour 23 If the money supply is fixed.11 22 The diagram shows the demand curves and supply curves of loanable funds. raises the liquidity preference schedule.XtremePapers. They produce goods with a low income elasticity of demand. a decrease in economic activity A B C D increases interest rates. 24 What could explain why the terms of trade of most developing economies tend to worsen over time? A B C D Their currencies are over-valued in foreign exchange markets.net .

net . According to monetarist theory.XtremePapers. what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run A B C D no change no change reduction reduction long run no change reduction no change reduction 26 The diagram shows the relationship between the rate of increase in wages and the rate of unemployment.12 25 An economy is operating at its natural rate of unemployment. rate of increase in wages O rate of unemployment What would be likely to cause the curve in the diagram to shift downwards and to the left? A B C D a reduction in regional differences in unemployment rates an increase in the proportion of the workforce belonging to trade unions an increase in the unemployment rate the expectation of a higher rate of inflation 27 Which policy is most likely to reduce a balance of payments deficit without causing inflation? A B C D a devaluation of the exchange rate an increase in import tariffs an increase in indirect taxes an increase in direct taxes © UCLES 2010 9708/31/M/J/10 www.

Which method of financing an increase in government expenditure is likely to have the greatest expansionary effect? A B C D borrowing from the central bank borrowing from the non-bank private sector increased direct taxation increased indirect taxation 30 What will be the impact of an increase in marginal tax rates? A B C D an increase in the propensity to save an increase in the value of the investment multiplier a strengthening of work incentives a strengthening in the operation of automatic stabilisers © UCLES 2010 9708/31/M/J/10 www.XtremePapers.net .13 28 Which is most likely to result in an increase in the natural rate of unemployment? A B C D a decrease in government expenditure on goods and services a decrease in the level of government payments to the unemployed an increase in trade union membership an increase in interest rates 29 An economy has underemployed resources.

net .14 BLANK PAGE © UCLES 2010 9708/31/M/J/10 www.XtremePapers.

15 BLANK PAGE © UCLES 2010 9708/31/M/J/10 www.XtremePapers.net .

University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. © UCLES 2010 9708/31/M/J/10 www. which is itself a department of the University of Cambridge. but if any items requiring clearance have unwittingly been included.16 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. the publisher will be pleased to make amends at the earliest possible opportunity.net .XtremePapers.

Read the instructions on the Answer Sheet very carefully. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. C and D. Do not use staples. Each correct answer will score one mark. glue or correction fluid. For each question there are four possible answers A. This document consists of 12 printed pages. Any rough working should be done in this booklet. B. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.net . There are thirty questions on this paper.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/32 May/June 2010 1 hour *4259294012* READ THESE INSTRUCTIONS FIRST Write in soft pencil. Answer all questions.XtremePapers. highlighters. Write your name. paper clips. IB10 06_9708_32/FP © UCLES 2010 [Turn over www. A mark will not be deducted for a wrong answer.

J G good Y O K good X H Which statement must be correct? A B C D The price of good X has increased relative to the price of good Y. © UCLES 2010 9708/32/M/J/10 www. The prices of both goods have fallen.XtremePapers. which quantity will he purchase if the price of the good is $10? A 2 4 kilos B 5 kilos C 6 kilos D 7 kilos In the diagram a consumer’s budget line shifts from GH to JK. Assuming the marginal utility of money is constant. 80 70 60 50 utility 40 (units) 30 20 10 0 1 2 3 4 5 6 quantity (kilos) 7 8 MU The utility he derives from the last $ he spends on every good is 3 units. There has been an increase in the consumer’s real income. There has been an increase in the consumer’s money income.net .2 1 The diagram shows the marginal utility (MU) that an individual derives from a good at different levels of consumption.

net . © UCLES 2010 9708/32/M/J/10 [Turn over www.3 3 What could cause the demand curve for labour to shift to the left? A B C D 4 a decrease in immigration a decrease in labour productivity a fall in real wages a rise in the money wage rate In the diagram S1 is an individual worker’s supply of labour curve. What could explain this? A B C D The demand for the firm’s product is price-elastic. The firm is a monopsonist within its local labour market. The firm operates in a perfectly competitive labour market.XtremePapers. There is a high degree of substitutability between capital and labour. The increase in the wage rate results in an increase in the number employed by the firm. S1 S2 wage rate O hours of work What could cause the curve to shift from S1 to S2? A B C D 5 a decrease in the hourly wage rate a decrease in work satisfaction a decrease in the opportunity cost of leisure a decreased preference for leisure A firm’s workers join a trade union which negotiates an increase in the workers’ wage rate.

There is no effective substitute for air travel for journeys between Singapore and Sydney.XtremePapers. The demand for air travel on the Singapore-Sydney route is price-elastic. why is it likely that the market for air travel on the Singapore-Sydney route would be highly contestable? A B C D An airline entering the market would lose little if it later exited that market. The airline industry’s capacity to expand its operations in the short-run is limited.4 6 The schedule shows the short-run marginal cost of producing good X.5 C 1 D 2 In the absence of regulation. units of X marginal cost ($) 1 40 2 30 3 30 4 60 5 120 Given that the total fixed cost is $20.net . © UCLES 2010 9708/32/M/J/10 www. what level of output minimises average total cost? A 7 2 units B 3 units C 4 units D 5 units Which is an example of an external diseconomy? A B C D difficulties in co-ordinating activities in a large organisation difficulties in motivating workers in a large organisation higher transport costs as a firm’s market expands increased traffic congestion as industries expand 8 The diagram shows a firm’s demand curve and its marginal revenue curve. P price D O MR quantity What is the approximate price elasticity of demand at price OP? A 9 0.25 B 0.

What is its short-run increase in profits? A B C D PGKL PHJL PHJL minus PGNM PGKL minus LKNM © UCLES 2010 9708/32/M/J/10 [Turn over www. It is agreed that each firm will charge a common price. and will restrict the level of its output to a production quota set by the industry cartel. Oq.net . The firm enters a collusive agreement with other firms in the industry.70 11 The diagram shows a firm’s marginal and average cost curves. OP. The firm is allocated a production quota.XtremePapers. output price per unit fixed costs variable costs per unit What should the firm do? A B C D close down immediately because it is not covering its fixed costs close down immediately because it is not covering its average costs close down immediately because it is not covering its total costs continue production in the short run because it is covering its variable costs 17 000 units $1. MC P $ L M K N J G H AC O q quantity The firm decides to cheat in order to maximise its profits.5 10 The table shows information about a profit-maximising firm.75 $10 000 $1.

net . What effect will this have on recorded GDP and on national welfare? effect on GDP A B C D reduction reduction unchanged unchanged effect on national welfare increase uncertain increase uncertain 14 Between 2008 and 2009 a country’s national income at current prices increased by 15 %. At the same time the country experienced 5 % inflation. 13 A government requires all its young citizens to undertake community service for a period of 6 months. There will be a transfer of surplus from consumer to producer.6 12 A competitive market becomes a monopoly. What is likely to happen? A B C D Consumer surplus will be reduced by the amount of the deadweight loss. The loss in consumer surplus will be balanced by the increase in producer surplus.XtremePapers. Producer surplus will be reduced by the amount of the deadweight loss. Which index number most closely represents the country’s national income in 2009 at 2008 prices (2008 = 100)? A 103 B 110 C 115 D 120 © UCLES 2010 9708/32/M/J/10 www. The wages paid to those on the community service are below what they would otherwise have earned.

net . Major recessions can occur despite an unchanged money supply.XtremePapers. © UCLES 2010 9708/32/M/J/10 [Turn over www.7 15 The diagram shows changes in broad and narrow measures of money supply between 2004 and 2006. The velocity of circulation of money is unstable over time. Narrow money 12 9 % 6 3 0 –3 key 2004 2005 2006 Euro area Britain Broad money Japan United States 16 12 % 8 4 0 2004 2005 2006 Which is the only area to have experienced a contraction in either of its measures of money supply? A B C D Euro area Britain Japan United States 16 What is a central assertion of monetarist economics? A B C D Fiscal policy should be used for the continuous management of the economy. The money supply is the main determinant of aggregate monetary expenditure.

C2 C1 household consumption O household income What would be likely to cause the household consumption curve to shift from C1 to C2? A B C D a decrease in household income a decrease in the value of household assets an increase in interest rates an increase in the expected future level of household income 18 The diagram shows a consumption function for a closed economy with no government. there is an inflationary gap. C consumption 45° O Y income What can be concluded from the diagram? A B C D At income levels below OY. The equilibrium level of income is OY. © UCLES 2010 9708/32/M/J/10 www.XtremePapers.net . saving is negative.8 17 The diagram shows the relationship between household income and household consumption. At income levels below OY. The marginal propensity to consume increases as income increases.

$30 is spent on imports and $5 is saved.XtremePapers. AS1 AS2 price level 0 national output What will cause the aggregate supply curve to shift from AS1 to AS2? A B C D an increase in consumer spending an increase in inflation an increase in productivity an increase in net exports © UCLES 2010 9708/32/M/J/10 [Turn over www. To raise national income to the full employment level of $50 000 million. $15 is taken in taxes.net .9 19 When national income equals $40 000 million and government spending equals $15 000 million. to which level will the government need to raise its own spending? A B C D $15 500 million $20 000 million $25 000 million $35 000 million 20 In the diagram AS1 is an economy’s long-run aggregate supply curve. Out of every increase of $100 in national income. an economy is in equilibrium below full employment.

XtremePapers. They impose lower barriers on imports than developed economies. a decrease in economic activity A B C D increases interest rates. © UCLES 2010 9708/32/M/J/10 www. raises the liquidity preference schedule. They produce goods with a low income elasticity of demand.10 21 The diagram shows the demand curves and supply curves of loanable funds. 23 What could explain why the terms of trade of most developing economies tend to worsen over time? A B C D Their currencies are over-valued in foreign exchange markets. They produce a narrower range of goods than developed economies. reduces the income velocity of circulation. D1 D2 rate of interest E2 S2 S1 E1 O loanable funds Which changes could cause the equilibrium in the market for loanable funds to move from E1 to E2? A B C D a decrease in bank lending combined with a decrease in business confidence a decrease in the money supply combined with an increase in the propensity to consume an increase in bank lending combined with an increase in the productivity of capital an increase in the money supply combined with a decrease in the productivity of labour 22 If the money supply is fixed. increases the transactions demand for money.net .

XtremePapers. what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run A B C D no change no change reduction reduction long run no change reduction no change reduction 25 The diagram shows the relationship between the rate of increase in wages and the rate of unemployment.11 24 An economy is operating at its natural rate of unemployment. rate of increase in wages O rate of unemployment What would be likely to cause the curve in the diagram to shift downwards and to the left? A B C D a reduction in regional differences in unemployment rates an increase in the proportion of the workforce belonging to trade unions an increase in the unemployment rate the expectation of a higher rate of inflation 26 Which policy is most likely to reduce a balance of payments deficit without causing inflation? A B C D a devaluation of the exchange rate an increase in import tariffs an increase in indirect taxes an increase in direct taxes © UCLES 2010 9708/32/M/J/10 [Turn over www. According to monetarist theory.net .

XtremePapers. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). which is itself a department of the University of Cambridge. University of Cambridge International Examinations is part of the Cambridge Assessment Group. An economy is productively efficient when it is producing at a point on its production possibility curve. Which method of financing an increase in government expenditure is likely to have the greatest expansionary effect? A B C D borrowing from the central bank borrowing from the non-bank private sector increased direct taxation increased indirect taxation 29 What will be the impact of an increase in marginal tax rates? A B C D an increase in the propensity to save an increase in the value of the investment multiplier a strengthening of work incentives a strengthening in the operation of automatic stabilisers 30 Which is a correct statement about efficiency? A B C D Allocative efficiency occurs when marginal revenue equals marginal cost. but if any items requiring clearance have unwittingly been included. Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible.12 27 Which is most likely to result in an increase in the natural rate of unemployment? A B C D a decrease in government expenditure on goods and services a decrease in the level of government payments to the unemployed an increase in trade union membership an increase in interest rates 28 An economy has underemployed resources. the publisher will be pleased to make amends at the earliest possible opportunity.net . An economy will improve its allocative efficiency when its production possibility curve moves outward. Productive efficiency occurs when the prices of goods equal their marginal cost of production. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. © UCLES 2010 9708/32/M/J/10 www.

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level

ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended)

9708/33
May/June 2010 1 hour

*3794987075*

READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, highlighters, glue or correction fluid. Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet.

This document consists of 12 printed pages.
IB10 06_9708_33/FP © UCLES 2010

[Turn over

www.XtremePapers.net

2 1 The diagram shows the marginal utility (MU) that an individual derives from a good at different levels of consumption.

80 70 60 50 utility 40 (units) 30 20 10 0 1 2 3 4 5 6 quantity (kilos) 7 8

MU

The utility he derives from the last $ he spends on every good is 3 units. Assuming the marginal utility of money is constant, which quantity will he purchase if the price of the good is $10? A 2 4 kilos B 5 kilos C 6 kilos D 7 kilos

In the diagram a consumer’s budget line shifts from GH to JK.
J G good Y

O

K good X

H

Which statement must be correct? A B C D The price of good X has increased relative to the price of good Y. The prices of both goods have fallen. There has been an increase in the consumer’s real income. There has been an increase in the consumer’s money income.

© UCLES 2010

9708/33/M/J/10

www.XtremePapers.net

3 3 What could cause the demand curve for labour to shift to the left? A B C D 4 a decrease in immigration a decrease in labour productivity a fall in real wages a rise in the money wage rate

In the diagram S1 is an individual worker’s supply of labour curve.

S1 S2 wage rate

O

hours of work

What could cause the curve to shift from S1 to S2? A B C D 5 a decrease in the hourly wage rate a decrease in work satisfaction a decrease in the opportunity cost of leisure a decreased preference for leisure

A firm’s workers join a trade union which negotiates an increase in the workers’ wage rate. The increase in the wage rate results in an increase in the number employed by the firm. What could explain this? A B C D The demand for the firm’s product is price-elastic. The firm is a monopsonist within its local labour market. The firm operates in a perfectly competitive labour market. There is a high degree of substitutability between capital and labour.

© UCLES 2010

9708/33/M/J/10

[Turn over

www.XtremePapers.net

4 6 The schedule shows the short-run marginal cost of producing good X. units of X marginal cost ($) 1 40 2 30 3 30 4 60 5 120

Given that the total fixed cost is $20, what level of output minimises average total cost? A 7 2 units B 3 units C 4 units D 5 units

Which is an example of an external diseconomy? A B C D difficulties in co-ordinating activities in a large organisation difficulties in motivating workers in a large organisation higher transport costs as a firm’s market expands increased traffic congestion as industries expand

8

The diagram shows a firm’s demand curve and its marginal revenue curve.

P price

D O MR quantity

What is the approximate price elasticity of demand at price OP? A 9 0.25 B 0.5 C 1 D 2

In the absence of regulation, why is it likely that the market for air travel on the Singapore-Sydney route would be highly contestable? A B C D An airline entering the market would lose little if it later exited that market. The airline industry’s capacity to expand its operations in the short-run is limited. The demand for air travel on the Singapore-Sydney route is price-elastic. There is no effective substitute for air travel for journeys between Singapore and Sydney.

© UCLES 2010

9708/33/M/J/10

www.XtremePapers.net

5 10 The table shows information about a profit-maximising firm. output price per unit fixed costs variable costs per unit What should the firm do? A B C D close down immediately because it is not covering its fixed costs close down immediately because it is not covering its average costs close down immediately because it is not covering its total costs continue production in the short run because it is covering its variable costs 17 000 units $1.75 $10 000 $1.70

11 The diagram shows a firm’s marginal and average cost curves. The firm enters a collusive agreement with other firms in the industry. It is agreed that each firm will charge a common price, OP, and will restrict the level of its output to a production quota set by the industry cartel. The firm is allocated a production quota, Oq.

MC P $ L M K N J G H

AC

O

q quantity

The firm decides to cheat in order to maximise its profits. What is its short-run increase in profits? A B C D PGKL PHJL PHJL minus PGNM PGKL minus LKNM

© UCLES 2010

9708/33/M/J/10

[Turn over

www.XtremePapers.net

6 12 A competitive market becomes a monopoly. What is likely to happen? A B C D Consumer surplus will be reduced by the amount of the deadweight loss. Producer surplus will be reduced by the amount of the deadweight loss. The loss in consumer surplus will be balanced by the increase in producer surplus. There will be a transfer of surplus from consumer to producer.

13 A government requires all its young citizens to undertake community service for a period of 6 months. The wages paid to those on the community service are below what they would otherwise have earned. What effect will this have on recorded GDP and on national welfare? effect on GDP A B C D reduction reduction unchanged unchanged effect on national welfare increase uncertain increase uncertain

14 Between 2008 and 2009 a country’s national income at current prices increased by 15 %. At the same time the country experienced 5 % inflation. Which index number most closely represents the country’s national income in 2009 at 2008 prices (2008 = 100)? A 103 B 110 C 115 D 120

© UCLES 2010

9708/33/M/J/10

www.XtremePapers.net

7 15 The diagram shows changes in broad and narrow measures of money supply between 2004 and 2006.

Narrow money 12 9 % 6 3 0 –3

key 2004 2005 2006 Euro area Britain Broad money Japan United States

16 12 % 8 4 0 2004 2005 2006

Which is the only area to have experienced a contraction in either of its measures of money supply? A B C D Euro area Britain Japan United States

16 What is a central assertion of monetarist economics? A B C D Fiscal policy should be used for the continuous management of the economy. Major recessions can occur despite an unchanged money supply. The money supply is the main determinant of aggregate monetary expenditure. The velocity of circulation of money is unstable over time.

© UCLES 2010

9708/33/M/J/10

[Turn over

www.XtremePapers.net

C2 C1 household consumption O household income What would be likely to cause the household consumption curve to shift from C1 to C2? A B C D a decrease in household income a decrease in the value of household assets an increase in interest rates an increase in the expected future level of household income 18 The diagram shows a consumption function for a closed economy with no government. The marginal propensity to consume increases as income increases.XtremePapers. there is an inflationary gap. C consumption 45° O Y income What can be concluded from the diagram? A B C D At income levels below OY.net . saving is negative. © UCLES 2010 9708/33/M/J/10 www.8 17 The diagram shows the relationship between household income and household consumption. The equilibrium level of income is OY. At income levels below OY.

to which level will the government need to raise its own spending? A B C D $15 500 million $20 000 million $25 000 million $35 000 million 20 In the diagram AS1 is an economy’s long-run aggregate supply curve. Out of every increase of $100 in national income.net .9 19 When national income equals $40 000 million and government spending equals $15 000 million. To raise national income to the full employment level of $50 000 million. AS1 AS2 price level 0 national output What will cause the aggregate supply curve to shift from AS1 to AS2? A B C D an increase in consumer spending an increase in inflation an increase in productivity an increase in net exports © UCLES 2010 9708/33/M/J/10 [Turn over www.XtremePapers. an economy is in equilibrium below full employment. $30 is spent on imports and $5 is saved. $15 is taken in taxes.

They produce a narrower range of goods than developed economies. They produce goods with a low income elasticity of demand.net . 23 What could explain why the terms of trade of most developing economies tend to worsen over time? A B C D Their currencies are over-valued in foreign exchange markets. They impose lower barriers on imports than developed economies. raises the liquidity preference schedule.10 21 The diagram shows the demand curves and supply curves of loanable funds. © UCLES 2010 9708/33/M/J/10 www. reduces the income velocity of circulation. a decrease in economic activity A B C D increases interest rates.XtremePapers. increases the transactions demand for money. D1 D2 rate of interest E2 S2 S1 E1 O loanable funds Which changes could cause the equilibrium in the market for loanable funds to move from E1 to E2? A B C D a decrease in bank lending combined with a decrease in business confidence a decrease in the money supply combined with an increase in the propensity to consume an increase in bank lending combined with an increase in the productivity of capital an increase in the money supply combined with a decrease in the productivity of labour 22 If the money supply is fixed.

rate of increase in wages O rate of unemployment What would be likely to cause the curve in the diagram to shift downwards and to the left? A B C D a reduction in regional differences in unemployment rates an increase in the proportion of the workforce belonging to trade unions an increase in the unemployment rate the expectation of a higher rate of inflation 26 Which policy is most likely to reduce a balance of payments deficit without causing inflation? A B C D a devaluation of the exchange rate an increase in import tariffs an increase in indirect taxes an increase in direct taxes © UCLES 2010 9708/33/M/J/10 [Turn over www. According to monetarist theory.11 24 An economy is operating at its natural rate of unemployment.XtremePapers.net . what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run A B C D no change no change reduction reduction long run no change reduction no change reduction 25 The diagram shows the relationship between the rate of increase in wages and the rate of unemployment.

12 27 Which is most likely to result in an increase in the natural rate of unemployment? A B C D a decrease in government expenditure on goods and services a decrease in the level of government payments to the unemployed an increase in trade union membership an increase in interest rates 28 An economy has underemployed resources. but if any items requiring clearance have unwittingly been included. Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. An economy will improve its allocative efficiency when its production possibility curve moves outward. An economy is productively efficient when it is producing at a point on its production possibility curve. Which method of financing an increase in government expenditure is likely to have the greatest expansionary effect? A B C D borrowing from the central bank borrowing from the non-bank private sector increased direct taxation increased indirect taxation 29 What will be the impact of an increase in marginal tax rates? A B C D an increase in the propensity to save an increase in the value of the investment multiplier a strengthening of work incentives a strengthening in the operation of automatic stabilisers 30 Which is a correct statement about efficiency? A B C D Allocative efficiency occurs when marginal revenue equals marginal cost. the publisher will be pleased to make amends at the earliest possible opportunity. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). University of Cambridge International Examinations is part of the Cambridge Assessment Group. which is itself a department of the University of Cambridge.net . © UCLES 2010 9708/33/M/J/10 www.XtremePapers. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. Productive efficiency occurs when the prices of goods equal their marginal cost of production.

XtremePapers. Do not use staples.net . Read the instructions on the Answer Sheet very carefully. Write your name. Answer all questions. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet. This document consists of 12 printed pages. There are thirty questions on this paper. paper clips. highlighters.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) 9708/31 May/June 2011 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) *7419926131* READ THESE INSTRUCTIONS FIRST Write in soft pencil. Each correct answer will score one mark. glue or correction fluid. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. IB11 06_9708_31/4RP © UCLES 2011 [Turn over www. C and D. B. For each question there are four possible answers A. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.

XtremePapers. G may be economically efficient but is not productively efficient.net . LM is an economy’s production possibility curve.2 1 In the diagram. H is productively efficient but may not be economically efficient. L G good X F H O E good Y M Which statement is correct? A B C D E only is attainable. Up to what point should he continue to consume each good? A B C D until the marginal utility per dollar from each good is the same until the marginal utility from each good is the same until the marginal utility from each good reaches a maximum until the marginal utility from each good is zero © UCLES 2011 9708/31/M/J/11 www. F is economically efficient. 2 A consumer seeks to maximise his utility.

There will be more competition for places on training courses to enter occupation X than occupation Y. what could explain a shift in the consumer’s budget line to GH? consumer’s money income decrease increase decrease increase price of good Y A B C D decrease decrease increase increase 4 The table shows the main characteristics of employment in two occupations.net .3 3 In the diagram. Occupation Y has greater non-pecuniary advantages than occupation X.XtremePapers. Those employed in occupation X attach less importance to leisure activities. a consumer’s initial budget line is JK. G J good Y O good X H K Assuming no change in the price of X. occupation X average annual wage number of weeks annual leave average length of working week job security length of training course to obtain job qualification What can definitely be deduced from the table? A B C Those employed in occupation Y attach greater importance to job security. $100 000 5 weeks 48 hours low 1 year occupation Y $60 000 10 weeks 44 hours high 2 years D © UCLES 2011 9708/31/M/J/11 [Turn over www.

net .XtremePapers.4 5 Which diagram correctly shows the relationship between the average product (AP) and the marginal product (MP) of labour given that the quantities of other factor inputs remain constant? A MP AP B product product MP AP O labour O labour C MP D AP product AP MP O labour product O labour 6 What is the name for the relationship between a firm’s output and the quantities of factor inputs that it employs? A B C D a long-run average cost function a long-run production function productive efficiency returns to scale © UCLES 2011 9708/31/M/J/11 www.

XtremePapers.5 over the relevant range.net . S W wage rate D O L M N employment Initially the industry’s labour market is in equilibrium. What will be the government’s weekly tax revenue? A $15 B $85 C $100 D $150 9 What is the likely outcome for producers and consumers when a market moves from being non-contestable to being a contestable market? producers A B C D gain from higher prices gain from likely higher profits lose from likely lower output lose from likely lower profits consumers gain from a wider choice of products lose from likely higher prices lose from a reduced choice of products gain from likely lower prices © UCLES 2011 9708/31/M/J/11 [Turn over www. It will increase by an amount LN. 8 A product with infinite elasticity of supply has sales of 1000 units a week at a price of $1 per unit. What effect will the introduction of a minimum wage OW have on the level of employment in the industry? A B C D It will decrease by an amount LM. It will decrease by an amount LN. The government imposes a tax of 10 %.5 7 The diagram shows the supply and demand for labour in an industry. Price elasticity of demand is 1. It will increase by an amount MN.

It will prevent the rationing of electricity through power cuts. Which area measures the resulting reduction in the deadweight loss? A x + y only B x+y+z C y only D z only 12 A government imposes a maximum price for electricity. MSC MPC + tax x z costs. © UCLES 2011 9708/31/M/J/11 www. what should the firm do? A B C D charge a higher price to consumers earning higher incomes charge a higher price to consumers earning lower incomes charge a higher price to consumers whose demand for the product is price inelastic charge a higher price to consumers whose demand for the product is price elastic 11 The diagram shows the private and social marginal costs and benefits at different volumes of traffic.6 10 A firm is engaging in price discrimination.XtremePapers. Which statement justifying this measure might be considered valid on economic grounds? A B C D It will encourage electricity suppliers to invest in additional capacity. It will prevent the monopolistic exploitation of consumers. In order to maximise profits. It will increase the incentive for consumers to conserve energy.net . benefits y MPC MPB = MSB O volume of traffic The imposition of a congestion tax raises the MPC curve to MPC + tax.

According to monetarist theory. how much of their income they save and which goods and services they buy.XtremePapers.net . what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run A B C D no change no change reduction reduction long run no change reduction no change reduction © UCLES 2011 9708/31/M/J/11 [Turn over www. year 1 ($m) GNP at market prices private consumption government consumption gross investment 420 200 120 90 year 2 ($m) 440 260 120 80 year 3 ($m) 560 300 140 130 In which of these years will the country be faced with a deficit on the current account of the balance of payments? year 1 A B C D     year 2     year 3     15 An economy is operating at its natural rate of unemployment. Which type of tax will not distort the choices individuals make? A B C D a tax levied on the wealth accumulated by individuals a uniform tax which raises the same fixed amount from all individuals indirect taxes on specific goods proportional income taxes 14 The table shows data on a country’s gross national product at market prices and on domestic spending.7 13 Individuals are free to choose the number of hours they work.

what will result in a decrease in aggregate demand? A B C D a decrease in interest rates a decrease in the balance of trade deficit a decrease in the government’s budget deficit a decrease in the household saving ratio © UCLES 2011 9708/31/M/J/11 www.net . C consumption 45° O personal disposable income As income increases. what happens to the average propensity to save and the marginal propensity to save? average propensity to save A B C D decreases decreases increases increases marginal propensity to save decreases increases decreases increases 18 Other things being equal.XtremePapers.8 16 What will reduce the value of the investment multiplier? A B C D a low marginal propensity to import automatic stabilisers low marginal tax rates low rates of unemployment benefit 17 The diagram shows a consumption function.

9 19 What will expand the money supply in an open economy? A B C D a current account balance of payments deficit an increase in the cash reserve ratio of commercial banks government borrowing from domestic residents government intervention to prevent an appreciation in the foreign exchange value of domestic currency 20 According to Keynesian theory.XtremePapers.net . in which circumstance will there always be an increase in the demand for money? real income A B C D constant constant increase increase price level decrease increase decrease increase interest rates increase decrease decrease increase 21 Which characteristics are usually found in developing countries? saving ratio A B C D low high low high capital output ratio low low high high 22 Which cause of economic growth would involve the least cost for present and future generations of a country’s population? A B C D increased exploitation of a country’s mineral resources investment financed by borrowing from abroad investment financed by high rates of domestic savings technological innovations in productive processes © UCLES 2011 9708/31/M/J/11 [Turn over www.

F J inflation rate G K O unemployment rate What would cause the curve FG to shift to JK? A B C D a lower exchange rate a lower expected rate of inflation an increase in government expenditure a rise in the level of employment © UCLES 2011 9708/31/M/J/11 www.33 4. economic target real GDP growth (average %) inflation (average %) unemployment (average %) 1950s 4.XtremePapers.78 1970s 3.00 5.22 1980s 3.27 1990s 3.net .51 1960s 4.66 7.03 3.28 7.02 5.43 2.10 23 The table shows some indicators of macro-economic performance in the US economy for five decades.07 4.76 Between which decades did the US government achieve an overall improvement in its performance with no trade-off between individual policy goals? A B C D 1950s to 1960s 1960s to 1970s 1970s to 1980s 1980s to 1990s 24 The diagram shows the relationship between the rate of inflation and the rate of unemployment.09 6.18 2.

XtremePapers. There will be an outflow of capital from the country.11 25 The diagram shows a government’s revenue and expenditure for three years. 26 Which tax is most likely to be regressive? A B C D an inheritance tax a property tax a sales tax income tax 27 Why might a reduction in domestic interest rates have an adverse effect on a country’s balance of payment on current account? A B C D It will cause a rise in the exchange rate. The economy moved from a recession into a boom period. 2008 revenue expenditure revenue expenditure revenue expenditure 0 1 2 $m 3 4 2009 2010 What can be concluded from the diagram? A B C D A budget deficit was replaced by a budget surplus. The resulting higher level of economic activity is likely to increase imports. 28 What would be classified as a supply side policy measure? A B C D additional legislation to restrict the power of trade unions a reduction in the government’s fiscal deficit an open market sale of securities the imposition of a tariff on imported goods © UCLES 2011 9708/31/M/J/11 [Turn over www. It will make the country’s industry less competitive.net . The yield from taxation continuously increased. A government borrowing requirement emerged.

XtremePapers. What will the country have to forgo to maintain a fixed parity for its currency? A B C D an independent anti-monopoly policy an independent fiscal policy an independent interest rate policy an independent prices and incomes policy 30 What would be an economic benefit to a major economy of imposing a tariff on imported goods? A B C D It would increase labour productivity. University of Cambridge International Examinations is part of the Cambridge Assessment Group. Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. It would increase pressure on foreign suppliers to reduce their prices. It would reduce the prices paid by consumers for imported goods.net . which is itself a department of the University of Cambridge. the publisher will be pleased to make amends at the earliest possible opportunity. © UCLES 2011 9708/31/M/J/11 www. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). It would make the country’s exports more competitive.12 29 A country decides to join a group of countries which maintain fixed parities for their currencies and forbid any restriction on foreign trade and payments. but if any items requiring clearance have unwittingly been included.

glue or correction fluid. Answer all questions. Read the instructions on the Answer Sheet very carefully. This document consists of 11 printed pages and 1 blank page. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. Each correct answer will score one mark. Any rough working should be done in this booklet. A mark will not be deducted for a wrong answer. highlighters. Write your name. IB11 06_9708_32/FP © UCLES 2011 [Turn over www. There are thirty questions on this paper. For each question there are four possible answers A. B. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Do not use staples. C and D.net .UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) 9708/32 May/June 2011 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) *9013541548* READ THESE INSTRUCTIONS FIRST Write in soft pencil. paper clips.XtremePapers.

XtremePapers. what could explain a shift in the consumer’s budget line to GH? consumer’s money income decrease increase decrease increase price of good Y A B C D decrease decrease increase increase © UCLES 2011 9708/32/M/J/11 www. a consumer’s initial budget line is JK. G J good Y O good X H K Assuming no change in the price of X.2 1 A consumer seeks to maximise his utility. Up to what point should he continue to consume each good? A B C D until the marginal utility per dollar from each good is the same until the marginal utility from each good is the same until the marginal utility from each good reaches a maximum until the marginal utility from each good is zero 2 In the diagram.net .

net . Occupation Y has greater non-pecuniary advantages than occupation X. There will be more competition for places on training courses to enter occupation X than occupation Y.3 3 The table shows the main characteristics of employment in two occupations. $100 000 5 weeks 48 hours low 1 year occupation Y $60 000 10 weeks 44 hours high 2 years D 4 Which diagram correctly shows the relationship between the average product (AP) and the marginal product (MP) of labour given that the quantities of other factor inputs remain constant? A MP AP B product product MP AP O labour O labour C MP D AP product AP MP O labour product O labour © UCLES 2011 9708/32/M/J/11 [Turn over www. Those employed in occupation X attach less importance to leisure activities. occupation X average annual wage number of weeks annual leave average length of working week job security length of training course to obtain job qualification What can definitely be deduced from the table? A B C Those employed in occupation Y attach greater importance to job security.XtremePapers.

4 5 What is the name for the relationship between a firm’s output and the quantities of factor inputs that it employs? A B C D a long-run average cost function a long-run production function productive efficiency returns to scale

6

The diagram shows the supply and demand for labour in an industry.
S W

wage rate

D O L M N employment

Initially the industry’s labour market is in equilibrium. What effect will the introduction of a minimum wage OW have on the level of employment in the industry? A B C D It will decrease by an amount LM. It will decrease by an amount LN. It will increase by an amount LN. It will increase by an amount MN.

7

A product with infinite elasticity of supply has sales of 1000 units a week at a price of $1 per unit. Price elasticity of demand is 1.5 over the relevant range. The government imposes a tax of 10 %. What will be the government’s weekly tax revenue? A $15 B $85 C $100 D $150

© UCLES 2011

9708/32/M/J/11

www.XtremePapers.net

5 8 What is the likely outcome for producers and consumers when a market moves from being non-contestable to being a contestable market? producers A B C D gain from higher prices gain from likely higher profits lose from likely lower output lose from likely lower profits consumers gain from a wider choice of products lose from likely higher prices lose from a reduced choice of products gain from likely lower prices

9

A firm is engaging in price discrimination. In order to maximise profits, what should the firm do? A B C D charge a higher price to consumers earning higher incomes charge a higher price to consumers earning lower incomes charge a higher price to consumers whose demand for the product is price inelastic charge a higher price to consumers whose demand for the product is price elastic

10 The diagram shows the private and social marginal costs and benefits at different volumes of traffic.
MSC

MPC + tax x z costs, benefits y MPC

MPB = MSB O volume of traffic

The imposition of a congestion tax raises the MPC curve to MPC + tax. Which area measures the resulting reduction in the deadweight loss? A x + y only B x+y+z C y only D z only

© UCLES 2011

9708/32/M/J/11

[Turn over

www.XtremePapers.net

6 11 A government imposes a maximum price for electricity. Which statement justifying this measure might be considered valid on economic grounds? A B C D It will encourage electricity suppliers to invest in additional capacity. It will increase the incentive for consumers to conserve energy. It will prevent the monopolistic exploitation of consumers. It will prevent the rationing of electricity through power cuts.

12 Individuals are free to choose the number of hours they work, how much of their income they save and which goods and services they buy. Which type of tax will not distort the choices individuals make? A B C D a tax levied on the wealth accumulated by individuals a uniform tax which raises the same fixed amount from all individuals indirect taxes on specific goods proportional income taxes

13 The table shows data on a country’s gross national product at market prices and on domestic spending. year 1 ($m) GNP at market prices private consumption government consumption gross investment 420 200 120 90 year 2 ($m) 440 260 120 80 year 3 ($m) 560 300 140 130

In which of these years will the country be faced with a deficit on the current account of the balance of payments? year 1 A B C D     year 2     year 3    

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7 14 An economy is operating at its natural rate of unemployment. According to monetarist theory, what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run A B C D no change no change reduction reduction long run no change reduction no change reduction

15 What will reduce the value of the investment multiplier? A B C D a low marginal propensity to import automatic stabilisers low marginal tax rates low rates of unemployment benefit

16 The diagram shows a consumption function.

C consumption

45° O personal disposable income

As income increases, what happens to the average propensity to save and the marginal propensity to save? average propensity to save A B C D decreases decreases increases increases marginal propensity to save decreases increases decreases increases

© UCLES 2011

9708/32/M/J/11

[Turn over

www.XtremePapers.net

8 17 Other things being equal, what will result in a decrease in aggregate demand? A B C D a decrease in interest rates a decrease in the balance of trade deficit a decrease in the government’s budget deficit a decrease in the household saving ratio

18 What will expand the money supply in an open economy? A B C D a current account balance of payments deficit an increase in the cash reserve ratio of commercial banks government borrowing from domestic residents government intervention to prevent an appreciation in the foreign exchange value of domestic currency

19 According to Keynesian theory, in which circumstance will there always be an increase in the demand for money? real income A B C D constant constant increase increase price level decrease increase decrease increase interest rates increase decrease decrease increase

20 Which characteristics are usually found in developing countries? saving ratio A B C D low high low high capital output ratio low low high high

21 Which cause of economic growth would involve the least cost for present and future generations of a country’s population? A B C D increased exploitation of a country’s mineral resources investment financed by borrowing from abroad investment financed by high rates of domestic savings technological innovations in productive processes

© UCLES 2011

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www.XtremePapers.net

9 22 The table shows some indicators of macro-economic performance in the US economy for five decades. economic target real GDP growth (average %) inflation (average %) unemployment (average %) 1950s 4.18 2.07 4.51 1960s 4.43 2.33 4.78 1970s 3.28 7.09 6.22 1980s 3.02 5.66 7.27 1990s 3.03 3.00 5.76

Between which decades did the US government achieve an overall improvement in its performance with no trade-off between individual policy goals? A B C D 1950s to 1960s 1960s to 1970s 1970s to 1980s 1980s to 1990s

23 The diagram shows the relationship between the rate of inflation and the rate of unemployment.

F J inflation rate

G K O unemployment rate

What would cause the curve FG to shift to JK? A B C D a lower exchange rate a lower expected rate of inflation an increase in government expenditure a rise in the level of employment

© UCLES 2011

9708/32/M/J/11

[Turn over

www.XtremePapers.net

10 24 The diagram shows a government’s revenue and expenditure for three years.
2008 revenue expenditure revenue expenditure revenue expenditure 0 1 2 $m 3 4

2009

2010

What can be concluded from the diagram? A B C D A budget deficit was replaced by a budget surplus. A government borrowing requirement emerged. The economy moved from a recession into a boom period. The yield from taxation continuously increased.

25 Which tax is most likely to be regressive? A B C D an inheritance tax a property tax a sales tax income tax

26 Why might a reduction in domestic interest rates have an adverse effect on a country’s balance of payment on current account? A B C D It will cause a rise in the exchange rate. It will make the country’s industry less competitive. The resulting higher level of economic activity is likely to increase imports. There will be an outflow of capital from the country.

27 What would be classified as a supply side policy measure? A B C D additional legislation to restrict the power of trade unions a reduction in the government’s fiscal deficit an open market sale of securities the imposition of a tariff on imported goods

© UCLES 2011

9708/32/M/J/11

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G may be economically efficient but is not productively efficient. What will the country have to forgo to maintain a fixed parity for its currency? A B C D an independent anti-monopoly policy an independent fiscal policy an independent interest rate policy an independent prices and incomes policy 29 What would be an economic benefit to a major economy of imposing a tariff on imported goods? A B C D It would increase labour productivity. It would reduce the prices paid by consumers for imported goods. LM is an economy’s production possibility curve. It would increase pressure on foreign suppliers to reduce their prices.11 28 A country decides to join a group of countries which maintain fixed parities for their currencies and forbid any restriction on foreign trade and payments.XtremePapers. F is economically efficient. H is productively efficient but may not be economically efficient.net . L G good X F H O E good Y M Which statement is correct? A B C D E only is attainable. It would make the country’s exports more competitive. © UCLES 2011 9708/32/M/J/11 www. 30 In the diagram.

the publisher will be pleased to make amends at the earliest possible opportunity. which is itself a department of the University of Cambridge.12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. but if any items requiring clearance have unwittingly been included.net .XtremePapers. University of Cambridge International Examinations is part of the Cambridge Assessment Group. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). © UCLES 2011 9708/32/M/J/11 www.

A mark will not be deducted for a wrong answer. Do not use staples.net . Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Answer all questions. This document consists of 11 printed pages and 1 blank page. For each question there are four possible answers A. Each correct answer will score one mark. There are thirty questions on this paper. C and D.XtremePapers. B. Read the instructions on the Answer Sheet very carefully.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) 9708/33 May/June 2011 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) *3234168359* READ THESE INSTRUCTIONS FIRST Write in soft pencil. IB11 06_9708_33/FP © UCLES 2011 [Turn over www. glue or correction fluid. paper clips. highlighters. Write your name. Any rough working should be done in this booklet.

what could explain a shift in the consumer’s budget line to GH? price of good Y A B C D decrease decrease increase increase consumer’s money income decrease increase decrease increase © UCLES 2011 9708/33/M/J/11 www. a consumer’s initial budget line is JK. Up to what point should he continue to consume each good? A B C D 2 until the marginal utility per dollar from each good is the same until the marginal utility from each good is the same until the marginal utility from each good reaches a maximum until the marginal utility from each good is zero In the diagram. G J good Y O good X H K Assuming no change in the price of X.XtremePapers.2 1 A consumer seeks to maximise his utility.net .

$100 000 5 weeks 48 hours low 1 year occupation Y $60 000 10 weeks 44 hours high 2 years Which diagram correctly shows the relationship between the average product (AP) and the marginal product (MP) of labour given that the quantities of other factor inputs remain constant? A MP AP B product product MP AP O labour O labour C MP D AP product AP MP O labour product O labour © UCLES 2011 9708/33/M/J/11 [Turn over www. occupation X average annual wage number of weeks annual leave average length of working week job security length of training course to obtain job qualification What can definitely be deduced from the table? A B C D 4 Those employed in occupation Y attach greater importance to job security.XtremePapers. Occupation Y has greater non-pecuniary advantages than occupation X.net . Those employed in occupation X attach less importance to leisure activities. There will be more competition for places on training courses to enter occupation X than occupation Y.3 3 The table shows the main characteristics of employment in two occupations.

XtremePapers. The government imposes a tax of 10 %. S W wage rate D O L M N employment Initially the industry’s labour market is in equilibrium. What will be the government’s weekly tax revenue? A $15 B $85 C $100 D $150 © UCLES 2011 9708/33/M/J/11 www. Price elasticity of demand is 1.4 5 What is the name for the relationship between a firm’s output and the quantities of factor inputs that it employs? A B C D 6 a long-run average cost function a long-run production function productive efficiency returns to scale The diagram shows the supply and demand for labour in an industry.5 over the relevant range. A product with infinite elasticity of supply has sales of 1000 units a week at a price of $1 per unit. What effect will the introduction of a minimum wage OW have on the level of employment in the industry? A B C D 7 It will decrease by an amount LM. It will decrease by an amount LN.net . It will increase by an amount MN. It will increase by an amount LN.

XtremePapers. benefits y MPC MPB = MSB O volume of traffic The imposition of a congestion tax raises the MPC curve to MPC + tax. what should the firm do? A B C D charge a higher price to consumers earning higher incomes charge a higher price to consumers earning lower incomes charge a higher price to consumers whose demand for the product is price inelastic charge a higher price to consumers whose demand for the product is price elastic 10 The diagram shows the private and social marginal costs and benefits at different volumes of traffic. Which area measures the resulting reduction in the deadweight loss? A x + y only B x+y+z C y only D z only © UCLES 2011 9708/33/M/J/11 [Turn over www.net . In order to maximise profits. MSC MPC + tax x z costs.5 8 What is the likely outcome for producers and consumers when a market moves from being non-contestable to being a contestable market? producers A B C D 9 gain from higher prices gain from likely higher profits lose from likely lower output lose from likely lower profits consumers gain from a wider choice of products lose from likely higher prices lose from a reduced choice of products gain from likely lower prices A firm is engaging in price discrimination.

how much of their income they save and which goods and services they buy. 12 Individuals are free to choose the number of hours they work. Which statement justifying this measure might be considered valid on economic grounds? A B C D It will encourage electricity suppliers to invest in additional capacity. year 1 ($m) GNP at market prices private consumption government consumption gross investment 420 200 120 90 year 2 ($m) 440 260 120 80 year 3 ($m) 560 300 140 130 In which of these years will the country be faced with a deficit on the current account of the balance of payments? year 1 A B C D     year 2     year 3     © UCLES 2011 9708/33/M/J/11 www. It will prevent the monopolistic exploitation of consumers. It will prevent the rationing of electricity through power cuts.6 11 A government imposes a maximum price for electricity. It will increase the incentive for consumers to conserve energy.XtremePapers.net . Which type of tax will not distort the choices individuals make? A B C D a tax levied on the wealth accumulated by individuals a uniform tax which raises the same fixed amount from all individuals indirect taxes on specific goods proportional income taxes 13 The table shows data on a country’s gross national product at market prices and on domestic spending.

7 14 An economy is operating at its natural rate of unemployment. According to monetarist theory.XtremePapers. what happens to the average propensity to save and the marginal propensity to save? average propensity to save A B C D decreases decreases increases increases marginal propensity to save decreases increases decreases increases © UCLES 2011 9708/33/M/J/11 [Turn over www. what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run A B C D no change no change reduction reduction long run no change reduction no change reduction 15 What will reduce the value of the investment multiplier? A B C D a low marginal propensity to import automatic stabilisers low marginal tax rates low rates of unemployment benefit 16 The diagram shows a consumption function. C consumption 45° O personal disposable income As income increases.net .

in which circumstance will there always be an increase in the demand for money? real income A B C D constant constant increase increase price level decrease increase decrease increase interest rates increase decrease decrease increase 20 Which characteristics are usually found in developing countries? saving ratio A B C D low high low high capital output ratio low low high high 21 Which cause of economic growth would involve the least cost for present and future generations of a country’s population? A B C D increased exploitation of a country’s mineral resources investment financed by borrowing from abroad investment financed by high rates of domestic savings technological innovations in productive processes © UCLES 2011 9708/33/M/J/11 www. what will result in a decrease in aggregate demand? A B C D a decrease in interest rates a decrease in the balance of trade deficit a decrease in the government’s budget deficit a decrease in the household saving ratio 18 What will expand the money supply in an open economy? A B C D a current account balance of payments deficit an increase in the cash reserve ratio of commercial banks government borrowing from domestic residents government intervention to prevent an appreciation in the foreign exchange value of domestic currency 19 According to Keynesian theory.8 17 Other things being equal.net .XtremePapers.

00 5.18 2.66 7. F J inflation rate G K O unemployment rate What would cause the curve FG to shift to JK? A B C D a lower exchange rate a lower expected rate of inflation an increase in government expenditure a rise in the level of employment © UCLES 2011 9708/33/M/J/11 [Turn over www.09 6.XtremePapers. economic target real GDP growth (average %) inflation (average %) unemployment (average %) 1950s 4.03 3.33 4.27 1990s 3.76 Between which decades did the US government achieve an overall improvement in its performance with no trade-off between individual policy goals? A B C D 1950s to 1960s 1960s to 1970s 1970s to 1980s 1980s to 1990s 23 The diagram shows the relationship between the rate of inflation and the rate of unemployment.78 1970s 3.43 2.net .22 1980s 3.51 1960s 4.02 5.28 7.9 22 The table shows some indicators of macro-economic performance in the US economy for five decades.07 4.

It will make the country’s industry less competitive. The yield from taxation continuously increased. A government borrowing requirement emerged. The resulting higher level of economic activity is likely to increase imports. There will be an outflow of capital from the country. 2008 revenue expenditure revenue expenditure revenue expenditure 0 1 2 $m 3 4 2009 2010 What can be concluded from the diagram? A B C D A budget deficit was replaced by a budget surplus.10 24 The diagram shows a government’s revenue and expenditure for three years. 25 Which tax is most likely to be regressive? A B C D an inheritance tax a property tax a sales tax income tax 26 Why might a reduction in domestic interest rates have an adverse effect on a country’s balance of payment on current account? A B C D It will cause a rise in the exchange rate. The economy moved from a recession into a boom period.net . 27 What would be classified as a supply side policy measure? A B C D additional legislation to restrict the power of trade unions a reduction in the government’s fiscal deficit an open market sale of securities the imposition of a tariff on imported goods © UCLES 2011 9708/33/M/J/11 www.XtremePapers.

© UCLES 2011 9708/33/M/J/11 www.net . F is economically efficient. H is productively efficient but may not be economically efficient.XtremePapers.11 28 A country decides to join a group of countries which maintain fixed parities for their currencies and forbid any restriction on foreign trade and payments. 30 In the diagram. LM is an economy’s production possibility curve. L G good X F H O E good Y M Which statement is correct? A B C D E only is attainable. It would increase pressure on foreign suppliers to reduce their prices. What will the country have to forgo to maintain a fixed parity for its currency? A B C D an independent anti-monopoly policy an independent fiscal policy an independent interest rate policy an independent prices and incomes policy 29 What would be an economic benefit to a major economy of imposing a tariff on imported goods? A B C D It would increase labour productivity. It would reduce the prices paid by consumers for imported goods. G may be economically efficient but is not productively efficient. It would make the country’s exports more competitive.

the publisher will be pleased to make amends at the earliest possible opportunity. © UCLES 2011 9708/33/M/J/11 www.12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). which is itself a department of the University of Cambridge. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders.XtremePapers. University of Cambridge International Examinations is part of the Cambridge Assessment Group. but if any items requiring clearance have unwittingly been included.net .

SP (AT/JB) S25749/2 © CIE 2002 [Turn over www. Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet. For each question. Answer all questions.xtremepapers. Write your name. A mark will not be deducted for a wrong answer. B.net . Centre number and candidate number on the answer sheet in the spaces provided unless this has already been done for you. There are thirty questions in this paper. INFORMATION FOR CANDIDATES Each correct answer will score one mark. Any rough working should be done in this booklet. A. there are four possible answers. This question paper consists of 12 printed pages.CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS PAPER 3 Multiple Choice (Extension) 9708/3 OCTOBER/NOVEMBER 2002 1 hour Additional materials: Multiple Choice answer sheet Soft clean eraser Soft pencil (type B or HB is recommended) TIME 1 hour INSTRUCTIONS TO CANDIDATES Do not open this booklet until you are told to do so. C and D. Read very carefully the instructions on the answer sheet.

xtremepapers. quantity (units) 1 2 3 4 5 6 mu (units of utility) 10 18 24 28 30 31 The price of good X is $4. What effect will this have on equilibrium price and output in a competitive industry? price A B C D decrease decrease increase increase output decrease increase decrease increase 2 The table shows the marginal utility that a consumer obtains from consuming successive units of good X.2 1 New technology makes it possible to produce more of a good at every given price. What additional information is needed to determine the quantity of X that the consumer will purchase? A B C D the consumer’s income elasticity of demand for good X the consumer’s price elasticity of demand for good X the marginal utility of money to the consumer the marginal utility that the consumer obtains from substitute goods 9708/3/N/02 www.net .

and RM is its initial marginal cost of labour curve. HN is the initial supply of labour curve faced by a firm.3 3 In the diagram.net . What could explain this change? A B C D a change in the consumer’s preferences an increase in the consumer’s income and an increase in the price of Y a reduction in the consumer’s income a reduction in the consumer’s income and a reduction in the price of X 4 In the diagram. if the workers join a trade union and achieve a union negotiated wage. A consumer initially chooses point L on the budget line. the consumer chooses the combination of X and Y shown by point M. that a consumer is able to purchase. KN is a budget line showing the different combinations of two normal goods.xtremepapers. OW? A RJX B HKX C WJM D WKN 9708/3/N/02 [Turn over www. X and Y. K good X L M O good Y N In a subsequent period. M wage/ cost of labour W R H O quantity of labour N J K X What will be the firm's new labour supply curve.

Curve 2 is the marginal cost curve.4 5 An individual works 40 hours per week when the wage rate is $7 per hour. the individual works 36 hours per week.xtremepapers. Curve 3 is the average variable cost curve. Curve 4 is the average total cost curve. 9708/3/N/02 www. When the wage rate is increased to $9 per hour. costs 4 3 2 1 O output Which statement is correct? A B C D Curve 1 is the average fixed cost curve.net . What explains the change in the number of hours worked? A B C D a negative income elasticity of demand for leisure an income effect offsetting a substitution effect an income effect reinforcing a substitution effect a zero income effect 6 Which of the following is a financial economy of scale? A B C D less risk due to diversification lower costs in raising capital lower costs of marketing lower variable costs of production 7 The diagram shows the short-run cost curves of a firm.

xtremepapers. sell as much as it can produce. produce until marginal revenue is zero. 10 Which of the following items would not appear in a firm’s financial accounts but would be included in an economist’s calculation of the cost incurred by the firm? A B C D interest on bank loans used to purchase assets that have no alternative uses interest forgone on finance provided by the firm’s owner depreciation rent 11 When is allocative efficiency achieved in an economy? A B C D when nobody can become better off without somebody else becoming worse off when the economy is operating at its natural rate of unemployment when the level of social costs is minimised when the rate of economic growth is maximised 9708/3/N/02 [Turn over www. produce until average cost equals price. it will A B C D produce until marginal cost equals price.net .5 8 In which of the following market situations will a firm take account of the reactions of its competitors before deciding to cut its price? A B C D monopoly monopolistic competition oligopoly perfect competition 9 If a profit-maximising company believes that the market price of a good will not be affected by its own output.

6 12 The diagram shows the supply and demand curves for a good. The curve labelled MSC shows the marginal social cost of producing the good. It is proportional over the range of income above $20 000. costs y x z O Q2 Q1 output D Which area measures the net welfare gain to society from reducing output from OQ1 to OQ2? A x B y C x+y D x+y+z 13 The table shows the marginal tax rates paid by a country’s taxpayers at different levels of income.xtremepapers. income first $4000 $4001 – $20 000 above $20 000 Which of the following correctly describes this tax? A B C D It is regressive over the entire range of income. tax rate zero 20% 40% It is proportional over the income range $4001 – $20 000. It is progressive over the range of income above $4000. 9708/3/N/02 www. MSC S price.net .

xtremepapers. prices increased by 4% and total population increased by 2%.7 14 Assuming that all indexes have 1990 as 100. What was the approximate change in real income per head? A B C D a decrease of 2% nil an increase of 2% an increase of 4% 9708/3/N/02 [Turn over www.net . a country's national income in money terms increased by 6%. the national income figures for 2000 at 1990 prices may be obtained by multiplying 2000 national income at current prices by A B C D the index for 2000 prices the index for 1990 prices the index for 2000 prices the index for 1990 output the index for 1990 output the index for 2000 output the index for 1990 prices the index for 2000 prices 15 During a year.

8 16 The diagram shows a number of expenditure functions. The original expenditure function is shown by E. E1 E2 E3 E E4

expenditure

O

income

The government announces an increase in government expenditure on goods and services and increases the standard rate of income tax. Which line shows the new expenditure function resulting from these changes? A E1 B E2 C E3 D E4

17 In the diagram AD1 and AS1 are an economy’s initial aggregate demand and aggregate supply curves.

AS1 price level AD2 O output AD1

What will cause the aggregate demand curve to shift to AD2? A B C D a depreciation of the currency an increase in the price level an increase in the real wage a reduction in the money supply

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9 18 One of the reasons why a country’s aggregate demand curve slopes downwards is that a fall in the average price level A B C D leads to an increase in interest rates. reduces the real value of money balances. makes the country’s goods cheaper relative to foreign goods. leads to the expectation of further price falls.

19 In the diagram, the curve I depicts the accelerator relationship between net investment and the change in national output.

net investment

I

O

change in national output

What does the slope of the curve measure? A B C D the capital-output ratio the marginal propensity to invest the marginal propensity to save the multiplier
2

20 In a closed economy, the full employment level of income is $90 million, C = 3Y and I = $ (40-3r) million, where C = consumption, Y = income, I = investment and r = the rate of interest. If planned government expenditure is $20 million, what rate of interest would be required for there to be full employment? A B C D 10% per annum 12% per annum 14% per annum 16% per annum

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10 21 A 6% increase in the money supply leads to a 4% increase in the level of money income. What can be deduced from this? A B C D There has been an increase in interest rates. There has been a decrease in the level of output. There has been a decrease in the velocity of circulation. The price level has increased by 2%.

22 What would result in a reduction in the volume of bank deposits? A B C D an increase in the public’s desire to hold cash an increase in government expenditure financed by borrowing from the central bank a reduction in the proportion of their deposits that banks hold in cash an open market purchase of securities by the central bank

23 If a country has a surplus in its balance of payments, all else being equal, what is likely to happen to its money supply? A B C D It will fall, because more of its goods were purchased by foreign consumers than by consumers at home. It will remain unchanged, because its exports are bought with foreign currency. It will remain unchanged, because the surplus is automatically offset by a loan for the deficit countries. It will rise, because the foreign currency received for exports will be exchanged for domestic currency.

24 In a closed economy with no government the full employment level of output is $25 million, the actual level of output is $20 million, and the marginal propensity to consume is 4/5. What is the size of the deflationary gap? A $1 million B $4 million C $5 million D $16 million

25 Which of the following is likely to intensify a recession following an initial fall in aggregate demand? A B C D Unemployment benefits increase as the level of activity falls. The yield from income tax falls as incomes fall. Firms maintain a constant ratio of stocks to sales. Interest rates fall as the demand for money falls.

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11 26 What would explain why the prices of the primary commodities produced by less developed countries fluctuate widely from year to year? A B C D the development of artificial substitutes for natural products the introduction of more capital-intensive methods of production by mineral producers inelasticity of both the supply and demand for these products improvements in agricultural productivity

27 Which of the following policies is specifically designed to reduce the level of structural unemployment? A B C D a reduction in interest rates a reduction in the level of direct taxation the provision of retraining schemes an increase in the level of state benefit paid to the unemployed

28 The diagram shows the relationship between the rate of increase in wages and the rate of unemployment.

rate of increase in wages

O

rate of unemployment

Which of the following would be likely to cause the curve in the diagram to shift upwards and to the right? A B C D a reduction in regional differences in unemployment rates a reduction in the proportion of the workforce belonging to trade unions an increase in the unemployment rate the expectation of a higher rate of inflation

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12 29 Which of the following is most likely to lead to an increase in a developing country’s long-run rate of growth of income per head? A B C D a higher birth rate a higher saving ratio the imposition of import controls an increase in government spending on defence

30 Which of the following is not an automatic stabiliser? A B C D income tax profits tax state retirement pension unemployment benefit

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CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Extension) October/November 2003 1 hour
Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended)

9708/03

READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, highlighters, glue or correction fluid. Write your name, Centre number and candidate number on the answer sheet in the spaces provided unless this has been done for you. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C, and D. Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet. Read the instructions on the answer sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet.

This document consists of 12 printed pages.
Ó CIE 2003

[Turn over

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2 1 An economy is operating at a point inside its production possibility curve. Why is this described as inefficient? A B C D Individuals are enjoying too much leisure. Labour and capital are combined in the wrong proportions. More of one good can be produced without decreasing production of another. There are shortages of some goods and an excess supply of others.

2

A utility-maximising consumer spends his disposable income on food and clothing. When his weekly income is $40 he buys 5 units of food at a unit price of $5. His marginal utility from food consumption is 10 utility units. If the price of a clothing unit is $0.50, the consumer's marginal utility from clothing is A B C D equal to that derived from food.
1 10

utility unit.

1 utility unit. 10 utility units.

3

In the diagram a consumer's budget line shifts from JK to GH.
J G good Y

O

K good X

H

Which of the following must be correct? A B C D There has been a change in the consumer's money income. There has been a change in the consumer's real income. The prices of both goods have changed. The price of good Y has increased relative to the price of good X.

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net . average product (AP) and marginal product (MP) begin to decrease as the input of the variable factor is increased? first A B C D AP AP MP MP second MP TP AP TP third TP MP TP AP 5 The table shows the marginal revenue product of labour schedule of a profit-maximising firm producing under conditions of perfect competition.3 4 The diagram shows the total product curve for a single variable factor. What is the marginal cost of labour per day? A $2 B $42 C $62 D $102 9708/3 Nov03 [Turn over www. total product TP O quantity of variable factor In which order do the total product (TP). assuming all other factor inputs are held constant.xtremepapers. what is the maximum number of workers the firm will employ? A 2 B 4 C 5 D 6 6 To increase the labour force from 30 to 31 workers. an entrepreneur is forced to increase the daily wage rate from $40 to $42. number of workers marginal revenue product ($) 1 135 2 140 3 145 4 150 5 145 6 140 7 135 If the wage is $140.

S W wage rate D O L M N employment Initially the industry's labour market is in equilibrium.net .4 7 The diagram shows the supply and demand for labour in an industry. It will increase by an amount MN. It will decrease by an amount LN. It will increase by an amount LN. What effect will the introduction of a minimum wage OW have on the level of employment in the industry? A B C D It will decrease by an amount LM.xtremepapers. 9708/3 Nov03 www.

By how much will an economist’s calculation of the firm’s first year costs exceed an accountant's calculation? A $20 000 B $30 000 C $40 000 D $50 000 9708/3 Nov03 [Turn over www.5 8 In the diagram the heights of the vertical broken lines show levels of output corresponding to different combinations of labour and capital. outp ut u labo r cap ital What does the diagram show? A B C D a cost function a long-run production function an input function a production possibility function 9 An entrepreneur takes out a $500 000 loan at a rate of interest of 10 %. In the first year he pays himself a salary of $40 000.xtremepapers. The rate of interest he could have obtained by investing his funds elsewhere is 8 %. and invests a further $500 000 of his own funds to set up a new firm. and the wage he could have earned in alternative employment is $30 000.net .

6 10 The schedule shows the short-run marginal cost of producing good X. 12 The proportion of total employment in an economy accounted for by small firms increases.xtremepapers. It indicates the minimum average cost at which each level of output can be produced. units of X marginal cost ($) 1 40 2 30 3 26 4 34 5 50 6 90 Given that the total fixed cost is $30 what is the level of output that minimises average total cost? A 2 units B 3 units C 4 units D 5 units 11 Which statement about the long-run average cost curve of a firm is correct? A B C D It falls continuously because of economies of scale. It passes through the minimum points of the firm's short-run average cost curves. It assumes that factor input proportions are held constant as output increases. Which explanation for this is least likely to be valid? A B C D a trend towards the use of sub-contractors to produce specialised components growing technical diseconomies of scale in manufacturing growth of the manufacturing sector and a decline in services the opening up of market niches as real incomes rise 9708/3 Nov03 www.net .

revenue TR O quantity What is the price elasticity of demand for the good? A B C D zero between zero and one one between one and infinity 14 The diagram shows a firm's cost and revenue curves.7 13 The diagram shows the relationship between a firm's total revenue and the quantity of goods sold. MC cost / revenue AC MR O output AR The firm changes its objective from profit maximisation to sales revenue maximisation. Which groups are likely to be winners and losers as a result of this change? winners A B C D customers managers workers shareholders losers shareholders customers managers workers 9708/3 Nov03 [Turn over www.net .xtremepapers.

high income earners to pay more in taxes than low income earners.xtremepapers. 9708/3 Nov03 www. What change has necessarily occurred? A B C D improved technology improved efficiency increased equity increased employment 18 A regressive tax is defined as one which requires A B C D all taxpayers to pay the same absolute amount of their income in taxation. At which level of output does the firm maximise total profit? profit 0 A B C D output marginal average profit profit 16 When will a firm in a perfectly competitive industry cease to produce in the short run? A B C D if it earns less than normal profits if total revenue is less than the total cost of production if marginal revenue is less than the average total cost of production if total revenue is less than the total variable cost of production 17 By reallocating resources an economy produces more of one good but no less of other goods.8 15 The diagram shows how a firm's average profit and marginal profit vary at differing levels of output. high income earners to pay less in taxes than low income earners.net . high income earners to pay a lower proportion of their income in taxes than low income earners.

What could explain this? A B C D The country's money supply fell by 2 %. There was an increase in the income velocity of circulation.net . There was an increase in the balance of trade deficit. 20 An economy is operating initially at its natural rate of unemployment. The country's general price level fell by 2 %.xtremepapers. national income ($ million) 10 12 14 16 18 20 consumption ($ million) 11 12 13 14 15 16 What happens to the average and marginal propensities to consume as income increases? average propensity to consume A B C D constant falls falls rises marginal propensity to consume constant constant falls falls 9708/3 Nov03 [Turn over www.9 19 Over a given period the nominal value of a country's national income increased by 10 % and its value of output by 12 %. According to monetarist theory. what will be the effect on unemployment in the short run and in the long run of an unanticipated increase in the money supply? short run A B C D no change no change reduction reduction long run no change reduction no change reduction 21 The table shows the level of consumption at various levels of national income for a closed economy with no government.

5 23 An economy is currently in equilibrium at point X.10 22 Out of any addition to national income.net . 5 % is saved and the rest is spent on domestically produced goods. What is the value of the multiplier? A 20 B 5 C 2 D 0. This raises the productivity of the trainees. Which point shows the new equilibrium in the economy? D B price level X C AS2 AS AS1 A AD1 AD O output 24 Which method of financing a government deficit will leave the money supply unchanged? A B C D the sale of government securities to the central bank the sale of government securities to the commercial banks the sale of government securities to domestic residents the sale of government securities to overseas residents 9708/3 Nov03 www.xtremepapers. Government expenditure is increased on retraining programmes for those out of work. 25 % is paid in taxes. 20 % is spent on imports.

Banks create more credit and people decide to hold more money as a precaution against emergencies. all measured in US $. capital formation and depreciation in four economies. What is the new equilibrium point? A rate of interest D X B C LP LP LP MS O MS MS quantity of money 26 The table shows the figures for consumption. which economy is most likely to experience economic growth? economy A B C D consumption ($ m) 100 500 1 000 20 000 capital formation ($ m) 20 200 1 200 5 000 depreciation ($ m) 10 200 1 400 6 000 27 What is the major cause of high rates of inflation in many developing economies? A B C D balance of payments deficits budget deficits low levels of unemployment overvalued exchange rates 9708/3 Nov03 [Turn over www.11 25 The diagram shows three different levels of money supply (MS) and three different demand curves for holding money balances (LP). The initial equilibrium is at point X. Assuming that the state of technology remains unchanged.net .xtremepapers.

xtremepapers.12 28 Which type of unemployment arose from the worldwide decline in the demand for electronic goods beginning in the summer of 2001? A B C D seasonal voluntary frictional structural 29 What is most likely to result from foreign direct investment in developing economies? A B C D a deterioration in the visible trade balances of developing economies a reduction in migration to urban areas a reduction in the transfer of technology to developing economies a rise in per capita levels of consumption in developing economies 30 When might the effectiveness of fiscal expansion in increasing the level of output be reduced? A B C D when it leads to the appreciation of the currency when it results in an increase in the price of government bonds when it is accompanied by an increase in the money supply when the price level remains unchanged 9708/3 Nov03 www.net .

Answer all questions. glue or correction fluid. Each correct answer will score one mark. For each question there are four possible answers A. Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet. highlighters. B.net . Centre number and candidate number on the answer sheet in the spaces provided unless this has been done for you. Write your name. Do not use staples. C. This document consists of 10 printed pages and 2 blank pages. A mark will not be deducted for a wrong answer. paper clips.xtremepapers. and D.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Extension) October/November 2004 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 READ THESE INSTRUCTIONS FIRST Write in soft pencil. Any rough working should be done in this booklet. IB04 11_9708_03/3RP  UCLES 2004 [Turn over www. There are thirty questions on this paper. Read the instructions on the answer sheet very carefully.

Long-run average costs are falling and sales are rising.xtremepapers. What would ensure that it is both productively and allocatively efficient? A B C D 2 It is in long-run equilibrium. X.2 1 A firm is operating in a perfectly competitive market.net . good price ($) marginal utility (units) X 20 40 Y 15 30 Z 10 15 How should the consumer's expenditure be reallocated in order to maximise his utility? X A B C D 3 more more less less Y more less more less Z less more less more What explains the slope of an individual’s demand curve for a normal good? A B C D market imperfections the law of variable proportions diminishing returns diminishing marginal utility  UCLES 2004 9708/03/O/N/04 www. It is producing where marginal revenue is equal to marginal cost. A consumer allocates his expenditure between three goods. It is maximising total revenue. Y and Z. The table shows the prices of goods and the consumer's marginal utilities.

sooner or later diseconomies of scale will set in.xtremepapers. As employment increases. the capital-labour ratio falls. what could explain a shift in the consumer’s budget line to GH? price of good Y A B C D 5 decrease decrease increase increase consumer’s money income decrease increase decrease increase Which statement explains why in the short run labour is subject to the law of diminishing returns? A B C D As additional workers are hired. J G good Y O good X K H Assuming no change in the price of X. output decreases. wage rates will have to be increased.3 4 In the diagram a consumer’s initial budget line is JK. 6 What will cause the demand curve for labour to shift to the right? A B C D a fall in the money wage rate a rise in real wages an increase in immigration an increase in labour productivity  UCLES 2004 9708/03/O/N/04 [Turn over www. As employment increases.net . As output expands.

The opportunity cost of leisure has increased.net . The worker’s supply of labour is wage inelastic. the firm’s long-run average cost of production and the quantities of factor inputs employed. The diagram shows an individual worker’s supply curve of labour. What would explain this? A B C D 8 The income effect of the wage rate increase outweighs the substitution effect. the prices of factor inputs and the quantities of factor inputs employed. 10 What is marginal cost? A B C D the difference between the total cost of producing n and n -1 units of output the difference between the average variable cost of producing n units and n -1 units of output the difference between the average total cost of producing n units and n -1 units of output the average variable cost of producing one more unit  UCLES 2004 9708/03/O/N/04 www. Which area measures the difference between the total amount the worker is paid per week and the minimum amount he would be willing to accept? A 9 x B z C x+z D z–x A firm’s long-run production function describes the relationship between A B C D the firm’s output and the quantities of factor inputs employed.4 7 A worker responds to an increase in his hourly wage rate by reducing the number of hours he works per week.xtremepapers. S W hourly wage z x O number of hours 40 The hourly wage is OW and the worker is required to work a standard 40-hour week. The worker prefers leisure to work. the firm’s long-run average cost of production and the level of output.

50. marginal revenue is $2. which strategy should the monopolist adopt? price A B C D decrease decrease increase increase output unchanged increase decrease unchanged 13 A perfectly competitive firm is currently producing at a level of output where its marginal cost is above its average total cost but below the market price. Barriers exist to the entry of new firms.xtremepapers.5 11 To maximise total revenue. In order to increase his current level of profits. Products are differentiated.  UCLES 2004 9708/03/O/N/04 [Turn over www. up to which point should a monopolist increase output? A B C D where marginal revenue equals average revenue where marginal revenue is maximised where marginal revenue is zero where price elasticity of demand is zero 12 A monopolist finds that at his current level of output. What would be the effect on price and output if the firm were to maximise its profit? effect on output A B C D decrease decrease increase increase effect on price increase unchanged decrease unchanged 14 In which way does monopolistic competition differ from perfect competition? A B C D Average revenue exceeds average cost in long-run equilibrium.00 and marginal cost is $2.net . Marginal revenue exceeds marginal cost in long-run equilibrium.

Firms producing the good will make a loss. 18 Which of the following will directly result in an increase in China's Gross National Product? A B C D increased wages earned in a Malaysian-owned factory in China increased imports of goods and services increased outflows of net property income increased taxes on domestic expenditure 19 A country’s GDP declines but the welfare of its population rises. the difference between the average revenues in the two markets. What could explain this? A B C D a fall in leisure time a fall in the size of the subsistence sector a rise in positive externalities a rise in the size of the population  UCLES 2004 9708/03/O/N/04 www. average revenue in each market. will equate the combined marginal cost of production with A B C D marginal revenue in each market.xtremepapers. faced with two demand curves of differing elasticity. Which statement must be true? A B C D Consumers of the good are paying too low a price.6 15 A discriminating monopolist. Social costs of production exceed private costs.net . Output of the good is below the socially optimum level. 16 What might prevent an economy in which all firms are required to equate price and marginal cost from achieving allocative efficiency? A B C D differences in preferences between consumers divergences between private and social costs inequalities of income and wealth product differentiation 17 A good gives rise to external benefits and is produced under conditions of imperfect competition. the difference between the marginal revenues in the two markets.

changes in interest rates. 21 In a closed economy. changes in GDP. and spend 5/6 of every increase in their disposable income. What is the value of the multiplier? A 2 B 21/2 C 3 D 6 22 A country's initial consumption function is C1C1. the level of interest rates. C2 consumption C2 C1 C1 O personal disposable income What will cause the consumption function to shift from C1C1 to C2C2? A B C D an increase in wealth an increase in interest rates an increase in personal disposable income an increase in the expected future rates of income tax  UCLES 2004 9708/03/O/N/04 [Turn over www.40 in tax on every $1 increase in their gross income. households pay $0.xtremepapers.7 20 The accelerator principle refers to a relationship between investment and A B C D the level of GDP.net .

In a particular year actual growth is zero because of a fall in domestic consumption.8 23 The diagram shows an economy's aggregate demand curve.xtremepapers. What is likely to occur? A B C D an increase in the rate of inflation an increase in the trade deficit an increase in unemployment a reduction in the government budget deficit  UCLES 2004 9708/03/O/N/04 www. price level AD O output What is held constant when drawing an AD curve? A B C D the exchange rate the money supply the rate of interest the price level 24 Assuming a constant income velocity of circulation of money. what will be the approximate change in the price level? A –3 % B +2 % C +3 % D +7 % 25 What would cause an increase in the transactions demand for money? A B C D an increase in the rate of interest an increase in nominal national income a fall in the price of bonds an increase in unemployment 26 In the long run. productive potential in an economy grows at an average rate of 3 % per year. if real output grows by 5 %.net . and the money supply grows by 2 %.

9 27 The diagram shows the relationship between the rate of inflation and the rate of unemployment.xtremepapers.net . It will result in a fall in the exchange rate. There will be an inflow of short-term capital. J F inflation rate K G O unemployment rate What would cause the curve FG to shift to JK? A B C D a decrease in government expenditure a fall in the level of employment an increase in the rate of change of wages the expectation of an increase in inflation 28 Why might a rise in domestic interest rates improve a country’s balance of payments on current account? A B C D Domestic firms will become more competitive. 29 Without any change in government policy. what will be the effect of an economic recession on tax revenue and on government expenditure? tax revenue A B C D decrease decrease increase increase government expenditure decrease increase increase decrease  UCLES 2004 9708/03/O/N/04 [Turn over www. It will result in a reduction in spending.

The government increases its expenditure.10 30 An economy has a low level of unemployment.xtremepapers. Which method of financing the additional expenditure is most likely to cause inflation? A B C D an increase in borrowing from the Central Bank an increase in income taxes an increase in sales of state assets to the non-bank public an issue of bonds to the non-bank public  UCLES 2004 9708/03/O/N/04 www.net .

11 BLANK PAGE 9708/03/O/N/04 www.net .xtremepapers.

The publishers would be pleased to hear from anyone whose rights we have unwittingly infringed. which is itself a department of the University of Cambridge.12 BLANK PAGE Every reasonable effort has been made to trace all copyright holders. 9708/03/O/N/04 www.net .xtremepapers. University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES).

glue or correction fluid. There are thirty questions on this paper. Any rough working should be done in this booklet.xtremepapers.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Extension) October/November 2005 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 READ THESE INSTRUCTIONS FIRST Write in soft pencil. Centre number and candidate number on the answer sheet in the spaces provided unless this has been done for you. Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet. Answer all questions. IB05 11_9708_03/2RP  UCLES 2005 [Turn over http://www. Do not use staples. Read the instructions on the answer sheet very carefully. paper clips.net . A mark will not be deducted for a wrong answer. C and D. Each correct answer will score one mark. This document consists of 11 printed pages and 1 blank page. For each question there are four possible answers A. B. Write your name. highlighters.

2 1 What will happen if a firm is subsidised by an amount equivalent to the external benefits that it confers on the rest of society? A B C D 2 Resource allocation will be improved. There will be a misallocation of resources. The firm will produce less. There will be no effect upon production. The table shows the total utility that an individual derives from consuming different quantities of a good. What is the maximum quantity of the good that the individual will buy when its price is $6? A 2 units B 3 units C 4 units D 5 units © UCLES 2005 9708/03/O/N/05 . quantity of good (units) 1 2 3 4 5 6 total utility (units) 20 36 50 62 72 80 The individual's marginal utility of money is $1 = 2 units of utility.

What could cause a perfectly competitive firm's marginal revenue product of labour curve to shift to the right? A B C D an increase in wages a higher rate of sales tax an increase in labour supply a rise in the price of the final product © UCLES 2005 9708/03/O/N/05 [Turn over . number of workers number of chairs produced 0 0 1 7 2 17 3 29 4 38 5 42 Diminishing marginal returns to labour will set in when A B C D 5 the second worker is employed. the fourth worker is employed. the fifth worker is employed. There has been no change in the consumer’s real income. The price of good Y has increased relative to the price of good X. The table shows the output of chairs at a factory when different numbers of workers are employed. the third worker is employed. There has been no change in the consumer’s money income.3 3 In the diagram a consumer's budget line shifts from GH to JK. G J good Y O H good X K What must be true? A B C D 4 The prices of both goods have changed.

over this range of output. the firm experiences A B C D decreasing returns for output between 100 and 300 and increasing returns for output larger than 300. output 100 200 300 400 500 costs ($) 80 180 300 440 600 It follows that. 8 The table below shows the relationship between total output and total costs of a firm given constant factor prices and fixed factor proportions.4 6 What is likely to be the direction of the income and substitution effects of a wage rate increase on the number of hours workers will choose to work? income effect A B C D 7 decrease decrease increase increase substitution effect decrease increase decrease increase A trade union seeks to increase the wages that a firm pays to its workers while at the same time preserving jobs. The demand for the good produced by the firm is price-inelastic. © UCLES 2005 9708/03/O/N/05 . decreasing returns throughout. The supply of labour to the firm is perfectly elastic. The firm operates in a competitive market. increasing returns for output between 100 and 300 and decreasing returns for output larger than 300. increasing returns throughout. What will strengthen the union’s negotiating position? A B C D Capital and labour are perfect substitutes.

what is most likely to prevent its long run average costs falling? A B C D increased interest rates on borrowing increased labour specialisation increased labour supervision costs substitution of capital for labour 11 The diagram shows the position of a firm in a perfectly competitive industry.5 9 Which item would not appear in a firm’s financial accounts but would be included in an economist’s calculation of the costs incurred by the firm? A B C D interest on bank loans used to purchase assets that have no alternative uses interest forgone on finance provided by the firm’s owner depreciation rent 10 As a firm expands. MC AC AR = MR costs. revenue O Q output What describes the position of the firm and the industry at output OQ? firm A B C D disequilibrium disequilibrium equilibrium equilibrium industry disequilibrium equilibrium disequilibrium equilibrium © UCLES 2005 9708/03/O/N/05 [Turn over .

P costs.6 12 The diagram shows the demand curve and the long-run cost curves of a firm that operates in a perfectly contestable market. LRMC P4 P3 $ P2 P1 LRAC D O output Which price will the firm charge for its product? A OP1 B OP2 C OP3 D OP4 13 The diagram shows a firm’s cost and revenue curves. revenue MC MR D MR O Q output Which features are associated with the situation shown in the diagram? A B C D economies of scale and allocative efficiency interdependence and allocative efficiency price rigidity and economies of scale price rigidity and interdependence © UCLES 2005 9708/03/O/N/05 .

money income in an economy increased by 8 %. Over the same period.7 14 The value of government benefits that households are able to claim currently depends on their level of income. The volume of output increased by 2 %. The money supply increased by 14 %. The income velocity of circulation decreased by 2 %. 17 According to monetarist theory. prices rose on average by 6 %. What can be deduced from this? A B C D Real income decreased by 2 %. when will an increase in the money supply leave the level of output unchanged? A B C D when the increase in the money supply was not anticipated when the exchange rate is flexible when the liquidity trap is operative when there is an immediate adjustment to expectations about future price levels © UCLES 2005 9708/03/O/N/05 [Turn over . What would reduce the extent of the resulting poverty trap? A B C D a campaign to encourage more households to apply for the benefits to which they are entitled an increase in the level of government benefits a reduction in the rate at which benefits are withdrawn as a household’s income increases the targeting of benefits on those in greatest need 15 Which area of skill possessed by the managers of government-owned enterprises in a planned economy is less relevant when industries are privatised? A B C D financial management marketing production targeting stock quality and control 16 Over a given period.

One reason for this is that a reduction in the average price level will lead to A B C D an increase in the real value of money balances. the expectation of further price falls. 21 A government uses real personal disposable income as a measure of the standard of living. what determines this year’s net investment? A B C D last year’s consumption last year’s output the change in last year’s output the change in last year’s investment 19 What is the value of the multiplier in an economy with no government where the marginal 1 1 propensity to save is 6 . an increase in interest rates. a decline in the country’s international competitiveness. and the marginal propensity to import is 3 ? A 1 2 B 1 12 C 2 D 3 20 An aggregate demand curve slopes downwards from left to right. What does this measure not take into account? A B C D the distribution of income the level of national income the size of the population the average price level © UCLES 2005 9708/03/O/N/05 .8 18 According to the accelerator theory.

9 22 The diagram shows three different levels of the supply of money (MS) and three different demand for money curves (LP). There is an increase in the level of money income and at the same time there is a contraction in bank credit.5 %. The initial equilibrium is at point X. Which point could be the new equilibrium point? A rate of interest B X D LP3 C LP1 LP2 MS2 O MS1 MS3 quantity of money 23 What is likely to increase GDP per worker in a developing economy? A B C D a decrease in the numbers engaged in subsistence agriculture a decrease in the numbers engaged in manufacturing an increase in the employment rate an increase in the population of working age 24 In an economy the long-run rate of growth of potential output is 2. What must happen in the short run if actual output grows at 5 %? A B C D an increase in employment an increase in the rate of inflation a deterioration in the balance of trade an increase in labour productivity © UCLES 2005 9708/03/O/N/05 [Turn over .

10 25 All else remaining unchanged. a budget deficit. The government decides to cut personal income taxes. SRPC inflation rate O unemployment rate What is assumed to remain constant when drawing this curve? A B C D the average price level the money supply the exchange rate the natural rate of unemployment 27 The economy of a country is simultaneously experiencing a balance of payments deficit. demand inflation and unemployment. What does this suggest is its main macroeconomic objective? A B C D to improve the balance of payments position to reduce the budget deficit to reduce the level of unemployment to reduce the rate of inflation © UCLES 2005 9708/03/O/N/05 . which measure would be most likely to increase the natural rate of unemployment? A B C D an increase in expenditure on education and training an increase in the rate of unemployment benefits a reduction in the government’s budget deficit a reduction in the general level of interest rates 26 The diagram shows an economy's short-run Phillips curve.

What is likely to be the effect on its visible trade balance and on its invisibles balance? visible trade balance A B C D improve improve worsen worsen invisibles balance improve worsen improve worsen 29 How do automatic stabilisers work? A B C D by reducing government deficits in times of recession by reducing fluctuations in disposable income by reducing fluctuations in the exchange rate by increasing the size of the investment multiplier 30 Which government policy will increase aggregate demand? A B C D raising indirect taxation reducing the budget surplus removing import quotas removing subsidies © UCLES 2005 9708/03/O/N/05 .11 28 A developing economy attracts additional foreign direct investment.

the publisher will be pleased to make amends at the earliest possible opportunity. University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES).12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. but if any items requiring clearance have unwittingly been included. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. which is itself a department of the University of Cambridge. 9708/03/O/N/05 .

paper clips. This document consists of 11 printed pages and 1 blank page. Each correct answer will score one mark.net . Read the instructions on the Answer Sheet very carefully. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Write your name. IB06 11_9708_03/2RP  UCLES 2006 [Turn over www. glue or correction fluid. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) October/November 2006 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 READ THESE INSTRUCTIONS FIRST Write in soft pencil. Answer all questions. B. Do not use staples.xtremepapers. For each question there are four possible answers A. C and D. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet. There are thirty questions on this paper. highlighters.

xtremepapers. What is true about the way the economy’s resources are being used at this point? allocatively efficient A B C D possibly yes possibly yes productively efficient yes possibly yes possibly socially desirable yes possibly possibly yes 2 The diagram shows the marginal utility that an individual derives from a good at different levels of consumption.net .2 1 An economy is operating at a point on its production possibility curve. Assuming the marginal utility of money is constant. which quantity will he purchase if the price of the good is $20? A 4 units B 5 units C 6 units D 7 units © UCLES 2006 9708/03/O/N/06 www. utility (units) 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 quantity (units) MU The utility he derives from the last $ he spends on every good is 2 units.

3 3 The diagram shows the marginal product of labour curve (MPL) for a firm. When the wage rate is increased to $9 per hour. At the level of employment ON. The table gives the average physical product with different numbers of workers. The firm is minimising its wage bill. The firm is minimising its marginal cost of production. What explains the change in the number of hours worked? A B C D a negative income elasticity of demand for leisure an income effect outweighing a substitution effect an income effect reinforcing a substitution effect a zero income effect [Turn over © UCLES 2006 9708/03/O/N/06 www.xtremepapers. which statement is correct? A B C D 4 The firm is maximising its output. the individual works 36 hours per week.net . The firm is minimising its total costs. marginal product of labour MPL O N number of workers Labour is the only variable factor and the firm pays its workers the market wage. number of workers 1 2 3 4 average physical product 20 18 16 14 Which wage rise would cause the firm to employ two instead of three workers? A 5 $8 to $10 B $10 to $14 C $14 to $18 D $16 to $18 An individual works 40 hours per week when the wage rate is $7 per hour. A firm working in perfect competition sells its product for $1.

4 6 If a firm experiences an increase in its fixed costs. how will its average variable cost and its marginal cost be affected? average variable cost A B C D rise rise no change no change marginal cost rise no change rise no change 7 Which of the following is an example of an external diseconomy? A B C D difficulties in co-ordinating activities in a large organisation difficulties in motivating workers in a large organisation higher transport costs as a firm’s market expands increased traffic congestion as industries expand 8 Which small firms are most likely to survive for only a relatively short period? A B C D those producing components for large firms those producing specialised products for small markets those engaged in activities with low start-up costs those engaged in activities that require flexibility in meeting customer requirements © UCLES 2006 9708/03/O/N/06 www.xtremepapers.net .

It will fall continuously. © UCLES 2006 9708/03/O/N/06 [Turn over www. Firms are free to enter and leave the market. It will rise initially then fall. revenue AR O output What can be deduced from the average revenue curve about the firm’s total revenue as it increases output? A B C D It will rise continuously. Firms produce differentiated goods. Firms cannot earn abnormal profits in the short run. What is likely to be one of the consequences of this decision? A B C D an increase in the price of the firm’s product a reduction in the price of the firm’s shares a reduction in the firm’s market share a reduction in the number employed by the firm 11 Which assumption is essential for a market to be contestable? A B C D The market is supplied by a large number of firms.5 9 The diagram shows a firm’s average revenue curve. 10 A firm decides to aim to maximise sales revenue rather than profits. It will fall initially then rise.xtremepapers.net .

revenue y z w AR MR O output AC Which area measures the deadweight loss arising from the exercise of monopoly power? A x+y B y C y+z D w+z © UCLES 2006 9708/03/O/N/06 www. MC x costs.6 12 A firm wishes to acquire some of the consumer surplus its customers currently enjoy. How might it achieve this? A B C D by charging a price that maximises revenue by introducing price discrimination by reducing operating costs by taking advantage of economies of scale 13 The price that a firm obtains for its product is not affected by the volume of goods that it produces. What should it do to maximise profits? A B C D produce until marginal cost equals price produce until average cost equals price produce until marginal revenue is zero sell as much as it can produce 14 The diagram shows the cost and revenue curves of a profit-maximising monopolist.net .xtremepapers.

There was a reduction in the demand for money.7 15 The diagram shows the initial cost and revenue curves of a monopoly supplier. There was an increase in the income velocity of circulation. the nominal value of a country’s national income increased by 20 % and the rate of inflation was 10 %. MC P costs.xtremepapers. The country’s money supply increased by 10 %. Which statement is correct? A B C D There was an increase in the volume of output. © UCLES 2006 9708/03/O/N/06 [Turn over www. revenue AR MR O J K L M output What will be the firm's profit-maximising level of output if the government fixes the price at OP? A OJ B OK C OL D OM 16 Over a given period.net .

8 17 The table shows data on a country's gross national product at market prices and on domestic spending. Interest rates move to ensure continuous equality between savings and investment plans. There is no short-run trade off between inflation and unemployment. 19 What would explain why an economy's short-run aggregate supply curve is upward sloping? A B C D a constant price level constant money wages diseconomies of scale economies of scale © UCLES 2006 9708/03/O/N/06 www. year 1 ($m) GNP at market prices private consumption government consumption gross investment 400 200 120 90 year 2 ($m) 480 260 120 80 year 3 ($m) 560 300 140 130 In which of these years will the country be faced with a deficit on the current account of the balance of payments? year 1 A B C D     year 2     year 3     18 Which statement is consistent with a Keynesian view of the workings of the macroeconomy? A B C D Recessions can result from fluctuations in private investment expenditure.xtremepapers. Money wages in the economy in the short run are perfectly flexible.net .

What is the equilibrium level of income? A 64 B 80 C 250 D 400 22 According to Keynesian theory. D2 D1 rate of interest E1 S2 S1 E2 O loanable funds Which changes could cause the equilibrium to move from E1 to E2? A B C D an increase in bank lending and a depletion of natural resources an increase in the propensity to save and the discovery of new mineral deposits advances in technology and a reduction in the propensity to save a decline in business confidence and a decrease in bank lending 9708/03/O/N/06 © UCLES 2006 [Turn over www.net .xtremepapers.9 20 The national income is initially in equilibrium. what would cause individuals to want to hold more idle money balances? A B C D an increase in bond prices an increase in the rate of interest an increase in the rate of inflation an increase in the level of output 23 The diagram shows the market for loanable funds.8 Y and I = 50. which change of equivalent value would restore national income to its initial equilibrium level? A B C D an increase in investment an increase in saving a reduction in government expenditure on goods and services a reduction in taxation 21 In a closed economy with no government C = 30 + 0. Y is income and I is investment. where C is consumption. If there were a decrease in exports.

xtremepapers. What is likely to be the effect on labour productivity and on GDP per head? labour productivity A B C D increase increase decrease decrease GDP per head increase decrease increase decrease © UCLES 2006 9708/03/O/N/06 www.net .10 24 Which of the following are characteristics of most developing economies? high government debt: GDP ratio A B C D     a high average propensity to save     25 What would cause an expansionary fiscal policy to be relatively ineffective? A B C D a low marginal propensity to import a fixed exchange rate a fixed money supply large-scale unemployment of resources 26 An economy has unemployed resources and a flexible exchange rate. It lowers interest rates below the level prevailing in other countries. What will be the likely effect on the level of domestic demand for goods and services and on the demand for the country’s exports? domestic demand A B C D increase increase decrease decrease export demand increase decrease decrease increase 27 In an economy the proportion of the working age population in employment increases from 70 % to 80 %.

xtremepapers.11 28 What would be most likely to result in an increase in an economy's long-run rate of growth of potential output? A B C D an appreciation of the currency an increase in interest rates an increase in the government's budget deficit an increase in the level of private investment 29 An economy with a floating exchange rate is in recession and at the same time has a deficit on the current account of its balance of payments.net . Which policy combination would be most likely to help with both of these problems? interest rates A B C D decrease decrease increase increase tax rates unchanged increase unchanged increase 30 What does a government need to do to maintain a balanced budget? A B C D allow automatic stabilisers to work keep tax rates and benefit rates unchanged raise taxes in a slump and lower taxes in a boom aim to keep output close to the full employment level © UCLES 2006 9708/03/O/N/06 www.

xtremepapers.12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. which is itself a department of the University of Cambridge. but if any items requiring clearance have unwittingly been included. 9708/03/O/N/06 www. University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES). Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. the publisher will be pleased to make amends at the earliest possible opportunity.net .

Do not use staples. C and D. Any rough working should be done in this booklet. B. There are thirty questions on this paper.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 October/November 2007 1 hour *1222444952* READ THESE INSTRUCTIONS FIRST Write in soft pencil.net . highlighters. This document consists of 12 printed pages. Read the instructions on the Answer Sheet very carefully. IB07 11_9708_03/4RP © UCLES 2007 [Turn over www. For each question there are four possible answers A.xtremepapers. paper clips. Each correct answer will score one mark. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. A mark will not be deducted for a wrong answer. glue or correction fluid. Write your name. Answer all questions.

A consumer allocates his expenditure between three goods. Y and Z.net . MC costs and revenue AR O Y Z output Which statement about the effect on economic efficiency is correct? A B C D 2 It will increase because a greater quantity will be produced and higher total revenue will be earned.2 1 In the diagram. It will increase because the value that consumers place on the product comes closer to the cost of producing the last unit. It will decline because both total and marginal cost will rise. a firm increases its output from OY to OZ. good marginal utility (units) price ($) X 50 20 Y 30 15 Z 25 10 How should the consumer's expenditure be reallocated in order to maximise his utility? X A B C D more more less less Y more less more less Z less more less more © UCLES 2007 9708/03/O/N/07 www. It will decline because both average and marginal revenue will fall. X.xtremepapers. The table shows the consumer's marginal utilities for these goods and their prices.

The introduction of equal pay legislation in a country increases the wages of female workers.net .3 3 What is not held constant when calculating the substitution effect of a change in the price of a good? A B C D 4 the consumer’s expenditure on other goods the consumer’s money income the consumer’s tastes the prices of other goods The diagram shows the short-run relationship between the total output of a firm and the quantity of labour. What will be the most likely effect of this increase? A B C D a reduction of the rate of female unemployment a reduction in the wages of male workers an expansion in the supply of female workers substitution of female workers for male workers © UCLES 2007 9708/03/O/N/07 [Turn over www. The marginal physical product of capital is constant. It is experiencing constant returns to scale. The marginal physical product of labour eventually diminishes. total output total output 0 quantity of labour What can be concluded about the firm? A B C D 5 It is experiencing increasing returns to scale.xtremepapers.

net . The workers then form a trade union which negotiates a wage equal to OW0 with the employers.xtremepapers.4 6 The diagram shows an industry’s demand for and supply of labour. What will be the effect on the level of employment in the industry? A B C D 7 an increase equal to MN an increase equal to LM a decrease equal to LN a decrease equal to LM N The table shows a firm’s total and marginal costs. S W0 wage rate D O L M employment Initially the labour market is in equilibrium. output 1 2 3 4 5 total cost ($) 200 215 225 240 260 marginal cost ($) 20 15 10 15 20 What is the average fixed cost of producing 6 units? A 8 $20 B $30 C $180 D $200 Which of the following costs of a firm is most likely to rise as it expands? A B C D the rate of interest paid on borrowing the price of components the cost of monitoring workers’ inputs energy costs per unit of output © UCLES 2007 9708/03/O/N/07 www.

5 9 A monopolist faces a downward-sloping straight-line demand curve. cost / revenue MC AC O MR Q output AR Which policy objective is consistent with a decision by the firm to produce output OQ? A B C D maximising profit maximising revenue subject to earning a normal profit maximising sales revenue satisficing profits © UCLES 2007 9708/03/O/N/07 [Turn over www.net .xtremepapers. Which diagram shows his total revenue curve (TR)? A B total revenue TR O output total revenue TR O output C D TR total revenue TR total revenue O output O output 10 The diagram shows a firm’s cost and revenue curves.

How is this likely to affect consumers' surplus and the firm's marketing costs? consumers' surplus A B C D decrease decrease increase increase marketing costs decrease increase increase decrease 13 At its current level of output a monopolist is on the price-inelastic part of its demand curve.xtremepapers.6 11 Which feature of oligopoly is being assumed when the demand curve for an individual firm is as shown in the diagram? D price D O A B C D price discrimination price leadership by the dominant firm interdependence between firms collusion between firms quantity 12 Instead of charging all its customers the same price. Which changes should it make to price and output in order to maximise its profits? price A B C D increase increase decrease decrease output increase decrease decrease increase © UCLES 2007 9708/03/O/N/07 www.net . a firm decides to charge different prices in different markets.

7 14 What is not an example of ‘market failure’? A B C D inequality in the distribution of income a monopolist charging prices above marginal cost the damage to common land due to overgrazing aircraft noise affecting individuals living near airports 15 In the diagram. D is a country’s demand curve for an imported good which cannot be produced domestically. The world market price is OPw.net . Pc price Pw x y D O quantity Which area measures the deadweight loss to the country of imposing an import tariff equal to PwPc on the good? A x+y B x C y D x–y 16 What should an industry regulator control if it wishes to provide an incentive for a privatised firm to improve its productive efficiency? A B C D dividends output prices profits © UCLES 2007 9708/03/O/N/07 [Turn over www.xtremepapers.

net . the nominal value of a country’s national income increased by 10 % and the average price level increased by 20 %. There was a reduction in the demand for money. What will be the net welfare effects on the following groups of car users? those who continue to use their cars A B C D uncertain uncertain lose lose those who no longer travel lose uncertain lose uncertain those who switch to public transport uncertain gain gain uncertain 18 What will directly result in an increase in China's Gross National Product? A B C D increased wages earned in a Malaysian-owned factory in China increased imports of goods and services increased outflows of net property income increased taxes on domestic expenditure 19 Over a given period. What must the country’s central bank do to prevent cash reserves of the commercial banks from falling? A B C D buy bonds of a value at least equal to $10 billion buy bonds of a value less than $10 billion sell bonds of a value at least equal to $10 billion sell bonds of a value less than $10 billion © UCLES 2007 9708/03/O/N/07 www.xtremepapers. What can be deduced from this information? A B C D The country’s money supply increased by 10 %. There was a reduction in the volume of output. 20 A country’s government runs a budget surplus of $10 billion.8 17 The introduction of a congestion charge on private motorists entering a city centre results in a significant reduction in traffic congestion. There was an increase in the income velocity of circulation.

9 21 The diagram shows a two-sector economy.xtremepapers. Y2. U consumption. Investment increases to I2 giving a new equilibrium level of income.net . XY rate of interest O quantity of money What can be concluded about component X? A B C D It is an active balance and is interest-elastic. It is an active balance and is interest-inelastic. Initially consumption is C. 9708/03/O/N/07 © UCLES 2007 [Turn over www. investment T R S C + I2 C + I1 45° O Y1 Y2 real national income What is the value of the multiplier? A RS TU B RS RU C RU TU D TU RU 22 What is likely to cause a decrease in aggregate supply? A B C D a decrease in consumption expenditure an increase in labour productivity a decrease in rates of unemployment benefit an increase in wage costs per unit of output 23 The diagram shows the two main components (X and Y) of the liquidity preference curve. It is an idle balance and is interest-inelastic. investment is I1 and the equilibrium level of income is Y1. It is an idle balance and is interest-elastic.

10 24 Between 2000 and 2004 Botswana experienced economic growth but there was a fall in its Human Development Index.net . Which combination of events could explain this apparent paradox? aggregate demand A B C D increase increase decrease decrease productive capacity increase increase decrease decrease life expectancy increase decrease increase decrease 25 What would explain why the prices of the primary commodities produced by less developed countries fluctuate widely from year to year? A B C D the development of artificial substitutes for natural products the introduction of more capital-intensive methods of production by producers inelasticity of both the supply and demand for these products improvements in agricultural productivity 26 The diagram shows the relationship between the rate of increase in wages and the rate of unemployment.xtremepapers. rate of increase in wages O rate of unemployment What would be likely to cause the curve in the diagram to shift upwards and to the right? A B C D a reduction in regional differences in unemployment rates a reduction in the proportion of the workforce belonging to trade unions an increase in the unemployment rate the expectation of a higher rate of inflation © UCLES 2007 9708/03/O/N/07 www.

xtremepapers.11 27 What would be most likely in the short run to cause an increase in a country’s unemployment rate? A B C D an increase in its potential output an increase in its balance of trade surplus an increase in the government’s budget deficit an increase in the money supply 28 What is an example of an expansionary supply side policy? A B C D an increase in tariffs an increase in interest rates an increase in spending on welfare an increase in spending on training benefits 29 In which combination of circumstances is an increase in government expenditure likely to result in the largest increase in output? initial level of unemployment A B C D high high low low means of financing additional expenditure borrowing from the banking system increase in tax rates increase in tax rates issues of bonds to non-bank private sector © UCLES 2007 9708/03/O/N/07 [Turn over www.net .

D1 is the initial demand curve for a country’s currency. the country’s foreign exchange reserves will fall. S1 exchange rate E2 E1 D2 D1 O quantity of currency The demand curve then shifts to D2 and the exchange rate moves to E2. © UCLES 2007 9708/03/O/N/07 www. The country’s authorities are operating a managed float. Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. At E2. but if any items requiring clearance have unwittingly been included. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES).12 30 In the diagram.xtremepapers. which is itself a department of the University of Cambridge. University of Cambridge International Examinations is part of the Cambridge Assessment Group.net . and OE1 is the initial exchange rate. S1 is the initial supply curve. Interest rates have fallen. What can be deduced from this? A B C D Exchange rates are freely fluctuating. the publisher will be pleased to make amends at the earliest possible opportunity. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders.

A mark will not be deducted for a wrong answer. C and D.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/03 October/November 2008 1 hour *4652225289* READ THESE INSTRUCTIONS FIRST Write in soft pencil.xtremepapers. Answer all questions. B. There are thirty questions on this paper. Any rough working should be done in this booklet. Read the instructions on the Answer Sheet very carefully. paper clips. Write your name. This document consists of 11 printed pages and 1 blank page.net . Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. glue or correction fluid. highlighters. IB08 11_9708_03/3RP © UCLES 2008 [Turn over www. For each question there are four possible answers A. Each correct answer will score one mark. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Do not use staples.

what must be correct? A B C D There has been an equal proportionate increase in the price of X and Y.2 1 Which condition must be met for economic efficiency to be achieved? A B C D 2 Marginal social costs are zero in the production of all goods. Marginal social benefits are at a maximum in the production of all goods.xtremepapers.net . Which reallocation of resources would definitely be more Pareto efficient? A B person Y’s utility Z C D 45° O person X’s utility 3 In the diagram a consumer’s budget line shifts from GH to JK. There has been an increase in the consumer’s real income. J G good Y O H K good X Regardless of any other changes that might occur. There has been an equal proportionate decrease in the price of X and Y. Marginal social costs equal marginal social benefits in the production of all goods. The diagram shows the levels of utility corresponding to different allocations of resources between two people. Marginal social costs are at a minimum in the production of all goods. The initial allocation is Z. © UCLES 2008 9708/03/O/N/08 www. There has been an increase in the consumer’s money income.

It calculates that the marginal cost per day of hiring an additional worker would be $102. 7 When a firm increases all its inputs by 300 %. eventually diseconomies of scale will occur. wage rates will have to be increased. As output increases. A firm currently employs 30 workers at a daily wage rate of $40. As employment increases. As employment increases. The workers are unskilled. the capital-labour ratio falls.3 4 Which statement explains why labour is subject to the law of diminishing returns in the short run? A B C D 5 As additional workers are hired. The industry’s cost structure is capital-intensive. its output increases by 200 %. The industry faces substantial foreign competition. What does this illustrate? A B C D the law of diminishing returns increasing returns to scale diseconomies of scale the law of variable proportions © UCLES 2008 9708/03/O/N/08 [Turn over www.xtremepapers. total output decreases. By how much would the daily wage rate have to be increased to attract an extra worker? A $2 B $42 C $62 D $102 6 In which circumstances is a trade union most likely to be successful in raising wage rates? A B C D The demand for the good produced is price-elastic.net .

00 D $10.xtremepapers. 10 Which characteristic would make it easier for firms in an industry to collude? A B C D low barriers to entry a large number of firms rapid technological change product homogeneity © UCLES 2008 9708/03/O/N/08 www.00 Which feature does a contestable market share with a perfectly competitive market? A B C D Firms must be price takers. Firms must operate on a small scale. production (tonnes) 0 1 2 3 4 5 total cost ($) 20 30 35 40 45 50 What is the average variable cost of producing 5 tonnes of output? A 9 $4.net .00 C $6. There must be freedom of entry to and exit from the industry. There must be many firms in the industry.00 B $5.4 8 The table shows the production of a firm.

What will be the effect on the price charged and the output produced? price A B C D increase increase decrease decrease output increase decrease increase decrease © UCLES 2008 9708/03/O/N/08 [Turn over www. MC AC $ D O output The monopolist is required by the government to adopt marginal cost pricing.net . W $ Z Y X V AC = MC AR MR O T output U Which area shows the deadweight loss resulting from this monopoly situation? A WXYZ B WXVZ C XVY D XVUT 12 The diagram shows the demand and cost curves of a monopolist who initially produces at the profit-maximising level of output.xtremepapers.5 11 The diagram shows the cost and revenue curves of a profit-maximising monopolist. The monopolist’s average cost curve is identical to the long-run supply curve which would exist if the industry was perfectly competitive.

Both firms have been given quotas allowing them to produce 200 litres per day. What was the approximate change in real income per head? A B C D a decrease of 2 % nil an increase of 2 % an increase of 4 % 15 What will be the short-run effect on the level of output of an increase in the money supply. costs per litre firm X firm Y $9 $7 The price received by producers is $10 per litre. prices increased by 4 % and total population increased by 2 %. according to Keynesian theory (assuming the liquidity trap does not apply) and according to monetarist theory (assuming the increase is unanticipated)? effect on output Keynesian theory A B C D increase increase unchanged unchanged monetarist theory increase unchanged increase unchanged © UCLES 2008 9708/03/O/N/08 www.6 13 The table shows the costs of two milk producers.net . Firm X sells its quota to firm Y. a country’s national income in money terms increased by 6 %. what price did firm Y pay (per day) to buy X’s quota? A B C D $200 $600 $700 between $200 and $600 14 During a year. Assuming constant costs of production and zero costs of entry and exit.xtremepapers.

what will be the approximate increases in the money value of national income and the price level? increase in money value of national income A B C D © UCLES 2008 increase in price level 2% 3% 2% 3% 9708/03/O/N/08 5% 5% 8% 8% [Turn over www. If the velocity of circulation of money remains the same. Which point shows the most likely new equilibrium of the economy? C D price level X B AS2 AS AS1 A AD1 AD2 O real output AD 18 In an economy. At the same time there is a decrease in money wage rates.xtremepapers. investment $m 200 200 200 200 exports $m 100 100 100 100 government expenditure $m 50 50 50 50 savings $m 50 60 75 100 imports $m 120 140 160 180 taxation $m 100 150 200 275 national income $m 700 800 900 1000 What is the equilibrium level of national income? A $700 m B $800 m C $900 m D $1000 m 17 In the diagram an economy is initially in equilibrium at point X.7 16 The table shows some data for an economy. the volume of output rises by 3 % in a year. while the quantity of money rises by 5 %.net . The government increases spending on education.

What is the new equilibrium point? 21 Real output in an economy grows by 1. © UCLES 2008 9708/03/O/N/08 www. There has been an increase in the rate of inflation. A D X B C rate of interest LP LP LP MS O MS MS quantity of money Banks create more credit and people decide to hold less money as a precaution against emergencies. Actual output has grown more slowly than potential output. The initial equilibrium is at point X.xtremepapers.5 % but at the same time the level of unemployment increases.8 19 What is likely to be the effect on interest rates and the supply of money of a sale of government securities to the public by a central bank? interest rates A B C D increase increase decrease decrease money supply increase decrease decrease increase 20 The diagram shows three different levels of money supply (MS) and three different demand curves for holding money balances (LP). What can be deduced from this information? A B C D Labour productivity has decreased. Population of working age has fallen.net .

What will happen if a government persists in trying to achieve a target rate of unemployment of 3 % by expansionary monetary policy? A B C D an accelerating rate of inflation a diminishing rate of inflation a high but constant rate of inflation a negative rate of inflation 24 A developing economy experiences a rapid growth in labour productivity.9 22 Which pattern of labour market data is likely to indicate an increase in cyclical unemployment? changes in compulsory redundancies A B C D decrease increase decrease increase voluntary resignations increase increase increase decrease 23 The natural rate of unemployment in an economy is 5 %.net . What is most likely to result from this? A B C D an increase in the country’s balance of trade deficit an increase in the country’s relative labour costs a depreciation of the country’s currency an increase in real income per head 25 What would increase an economy’s actual output but not its potential output? A B C D an increase in the capital available to the labour force an increase in the labour force’s skill level an increase in the number in the labour force an increase in the proportion of the labour force employed © UCLES 2008 9708/03/O/N/08 [Turn over www.xtremepapers.

net . The standard of living fell between 2002 and 2003.xtremepapers. 10 9 8 7 6 % 5 4 3 2 1 0 2000 2001 year What does the chart show? A B C D Real GDP was lowest in 2003. The unemployment rate fell when the growth rate increased. The total labour force declined between 2000 and 2002. What is likely to be a consequence? A B C D a reduction in the profit margins on garments produced by Chinese textile firms a reduction in the inflation rate in the EU a switch to producing higher-value garments by Chinese textile firms the closure of Chinese-owned textile factories in Thailand © UCLES 2008 9708/03/O/N/08 www.10 26 The chart shows the rates of economic growth and unemployment in a country for the period 2000 to 2003. percentage change in real GDP percentage rate of unemployment 2002 2003 27 What is a necessary feature of economic growth? A B C D the elimination of an economy’s output gap a continuing increase in the level of employment a continuing outward shift in an economy’s production possibility frontier an increase in an economy’s nominal GDP 28 The European Union imposes a quota on the volume of garments imported from China.

11 29 Without any change in government policy.net . Which combination of policy measures would be most likely to help it achieve this objective? interest rates A B C D increase increase decrease decrease rate of income tax increase decrease increase decrease © UCLES 2008 9708/03/O/N/08 www. what will be the effect of an economic recession on tax revenue and on government expenditure? tax revenue A B C D decrease decrease increase increase government expenditure decrease increase increase decrease 30 A country’s government wishes to switch demand away from private consumption towards investment and net exports.xtremepapers.

net . the publisher will be pleased to make amends at the earliest possible opportunity. but if any items requiring clearance have unwittingly been included. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. University of Cambridge International Examinations is part of the Cambridge Assessment Group. 9708/03/O/N/08 www.12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. which is itself a department of the University of Cambridge.xtremepapers. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES).

Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) 9708/31 October/November 2009 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) *7304702477* READ THESE INSTRUCTIONS FIRST Write in soft pencil. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Any rough working should be done in this booklet. Answer all questions. There are thirty questions on this paper.net . Write your name. paper clips. IB09 11_9708_31/FP © UCLES 2009 [Turn over www. For each question there are four possible answers A. B. This document consists of 12 printed pages. highlighters. C and D.xtremepapers. Read the instructions on the Answer Sheet very carefully. glue or correction fluid. Each correct answer will score one mark. Do not use staples. A mark will not be deducted for a wrong answer.

was not previously available to him.net . quantity of X consumed total utility (units) 1 28 2 40 3 50 4 58 5 64 6 68 7 71 8 73 The consumer obtains two units of satisfaction from the last cent she spends on each good that she purchases. He is definitely worse off because he has to pay more for good Y. He is worse off since combinations of X and Y along LN are no longer available to him. an individual initially chooses combination N on budget line LM. What is true about the way the economy’s resources are being used at this point? allocatively efficient A B C D 2 possibly yes possibly yes productively efficient yes possibly yes possibly socially desirable yes possibly possibly yes The schedule shows the total utility derived by a consumer of a good X at different levels of consumption. and he now chooses combination T. which he now chooses. What is the maximum number of units of X that she will consume if the price of X is 6 cents? A 3 2 B 5 C 7 D 8 In the diagram. An increase in his money income accompanied by an increase in the price of good Y causes his budget line to shift to RS.xtremepapers. L R good Y N T O good X How does this affect his economic welfare? A B C D M S He is definitely better off because his money income has increased. 9708/31/O/N/09 © UCLES 2009 www.2 1 An economy is operating at a point on its production possibility curve. He is better off since combination T.

3 4 Which statement describes a situation in which a rise in input of factor X. Returns to scale are constant. how many workers will the firm employ and what wage will it pay? number employed A B C D N1 N1 N2 N2 wage W3 W1 W2 W4 © UCLES 2009 9708/31/O/N/09 [Turn over www. results in no change in a firm’s output? A B C D 5 There are diminishing returns to factor X. and MCL its marginal cost of labour curve. S is its supply of labour curve. all other factors being constant. There are diseconomies of scale. What could cause a perfectly competitive firm’s marginal revenue product of labour curve to shift to the right? A B C D an increase in wages a higher rate of sales tax an increase in labour supply a rise in the price of the final product 6 In the diagram.net .xtremepapers. MCL W4 W3 W2 W1 MRPL O N1 N2 S $ labour Assuming profit maximisation. MRPL is a firm’s marginal revenue product of labour curve. The marginal product of X is zero.

xtremepapers. How will this affect the supply and demand curves in the diagram? employers’ demand curve A B C D shifts to right shifts to right shifts to left shifts to left workers’ supply curve shifts to left shifts to right shifts to left shifts to right © UCLES 2009 9708/31/O/N/09 www. D weekly wage S O number of workers The government introduces a law reducing the statutory working week from 39 hours to 36 hours.net .4 7 What is an example of a wage differential that compensates for the disadvantages associated with particular jobs? A B C D 8 male workers earning more than female workers in the same job the tendency for wage rates negotiated by trade unions to exceed those for non-unionised labour labourers on off-shore oil rigs earning more than those employed on-shore government office workers being paid more than private sector office workers The diagram shows the initial position of a labour market.

9708/31/O/N/09 © UCLES 2009 [Turn over www. What will be the effect on the firm’s revenue if it increases its price by 5 %? A B C D Its revenue will be unchanged.5 9 The table shows the inputs of the two factors of production. Its revenue will fall to zero. output 100 200 300 400 500 capital 5 8 14 20 26 labour 10 16 28 40 52 Over which output range do increasing returns to scale occur? A 100 to 200 B 200 to 300 C 300 to 400 D 400 to 500 10 The diagram shows an industry producing under conditions of constant average costs.net . needed to produce varying levels of output. X $ T Y Z W LRAC.xtremepapers. capital and labour. Which area measures the loss in consumer surplus if it were to become a monopoly? A YWZ B XYWT C XYZT D SYZV 11 The price elasticity of demand for a firm’s product is zero. Its revenue will increase by 5 %. the industry produces output OV. Its revenue will decrease by 5 %. LRMC AR O S MR V output Under perfect competition.

which output would he choose to protect his long-run profits? $ Pe MC = AC AR MR O A B C output 13 The diagram shows the cost and revenue curves of a monopoly producer whose only cost of production is a fixed cost. D $ X Y AFC AR O MR output What will such a monopolist do? A B C D set a price of OX in the short run and the long run set a price of OY in the short run and the long run set a price of OX in the short run.xtremepapers. excessive profits might attract new entrants to the industry. If the monopolist believes that at prices above Pe new competitors would enter.net . in the long run.6 12 The diagram shows the short-run position of a monopolist who believes that. but discontinue production in the long run set a price of OY in the short run. but discontinue production in the long run © UCLES 2009 9708/31/O/N/09 www.

Each member is allocated a production quota.xtremepapers. $ million national income consumer spending investment spending government spending on goods and services taxation imports What is the value of exports? A $100 million B $120 million C $140 million D $230 million 600 400 80 100 90 120 17 Assuming a constant income velocity of circulation of money. if the rate of growth of the money supply is 8 % and the average price level increases by 5 %. What will be the effect on total steel production and the industry’s total profits of allowing the producers to trade the quotas among themselves? effect on production A B C D increase increase no change no change effect on total profits increase no change increase no change 15 What could prevent a market economy achieving allocative efficiency? A B C D disagreement among consumers over resource allocation inequalities in the distribution of income and wealth an inability to produce free goods an inability to produce public goods 16 The information in the table is taken from a country’s national income accounts. and initially produces the maximum allowed under its quota.7 14 A country’s steel producers are members of a cartel. what will be the approximate change in real output? A –3 % B +3 % C +8 % D +13 % © UCLES 2009 9708/31/O/N/09 [Turn over www.net .

net .xtremepapers. 15 % is paid in taxes. 5 % is saved and the rest is spent on domestically-produced goods. 20 % is spent on imports. year 1 2 3 4 5 6 national income (Y) 2100 2110 2125 2145 2160 2170 According to the accelerator principle. what will be the short-run effect of an unexpected increase in the money supply? A B C D an appreciation of the foreign exchange rate an increase in employment an increase in real wages an increase in the rate of interest 19 The table gives the national income of a country over six years.5 B 5 C 6 D 20 © UCLES 2009 9708/31/O/N/09 www. What is the value of the multiplier? A 2.8 18 According to monetarist theory. in which year did net investment first fall to a level below that of the previous year? A year 3 B year 4 C year 5 D year 6 20 Out of any addition to national income.

xtremepapers. The original expenditure function is shown by E. Which line shows the new expenditure function resulting from these changes? A E1 B E2 C E3 D E4 22 The diagram shows an economy’s aggregate supply curve.net .9 21 The diagram shows a number of expenditure functions. AS price level O output What is likely to cause the curve to shift to the left? A B C D improvements in technology schemes to increase the geographical mobility of labour an increase in investment due to a reduction in interest rates an increase in the marginal rate of income tax © UCLES 2009 9708/31/O/N/09 [Turn over www. E1 E2 E E3 E4 expenditure O income The government announces a decrease in government expenditure on goods and services and reduces the standard rate of income tax.

Assuming that notes and coins in circulation remain unchanged.net . what will cause the rate of interest to rise? A B C D an increase in the rate of investment an increase in liquidity preference an increase in the level of savings an increase in the supply of money 25 In the diagram. what will be the immediate effect on the assets and liabilities of the commercial banks? assets A B C D bonds +$1 million reserves –$1 million bonds +$1 million reserves –$1 million unchanged liabilities unchanged deposits +$1 million deposits –$1 million unchanged 24 According to loanable funds theory. X1 rate of inflation X2 O unemployment rate What could cause the curve to shift to X2? A B C D an increase in the natural rate of unemployment a decrease in the money supply the expectation of a decrease in the inflation rate an increase in the rate of interest 9708/31/O/N/09 © UCLES 2009 www.10 23 The government sells $1 million of bonds to the commercial banks. It uses the proceeds from the sale to provide subsidies to sugar producers who pay them into their bank accounts.xtremepapers. the curve X1 shows an economy’s initial trade-off between inflation and unemployment.

xtremepapers.11 26 An economy’s GDP per capita grows over a certain period of time.net . What will be the likely effect on the level of domestic demand for goods and services and on the demand for the country’s exports? domestic demand A B C D increase increase decrease decrease export demand increase decrease decrease increase 29 Which policy is most likely to help to correct an adverse balance on the current account of the balance of payments? A B C D abolishing tariffs devaluing the currency reducing direct taxes reducing indirect taxes © UCLES 2009 9708/31/O/N/09 [Turn over www. but its development when measured by the Human Development Index remains unchanged. What could explain the difference? A B C D longer working hours increased pollution an increased crime rate a decline in life expectancy 27 What is most likely to be the impact on economic growth and on the rate of inflation in developed economies of an inflow of migrant labour from developing economies? impact on economic growth A B C D increase increase decrease decrease impact on rate of inflation increase decrease increase decrease 28 An economy has unemployed resources and a flexible exchange rate. It lowers interest rates below the level prevailing in other countries.

Which combination of changes in policy instruments is consistent with this? government expenditure A B C D decrease decrease increase increase interest rate decrease decrease increase increase taxation increase decrease decrease increase Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. © UCLES 2009 9708/31/O/N/09 www. but if any items requiring clearance have unwittingly been included.net . the publisher will be pleased to make amends at the earliest possible opportunity.12 30 A government decides to pursue a more deflationary fiscal policy and a more reflationary monetary policy. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). which is itself a department of the University of Cambridge.xtremepapers. University of Cambridge International Examinations is part of the Cambridge Assessment Group.

Any rough working should be done in this booklet. Answer all questions.net . highlighters. C and D.xtremepapers. A mark will not be deducted for a wrong answer. Read the instructions on the Answer Sheet very carefully. Write your name. For each question there are four possible answers A. This document consists of 12 printed pages. There are thirty questions on this paper. Do not use staples. IB09 11_9708_32/FP © UCLES 2009 [Turn over www. B. paper clips. glue or correction fluid. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) 9708/32 October/November 2009 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) *8113106021* READ THESE INSTRUCTIONS FIRST Write in soft pencil. Each correct answer will score one mark.

net . and he now chooses combination T. He is worse off since combinations of X and Y along LN are no longer available to him.xtremepapers. What is the maximum number of units of X that she will consume if the price of X is 6 cents? A 2 2 B 5 C 7 D 8 In the diagram.2 1 The schedule shows the total utility derived by a consumer of a good X at different levels of consumption. L R good Y N T O good X How does this affect his economic welfare? A B C D 3 M S He is definitely better off because his money income has increased. Which statement describes a situation in which a rise in input of factor X. He is better off since combination T. There are diseconomies of scale. was not previously available to him. quantity of X consumed total utility (units) 1 28 2 40 3 50 4 58 5 64 6 68 7 71 8 73 The consumer obtains two units of satisfaction from the last cent she spends on each good that she purchases. Returns to scale are constant. He is definitely worse off because he has to pay more for good Y. an individual initially chooses combination N on budget line LM. results in no change in a firm’s output? A B C D There are diminishing returns to factor X. The marginal product of X is zero. © UCLES 2009 9708/32/O/N/09 www. all other factors being constant. An increase in his money income accompanied by an increase in the price of good Y causes his budget line to shift to RS. which he now chooses.

S is its supply of labour curve. MRPL is a firm’s marginal revenue product of labour curve. and MCL its marginal cost of labour curve. MCL W4 W3 W2 W1 MRPL O N1 N2 S $ labour Assuming profit maximisation.xtremepapers. how many workers will the firm employ and what wage will it pay? number employed A B C D 6 N1 N1 N2 N2 wage W3 W1 W2 W4 What is an example of a wage differential that compensates for the disadvantages associated with particular jobs? A B C D male workers earning more than female workers in the same job the tendency for wage rates negotiated by trade unions to exceed those for non-unionised labour labourers on off-shore oil rigs earning more than those employed on-shore government office workers being paid more than private sector office workers © UCLES 2009 9708/32/O/N/09 [Turn over www.net .3 4 What could cause a perfectly competitive firm’s marginal revenue product of labour curve to shift to the right? A B C D 5 an increase in wages a higher rate of sales tax an increase in labour supply a rise in the price of the final product In the diagram.

xtremepapers.4 7 The diagram shows the initial position of a labour market. needed to produce varying levels of output. output 100 200 300 400 500 capital 5 8 14 20 26 labour 10 16 28 40 52 Over which output range do increasing returns to scale occur? A 100 to 200 B 200 to 300 C 300 to 400 D 400 to 500 © UCLES 2009 9708/32/O/N/09 www. D weekly wage S O number of workers The government introduces a law reducing the statutory working week from 39 hours to 36 hours. capital and labour. How will this affect the supply and demand curves in the diagram? employers’ demand curve A B C D 8 shifts to right shifts to right shifts to left shifts to left workers’ supply curve shifts to left shifts to right shifts to left shifts to right The table shows the inputs of the two factors of production.net .

Which area measures the loss in consumer surplus if it were to become a monopoly? A YWZ B XYWT C XYZT D SYZV 10 The price elasticity of demand for a firm’s product is zero. Its revenue will fall to zero. X $ T Y Z W LRAC. Its revenue will increase by 5 %.xtremepapers. © UCLES 2009 9708/32/O/N/09 [Turn over www. What will be the effect on the firm’s revenue if it increases its price by 5 %? A B C D Its revenue will be unchanged. Its revenue will decrease by 5 %. the industry produces output OV. LRMC AR O S MR V output Under perfect competition.net .5 9 The diagram shows an industry producing under conditions of constant average costs.

net . D $ X Y AFC AR O MR output What will such a monopolist do? A B C D set a price of OX in the short run and the long run set a price of OY in the short run and the long run set a price of OX in the short run. but discontinue production in the long run set a price of OY in the short run.xtremepapers. but discontinue production in the long run © UCLES 2009 9708/32/O/N/09 www. excessive profits might attract new entrants to the industry. If the monopolist believes that at prices above Pe new competitors would enter. in the long run. which output would he choose to protect his long-run profits? $ Pe MC = AC AR MR O A B C output 12 The diagram shows the cost and revenue curves of a monopoly producer whose only cost of production is a fixed cost.6 11 The diagram shows the short-run position of a monopolist who believes that.

xtremepapers.net . what will be the approximate change in real output? A –3 % B +3 % C +8 % D +13 % © UCLES 2009 9708/32/O/N/09 [Turn over www.7 13 A country’s steel producers are members of a cartel. $ million national income consumer spending investment spending government spending on goods and services taxation imports What is the value of exports? A $100 million B $120 million C $140 million D $230 million 600 400 80 100 90 120 16 Assuming a constant income velocity of circulation of money. What will be the effect on total steel production and the industry’s total profits of allowing the producers to trade the quotas among themselves? effect on production A B C D increase increase no change no change effect on total profits increase no change increase no change 14 What could prevent a market economy achieving allocative efficiency? A B C D disagreement among consumers over resource allocation inequalities in the distribution of income and wealth an inability to produce free goods an inability to produce public goods 15 The information in the table is taken from a country’s national income accounts. Each member is allocated a production quota. if the rate of growth of the money supply is 8 % and the average price level increases by 5 %. and initially produces the maximum allowed under its quota.

year 1 2 3 4 5 6 national income (Y) 2100 2110 2125 2145 2160 2170 According to the accelerator principle.5 B 5 C 6 D 20 © UCLES 2009 9708/32/O/N/09 www. What is the value of the multiplier? A 2. in which year did net investment first fall to a level below that of the previous year? A year 3 B year 4 C year 5 D year 6 19 Out of any addition to national income. 15 % is paid in taxes.8 17 According to monetarist theory. what will be the short-run effect of an unexpected increase in the money supply? A B C D an appreciation of the foreign exchange rate an increase in employment an increase in real wages an increase in the rate of interest 18 The table gives the national income of a country over six years.xtremepapers.net . 5 % is saved and the rest is spent on domestically-produced goods. 20 % is spent on imports.

9 20 The diagram shows a number of expenditure functions.net . AS price level O output What is likely to cause the curve to shift to the left? A B C D improvements in technology schemes to increase the geographical mobility of labour an increase in investment due to a reduction in interest rates an increase in the marginal rate of income tax © UCLES 2009 9708/32/O/N/09 [Turn over www.xtremepapers. E1 E2 E E3 E4 expenditure O income The government announces a decrease in government expenditure on goods and services and reduces the standard rate of income tax. The original expenditure function is shown by E. Which line shows the new expenditure function resulting from these changes? A E1 B E2 C E3 D E4 21 The diagram shows an economy’s aggregate supply curve.

net .xtremepapers. what will cause the rate of interest to rise? A B C D an increase in the rate of investment an increase in liquidity preference an increase in the level of savings an increase in the supply of money 24 In the diagram. X1 rate of inflation X2 O unemployment rate What could cause the curve to shift to X2? A B C D an increase in the natural rate of unemployment a decrease in the money supply the expectation of a decrease in the inflation rate an increase in the rate of interest 9708/32/O/N/09 © UCLES 2009 www. what will be the immediate effect on the assets and liabilities of the commercial banks? assets A B C D bonds +$1 million reserves –$1 million bonds +$1 million reserves –$1 million unchanged liabilities unchanged deposits +$1 million deposits –$1 million unchanged 23 According to loanable funds theory. Assuming that notes and coins in circulation remain unchanged. It uses the proceeds from the sale to provide subsidies to sugar producers who pay them into their bank accounts.10 22 The government sells $1 million of bonds to the commercial banks. the curve X1 shows an economy’s initial trade-off between inflation and unemployment.

but its development when measured by the Human Development Index remains unchanged.xtremepapers. It lowers interest rates below the level prevailing in other countries.11 25 An economy’s GDP per capita grows over a certain period of time. What will be the likely effect on the level of domestic demand for goods and services and on the demand for the country’s exports? domestic demand A B C D increase increase decrease decrease export demand increase decrease decrease increase 28 Which policy is most likely to help to correct an adverse balance on the current account of the balance of payments? A B C D abolishing tariffs devaluing the currency reducing direct taxes reducing indirect taxes © UCLES 2009 9708/32/O/N/09 [Turn over www. What could explain the difference? A B C D longer working hours increased pollution an increased crime rate a decline in life expectancy 26 What is most likely to be the impact on economic growth and on the rate of inflation in developed economies of an inflow of migrant labour from developing economies? impact on economic growth A B C D increase increase decrease decrease impact on rate of inflation increase decrease increase decrease 27 An economy has unemployed resources and a flexible exchange rate.net .

xtremepapers. What is true about the way the economy’s resources are being used at this point? allocatively efficient A B C D possibly yes possibly yes productively efficient yes possibly yes possibly socially desirable yes possibly possibly yes Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible.12 29 A government decides to pursue a more deflationary fiscal policy and a more reflationary monetary policy.net . Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. University of Cambridge International Examinations is part of the Cambridge Assessment Group. the publisher will be pleased to make amends at the earliest possible opportunity. but if any items requiring clearance have unwittingly been included. © UCLES 2009 9708/32/O/N/09 www. which is itself a department of the University of Cambridge. Which combination of changes in policy instruments is consistent with this? government expenditure A B C D decrease decrease increase increase interest rate decrease decrease increase increase taxation increase decrease decrease increase 30 An economy is operating at a point on its production possibility curve. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES).

XtremePapers. B. Do not use staples. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. paper clips. Read the instructions on the Answer Sheet very carefully. A mark will not be deducted for a wrong answer. This document consists of 12 printed pages. There are thirty questions on this paper. glue or correction fluid. Answer all questions. C and D. Each correct answer will score one mark. IB10 11_9708_31/4RP © UCLES 2010 [Turn over www. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Any rough working should be done in this booklet. highlighters. For each question there are four possible answers A. Write your name.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) 9708/31 October/November 2010 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) *1437656649* READ THESE INSTRUCTIONS FIRST Write in soft pencil.com .

The distribution of income reflects what each individual deserves.2 1 In an economy no one can be made better off without making others worse off. R quantity of Y N M S O quantity of X The consumer’s original equilibrium is at M.com . There are no externalities.XtremePapers. What can be concluded from this? A B C D All markets are perfectly competitive. The economy is operating on its production possibility curve. 2 The schedule shows the total utility derived by a consumer of a good X at different levels of consumption. quantity of X consumed total utility (units) 1 30 2 50 3 65 4 75 5 80 6 83 7 84 The consumer obtains three units of utility from the last $ she spends on each good that she purchases. What is the maximum number of units of X that she will consume if the price of X is $5? A 3 B 4 C 5 D 6 3 The line RS in the diagram shows the different combinations of goods X and Y that a consumer can afford with his present income. What could explain a change in his equilibrium position to N? A B C D a change in his tastes a decrease in the price of X and a bigger percentage increase in the price of Y an increase in the price of X and an increase in his income equal percentage increases in his income and in both prices © UCLES 2010 9708/31/O/N/10 www.

XtremePapers. X capital Y O labour What could explain why the firm later chooses the combination of labour and capital shown by point Y? A B C D an increase in capital productivity an increase in interest rates an increase in labour productivity an increase in wage rates 6 To increase its labour force from 100 to 101 workers. factor X factor price marginal physical product $2. X and Y. A firm chooses the combination of labour and capital shown by point X on the curve. what should it do? A B C D employ less of both X and Y employ less of X and more of Y employ more of both X and Y employ more of X and less of Y 5 In the diagram. The table shows the factor price and the current marginal physical product of these two factors. a firm has to increase the daily wage rate from $300 to $302. What is the marginal cost of labour per day? A $2 B $202 C $302 D $502 © UCLES 2010 9708/31/O/N/10 [Turn over www.00 8 If the firm sells its product for $1 and aims to maximise profits.50 2 factor Y $6.com .3 4 A firm in a perfectly competitive industry employs two factors of production. the curve shows the various combinations of labour and capital that can be employed to produce a given level of output.

XtremePapers. Which area measures the economic rent obtained by the worker? A x–y B x+y C y–x D y+z 8 The diagram shows a firm’s short-run marginal cost curve.com .4 7 The diagram shows a worker’s supply of labour curve. SRMC cost O Q output What explains why the curve is upward sloping at output levels above OQ? A B C D diseconomies of scale inelasticity of supply rising fixed costs the law of variable proportions © UCLES 2010 9708/31/O/N/10 www. S wage rate per hour W x z y 0 10 20 30 40 hours per week The worker is required to work a minimum of 40 hours a week at the hourly wage. 0W.

50. marginal revenue is $2. If the firm is a profit maximiser. It is seeking to maximise profits.5 9 The diagram shows a firm’s cost and revenue curves.XtremePapers. It is operating in a perfectly competitive market.com . MC $ AC O MR Q output AR What could explain why the firm produces output OQ? A B C D It is operating in a contestable market. 10 A firm wishes to acquire some of the consumer surplus its customers currently enjoy. It is seeking to maximise sales revenue.00 and marginal cost is $2. How might it achieve this? A B C D by introducing price discrimination by reducing operating costs by setting a price that maximises revenue by taking advantage of economies of scale 11 A perfectly competitive firm finds that at its current level of output. what will happen to its price and output? price A B C D increases increases unchanged unchanged output decreases unchanged decreases unchanged © UCLES 2010 9708/31/O/N/10 [Turn over www.

com .XtremePapers. the cost of collecting the tax exceeds the revenue raised.6 12 The diagram shows the outcome when a perfectly competitive market is taken over by a monopoly. $ X AC MR O quantity D What does area X represent? A B C D monopoly profit the reduction in consumer surplus the resulting deadweight loss transfer earnings 13 A tax is said to be regressive when A B C D low income earners pay a higher proportion of their income in tax than high income earners. the marginal rate of tax is higher for high income earners than low income earners. 14 Which is not a policy designed to correct market failure? A B C D competition policy free inoculation against infectious diseases minimum wage policy regulations to limit river pollution 15 What is meant by ‘real wages’? A B C D the marginal physical product of labour the opportunity cost of labour the purchasing power of money wages wages net of tax © UCLES 2010 9708/31/O/N/10 www. marginal tax rates exceed average tax rates.

when will an increase in the money supply leave the level of output unchanged? A B C D when the liquidity trap is operative when the money supply increase was not anticipated when there is a floating exchange rate when there is an immediate adjustment to expectations about future price levels 18 According to monetarist theory. what will be the short-run and the long-run effect of an unexpected increase in the money supply on the real wage level? short-run A B C D decrease decrease unchanged unchanged long-run increase unchanged increase unchanged © UCLES 2010 9708/31/O/N/10 [Turn over www.com .7 16 What is not a leakage from the circular flow of income? A B C D expenditure on foreign goods indirect taxes undistributed profits unemployment benefits 17 According to Keynesian theory.XtremePapers.

C consumption O income Which statement is correct? A B C D The average propensity to consume is constant. 20 In a closed economy with no government the full employment level of income = $400 billion and the equilibrium level of income = $380 billion. If the deflationary gap is $4 billion. The marginal propensity to consume is less than the average propensity to consume.com .XtremePapers.8 19 The diagram shows the relationship between consumption expenditure and income. The average propensity to consume is rising. The marginal propensity to consume is equal to the average propensity to consume. what is the marginal propensity to consume? A 1 5 B 1 4 C 3 4 D 4 5 © UCLES 2010 9708/31/O/N/10 www.

When government expenditure increases there will be an increase in national output.com . price level AD O national output What helps to explain why the curve is downward sloping? A B C D When exports increase there will be an increase in national income. 22 An increase in the money supply leads to a fall in interest rates. What else will decrease as a result of these changes? A B C D the desire to hold idle money balances the price of equities the price of government bonds the velocity of circulation of money © UCLES 2010 9708/31/O/N/10 [Turn over www. When investment increases there will be an increase in consumption. When the price level increases there will be an increase in interest rates.9 21 The diagram shows an aggregate demand curve.XtremePapers.

10 23 The diagram shows the market for loanable funds.com . D1 D2 rate of interest E2 S1 S2 E1 O loanable funds Which changes could cause the equilibrium to move from E1 to E2? A B C D a decline in business confidence and an increase in bank lending a decrease in bank lending and depletion of natural resources an increase in the propensity to save and the discovery of new mineral deposits improvements in technology and reduction in the propensity to save 24 Which feature of the Indian economy could explain why the purchasing power parity exchange rate of the Rupee is much higher than its market exchange rate? A B C D high levels of duty on imported goods high levels of rural unemployment the relatively low price of goods not traded internationally the relatively low rate of inflation 25 What is likely to be the effect of a fall in oil prices on the global economy? A B C D a decrease in the rate of economic growth a decrease in unemployment a strengthening of cost-push inflation a weakening of demand-pull inflation © UCLES 2010 9708/31/O/N/10 www.XtremePapers.

XtremePapers.11 26 What is an unavoidable cost of long-run economic growth? A B C D an increase in inflation an increase in the working hours of the population a sacrifice of potential present consumption greater inequality in the distribution of income 27 What could be expected to increase the pressure of demand-pull inflation in an open economy? A B C D an appreciation of the foreign exchange rate an increase in indirect taxes an increase in interest rates the imposition of import controls 28 When will taxes be most effective in dampening cyclical changes in national output? A B C D when the tax yield is independent of national income when the tax yield varies inversely with national income when the tax yield varies less than proportionately with national income when the tax yield varies more than proportionately with national income 29 The government of a country decides to increase the proportion of its tax revenue it obtains from direct taxes and to reduce the proportion it obtains from indirect taxes.com . What is likely to be the impact on the distribution of income and on work incentives? distribution of income A B C D less equal less equal more equal more equal work incentives decrease increase decrease increase © UCLES 2010 9708/31/O/N/10 [Turn over www.

University of Cambridge International Examinations is part of the Cambridge Assessment Group. The suppliers of imported goods charge market-clearing prices. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. Assuming the demand for imports is price-inelastic.com . which is itself a department of the University of Cambridge. but if any items requiring clearance have unwittingly been included. © UCLES 2010 9708/31/O/N/10 www. what will be the impact on the country’s balance of trade and on its terms of trade? balance of trade A B C D improves improves worsens worsens terms of trade improve worsen improve worsen Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES).XtremePapers.12 30 A country introduces import quotas. the publisher will be pleased to make amends at the earliest possible opportunity.

Read the instructions on the Answer Sheet very carefully. A mark will not be deducted for a wrong answer. Do not use staples. Answer all questions. For each question there are four possible answers A. IB10 11_9708_32/RP © UCLES 2010 [Turn over www. Each correct answer will score one mark. Any rough working should be done in this booklet. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. Write your name. C and D. paper clips. B.XtremePapers. glue or correction fluid. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) 9708/32 October/November 2010 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) *9274140355* READ THESE INSTRUCTIONS FIRST Write in soft pencil. highlighters. There are thirty questions on this paper.com . This document consists of 12 printed pages.

2 The schedule shows the total utility derived by a consumer of a good X at different levels of consumption. R quantity of Y N M S O quantity of X The consumer’s original equilibrium is at M. What could explain a change in his equilibrium position to N? A B C D a change in his tastes a decrease in the price of X and a bigger percentage increase in the price of Y an increase in the price of X and an increase in his income equal percentage increases in his income and in both prices © UCLES 2010 9708/32/O/N/10 www. What is the maximum number of units of X that she will consume if the price of X is $5? A 3 B 4 C 5 D 6 3 The line RS in the diagram shows the different combinations of goods X and Y that a consumer can afford with his present income. What can be concluded from this? A B C D All markets are perfectly competitive.2 1 In an economy no one can be made better off without making others worse off. The distribution of income reflects what each individual deserves.XtremePapers. There are no externalities. quantity of X consumed total utility (units) 1 30 2 50 3 65 4 75 5 80 6 83 7 84 The consumer obtains three units of utility from the last $ she spends on each good that she purchases.com . The economy is operating on its production possibility curve.

com .00 8 If the firm sells its product for $1 and aims to maximise profits. the curve shows the various combinations of labour and capital that can be employed to produce a given level of output. X capital Y O labour What could explain why the firm later chooses the combination of labour and capital shown by point Y? A B C D an increase in capital productivity an increase in interest rates an increase in labour productivity an increase in wage rates 6 To increase its labour force from 100 to 101 workers.XtremePapers. The table shows the factor price and the current marginal physical product of these two factors. X and Y. factor X factor price marginal physical product $2. What is the marginal cost of labour per day? A $2 B $202 C $302 D $502 © UCLES 2010 9708/32/O/N/10 [Turn over www. what should it do? A B C D employ less of both X and Y employ less of X and more of Y employ more of both X and Y employ more of X and less of Y 5 In the diagram.3 4 A firm in a perfectly competitive industry employs two factors of production.50 2 factor Y $6. a firm has to increase the daily wage rate from $300 to $302. A firm chooses the combination of labour and capital shown by point X on the curve.

com . 0W. Which area measures the economic rent obtained by the worker? A x–y B x+y C y–x D y+z 8 The diagram shows a firm’s short-run marginal cost curve. S wage rate per hour W x z y 0 10 20 30 40 hours per week The worker is required to work a minimum of 40 hours a week at the hourly wage.XtremePapers.4 7 The diagram shows a worker’s supply of labour curve. SRMC cost O Q output What explains why the curve is upward sloping at output levels above OQ? A B C D diseconomies of scale inelasticity of supply rising fixed costs the law of variable proportions © UCLES 2010 9708/32/O/N/10 www.

00 and marginal cost is $2.com . 10 A firm wishes to acquire some of the consumer surplus its customers currently enjoy.XtremePapers. It is seeking to maximise profits. How might it achieve this? A B C D by introducing price discrimination by reducing operating costs by setting a price that maximises revenue by taking advantage of economies of scale 11 A perfectly competitive firm finds that at its current level of output.5 9 The diagram shows a firm’s cost and revenue curves. If the firm is a profit maximiser. MC $ AC O MR Q output AR What could explain why the firm produces output OQ? A B C D It is operating in a contestable market. marginal revenue is $2. what will happen to its price and output? price A B C D increases increases unchanged unchanged output decreases unchanged decreases unchanged © UCLES 2010 9708/32/O/N/10 [Turn over www.50. It is operating in a perfectly competitive market. It is seeking to maximise sales revenue.

marginal tax rates exceed average tax rates.XtremePapers. 14 Which is not a policy designed to correct market failure? A B C D competition policy free inoculation against infectious diseases minimum wage policy regulations to limit river pollution 15 What is meant by ‘real wages’? A B C D the marginal physical product of labour the opportunity cost of labour the purchasing power of money wages wages net of tax © UCLES 2010 9708/32/O/N/10 www. $ X AC MR O quantity D What does area X represent? A B C D monopoly profit the reduction in consumer surplus the resulting deadweight loss transfer earnings 13 A tax is said to be regressive when A B C D low income earners pay a higher proportion of their income in tax than high income earners.com . the cost of collecting the tax exceeds the revenue raised.6 12 The diagram shows the outcome when a perfectly competitive market is taken over by a monopoly. the marginal rate of tax is higher for high income earners than low income earners.

XtremePapers.7 16 What is not a leakage from the circular flow of income? A B C D expenditure on foreign goods indirect taxes undistributed profits unemployment benefits 17 According to Keynesian theory.com . when will an increase in the money supply leave the level of output unchanged? A B C D when the liquidity trap is operative when the money supply increase was not anticipated when there is a floating exchange rate when there is an immediate adjustment to expectations about future price levels 18 According to monetarist theory. what will be the short-run and the long-run effect of an unexpected increase in the money supply on the real wage level? short-run A B C D decrease decrease unchanged unchanged long-run increase unchanged increase unchanged © UCLES 2010 9708/32/O/N/10 [Turn over www.

XtremePapers. C consumption O income Which statement is correct? A B C D The average propensity to consume is constant.com . The average propensity to consume is rising. 20 In a closed economy with no government the full employment level of income = $400 billion and the equilibrium level of income = $380 billion. The marginal propensity to consume is equal to the average propensity to consume. The marginal propensity to consume is less than the average propensity to consume. what is the marginal propensity to consume? A 1 5 B 1 4 C 3 4 D 4 5 © UCLES 2010 9708/32/O/N/10 www. If the deflationary gap is $4 billion.8 19 The diagram shows the relationship between consumption expenditure and income.

What else will decrease as a result of these changes? A B C D the desire to hold idle money balances the price of equities the price of government bonds the velocity of circulation of money © UCLES 2010 9708/32/O/N/10 [Turn over www.9 21 The diagram shows an aggregate demand curve.com . 22 An increase in the money supply leads to a fall in interest rates. price level AD O national output What helps to explain why the curve is downward sloping? A B C D When exports increase there will be an increase in national income. When government expenditure increases there will be an increase in national output. When investment increases there will be an increase in consumption. When the price level increases there will be an increase in interest rates.XtremePapers.

D1 D2 rate of interest E2 S1 S2 E1 O loanable funds Which changes could cause the equilibrium to move from E1 to E2? A B C D a decline in business confidence and an increase in bank lending a decrease in bank lending and depletion of natural resources an increase in the propensity to save and the discovery of new mineral deposits improvements in technology and reduction in the propensity to save 24 Which feature of the Indian economy could explain why the purchasing power parity exchange rate of the Rupee is much higher than its market exchange rate? A B C D high levels of duty on imported goods high levels of rural unemployment the relatively low price of goods not traded internationally the relatively low rate of inflation 25 What is likely to be the effect of a fall in oil prices on the global economy? A B C D a decrease in the rate of economic growth a decrease in unemployment a strengthening of cost-push inflation a weakening of demand-pull inflation © UCLES 2010 9708/32/O/N/10 www.10 23 The diagram shows the market for loanable funds.com .XtremePapers.

com . What is likely to be the impact on the distribution of income and on work incentives? distribution of income A B C D less equal less equal more equal more equal work incentives decrease increase decrease increase © UCLES 2010 9708/32/O/N/10 [Turn over www.11 26 What is an unavoidable cost of long-run economic growth? A B C D an increase in inflation an increase in the working hours of the population a sacrifice of potential present consumption greater inequality in the distribution of income 27 What could be expected to increase the pressure of demand-pull inflation in an open economy? A B C D an appreciation of the foreign exchange rate an increase in indirect taxes an increase in interest rates the imposition of import controls 28 When will taxes be most effective in dampening cyclical changes in national output? A B C D when the tax yield is independent of national income when the tax yield varies inversely with national income when the tax yield varies less than proportionately with national income when the tax yield varies more than proportionately with national income 29 The government of a country decides to increase the proportion of its tax revenue it obtains from direct taxes and to reduce the proportion it obtains from indirect taxes.XtremePapers.

what will be the impact on the country’s balance of trade and on its terms of trade? balance of trade A B C D improves improves worsens worsens terms of trade improve worsen improve worsen Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. but if any items requiring clearance have unwittingly been included.XtremePapers. Assuming the demand for imports is price-inelastic.com .12 30 A country introduces import quotas. the publisher will be pleased to make amends at the earliest possible opportunity. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). © UCLES 2010 9708/32/O/N/10 www. The suppliers of imported goods charge market-clearing prices. University of Cambridge International Examinations is part of the Cambridge Assessment Group. which is itself a department of the University of Cambridge. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders.

Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. glue or correction fluid. IB10 11_9708_33/RP © UCLES 2010 [Turn over www. Do not use staples. There are thirty questions on this paper. Answer all questions.XtremePapers. Any rough working should be done in this booklet. highlighters.com . B. This document consists of 12 printed pages. Each correct answer will score one mark. Read the instructions on the Answer Sheet very carefully. paper clips. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. For each question there are four possible answers A. A mark will not be deducted for a wrong answer. C and D.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) 9708/33 October/November 2010 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) *2391785909* READ THESE INSTRUCTIONS FIRST Write in soft pencil. Write your name.

What is the maximum number of units of X that she will consume if the price of X is $5? A 3 B 4 C 5 D 6 2 The line RS in the diagram shows the different combinations of goods X and Y that a consumer can afford with his present income. quantity of X consumed total utility (units) 1 30 2 50 3 65 4 75 5 80 6 83 7 84 The consumer obtains three units of utility from the last $ she spends on each good that she purchases.XtremePapers.2 1 The schedule shows the total utility derived by a consumer of a good X at different levels of consumption. R quantity of Y N M S O quantity of X The consumer’s original equilibrium is at M. What could explain a change in his equilibrium position to N? A B C D a change in his tastes a decrease in the price of X and a bigger percentage increase in the price of Y an increase in the price of X and an increase in his income equal percentage increases in his income and in both prices © UCLES 2010 9708/33/O/N/10 www.com .

3 3 A firm in a perfectly competitive industry employs two factors of production. X capital Y O labour What could explain why the firm later chooses the combination of labour and capital shown by point Y? A B C D an increase in capital productivity an increase in interest rates an increase in labour productivity an increase in wage rates 5 To increase its labour force from 100 to 101 workers. factor X factor price marginal physical product $2. what should it do? A B C D employ less of both X and Y employ less of X and more of Y employ more of both X and Y employ more of X and less of Y 4 In the diagram. What is the marginal cost of labour per day? A $2 B $202 C $302 D $502 © UCLES 2010 9708/33/O/N/10 [Turn over www.50 2 factor Y $6. a firm has to increase the daily wage rate from $300 to $302. the curve shows the various combinations of labour and capital that can be employed to produce a given level of output. A firm chooses the combination of labour and capital shown by point X on the curve. The table shows the factor price and the current marginal physical product of these two factors.com .XtremePapers.00 8 If the firm sells its product for $1 and aims to maximise profits. X and Y.

Which area measures the economic rent obtained by the worker? A x–y B x+y C y–x D y+z 7 The diagram shows a firm’s short-run marginal cost curve.com .XtremePapers. 0W. SRMC cost O Q output What explains why the curve is upward sloping at output levels above OQ? A B C D diseconomies of scale inelasticity of supply rising fixed costs the law of variable proportions © UCLES 2010 9708/33/O/N/10 www.4 6 The diagram shows a worker’s supply of labour curve. S wage rate per hour W x z y 0 10 20 30 40 hours per week The worker is required to work a minimum of 40 hours a week at the hourly wage.

5 8 The diagram shows a firm’s cost and revenue curves. It is seeking to maximise sales revenue.com . It is operating in a perfectly competitive market. 9 A firm wishes to acquire some of the consumer surplus its customers currently enjoy.50. It is seeking to maximise profits.00 and marginal cost is $2. How might it achieve this? A B C D by introducing price discrimination by reducing operating costs by setting a price that maximises revenue by taking advantage of economies of scale 10 A perfectly competitive firm finds that at its current level of output. MC $ AC O MR Q output AR What could explain why the firm produces output OQ? A B C D It is operating in a contestable market.XtremePapers. what will happen to its price and output? price A B C D increases increases unchanged unchanged output decreases unchanged decreases unchanged © UCLES 2010 9708/33/O/N/10 [Turn over www. marginal revenue is $2. If the firm is a profit maximiser.

$ X AC MR O quantity D What does area X represent? A B C D monopoly profit the reduction in consumer surplus the resulting deadweight loss transfer earnings 12 A tax is said to be regressive when A B C D low income earners pay a higher proportion of their income in tax than high income earners. the marginal rate of tax is higher for high income earners than low income earners.com . 13 Which is not a policy designed to correct market failure? A B C D competition policy free inoculation against infectious diseases minimum wage policy regulations to limit river pollution 14 What is meant by ‘real wages’? A B C D the marginal physical product of labour the opportunity cost of labour the purchasing power of money wages wages net of tax © UCLES 2010 9708/33/O/N/10 www.6 11 The diagram shows the outcome when a perfectly competitive market is taken over by a monopoly.XtremePapers. marginal tax rates exceed average tax rates. the cost of collecting the tax exceeds the revenue raised.

7 15 What is not a leakage from the circular flow of income? A B C D expenditure on foreign goods indirect taxes undistributed profits unemployment benefits 16 According to Keynesian theory.com . when will an increase in the money supply leave the level of output unchanged? A B C D when the liquidity trap is operative when the money supply increase was not anticipated when there is a floating exchange rate when there is an immediate adjustment to expectations about future price levels 17 According to monetarist theory.XtremePapers. what will be the short-run and the long-run effect of an unexpected increase in the money supply on the real wage level? short-run A B C D decrease decrease unchanged unchanged long-run increase unchanged increase unchanged © UCLES 2010 9708/33/O/N/10 [Turn over www.

com . what is the marginal propensity to consume? A 1 5 B 1 4 C 3 4 D 4 5 © UCLES 2010 9708/33/O/N/10 www. The marginal propensity to consume is equal to the average propensity to consume. The average propensity to consume is rising.8 18 The diagram shows the relationship between consumption expenditure and income. The marginal propensity to consume is less than the average propensity to consume.XtremePapers. C consumption O income Which statement is correct? A B C D The average propensity to consume is constant. If the deflationary gap is $4 billion. 19 In a closed economy with no government the full employment level of income = $400 billion and the equilibrium level of income = $380 billion.

When government expenditure increases there will be an increase in national output. When investment increases there will be an increase in consumption. 21 An increase in the money supply leads to a fall in interest rates.com .9 20 The diagram shows an aggregate demand curve. price level AD O national output What helps to explain why the curve is downward sloping? A B C D When exports increase there will be an increase in national income. What else will decrease as a result of these changes? A B C D the desire to hold idle money balances the price of equities the price of government bonds the velocity of circulation of money © UCLES 2010 9708/33/O/N/10 [Turn over www.XtremePapers. When the price level increases there will be an increase in interest rates.

XtremePapers. D1 D2 rate of interest E2 S1 S2 E1 O loanable funds Which changes could cause the equilibrium to move from E1 to E2? A B C D a decline in business confidence and an increase in bank lending a decrease in bank lending and depletion of natural resources an increase in the propensity to save and the discovery of new mineral deposits improvements in technology and reduction in the propensity to save 23 Which feature of the Indian economy could explain why the purchasing power parity exchange rate of the Rupee is much higher than its market exchange rate? A B C D high levels of duty on imported goods high levels of rural unemployment the relatively low price of goods not traded internationally the relatively low rate of inflation 24 What is likely to be the effect of a fall in oil prices on the global economy? A B C D a decrease in the rate of economic growth a decrease in unemployment a strengthening of cost-push inflation a weakening of demand-pull inflation 25 What is an unavoidable cost of long-run economic growth? A B C D an increase in inflation an increase in the working hours of the population a sacrifice of potential present consumption greater inequality in the distribution of income © UCLES 2010 9708/33/O/N/10 www.10 22 The diagram shows the market for loanable funds.com .

what will be the impact on the country’s balance of trade and on its terms of trade? balance of trade A B C D improves improves worsens worsens terms of trade improve worsen improve worsen © UCLES 2010 9708/33/O/N/10 [Turn over www.XtremePapers.com .11 26 What could be expected to increase the pressure of demand-pull inflation in an open economy? A B C D an appreciation of the foreign exchange rate an increase in indirect taxes an increase in interest rates the imposition of import controls 27 When will taxes be most effective in dampening cyclical changes in national output? A B C D when the tax yield is independent of national income when the tax yield varies inversely with national income when the tax yield varies less than proportionately with national income when the tax yield varies more than proportionately with national income 28 The government of a country decides to increase the proportion of its tax revenue it obtains from direct taxes and to reduce the proportion it obtains from indirect taxes. Assuming the demand for imports is price-inelastic. The suppliers of imported goods charge market-clearing prices. What is likely to be the impact on the distribution of income and on work incentives? distribution of income A B C D less equal less equal more equal more equal work incentives decrease increase decrease increase 29 A country introduces import quotas.

the publisher will be pleased to make amends at the earliest possible opportunity. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). What can be concluded from this? A B C D All markets are perfectly competitive. University of Cambridge International Examinations is part of the Cambridge Assessment Group.12 30 In an economy no one can be made better off without making others worse off. The distribution of income reflects what each individual deserves.XtremePapers. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders.com . but if any items requiring clearance have unwittingly been included. The economy is operating on its production possibility curve. Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. © UCLES 2010 9708/33/O/N/10 www. There are no externalities. which is itself a department of the University of Cambridge.

Answer all questions.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/31 May/June 2012 1 hour *8211770087* READ THESE INSTRUCTIONS FIRST Write in soft pencil. IB12 06_9708_31/FP © UCLES 2012 [Turn over . For each question there are four possible answers A. Do not use staples. Each correct answer will score one mark. highlighters. Read the instructions on the Answer Sheet very carefully. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. This document consists of 11 printed pages and 1 blank page. A mark will not be deducted for a wrong answer. B. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. Write your name. There are thirty questions on this paper. C and D. Any rough working should be done in this booklet. paper clips. glue or correction fluid.

Marginal social benefits are at a maximum in the production of all goods. Marginal social costs are at a minimum in the production of all goods. What is the maximum quantity of the good that the individual will buy when its price is $4? A 2 units B 3 units C 4 units D 5 units © UCLES 2012 9708/31/M/J/12 . quantity of good (units) 1 2 3 4 5 6 total utility (units) 20 36 50 62 72 80 The individual’s marginal utility of money is $1 = 3 units of utility.2 1 Which condition must be met for economic efficiency to be achieved? A B C D 2 Marginal social costs are zero in the production of all goods. The table shows the total utility that an individual obtains from consuming different quantities of a good. Marginal social costs equal marginal social benefits in the production of all goods.

labour product (units) W APL MPL O N1 N2 N3 N4 workers employed The market price of the firm’s product is $1. How many workers will the firm employ at a wage of OW? A ON1 B ON2 C ON3 D ON4 © UCLES 2012 9708/31/M/J/12 [Turn over . wage ($). G J good Y O H good X K Which combination could cause the budget line to shift to GH? consumer’s money income A B C D 4 decrease decrease increase increase price of good Y decrease increase decrease increase The diagram shows a perfectly competitive firm’s average product of labour (APL) and marginal product of labour (MPL) curves.3 3 The curve JK in the diagram is a consumer’s initial budget line.

TPL total product of labour O What explains the shape of the curve? A B C D 6 diminishing marginal disutility of work increasing marginal disutility of work technical diseconomies of scale the law of variable proportions number employed Which is a financial economy of scale? A B C D lower costs in raising capital lower costs of marketing lower risk due to diversification lower variable costs of production 7 There is an increase in the supply of female labour.4 5 The diagram shows the total product of labour curve for a firm whose only variable factor input is labour. What will be the likely effect on male and female wages? male wages A B C D decrease decrease increase increase female wages decrease increase decrease increase © UCLES 2012 9708/31/M/J/12 .

Its revenue will decrease by 5 %. There are zero costs of entry to.5 8 An economist calculates that a firm has incurred the following costs over the course of a year. The industry now has fewer barriers to entry. Its revenue will be unchanged. There are a large number of firms in the industry. © UCLES 2012 9708/31/M/J/12 [Turn over . Which statement about the industry is correct? A B C D Each firm has become more efficient. and exit from. Its revenue will increase by 5 %. The industry has become more oligopolistic. the industry. What will be the effect on the firm’s revenue if it reduces its price by 5 %? A B C D Its revenue will fall to zero. All firms in the industry are price-takers. 11 Which condition must apply before a market can be regarded as perfectly contestable? A B C D All firms in the industry produce an identical product. The industry has benefited from external economies of scale. 10 The five firm concentration ratio for an industry changes from 50 % to 60 %. $(000) wages and salaries opportunity cost of owner’s time materials rent marketing fees interest on bank loans interest forgone on finance provided by owner 150 35 80 30 20 25 10 By how much does total cost as defined by an economist exceed the total cost as defined by an accountant? A 9 $75 000 B $45 000 C $35 000 D $10 000 The price elasticity of demand for a firm’s product is zero.

6 12 A perfectly competitive firm is currently producing at a level of output where its marginal cost is above both its average total cost and the market price. How will this affect barriers to entry and the degree of interdependence between firms? barriers to entry A B C D strengthen strengthen weaken weaken interdependence between firms strengthen weaken strengthen weaken 14 In the diagram the imposition of a tax on a commodity causes its supply curve to shift from S1 to S2. What will be the effect on price and output if the firm were to maximise its profit? effect on output A B C D decrease decrease increase increase effect on price increase unchanged decrease unchanged 13 An industry moves from monopolistic competition to oligopoly. D S2 S1 P2 price P1 N M O Q2 Q1 quantity K J Which area measures the resulting deadweight loss? A P1P2JK B JKQ1Q2 C JKM D JKN © UCLES 2012 9708/31/M/J/12 .

7 15 A government decides to privatise a state monopoly. AR revenue. What should the government do to try to ensure that this will result in an improvement in efficiency? A B C D allocate vouchers to all citizens entitling them to a share in the ownership of the monopoly encourage competition impose a maximum profit margin privatise the monopoly as a going concern 16 The diagram shows the long-run cost and revenue curves of a monopolist. If the government wishes to stimulate aggregate demand. costs LRAC LRMC O W X Y Z MR output Which level of output satisfies the condition for an efficient allocation of resources? A OW B OX C OY D OZ 17 Due to a cyclical downturn. which policy would be most effective? A B C D financing the deficit by borrowing from the Central Bank financing the deficit by selling bonds to individuals financing the deficit by selling state assets to private firms increasing tax rates to eliminate the deficit © UCLES 2012 9708/31/M/J/12 [Turn over . a government is experiencing a budget deficit.

8 18 The graphs indicate economic performance in a country between 2007 and 2010. GDP and industrial production were at their lowest in 2008. annual % increase in industrial production 12 8 % 4 4 0 07 08 09 10 0 16 12 %8 annual % increase in consumer prices 6 4 % 2 0 07 08 09 10 annual % increase in GDP 07 08 09 10 Which conclusion may be drawn from the graphs? A B C D Between 2007 and 2008 industrial production and GDP fell but prices rose. GDP or prices fall. At no time did industrial production. Between 2008 and 2009 the rates of growth of industrial production. what will be the short-run effect of an unexpected increase in the money supply? A B C D an appreciation of the foreign exchange rate an increase in output an increase in real wages an increase in the rate of interest © UCLES 2012 9708/31/M/J/12 . 19 Which represents an injection into an economy’s circular flow of income? A B C D a balance of trade surplus a government budget surplus the retained profits of private companies household saving 20 According to monetarist theory. GDP and prices all increased.

in which circumstance would there always be an increase in the demand for money? real income A B C D increase constant increase constant price level decrease constant increase decrease interest rates increase increase decrease decrease 24 In a banking system all banks maintain 10 % of deposits as cash. by how much will the banks have to reduce their net loans? A $2000 B $18 000 C $180 000 D $220 000 © UCLES 2012 9708/31/M/J/12 [Turn over . Assuming no subsequent net change in notes and coins in circulation. C1 shows the initial relationship between consumption and national income. there is an increase in the volume of imports to the economy. 23 According to Keynesian theory. the money supply in an open economy will increase if A B C D domestic banks increase their lending to foreign borrowers. C1 C2 consumption O national income What could cause the consumption function to shift to C2? A B C D an increase in the rate of unemployment benefits an increase in the standard rate of income tax an increase in exports an increase in investment 22 Other things being equal. Customers withdraw $20 000 in cash. the government sells bonds to domestic residents.9 21 In the diagram. the central bank buys foreign currency in the foreign exchange market.

Which policy would be most likely to help it achieve this objective? A B C D an increase in interest rates an increase in rates of unemployment benefit the introduction of minimum wage rates the introduction of subsidised travel for unemployed workers to search for jobs 28 The number of people employed in a country and the level of unemployment both decrease.10 25 The table shows the figures for consumption. Assuming that the state of technology remains unchanged. capital formation and depreciation in four economies. which economy is most likely to experience economic growth? consumption ($ m) A B C D 100 500 1 000 20 000 capital formation ($ m) 20 200 1 400 5 000 depreciation ($ m) 30 200 1 200 6 000 26 What is likely to result from the discovery of oil reserves in a developing economy? A B C D a more equal distribution of income and wealth an increase in the real exchange rate an increase in the competitiveness of commercial agriculture a reduction in the volume of imports of manufactured goods 27 A government’s priority is to reduce the natural rate of unemployment (NAIRU). all measured in US $. What could explain this? A B C D net inward immigration an increase in the level of unemployment benefits an increase in the age at which state pensions are payable an increase in the number of students © UCLES 2012 9708/31/M/J/12 .

What effect is this likely to have on incomes.11 29 The European Union imposes a quota on the volume of garments imported from China. the balance of payments current account deficit and government expenditure in Lesotho? balance of payments current account deficit uncertain reduce reduce uncertain government expenditure rise no change rise rise incomes A B C D fall rise fall rise © UCLES 2012 9708/31/M/J/12 . What is likely to be a consequence? A B C D an increase in the prices received by Chinese textile firms a reduction in the prices paid by EU consumers a switch to producing lower-value garments by Chinese textile firms a reduction in the volume of garments exported from China to non-EU markets 30 The government of Lesotho introduces a programme to promote exports and to encourage firms to grow by subsidising local entrepreneurs.

© UCLES 2012 9708/31/M/J/12 . University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). but if any items requiring clearance have unwittingly been included. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. which is itself a department of the University of Cambridge. the publisher will be pleased to make amends at the earliest possible opportunity.12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible.

C and D. There are thirty questions on this paper. highlighters. B. This document consists of 12 printed pages. A mark will not be deducted for a wrong answer. For each question there are four possible answers A. Any rough working should be done in this booklet. Do not use staples. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. paper clips. Read the instructions on the Answer Sheet very carefully. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Answer all questions. glue or correction fluid. Write your name. IB12 06_9708_32/4RP © UCLES 2012 [Turn over .UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/32 May/June 2012 1 hour *0332722167* READ THESE INSTRUCTIONS FIRST Write in soft pencil. Each correct answer will score one mark.

What is the maximum quantity of the good that the individual will buy when its price is $4? A 2 units B 3 units C 4 units D 5 units © UCLES 2012 9708/32/M/J/12 .2 1 When is economic efficiency achieved in an economy? A B C D 2 when nobody can become better off without somebody else becoming worse off when the economy is operating at its natural rate of unemployment when the level of social costs is minimised when the rate of economic growth is maximised The table shows the total utility that an individual obtains from consuming different quantities of a good. quantity of good (units) 1 2 3 4 5 6 total utility (units) 20 36 50 62 72 80 The individual’s marginal utility of money is $1 = 3 units of utility.

wage ($). labour product (units) W APL MPL O N1 N2 N3 N4 workers employed The market price of the firm’s product is $1.3 3 The curve GH in the diagram is a consumer’s initial budget line. How many workers will the firm employ at a wage of OW? A ON1 B ON2 C ON3 D ON4 © UCLES 2012 9708/32/M/J/12 [Turn over . G J good Y O H good X K Which combination could cause the budget line to shift to JK? price of good X A B C D 4 decrease decrease increase increase consumers’ money income decrease increase decrease increase The diagram shows a perfectly competitive firm’s average product of labour (APL) and marginal product of labour (MPL) curves.

00 B $10.00 D $20. Which is a financial economy of scale? A B C D lower costs in raising capital lower costs of marketing lower risk due to diversification lower variable costs of production 7 The table shows a firm’s total costs of production. production (tonnes) 0 1 2 3 4 5 total cost ($) 40 60 70 80 90 100 What is the average variable cost of producing 5 tonnes of output? A $8. What is the shape of its long-run average cost curve? A B C D 6 It is horizontal.4 5 A firm experiences diseconomies of scale over its entire range of output.00 C $12.00 © UCLES 2012 9708/32/M/J/12 . It slopes upwards. It slopes downwards. It is ‘U’ shaped.

$(000) wages and salaries opportunity cost of owner’s time materials rent marketing fees interest on bank loans interest forgone on finance provided by owner 150 35 80 30 20 25 10 By how much does total cost as defined by an economist exceed the total cost as defined by an accountant? A 9 $75 000 B $45 000 C $35 000 D $10 000 The diagram shows a firm’s short-run and long-run average cost curves. The industry has benefited from external economies of scale. J K cost L M N O output Which curve is the firm’s long-run average cost curve? A JLN B JLM C KLM D KLN 10 The five firm concentration ratio for an industry changes from 50 % to 60 %. The industry has become more oligopolistic. © UCLES 2012 9708/32/M/J/12 [Turn over . Which statement about the industry is correct? A B C D Each firm has become more efficient. The industry now has fewer barriers to entry.5 8 An economist calculates that a firm has incurred the following costs over the course of a year.

MC Z ATC AVC X cost W V U O output Which segment of a curve shows the quantity that the firm would be willing to supply to the market in the short-run? A VX B UZ C VZ D WZ 12 A perfectly competitive firm is currently producing at a level of output where its marginal cost is above both its average total cost and the market price.6 11 The diagram shows the cost curves of a firm in a perfectly competitive market. What will be the effect on price and output if the firm were to maximise its profit? effect on output A B C D decrease decrease increase increase effect on price increase unchanged decrease unchanged © UCLES 2012 9708/32/M/J/12 .

D S2 S1 P2 price P1 N M O Q2 Q1 quantity K J Which area measures the resulting deadweight loss? A P1P2JK B JKQ1Q2 C JKM D JKN © UCLES 2012 9708/32/M/J/12 [Turn over .7 13 The diagram shows a firm’s short-run total cost curve (TC). TC total cost O output Q What is minimised at output OQ? A B C D average fixed cost average total cost average variable cost marginal cost 14 In the diagram the imposition of a tax on a commodity causes its supply curve to shift from S1 to S2.

AR revenue. Firms producing the good will make a loss. Output of the good is below the socially optimum level. Social costs of production exceed private costs. costs LRAC LRMC O W X Y Z MR output Which level of output satisfies the condition for an efficient allocation of resources? A OW B OX C OY D OZ 17 A government uses real personal disposable income per head as a measure of the standard of living. 16 The diagram shows the long-run cost and revenue curves of a monopolist.8 15 A good gives rise to external benefits and is produced under conditions of imperfect competition. What does this measure not take into account? A B C D the distribution of income the level of national income the size of the population the average price level © UCLES 2012 9708/32/M/J/12 . Which statement must be true? A B C D Benefits to consumers exceed the benefits to society.

GDP and prices all increased. At no time did industrial production.9 18 The graphs indicate economic performance in a country between 2007 and 2010. annual % increase in industrial production 12 8 % 4 4 0 07 08 09 10 0 16 12 %8 annual % increase in consumer prices 6 4 % 2 0 07 08 09 10 annual % increase in GDP 07 08 09 10 Which conclusion may be drawn from the graphs? A B C D Between 2007 and 2008 industrial production and GDP fell but prices rose. what will be the short-run effect of an unexpected increase in the money supply? A B C D an appreciation of the foreign exchange rate an increase in output an increase in real wages an increase in the rate of interest © UCLES 2012 9708/32/M/J/12 [Turn over . Between 2008 and 2009 the rates of growth of industrial production. 19 Which represents an injection into an economy’s circular flow of income? A B C D a balance of trade surplus a government budget surplus the retained profits of private companies household saving 20 According to monetarist theory. GDP or prices fall. GDP and industrial production were at their lowest in 2008.

10 21 In the diagram. C4 C3 C C2 C1 consumption O national income Which curve could show the economy’s new consumption function following a reduction in the rate of unemployment benefits? A C1 B C2 C C3 D C4 © UCLES 2012 9708/32/M/J/12 . YE equilibrium income O investment What does the slope of the line YE measure? A B C D the investment multiplier the marginal propensity to save the rate of growth of investment the rate of growth of national income 22 In the diagram. YE indicates the equilibrium level of income corresponding to different levels of investment. C is an economy’s initial relationship between consumption and national income.

Assuming no subsequent net change in notes and coins in circulation. by how much will the banks have to reduce their net loans? A $2000 B $18 000 C $180 000 D $220 000 25 Which change is most likely to increase both economic growth and economic development in the long-run? A B C D a decrease in the savings ratio an increase in investment in human capital the depletion of non-renewable resources the greater use of compulsory overtime working of labour 26 What is likely to result from the discovery of oil reserves in a developing economy? A B C D a more equal distribution of income and wealth an increase in the real exchange rate an increase in the competitiveness of commercial agriculture a reduction in the volume of imports of manufactured goods 27 What will be most likely to decrease a country’s national output in the short run but to increase its potential for long-run growth? A B C D a decrease in the level of import tariffs a decrease in the rate of immigration an increase in female participation in the labour force an increase in the money supply © UCLES 2012 9708/32/M/J/12 [Turn over .11 23 What would result in an increase in the volume of bank deposits? A B C D an increase in the public’s desire to hold cash an increase in government expenditure financed by borrowing from the central bank an increase in the proportion of their deposits that banks hold in cash an open market sale of securities by the central bank 24 In a banking system all banks maintain 10 % of deposits as cash. Customers withdraw $20 000 in cash.

12 28 The number of people employed in a country and the level of unemployment both decrease. the balance of payments current account deficit and government expenditure in Lesotho? balance of payments current account deficit uncertain reduce reduce uncertain government expenditure rise no change rise rise incomes A B C D fall rise fall rise Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. © UCLES 2012 9708/32/M/J/12 . but if any items requiring clearance have unwittingly been included. What could explain this? A B C D net inward immigration an increase in the level of unemployment benefits an increase in the age at which state pensions are payable an increase in the number of students 29 What would be an appropriate government action to reduce both a balance of payments current account surplus and the rate of inflation? A B C D increase the money supply increase direct taxes remove tariffs on imports devalue the currency 30 The government of Lesotho introduces a programme to promote exports and to encourage firms to grow by subsidising local entrepreneurs. What effect is this likely to have on incomes. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). the publisher will be pleased to make amends at the earliest possible opportunity. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. University of Cambridge International Examinations is part of the Cambridge Assessment Group. which is itself a department of the University of Cambridge.

There are thirty questions on this paper. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. For each question there are four possible answers A. A mark will not be deducted for a wrong answer. This document consists of 11 printed pages and 1 blank page. paper clips. Any rough working should be done in this booklet. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. C and D. IB12 06_9708_33/4RP © UCLES 2012 [Turn over . B. Each correct answer will score one mark.UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS Paper 3 Multiple Choice (Supplement) Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 9708/33 May/June 2012 1 hour *2549170235* READ THESE INSTRUCTIONS FIRST Write in soft pencil. Read the instructions on the Answer Sheet very carefully. Answer all questions. highlighters. Do not use staples. glue or correction fluid. Write your name.

Marginal social benefits are at a maximum in the production of all goods. the quantity purchased by the consumer.0 quantity (units) 30 15 5 3 $5 5 10 © UCLES 2012 9708/33/M/J/12 .5 1. food price per unit quantity demanded marginal utility (units) His marginal utility from clothing is 2 units. The table shows the price of food. Marginal social costs are at a minimum in the production of all goods. and the marginal utility he derives from food consumption. What is the price of clothing per unit and the quantity purchased by the consumer? clothing price ($) A B C D 0.2 1 Which condition must be met for economic efficiency to be achieved? A B C D 2 Marginal social costs are zero in the production of all goods.0 5.0 3. Marginal social costs equal marginal social benefits in the production of all goods. A utility maximising consumer spends the whole of his disposable income of $40 on food and clothing.

to produce a good which is sold for $4. The table shows its factor productivities and factor prices.3 3 The curve JK in the diagram is a consumer’s initial budget line. G J good Y O H good X K Which combination could cause the budget line to shift to GH? consumer’s money income A B C D 4 decrease decrease increase increase price of good Y decrease increase decrease increase A firm employs two factors. X and Y. factor X Y What should the firm do? A B C D employ less of both X and Y employ more of X and less of Y employ more of Y and less of X employ more of both X and Y marginal physical product 3 5 factor price ($) 15 12 © UCLES 2012 9708/33/M/J/12 [Turn over .

What will be the likely effect on male and female wages? male wages A B C D decrease decrease increase increase female wages decrease increase decrease increase © UCLES 2012 9708/33/M/J/12 . The worker’s supply of labour is wage inelastic. TPL total product of labour O What explains the shape of the curve? A B C D 6 diminishing marginal disutility of work increasing marginal disutility of work technical diseconomies of scale the law of variable proportions number employed A worker responds to an increase in his hourly wage rate by reducing the number of hours he works per week. The worker’s supply of labour is wage elastic. What would explain this? A B C D The income effect of the wage rate increase outweighs the substitution effect. 7 There is an increase in the supply of female labour.4 5 The diagram shows the total product of labour curve for a firm whose only variable factor input is labour. The substitution effect of the wage rate increase outweighs the income effect.

Its revenue will be unchanged. it has applied its strength in semiconductors to other markets including televisions and mobile phones. and exit from. In addition.5 8 Samsung Electronics. Its revenue will decrease by 5 %. has used continuous research and investment to emerge as an industry leader. There are zero costs of entry to. There are a large number of firms in the industry. What will be the effect on the firm’s revenue if it reduces its price by 5 %? A B C D Its revenue will fall to zero. © UCLES 2012 9708/33/M/J/12 [Turn over . There are significant barriers to the entry of new firms into the industry. Its revenue will increase by 5 %. Firms that assemble the final product buy components from specialist firms within the industry. 10 What explains why both large and small firms are often found within the same industry? A B C D All firms in the industry produce identical products. What has taken place? A B C D 9 external growth and diversification external growth and sales revenue maximisation internal growth and diversification internal growth and sales revenue maximisation The price elasticity of demand for a firm’s product is zero. the industry. Production within the industry is subject to diseconomies of scale. 11 Which condition must apply before a market can be regarded as perfectly contestable? A B C D All firms in the industry produce an identical product. All firms in the industry are price-takers. which began as a semiconductor firm making simple memory chips.

How will this affect barriers to entry and the degree of interdependence between firms? barriers to entry A B C D strengthen strengthen weaken weaken interdependence between firms strengthen weaken strengthen weaken © UCLES 2012 9708/33/M/J/12 .6 12 The table shows the total revenue and marginal cost of a firm at different levels of production. production (tonnes) 2 3 4 5 6 7 total revenue ($) 100 120 140 160 180 200 marginal cost ($) 5 10 15 20 25 30 Within which output range will the firm’s profits be maximised? A B C D 2-3 tonnes 3-4 tonnes 4-5 tonnes 5-6 tonnes 13 An industry moves from monopolistic competition to oligopoly.

What should the government do to try to ensure that this will result in an improvement in efficiency? A B C D allocate vouchers to all citizens entitling them to a share in the ownership of the monopoly encourage competition impose a maximum profit margin privatise the monopoly as a going concern 16 What might make Gross National Product (GNP) per capita a misleading indicator when comparing living standards in different countries? A B C D differences between market exchange rates and purchasing power parity exchange rates differences in capital investment as a proportion of GNP differences in exports and imports as a proportion of GNP differences in net property income from abroad © UCLES 2012 9708/33/M/J/12 [Turn over .7 14 In the diagram. Pc price Pw z O D x y quantity Which area measures the deadweight loss to the country of imposing an import tariff equal to PW PC on the good? A x B y C z D x+y 15 A government decides to privatise a state monopoly. The world price of the good is OPW. D is a country’s demand curve for an imported good.

. which policy would be most effective? A B C D financing the deficit by borrowing from the Central Bank financing the deficit by selling bonds to individuals financing the deficit by selling state assets to private firms increasing tax rates to eliminate the deficit 18 Which represents a leakage from a country’s circular flow of income? A B C D a government budget deficit bank loans to private companies the purchase of foreign assets by the country’s households unemployment benefits 19 Which statement would be consistent with a monetarist view of the workings of the macroeconomy? A B C D The demand for money function can shift in an unpredictable way.8 17 Due to a cyclical downturn. The velocity of circulation of money is unstable over time. the full employment level of income is $30 million and there is a deflationary gap of $1 million. A sustained inflation is always associated with an increasing money supply. If the government wishes to stimulate aggregate demand. 20 In a closed economy with no government. What can be deduced from this information? A B C D The level of investment is $5 million. © UCLES 2012 9708/33/M/J/12 . The marginal propensity to consume is The marginal propensity to consume is 4 5 5 6 . the equilibrium level of income is $25 million.5. The value of the investment multiplier is 1. a government is experiencing a budget deficit. Interest rates have little effect on aggregate money expenditure.

the government sells bonds to domestic residents. in which circumstance would there always be an increase in the demand for money? real income A B C D increase constant increase constant price level decrease constant increase decrease interest rates increase increase decrease decrease 24 Which change would best indicate that a country has experienced economic development? A B C D an appreciation in the country’s currency an improvement in the average citizen‘s quality of life an improvement in the country’s trade balance an increase in the country’s real GDP © UCLES 2012 9708/33/M/J/12 [Turn over . C1 C2 consumption O national income What could cause the consumption function to shift to C2? A B C D an increase in the rate of unemployment benefits an increase in the standard rate of income tax an increase in exports an increase in investment 22 Other things being equal. the money supply in an open economy will increase if A B C D domestic banks increase their lending to foreign borrowers. there is an increase in the volume of imports to the economy. 23 According to Keynesian theory.9 21 In the diagram. the central bank buys foreign currency in the foreign exchange market. C1 shows the initial relationship between consumption and national income.

which economy is most likely to experience economic growth? consumption ($ m) A B C D 100 500 1 000 20 000 capital formation ($ m) 20 200 1 400 5 000 depreciation ($ m) 30 200 1 200 6 000 26 How will outward migration from a developing economy affect its balance of payments? A B C D It may improve its balance of payments by increasing its export capacity. Assuming that the state of technology remains unchanged. what is likely to result from a reduction in interest rates in a country? A B C D an appreciation of the country’s currency a decrease in consumption a decrease in investment an outflow of short-term capital © UCLES 2012 9708/33/M/J/12 . It may worsen its balance of payments by increasing consumer expenditure on imported goods.10 25 The table shows the figures for consumption. capital formation and depreciation in four economies. It may improve its balance of payments by increasing inflows of current transfers. 27 A government’s priority is to reduce the natural rate of unemployment (NAIRU). It may worsen its balance of payments by causing its currency to depreciate. Which policy would be most likely to help it achieve this objective? A B C D an increase in interest rates an increase in rates of unemployment benefit the introduction of minimum wage rates the introduction of subsidised travel for unemployed workers to search for jobs 28 Other things being equal. all measured in US $.

11 29 The European Union imposes a quota on the volume of garments imported from China. What is likely to be a consequence? A B C D an increase in the prices received by Chinese textile firms a reduction in the prices paid by EU consumers a switch to producing lower-value garments by Chinese textile firms a reduction in the volume of garments exported from China to non-EU markets 30 A government responds to cyclical fluctuations in output by keeping tax rates and benefit rates unchanged. What is the government seeking to achieve by adopting this fiscal policy? A B C D to allow automatic stabilisers to work to keep output at the full employment level to maintain a constant balanced budget to ensure that its budget is in surplus over the trade cycle © UCLES 2012 9708/33/M/J/12 .

Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). University of Cambridge International Examinations is part of the Cambridge Assessment Group. the publisher will be pleased to make amends at the earliest possible opportunity. which is itself a department of the University of Cambridge. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. © UCLES 2012 9708/33/M/J/12 .12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. but if any items requiring clearance have unwittingly been included.

Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you.c ECONOMICS Paper 3 Multiple Choice (Supplement) *1222540763* READ THESE INSTRUCTIONS FIRST Write in soft pencil. highlighters. glue or correction fluid. Any rough working should be done in this booklet. Write your name. There are thirty questions on this paper. Read the instructions on the Answer Sheet very carefully.w w w e tr . C and D. For each question there are four possible answers A. paper clips. B. A mark will not be deducted for a wrong answer. Do not use staples. Answer all questions. This document consists of 13 printed pages and 3 blank pages.X m ap eP UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level 9708/31 October/November 2011 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) s er om . IB11 11_9708_31/6RP © UCLES 2011 [Turn over . Each correct answer will score one mark.

a firm is operating at point X on its long-run average cost curve. To maximise the satisfaction he derives from a given level of expenditure on two goods. a consumer should allocate his expenditure between the two goods so that A B C D marginal utility of X = price of X and marginal utility of Y = price of Y. total product rises at a diminishing rate. the marginal cost of production increases. The firm is producing output OQ at minimum cost. 2 In the diagram. marginal utility of X marginal utility of Y = price of X price of Y. As more of a variable factor is added to a fixed factor. The firm is operating below its minimum efficient scale. marginal utility of X = marginal utility of Y. © UCLES 2011 9708/31/O/N/11 . marginal utility of X plus marginal utility of Y is maximised.2 1 Which statement describes the operation of the law of variable proportions? A B C D As all factors are increased in proportion. the marginal cost of production diminishes. LRAC cost X O Q output Which statement is not correct? A B C D 3 The firm is employing the least-cost combination of factor inputs to produce OQ. The firm is producing at its cost-minimising level of output. total product rises at a diminishing rate. As all factors are increased in proportion. X and Y. As more of a variable factor is added to a fixed factor.

16 quantity of Y 12 P R Q 0 10 S 20 quantity of X The consumer’s income increases from $80 to $120 and. what are the new prices of X and Y? price of X ($) A B C D 5 4 6 10 12 price of Y ( $) 12 10 8 6 What will cause the supply curve of labour in a particular industry to shift to the left? A B C D a fall in demand for the industry’s product a greater use of machinery in the production of the industry’s output a rise in wages paid in similar occupations in other industries a weakening of trade union influence in the industry © UCLES 2011 9708/31/O/N/11 [Turn over . If the consumer’s budget line is now RS. at the same time. the prices of X and Y change.3 4 In the diagram PQ is a consumer’s original budget line.

capital Q = 300 units Q = 200 units Q = 100 units O What does the diagram show? A B C D the firm’s long-run production function the firm’s long-run total cost function the firm’s short-run production function the firm’s short-run total cost function labour © UCLES 2011 9708/31/O/N/11 .4 6 A firm employs two factors of production. capital and labour. The curves in the diagram show the different combinations of capital and labour a firm needs to produce given levels of output.

TC total cost O Q1 output Q2 Q3 Which statement is correct? A B C D 8 Average total cost is minimised at output OQ1. What is not one of the roles prices play in a perfectly competitive market economy? A B C D to provide a rationing mechanism for allocating goods between consumers to provide incentives to producers to respond to changes in consumer demands to provide information to consumers about the quality of different products to provide information to producers about changes in consumer preferences 9 Which practices would be classified as price discrimination? charging lower return fares from Kuala Lumpur to Hong Kong for passengers who stay overnight on a Saturday in Hong Kong no yes no yes charging higher rail fares for peak period travel to meet the additional costs of train companies A B C D no no yes yes © UCLES 2011 9708/31/O/N/11 [Turn over . Average variable cost is minimised at output OQ3. Average variable cost is minimised at output OQ2.5 7 The diagram shows a firm’s short-run total cost curve (TC). Marginal cost is minimised at output OQ2.

thereby causing the NIT schedule to shift from NIT1 to NIT2? effect on work incentives A B C D decrease decrease increase increase effect on net tax revenue increase uncertain increase uncertain 11 Which commodities should a government tax if it wishes to make the tax system more progressive? A B C D those for which demand is price elastic those for which demand is price inelastic those with an income elasticity of demand greater than one those with an income elasticity of demand less than one 12 The Chinese government is increasing the role of market forces in its economy. introduce price controls? A B C D to increase allocative efficiency to increase the incentive for producers to raise supply to reduce consumer demand to reduce expectations of inflation © UCLES 2011 9708/31/O/N/11 . + tax paid O _ Yt NIT1 NIT2 household income What would be the effects of decreasing the effective tax rate. However.6 10 The diagram illustrates the working of a negative income tax system (NIT). Why might a government. in 2008 it imposed temporary maximum price controls on energy and transport. where households with incomes above Yt pay tax and those with incomes below Yt receive a tax credit. committed to reducing central planning.

what can be concluded about the real GNP per head? A B C D It fell in country 2 only. It rose in countries 1 and 2. It fell in countries 1 and 2. real wages and the level of employment? money wages A B C D increase increase decrease decrease real wages decrease increase increase decrease employment increase decrease decrease increase © UCLES 2011 9708/31/O/N/11 [Turn over . GNP (local currencies) 1994 1 2 5 000 10 000 2004 18 000 20 000 1994 5 000 3 000 population (thousands) 2004 5 500 3 300 prices (1994 = 100) 2004 300 200 country From the data in the table. It rose in country 2 only.7 13 The table gives information about two countries in 1994 and 2004. if there is an unanticipated increase in the money supply what will be the short-run effect on money wages. 14 According to monetarist theory.

C1 shows the relationship between consumption and national income. AD1 and AS are an economy’s original aggregate demand and aggregate supply curves. C2 C1 consumption O national income What could cause the consumption function to shift to C2? A B C D an increase in exports an increase in the rate of interest an increase in the rate of unemployment benefits an increase in the standard rate of income tax 16 In a closed economy with no government.8 15 In the diagram. By how much will consumption increase. the value of the investment multiplier is 5. if investment increases by $300? A $540 B $1000 C $1200 D $1500 17 In the diagram. AS price level AD2 O output AD1 What will cause the aggregate demand curve to shift to AD2? A B C D an appreciation of the currency an increase in the money supply an increase in the price level an increase in the real wage © UCLES 2011 9708/31/O/N/11 .

What is the new equilibrium point? A D X B C rate of interest LP LP LP MS O MS MS quantity of money 20 What is typically associated with a relatively low level of income per capita in a country? A B C D a high rate of saving a low rate of economic growth in past periods a low rate of inflation a low rate of population growth © UCLES 2011 9708/31/O/N/11 [Turn over . the volume of output rises by 2 % in a year. If the velocity of circulation of money remains the same. Banks create more credit and people decide to hold more money as a precaution against emergencies. while the quantity of money rises by 5 %. what will be the approximate increases in the price level and the money value of national income? increase in price level A B C D 2% 2% 3% 3% increase in money value of national income 5% 7% 5% 7% 19 The diagram shows three different levels of money supply (MS) and three different demand curves for holding money balances (LP). The initial equilibrium is at point X.9 18 In an economy.

10 9 8 7 6 % 5 4 3 2 1 0 2007 2008 year What does the chart show? A B C D Real GDP was lowest in 2010. The total labour force declined between 2007 and 2009. The unemployment rate fell when the growth rate increased. The standard of living fell between 2009 and 2010. percentage change in real GDP percentage rate of unemployment 2009 2010 © UCLES 2011 9708/31/O/N/11 .10 21 What is likely to increase a country’s actual output in the short run but may reduce its long-run rate of growth of potential output? A B C D an increase in the size of the government’s budget deficit an increase in the size of the labour force increased female participation in the labour force increased government spending on education 22 What is a likely consequence of an increase in cyclical unemployment? A B C D a deficit on the current account of the balance of payments a deterioration in the fiscal balance of the government an increased rate of inflation an increase in immigration 23 The chart shows the rates of economic growth and unemployment in a country for the period 2007 to 2010.

25 Economists have proposed that the best policy to promote development is ‘trade not aid’. They result in an increase in real interest rates. They increase the real burden of household debt leading to lower consumption. They lead to an increase in the household saving ratio. Developing countries should use foreign aid to invest in their export industries. What is implied by this proposal? A B C D Developing countries should become self-sufficient and not rely on aid. Developing countries should be given greater access to markets in developed countries. 26 What is likely to result from foreign direct investment in developing economies? A B C D a reduction in local wage levels a reduction in tax revenues in developing economies a reduction in the range of consumer goods available to the local population a worsening of net income flows from investments © UCLES 2011 9708/31/O/N/11 [Turn over . Developing countries should use trade barriers to promote import substitution.11 24 Why are high and variable rates of inflation likely to be harmful to long-run economic growth? A B C D They hide relative price changes leading to a misallocation of resources.

Between 1998 and 2001 the Euro depreciated against the US $. sterling against the dollar ($ per £) 1. 28 A regressive tax is defined as one where A B C D all taxpayers pay the same absolute amount of their income in taxation.40 1.70 1. high income earners pay more in taxes than low income earners.12 27 The graphs show the changes in the exchange rate of the £ sterling against the US $ and against the Euro between 1998 and 2003.80 sterling against the Euro (€ per £) 1. Between 2001 and 2003 the US $ appreciated against the Euro. high income earners pay less in taxes than low income earners.80 1.40 1.50 1. Between 1998 and 2001 the £ sterling appreciated against the Euro.30 1999 2000 2001 2002 2003 Between 1998 and 2001 the £ sterling depreciated against the US $.60 1.60 1.70 1. © UCLES 2011 9708/31/O/N/11 .50 1.30 1999 2000 2001 2002 2003 Which statement is incorrect? A B C D 1. high income earners pay a lower proportion of their income in taxes than low income earners.

13 29 The diagram shows the time path of actual output and of long-term potential output of an economy. potential output output actual output O time What would help to reduce the divergence of actual output from potential output? A B C D a balanced budget a stable exchange rate automatic stabilisers stable interest rates 30 When might the effectiveness of fiscal expansion in increasing the level of output be increased? A B C D when it is accompanied by an increase in the money supply when it leads to an appreciation of the country’s exchange rate when it results in a decrease in the price of government bonds when the price level increases © UCLES 2011 9708/31/O/N/11 .

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16 BLANK PAGE Copyright Acknowledgements: Question 27 © Graph data extracted from: www. but if any items requiring clearance have unwittingly been included.co. the publisher will be pleased to make amends at the earliest possible opportunity. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES).bankofengland.uk/mfsd/iadb Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. which is itself a department of the University of Cambridge. University of Cambridge International Examinations is part of the Cambridge Assessment Group. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders. © UCLES 2011 9708/31/O/N/11 .

This document consists of 10 printed pages and 2 blank pages. paper clips. A mark will not be deducted for a wrong answer. C and D. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. Each correct answer will score one mark.c ECONOMICS Paper 3 Multiple Choice (Supplement) *6947059768* READ THESE INSTRUCTIONS FIRST Write in soft pencil. For each question there are four possible answers A. Answer all questions. glue or correction fluid. IB11 11_9708_32/2RP © UCLES 2011 [Turn over .X m ap eP UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level 9708/32 October/November 2011 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) s er om . Any rough working should be done in this booklet. There are thirty questions on this paper. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. B. Write your name. Do not use staples. highlighters.w w w e tr .

The average cost of production falls as the scale of production increases. Initially the quotas are not tradable. The diagram shows a firm’s long-run cost and revenue curves. Sellers are willing to accept lower prices on larger orders. each milk producer is given a production quota which specifies the volume of milk he is allowed to supply.2 1 Why does a normal demand curve for a product slope downwards from left to right? A B C D 2 Buyers’ additional satisfaction declines as consumption rises. but then trade in quotas is allowed. revenue LRAC AR MR O AB output C D At which level of output is the firm both allocatively and productively efficient? A 3 OA B OB C OC D OD To prevent a surplus of milk. Who would gain or lose when trade in quotas takes place? purchasers of quotas A B C D gain gain lose lose sellers of quotas gain lose gain lose © UCLES 2011 9708/32/O/N/11 . Consumers are faced with choices between competing products. LRMC costs.

5 job vacancies (thousands) 180 80 240 100 © UCLES 2011 9708/32/O/N/11 [Turn over .0 2.3 4 For the purposes of measuring the income effect of a change in the price of a good. In which year was there excess demand in the labour market? working population (millions) A B C D 19 19 20 20 unemployment rate (%) 1. The next best paid job he could get is as a lecturer at $60 000 a year. What are his transfer earnings and his economic rent? transfer earnings A B C D $60 000 $60 000 $40 000 $40 000 economic rent $40 000 zero $60 000 zero 6 The table shows the labour market for an economy in four separate years.1 1. what is not held constant? A B C D 5 consumer preferences relative prices the consumer’s money income the consumer’s real income An actor is paid $100 000 a year.0 1.

4 7 The table shows the levels of output of a good which can be produced with different combinations of labour and capital. What are the firm’s average fixed costs? A B C D $10 000 $(10 000 + 5X2 ) X $10 000 X $10 000 5X2 9 What would be most likely to constrain a firm’s ability to grow? A B C D the increased difficulty faced by the firm in marketing its product the increased risks arising from product diversification the increasing costs of distributing goods from a given location the increased difficulties faced by the management in coordinating production © UCLES 2011 9708/32/O/N/11 . capital (number of machines) 2 2 2 4 labour (number of workers) 6 7 8 12 output (units) 100 106 108 200 Which characteristic of the production function for this good does the table show? A B C D 8 a fixed ratio between capital and labour inputs constant returns to scale increasing marginal productivity of labour technical economies of scale The short-run total costs (SRTC) of a firm are given by the formula SRTC = $(10 000 + 5X2) where X is the level of output.

revenue AR O W XYZ MR output Which movement between levels of output would indicate a wish to change from unit cost minimisation to earning a normal profit? A W to Y B W to Z C X to W D X to Z 12 What will increase the likelihood that the firms in an industry will collude to maximise their joint profits? A B C D The industry consists of a large number of producers.5 10 Which would be least likely to practise price discrimination? A B C D a baker a cinema a hairdressing salon a restaurant 11 The diagram shows the cost and revenue curves of a monopoly. MC AC cost. The industry has many differentiated products. There are significant barriers to prevent new firms entering the industry. 13 What would economists agree should be the aim of any health care system? A B C D to meet all the health care demands of the population to provide every patient with the latest and best available treatment to provide free medical treatment to secure the maximum health gain from the resources available © UCLES 2011 9708/32/O/N/11 [Turn over . The industry is characterised by rapid technological change.

6 14 The government of a country decides to increase the proportion of its tax revenue that it obtains from indirect taxes and to reduce the proportion it obtains from income tax. Which area measures the difference between the cost to the economy of producing the resulting increase in output (Q1 – Q2) and the value consumers place on this increase in output? D S1 S2 price B C D O Q1 Q2 A quantity 16 Which change would directly affect a country’s Human Development Index? A B C D a change in average hours worked by the labour force a change in life expectancy of the population a change in the level of carbon dioxide emissions a change in the size of the population © UCLES 2011 9708/32/O/N/11 . Total tax revenue is left unchanged. A government subsidy causes the supply curve to shift from S1 to S2. What is likely to be the impact on the distribution of income and on work incentives? distribution of income A B C D less equal less equal more equal more equal work incentives decrease increase decrease increase 15 The diagram shows the supply and demand curves of a commodity.

on the price level and on national output of an increase in aggregate demand if firms are working at full capacity? price level A B C D rise rise unchanged unchanged national output rise unchanged rise unchanged © UCLES 2011 9708/32/O/N/11 [Turn over .7 17 Despite a government budget deficit.5 75 87.0 C 6.10 in tax on every $1 increase in their gross income. The country’s foreign exchange rate is fixed. investment $m 200 200 200 200 exports $m 100 100 100 100 government expenditure $m 50 50 50 50 savings $m 125 150 175 200 imports $m 62. a country’s money supply remains unchanged.5 B 4. The government budget deficit is financed by borrowing from the central bank. What is the value of the multiplier? A 1.5 75 87. The government budget deficit is financed by selling government bonds to members of the public.5 100 taxation $m 62.5 100 national income $m 600 700 800 900 What is the equilibrium level of national income? A $600 m B $700 m C $800 m D $900 m 20 What will be the effect.0 D 7.5 19 The table shows some data for an economy. What could explain this? A B C D The country has a balance of payments surplus equal to the government budget deficit. in the short run. households pay $0. and spend 5/6 of every increase in their disposable income. 18 In a closed economy.

thereby reducing the levels of investment and income. The rate of interest will be increased. AS price level AD1 AD2 O national output What could cause the aggregate demand curve to shift from AD1 to AD2? A B C D an appreciation in the exchange rate an increase in the money supply a decrease in the interest rate a fall in the unemployment level 22 According to Keynesian analysis.8 21 The diagram shows an economy’s aggregate demand and aggregate supply curves. what will be the result of a decrease in the money supply? A B C D The rate of interest will be reduced. thereby reducing the levels of investment and income. 23 What will be the likely effects on interest rates and bond prices of an increase in the demand for money? interest rates A B C D fall fall rise rise bond prices fall rise fall rise © UCLES 2011 9708/32/O/N/11 . The price level will fall by the same percentage change as the decrease in the money supply. The level of income will be increased as a result of a lower rate of interest and a higher level of investment.

options W X Y Z tax revenue increase increase reduce reduce government expenditure increase reduce increase reduce Which three options have the potential to move the budget into surplus? A W.9 24 A developing country experiences a rapid growth in labour productivity. What is likely to result from this? A B C D an appreciation of the country’s nominal exchange rate an increase in the country’s balance of trade deficit an increase in the country’s inflation rate an increase in the country’s relative labour costs 25 A government currently has a balanced budget. SRPC the rate of change in money wages O unemployment rate What is assumed to remain constant when drawing this curve? A B C D the average price level the exchange rate the expected rate of inflation the money supply © UCLES 2011 9708/32/O/N/11 [Turn over . It is considering the possible variations in tax revenue and government expenditure shown. Y and Z D X. X and Z C W. X and Y B W. Y and Z 26 The diagram shows an economy’s short-run Phillips curve (SRPC).

10 27 The economy of a country is simultaneously experiencing a balance of payments deficit. What does this suggest is its main macroeconomic objective? A B C D to improve the balance of payments position to reduce the budget deficit to reduce the level of unemployment to reduce the rate of inflation 28 What is not a valid economic argument for developing economies to pursue a policy of import substitution? A B C D to embark on industrialisation as a basis for export-led growth to exploit their relative abundance of labour in order to produce labour intensive manufacturing goods to increase the opportunities for exporting goods in which they already have a comparative advantage to reduce their dependence on a narrow range of primary products 29 Assuming no change in tax rates or tax-free allowances. It raises interest rates above the level existing in other countries. demand-pull inflation and unemployment. for which tax would the amount paid in tax become a smaller proportion of taxpayers’ income during a period of wage and price inflation? A B C D a progressive income tax a specific tax on tobacco capital gains tax value added tax 30 An economy has a flexible exchange rate. What will be the likely effect on the level of domestic demand for goods and services and on the demand for the country’s exports? domestic demand A B C D decrease decrease increase increase export demand decrease increase decrease increase © UCLES 2011 9708/32/O/N/11 . a budget deficit. The government decides to cut personal income taxes.

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University of Cambridge International Examinations is part of the Cambridge Assessment Group. which is itself a department of the University of Cambridge. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders.12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. the publisher will be pleased to make amends at the earliest possible opportunity. © UCLES 2011 9708/32/O/N/11 . but if any items requiring clearance have unwittingly been included.

glue or correction fluid. For each question there are four possible answers A. There are thirty questions on this paper.c ECONOMICS Paper 3 Multiple Choice (supplement) *9326843145* READ THESE INSTRUCTIONS FIRST Write in soft pencil. IB11 11_9708_33/FP © UCLES 2011 [Turn over . Any rough working should be done in this booklet. highlighters. B. Do not use staples. A mark will not be deducted for a wrong answer. Read the instructions on the Answer Sheet very carefully. Write your name. Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. Answer all questions. This document consists of 13 printed pages and 3 blank pages. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Each correct answer will score one mark. paper clips.X m ap eP UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level 9708/33 October/November 2011 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) s er om .w w w e tr . C and D.

© UCLES 2011 9708/33/O/N/11 . marginal utility of X marginal utility of Y = price of X price of Y. X and Y. LRAC cost X O Q output Which statement is not correct? A B C D 2 The firm is employing the least-cost combination of factor inputs to produce OQ. The firm is producing at its cost-minimising level of output. The firm is producing output OQ at minimum cost. marginal utility of X = marginal utility of Y. a consumer should allocate his expenditure between the two goods so that A B C D marginal utility of X = price of X and marginal utility of Y = price of Y. The firm is operating below its minimum efficient scale.2 1 In the diagram. To maximise the satisfaction he derives from a given level of expenditure on two goods. a firm is operating at point X on its long-run average cost curve. marginal utility of X plus marginal utility of Y is maximised.

16 quantity of Y 12 P R Q 0 10 S 20 quantity of X The consumer’s income increases from $80 to $120 and. If the consumer’s budget line is now RS. the prices of X and Y change. what are the new prices of X and Y? price of X ($) A B C D 4 4 6 10 12 price of Y ( $) 12 10 8 6 What will cause the supply curve of labour in a particular industry to shift to the left? A B C D a fall in demand for the industry’s product a greater use of machinery in the production of the industry’s output a rise in wages paid in similar occupations in other industries a weakening of trade union influence in the industry © UCLES 2011 9708/33/O/N/11 [Turn over .3 3 In the diagram PQ is a consumer’s original budget line. at the same time.

capital and labour.4 5 A firm employs two factors of production. The curves in the diagram show the different combinations of capital and labour a firm needs to produce given levels of output. capital Q = 300 units Q = 200 units Q = 100 units O What does the diagram show? A B C D the firm’s long-run production function the firm’s long-run total cost function the firm’s short-run production function the firm’s short-run total cost function labour © UCLES 2011 9708/33/O/N/11 .

TC total cost O Q1 output Q2 Q3 Which statement is correct? A B C D 7 Average total cost is minimised at output OQ1.5 6 The diagram shows a firm’s short-run total cost curve (TC). Average variable cost is minimised at output OQ2. Marginal cost is minimised at output OQ2. What is not one of the roles prices play in a perfectly competitive market economy? A B C D to provide a rationing mechanism for allocating goods between consumers to provide incentives to producers to respond to changes in consumer demands to provide information to consumers about the quality of different products to provide information to producers about changes in consumer preferences © UCLES 2011 9708/33/O/N/11 [Turn over . Average variable cost is minimised at output OQ3.

thereby causing the NIT schedule to shift from NIT1 to NIT2? effect on work incentives A B C D decrease decrease increase increase effect on net tax revenue increase uncertain increase uncertain 10 Which commodities should a government tax if it wishes to make the tax system more progressive? A B C D those for which demand is price elastic those for which demand is price inelastic those with an income elasticity of demand greater than one those with an income elasticity of demand less than one © UCLES 2011 9708/33/O/N/11 . where households with incomes above Yt pay tax and those with incomes below Yt receive a tax credit.6 8 Which practices would be classified as price discrimination? charging lower return fares from Kuala Lumpur to Hong Kong for passengers who stay overnight on a Saturday in Hong Kong no yes no yes charging higher rail fares for peak period travel to meet the additional costs of train companies A B C D 9 no no yes yes The diagram illustrates the working of a negative income tax system (NIT). + tax paid O _ Yt NIT1 NIT2 household income What would be the effects of decreasing the effective tax rate.

7 11 The Chinese government is increasing the role of market forces in its economy. what can be concluded about the real GNP per head? A B C D It fell in country 2 only. GNP (local currencies) 1994 1 2 5 000 10 000 2004 18 000 20 000 1994 5 000 3 000 population (thousands) 2004 5 500 3 300 prices (1994 = 100) 2004 300 200 country From the data in the table. real wages and the level of employment? money wages A B C D increase increase decrease decrease real wages decrease increase increase decrease employment increase decrease decrease increase © UCLES 2011 9708/33/O/N/11 [Turn over . However. It rose in country 2 only. It fell in countries 1 and 2. committed to reducing central planning. Why might a government. if there is an unanticipated increase in the money supply what will be the short-run effect on money wages. introduce price controls? A B C D to increase allocative efficiency to increase the incentive for producers to raise supply to reduce consumer demand to reduce expectations of inflation 12 The table gives information about two countries in 1994 and 2004. in 2008 it imposed temporary maximum price controls on energy and transport. It rose in countries 1 and 2. 13 According to monetarist theory.

AS price level AD2 O output AD1 What will cause the aggregate demand curve to shift to AD2? A B C D an appreciation of the currency an increase in the money supply an increase in the price level an increase in the real wage © UCLES 2011 9708/33/O/N/11 . C1 shows the relationship between consumption and national income. C2 C1 consumption O national income What could cause the consumption function to shift to C2? A B C D an increase in exports an increase in the rate of interest an increase in the rate of unemployment benefits an increase in the standard rate of income tax 15 In a closed economy with no government. the value of the investment multiplier is 5.8 14 In the diagram. if investment increases by $300? A $540 B $1000 C $1200 D $1500 16 In the diagram. By how much will consumption increase. AD1 and AS are an economy’s original aggregate demand and aggregate supply curves.

If the velocity of circulation of money remains the same. while the quantity of money rises by 5 %. what will be the approximate increases in the price level and the money value of national income? increase in price level A B C D 2% 2% 3% 3% increase in money value of national income 5% 7% 5% 7% 18 The diagram shows three different levels of money supply (MS) and three different demand curves for holding money balances (LP). What is the new equilibrium point? A D X B C rate of interest LP LP LP MS O MS MS quantity of money 19 What is typically associated with a relatively low level of income per capita in a country? A B C D a high rate of saving a low rate of economic growth in past periods a low rate of inflation a low rate of population growth © UCLES 2011 9708/33/O/N/11 [Turn over . the volume of output rises by 2 % in a year. Banks create more credit and people decide to hold more money as a precaution against emergencies. The initial equilibrium is at point X.9 17 In an economy.

The standard of living fell between 2009 and 2010. The total labour force declined between 2007 and 2009. percentage change in real GDP percentage rate of unemployment 2009 2010 © UCLES 2011 9708/33/O/N/11 . The unemployment rate fell when the growth rate increased. 10 9 8 7 6 % 5 4 3 2 1 0 2007 2008 year What does the chart show? A B C D Real GDP was lowest in 2010.10 20 What is likely to increase a country’s actual output in the short run but may reduce its long-run rate of growth of potential output? A B C D an increase in the size of the government’s budget deficit an increase in the size of the labour force increased female participation in the labour force increased government spending on education 21 What is a likely consequence of an increase in cyclical unemployment? A B C D a deficit on the current account of the balance of payments a deterioration in the fiscal balance of the government an increased rate of inflation an increase in immigration 22 The chart shows the rates of economic growth and unemployment in a country for the period 2007 to 2010.

Developing countries should use foreign aid to invest in their export industries. They lead to an increase in the household saving ratio. 25 What is likely to result from foreign direct investment in developing economies? A B C D a reduction in local wage levels a reduction in tax revenues in developing economies a reduction in the range of consumer goods available to the local population a worsening of net income flows from investments © UCLES 2011 9708/33/O/N/11 [Turn over . Developing countries should use trade barriers to promote import substitution. They increase the real burden of household debt leading to lower consumption. They result in an increase in real interest rates. What is implied by this proposal? A B C D Developing countries should become self-sufficient and not rely on aid. Developing countries should be given greater access to markets in developed countries.11 23 Why are high and variable rates of inflation likely to be harmful to long-run economic growth? A B C D They hide relative price changes leading to a misallocation of resources. 24 Economists have proposed that the best policy to promote development is ‘trade not aid’.

50 1.60 1. Between 1998 and 2001 the Euro depreciated against the US $. high income earners pay a lower proportion of their income in taxes than low income earners. 27 A regressive tax is defined as one where A B C D all taxpayers pay the same absolute amount of their income in taxation.40 1. Between 1998 and 2001 the £ sterling appreciated against the Euro.30 1999 2000 2001 2002 2003 Between 1998 and 2001 the £ sterling depreciated against the US $.12 26 The graphs show the changes in the exchange rate of the £ sterling against the US $ and against the Euro between 1998 and 2003.70 1.80 1.60 1. high income earners pay less in taxes than low income earners.40 1.50 1.80 sterling against the Euro (€ per £) 1. high income earners pay more in taxes than low income earners. Between 2001 and 2003 the US $ appreciated against the Euro.70 1.30 1999 2000 2001 2002 2003 Which statement is incorrect? A B C D 1. sterling against the dollar ($ per £) 1. © UCLES 2011 9708/33/O/N/11 .

total product rises at a diminishing rate. the marginal cost of production diminishes. potential output output actual output O time What would help to reduce the divergence of actual output from potential output? A B C D a balanced budget a stable exchange rate automatic stabilisers stable interest rates 29 When might the effectiveness of fiscal expansion in increasing the level of output be increased? A B C D when it is accompanied by an increase in the money supply when it leads to an appreciation of the country’s exchange rate when it results in a decrease in the price of government bonds when the price level increases 30 Which statement describes the operation of the law of variable proportions? A B C D As all factors are increased in proportion. As all factors are increased in proportion. As more of a variable factor is added to a fixed factor. © UCLES 2011 9708/33/O/N/11 .13 28 The diagram shows the time path of actual output and of long-term potential output of an economy. the marginal cost of production increases. As more of a variable factor is added to a fixed factor. total product rises at a diminishing rate.

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bankofengland. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES). University of Cambridge International Examinations is part of the Cambridge Assessment Group. © UCLES 2011 9708/33/O/N/11 . which is itself a department of the University of Cambridge. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders.co. but if any items requiring clearance have unwittingly been included.16 BLANK PAGE Copyright Acknowledgements: Question 26 © Graph data extracted from: www. the publisher will be pleased to make amends at the earliest possible opportunity.uk/mfsd/iadb Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible.

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