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Difficult  MCQs  from  2003  to  2009  

By:  Ali  Anwerzada  
June  2003  
 
5

3

The diagram shows a consumer's short-run and long-run demand curves for coconuts. Initially,
the consumer purchases quantity Q0 at price P0.

V
X

Y

price P0

Z
W
Q0
quantity

O

If the price of coconuts increases from P0, the consumer's short-run response is greater than his
long-run response. If the price decreases from P0 his short-run response is smaller than his longrun response.
What is the consumer's short-run demand curve?
A

 
 

6

VYW

B

VYZ

C

XYZ

D

 

XYW

66
How would an economist establish the market demand curve for a private good?

13
mechanism, the
theeffect
effectofofaarising
risingprice
pricemust
mustbebetoto
13 For
For price
price to
to act
act as a rationing mechanism,
A by adding consumer surplus to total expenditure
attract
new firmsthe
theelasticity
market.
AAB attract
new
into
market. of individual demands
by combining
price
generate
additional
profits for
producers.
BBC generate
additional
for
producers.
by horizontally
combining
individual
demand curves
reduce
the quantity
some
CCD reduce
the
demanded
by
someindividuals.
individuals.
by multiplying
pricedemanded
by quantityby
demanded
signal the
the need for a reallocation
DD signal
reallocation of
of resources.
resources.
Other things being equal, which of the following would result in an increased demand by private
motorists
forfollowing
petrol (gasoline)?
14 Which
Which
of the
the
might explain
in in
14
of
following might
explain aa simultaneous
simultaneousincrease
increaseininboth
bothprice
priceand
andquantity
quantitytraded
traded
the
market
for
a
normal
good?
the
market
for
a
normal
good?
A an increase in the price of second-hand cars
7

 

the
removal
ofinan
an
effective
maximum
AAB the
effective
maximum price
priceon
onthe
thegood
good
anremoval
increaseof
road
toll charges
technological
progress
production
a reduction in
the pricein
steel
BBC technological
progress
inofthe
the
productionof
ofthe
thegood
good

CCD
DD

the
impositioninof
ofbus
a tax
on
a imposition
reduction
fares
the
a
tax
on the
the good
good
the
granting
of
a
subsidy
to
producers
the granting of a subsidy to producers of
ofthe
thegood
good

 

15 A financial investigation by a private firm finds that a new railway line would not be profitable.
15 A financial investigation by a private firm finds that a new railway line would not be profitable.
A cost-benefit analysis finds that the line is worth constructing.
A cost-benefit analysis finds that the line is worth constructing.

 

What could explain this difference?
What could explain this difference?
A There are external costs not included in the financial investigation.
A There are external costs not included in the financial investigation.
Jun03
B There are external benefits not included9708/1
in the
financial investigation.
B There are external benefits not included in the financial investigation.
C A higher rate of interest is used in cost-benefit analysis.
C A higher rate of interest is used in cost-benefit analysis.
D Cost-benefit analysis uses a higher estimate for wage costs.
D Cost-benefit analysis uses a higher estimate for wage costs.

[Turn over

1  

price
technological progress in the production of the good
P1
the imposition of a tax on theSgood

B
C

D

Difficult  
MCQs  
from  
to  to
2009  
D the
granting
of 2
a 003  
subsidy
producers of the good
By:  Ali  Anwerzada  
S1
2

Q3
Q1 Q2
O
15 A financial investigation by a private firm finds quantity
that a new railway line would not be profitable.
A cost-benefit
analysis
finds
that the
line
is worth constructing.
Bad
weather then
reduces
supply
to S
2S2.
What could explain this difference?
The government does not allow the price to rise above OP1.
A There are external costs not included in the financial investigation.
How much of the product will the government have to supply from a buffer stock if demand is to
be
B met?
There are external benefits not included in the financial investigation.
A higher
rate of B
interest
AC OQ
Q1Qis
C Q1Q2 analysis. D
1
3 used in cost-benefit
Cost-benefit analysis uses a higher estimate
8 for wage costs.

D

19
20
16

Q2Q3

 

Country X joins an existing customs union, comprising Y and W, which has a common external
The table
shows
levels
which three countries can produce.
tariff
equal
to following
X's the
initial
tariff.of output
Which
of the
statements
is correct?
After
joining theiscustoms
union,
X imports
from Yorwhich
it previously
country
25 tonnes
of maize
5 tractors
A Education
a public
goodXbecause
thecars
government
subsidises
schools.imported from country
V.
country
Y when
75 tonnes
of free
maize
or 15 tractors
B Healthcare is a public
good
provided
of charge.
How will this affect thecountry
price ofZcars225
in country
X
and
the
of producing the cars imported into
tonnes
of provided
maize orcost
45 the
tractors
C LawX?
and order is a public good because
it is
by
government.
country
D Street
lighting
is awould
publicbe
good
nooutcome?
one can be prevented from enjoying the benefits.
Which
of the
following
thebecause
most likely

price
cost of production
A Country X will specialise in maize and country Y in tractors.
lower
lower derive greater benefit from a good than consumers
17 AAgovernment
believes that consumers
B
Countryrealise.
Y will specialise in maize and country Z in tractors.
themselves
B
lower
higher
C Country Z will specialise in both maize and tractors.
Which
type
of
good
does
this
define?
C
no effect
lower
D There will be no gains from trade between the countries.
AD inferiorno
goods
effect
higher

 

B merit goods
21 A particular good in the Barbados market could be supplied by domestic producers, or producers
in
Tobago, or producers in the USA, at the following prices in US dollars:
C Trinidad
private&goods
superior goods

D

origin of production

price

Barbados

$1.00
9708/1 Jun03

Trinidad & Tobago

$0.85

USA

$0.75

Originally Barbados had a 20 % ad valorem duty on imports from Trinidad & Tobago and the
9708/1 Jun03
[Turn over
USA.
Barbados then formed a customs union with Trinidad & Tobago, with a common external tariff,
also of 20 %.
From which countries would Barbados import the good, before the formation of the customs
union and after the formation of the customs union?

 

before

after

A

USA

USA

B

USA

Trinidad & Tobago

C

neither

USA

D

neither

Trinidad & Tobago

 

2  

3 consumers light bulbs workers 0. During the course of a year. higher level of consumption D B an increase in trade union power C an increase in labour productivity D an appreciation of the exchange rate price consumer goods W Y S O O S T quantity capital goods 9708/1 Jun03 [Turn over What can be deduced about the product? Which change could have come about as a result of an improvement in technology? A It has infinite price elasticity of demand. is obtained by increasing the output of the domestic steel industry. what is increase in thebenefits index over the year? B thethe alternative forgone by increasing the capacity of the car industry A C 2. the price of food rises by 10 %.0 3   .5 B 4 % that would have C 5been % obtained by D putting 6 % the steel to other uses the% alternative benefits D 3 supplied to other steel users zero. A the alternative benefits forgone by diverting additional resources to steel manufacture Assuming that the weights of a price index reflect the expenditure of the average consumer.0 What is the outcome for consumers and workers as a result of increased division of labour? football tickets 0.6 telephone calls 1. A B table an assumption consumers act rationally The shows thethat price elasticity of demand for four goods and services. the price of accommodation remains What is the opportunity cost of producing the steel? constant and the price of clothing falls by 5 %. C D   4   an assumption that is not supported by the facts an assumption that two factors are in equilibrium price elasticity an assumption that other factors are held constant motor cycles 1.B a fall in invisible earnings C an appreciation of the country’s currency Difficult   CQs   from   2003   to  2009   D aM rise in the value of imports By:  Ali  Anwerzada   23 Which of the following is a measure of labour productivity? total output A quantity of labour employed total cost B quantity of labour employed total wage cost C quantity of labour employed total profit D quantity of labour employed   2 Nov  2003   24 The average consumer divides his expenditure between food. since there is no reduction in the steel   25 Which factor will cause cost-push inflation? 5 The diagram shows the demand for and supply of a product. What is meant by the ceteris paribus assumption? D It takes a large proportion of consumer income. A S to Y B T to S C W to T D W to Y B It has no substitutes. accommodation and clothing in the 1 The steel required for the construction of a new car-assembly plant in a fully employed economy ratio 5:3:2. 3     6     C It is an inferior good. 2 A The adiagram shows shifts in an economy’s production possibility curve.

C Trade is based on absolute rather than comparative advantage. guns and butter. D Transport costs are high relative to the opportunity cost differences between the countries. but country X has a higher opportunity cost in the production of guns than country Y. how much must the government buy? Difficult   MCQs  from  2B003   to  2009   A OY XW By:  Ali  Anwerzada   WY C D XY 18 In a world economy there are two goods. B There is immobility of factors of production between the countries. Which statement is correct? A X has an absolute advantage in butter but not in guns. 23 What will cause an immediate rise in the size of a country’s labour force? 23 What will cause an immediate rise in the size of a country’s labour force? A an increase in the birth rate   A an increase in the birth rate B an increase in the age of retirement B an increase in the age of retirement C an increase in the school leaving age 4   . What will result from this policy? What will result from this policy? A easier price comparisons between countries A easier price comparisons between countries B higher transaction costs B higher transaction costs C increased interest rate differentials C increased interest rate differentials D identical prices in all countries D identical prices in all countries         21 When is an economy likely to experience a deterioration in its terms of trade? 21 When is an economy likely to experience a deterioration in its terms of trade? A when demand for its exports increases A when demand for its exports increases B when the trade weighted value of its currency depreciates B when the trade weighted value of its currency depreciates C when the interest rate is increased C when the interest rate is increased D when there is a fall in the average price of its imports D when there is a fall in the average price of its imports 22 Country X has a comparative advantage in producing wheat and country Y in producing cars. C Trade is based on absolute rather than comparative advantage. group of countries introduce a single common currency to replace their national currencies. 9 9 19 What will be the immediate effect of the removal of tariffs on imported consumer goods? 19 What will be the immediate effect of the removal of tariffs on imported consumer goods? A a decrease in the cost of living A a decrease in the cost of living B a decrease in free trade B a decrease in free trade C an increase in customs revenues received by the government C an increase in customs revenues received by the government D an increase in the level of domestic employment D an increase in the level of domestic employment 9708/1 Nov03   20 A group of countries introduce a single common currency to replace their national 20 Acurrencies. D Transport costs are high relative to the opportunity cost differences between the countries.W Y quantity If the price is to be held at OP in year 2. What is a valid reason for this behaviour? What is a valid reason for this behaviour? A The exchange rate lies within the countries’ opportunity cost ratios. Country X can produce both guns and butter with fewer resources per unit than country Y. the countries choose not to specialise and trade. the countries choose not to specialise and trade. However. However. D X has a comparative advantage in guns. B X has an absolute advantage in guns but not in butter. and two countries. C X has a comparative advantage in butter. X and Y. 22 Country X has a comparative advantage in producing wheat and country Y in producing cars. B There is immobility of factors of production between the countries. A The exchange rate lies within the countries’ opportunity cost ratios.

10 000 ofofa22 normal aregains sold at a price of 20 c.eachgood period. 7 7   What must have risen? A birth rate B life expectancy C unemployment benefits D working population   24 The diagram gives details of different aspects of productivity in the US and UK. area to the rectangle OPQR. B Consumer surplus falls by RSMN if thecountry price rises OR 2to ON. 12 000 units are would sold atbe aunits price Duringrate a certain period. During a later Which of exchange suitable so country from trade? period. C The price elasticity of demand in price. D A rise in price from OR to good ON results in the fall in quantity demanded. 1 from country B Consumer surplus falls by RSMN if the price rises from OR to ON. employment unemployment rose over a ten year period. During a later c.   Later. What1Xcould A = 1Yexplain this change? What could explain this change? A 1X a reduction B = 1. 12 000 units are sold at a price of 22 c. Each country uses If the OLMN is equal in good. 1995 (US = UK at 100) agriculture 9708/01/M/J/04 utilities utilities C manufacturing manufacturing B 5   . 1973-95 (% per annum) © UCLES 2004 A agriculture © UCLES 2004   9708/01/M/J/04 productivity by sector in US relative to UK. Y 200same proportionate 400 D A rise in price from OR to ON results in the same proportionate fall in quantity demanded.5Y in consumers' incomes A a reduction in consumers' incomes B 1X an increase in the cost of raw materials C = 2Y B an increase in the cost of raw materials C 1X an increase in the price of a substitute commodity D = 3Y C an increase in the price of a substitute commodity D an increase in the productivity of factors of production D anan increaseboth in the productivityand of factors of production 23 In economy. goodisX unitary for 100all changes 300 C The price elasticity of demand is unitary for all changes in price. During a certain period. which statement is correct? half of rectangle its resources to make each A Total revenue falls by MSQ if the price rises from OR to ON. two countries produce. each country specialises in the product in which it has a comparative advantage.Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   4 4 June  2004   6 6 The diagram shows the demand curve for a product. A Total revenue falls by MSQ if the price rises from OR to ON. N N M M price price R R O O S S Q Q L L P P D D quantity 10 quantity If thetable rectangle is equalof in goods area toXthe which statement is correct? 22 The showsOLMN the numbers andrectangle Y which OPQR. 10 000 units of a normal good are sold at a price of 20 c. Which sector in the UK best fits the description ‘a sector with a relatively fast growth rate in productivity but which is less productive than its US equivalent’? productivity growth in the UK by sector. The diagram shows the demand curve for a product.

By:   li  Anwerzada   25 A non-interest bearing asset is index-linked. (1971 = 100) C price index D 26 will a reduction unemployment result(CPI) in anofincrease in inflation? 26 When will a reduction in unemployment result in an increase in inflation? A when a high percentage of the increase in income is saved CPI A when a high percentage of the increase in income is saved B when the economy reaches its production possibility curve total total 1998 200 B when expenditure the economy reaches its production possibility curve expenditure C when the jobs created are unskilled 1999 204 C when the jobs created are unskilled D when the newly employed buy mainly imported goods 2000 206 O O D when the newly employed buy mainly imported goods price price   2001 209 Nov  2004   27 The table gives information about the trade between Singapore and New Zealand during 2001. an increase the foreign valueSingapore of the currency of trade the country AA New Zealand in gained more than from the agreement.2. between the two goods. The values are given both in Singapore dollars New Zealand A the(S$) greater the difference in price(NZ$). values are given both in Singapore 27 The table gives information about the trade and New Zealand during 2001. 8 the Thefirst cross-elasticity of demand between two between goods willSingapore beThe higher year they signed free trade agreement. from 2000 C The rate of inflation in 1999 was 4 %. D dollars will become more expensive in terms of pounds.2. A will betrade undervalued. BB New Zealand’s position with Singapore B imports had fromathe UKsurplus will become moreZealand expensive. What can beafter deduced from theadata? the first(S$) yearand after they signed dollars a free (NZ$). mthe two NZ$ m percentage change S$for B The rate of inflation rose in 2000. NZ$ 1 = S$ 1. a reduction in athe quantity of money within the country CC Singapore had trade surplus with New Zealand in 2001. exports to New inflation Zealand 508 years down 618 to the end+20 % D Singapore The country experienced in the three of 2001. D UK Theimports exchange 2001 approximately a reduction inrate unemployment the country DD The exchange in 2001 waswithin approximately NZ$ 1 = S$ 1. from 2000 NZ$ m C the greater the price elasticities of demand S$ formthe two goods. Singapore exports to New Zealand 508 618 +20 % D the more they are regarded as similar by consumers. how will its money value and its real value change? money value real value A B money value rises total rises expenditure staysrises constant B C staysrises constant stays falls constant C D O stays constant stays constant falls stays constant price D stays constant stays constant A realrises value total expenditure O price 9   25 When The figures show thein consumer a country.50 to © 2004 over 26UCLES What is the likely consequence an increase in a against country’s of payments deficit? What can be most concluded from therate table? £1 : $1.00 must mean that A New Zealand gained more than Singapore from the trade agreement. Singapore imports from New Zealand 331 403 –17 %   Singapore imports from New Zealand 10 331 403 –17 % What can be concluded from the table? 29 A depreciation of the exchange of of the9708/01/O/N/04 pound sterling thebalance US dollar from £1[Turn : $1.C relaxation in planning controls on hotel construction in Mauritius D removal of sales tax on hotel accommodation in Mauritius Difficult  MCQs  from  2003  to  2009   7 AThe demand for a commodity has unitary price elasticity. C US Singapore trade with New in 2001. dollars and New Zealand dollars A There was hyperinflation between 1971 and 1998. percentage change B the greater the income elasticities of demand goods. Which diagram shows the relationship between total expenditure on the commodity and its price? 25 During A non-interest assethow is index-linked. trade agreement.     27 Which factor determines the purchasing power parity of a currency? 30 Which policy would reduce a balance of payments deficit on the current account in the short run? A relative costs of living A a reduction in government subsidies to exporters B relative rates of interest B a reduction in the rate of interest C the volume of trade creation C a rise in direct taxation D the visible balance of payments D incentives to attract foreign capital   A 2004 an increase   in country X’s demand9708/01/M/J/04 for imports   ©©UCLES UCLES 2004 9708/01/M/J/04   B an increase in country X’s interest rate   28 Which is most likely to cause country X’s exchange rate to depreciate?   C an increase in foreign demand for country X’s exports D an increase in tourist visits to country X [Turn over [Turn over 6   . will its money value and its real value change? A B During a period of inflation. an increase in trade the level of income within theimproved country in 2001. C fromrate theinUS will was become cheaper. B the Newpound Zealand’s position with Singapore improved in 2001. a periodbearing of inflation.

22 The ‘terms of trade’ of a country refers to What can be concluded from this? A   the system of tariff rates levied by the government of the country. By:  Ali  Anwerzada   Demand for Y will rise and for Z will fall.   14 The growing of flowers in a private garden results in a positive externality. B to increase the demand for where home-produced p denotesgoods the price of the good. B External costs exceed private costs. C Private costs exceed social benefits. B the relationship between average import prices and average export prices. Y and Z will rise. © UCLES 2005 9708/01/M/J/05 7   [Turn over . Supplyofisgoods perfectly D Trade creation would take place. C the rate at which domestic currency can be sold in foreign exchange markets. Supply is perfectly inelastic. D Social benefits exceed private benefits. 11 The diagram shows the market for new houses. S S2 S1 Y price price D X D1 O D2 quantity O quantity What will be the outcome of this for the producers’ revenue and the incidence of the tax burden? What would cause the change in the market equilibrium position from X to Y? effect on revenue A A B consumer fall producer a fall in population and a rise in taxes on building materials C D fall a fall in interest rates and an increased efficiency in house-building B C main incidence of the tax a fall in income tax and a rise in building costs rise 8consumer a rise in building subsidies and a fall in incomes D rise producer 20 Why would a government introduce tariffs and quotas?   12 A The to market demand equation for a good is given by Qd = 310 . for consumer surplus to be zero? 13 common What is necessary What could beisanperfectly economic disadvantage of introducing such a common currency? A Demand inelastic. D the difference between the value of exports and the value of imports. B Demand for X. B C Devaluation of a member’s currency would no longer be possible. © UCLES 2005 9708/01/M/J/05 A B Absolute comparative cost advantages would disappear as a basis for trade. D June  2005   10 The diagram shows the supply and demand curves for a product. Demandand is perfectly elastic.20 p increase the level of international competition and the supply equation by Qs = 10 + 10 p. services would be the same over the whole union. These have introduced a currency. Difficult   CQs  from   003   o  2for 009   C M Demand for Y 2 will fall tand Z will rise. The government imposes an indirect tax on the 5 product. A External benefits exceed private costs.A Only the demand for X will rise. C D Prices and elastic. C to reduce the price of home-produced goods What is the equilibrium price? D to reduce the price of imports A 5 B 10 C 15 D 20   21 In some parts of the world economic unions have been established.

D There was no change in the total working population. © UCLES 2005 © UCLES 2005   9708/01/M/J/05 9708/01/M/J/05   [Turn over [Turn over 8   . A It falls by 25 %. B Unemployment stayed constant. 24 percentage The table shows share of ofa the worker’s income spent on three classes of good and the percentage change in the prices of the goods over a year. B Unemployment stayed constant. C Employment in service industries increased. D There was no change in the total working population. B It falls by 50 %. 6 6 4 4 2 tertiary 2 % change in 0 tertiary employment % change in primary secondary 0 employment –2 primary secondary –2 –4 –4 –6 –6 Which statement about the period 1998 to 2003 must be true for this country? Which statement about the period 1998 to 2003 must be true for this country? A The primary sector lost more workers than the secondary sector. D It is unchanged. B It falls by 50 %. What happens to the worker’s real income? What happens to the worker’s real income? A It falls by 25 %. A The primary sector lost more workers than the secondary sector. C Employment in service industries increased. C It rises by 25 %. D It is unchanged. share of income change in prices of spent goods goods share on of income change in prices of spent on goods goods 1 clothing +25 % 41 clothing +25 % 4 1 food +50 % 21 food +50 % 2 1 fuel -25 % 41 fuel -25 % 4 Over the same period the worker’s money income rises by 25 %.   24 The table shows the share of a worker’s income spent on three classes of good and the change the in the prices goods over a year. 23 The chart shows changes in employment by sector for a country between 1998 and 2003.Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   9 9 23 The chart shows changes in employment by sector for a country between 1998 and 2003. C It rises by 25 %. Over the same period the worker’s money income rises by 25 %.

By:  Ali  Anwerzada   11 11 27 What What combination is likely cause aasurplus ininaacountry’s in in goods and services? 27 is most most likelyisto tomost cause surplus country’strade trade goods and services? 26 Whichcombination combination of events likely to cause inflation? inflation inflation exchange rate A A A B B B C C C D D D currency currency direct taxes money supply high high falling strong strong falling high high falling low low rising weak weak falling strong strong rising rising low low rising weak weak rising falling falling rising   28 The demand for US imports in Japan is price-inelastic. Difficult   MCQs  from  2003  to  2009   D The value of money rose. against the Euro between P1 and Pare 29 The British monetary authorities to maintaining the exchange rate of the UK £ 2 on committed against the Euro between P1 and P2 on the diagram. Assuming there is no change in their dollar price. S S P2 price of £ P2 (in Euros) price of £ (in Euros)P1 P1 D2 D1 O quantity of £ D2 D1 O quantity of £ What might they do if demand changes from D1 to D2? What might they do ifon demand changesoverseas from D1 to D2? A impose controls UK investment A B impose UK investment overseas increasecontrols interest on rates C B sell Eurosinterest out of foreign increase rates exchange reserves D C sell Euros £ on the exchange markets sell outforeign of foreign exchange reserves   D sell £ on the foreign exchange markets   © UCLES 2005 9708/01/M/J/05   9708/01/M/J/05   © UCLES 2005     [Turn over [Turn over 9   . 28 The demand for US imports in Japan is price-inelastic.B The price level rose. what would be the effect of a depreciation in the Assuming is no change in their dollar price. what would be the effect of a depreciation in the yen on thethere total value of US goods imported into Japan? yen on the total value of US goods imported into Japan? value valuein yen measured measured in yen A decrease A decrease B decrease B decrease C increase C increase © UCLES 2005 D increase D increase value valuein $ measured measured in $ decrease decrease increase increase decrease decrease 9708/01/M/J/05 increase increase   29 The British monetary authorities are committed to maintaining the exchange rate of the UK £ the diagram. C The retail price index fell.

S1 S2 price P D O Q 10 quantity 22 What is an export of services in Jamaica’s current account? What should the government do in order to stabilise the incomes of farmers? an inflow of funds Jamaica to to be buydetermined shares by the market A A allow the price of the to commodity USfarmers touristsatvisiting Jamaica B B fix earnings the price from paid to price OP earnings of Haitian workers inequal Jamaica sent to Haiti C C introduce a quota on production to OQ the export of Jamaican coffee D D subsidise farmers in bad years and impose a tax on farmers in good years   23 The table shows the number of workers and the annual output of an industry. D Labour productivity is at its lowest in year 3. The management offers them a choice between either a 10 per cent wage increase or an increase in the weekly wage to $260 along with a reduction from 40 to 39 hours. Disregarding the value of leisure time. what is the opportunity cost to each worker of opting for the 39-hour week? A $4 $6 B C $20 8 D $24   18 The diagram shows the demand curve for an agricultural commodity that has unitary elasticity. S1 © UCLES is the2005 supply curve if there is a bad harvest9708/01/O/N/05 and S2 is the supply curve if there is a good harvest.   24 The table shows the weights used over three years in the UK consumer price index. C Labour productivity is at its highest in year 1.00 Which statement is correct? A Labour productivity increases in year 2 and in year 3.   10   food 2001 2002 2003 116 114 109 .30 13.A a bank account held by a small firm to be used for future purchases B a forest of hardwood trees ideal for furniture making Difficult   MCQs   from   2003   to  2009   shares C the market value of a company’s By:  ADli  Aword nwerzada   processing software used by a writer to complete her new book Nov  2005   4 The workers in a factory currently earn $240 for a 40-hour week. B Labour productivity increases in year 2 and then declines in year 3. Workers in 000s Output in $m year 1 year 2 year 3 120 130 100 12.00 14.

B asocial fall inbenefits the priceare of cinema tickets C reducing the external value of the currency What might cause theof curve to equal shift tomarginal NP? private benefits social benefits. C The economy’s foreign exchange reserves may run down.66 D $20. the © UCLES effort 2006has been made by the publisher (UCLES) to trace copyright 9708/01/M/J/06 publisher will be pleased to make amends at the earliest possible opportunity. At a price of $12.00 B $2. 11   . B 7 unemployment of resources       The elasticityofofnatural demand for good X is 1. D the quantity that each consumer would be willing and able to buy at each price good X 1 4 30 Which policy would be most likely to reduce a balance of payments current account deficit? 15 use of cost-benefit analysis should outcome where 6 Correct What is most likely to increase the demand forproduce compactan disc players? A reducing income tax rates A asocial are minimised A fall incosts disposable incomes and social benefits are maximised. What would is required order for this to work? What could be thein new equilibrium after an division increaseofinlabour? demand from US residents for What encourage the growth of position the international holidays in Europe? What would cause an increase in the opportunity cost of current consumption to the consumer? A an Alternative means of transport must be provided for those unable to afford price OP. D an increase in interest price rates A B of $ (in 5 In Which of information would enable you to construct the market demand curve for a X externalities? 14 whichpiece situation areEuros) there definitely positive C 2 product? In the diagram the original production possibility curve is LM.13 The diagram shows the demand and supply curves for parking spaces in a hospital car park. B the number of consumersLwho would purchase the product at D each price D1 2 C Social benefits exceed private benefits. diagram the foreign exchange market is3initially in equilibrium at X. June   2 006   D A consumer allocates his expenditure over time. C amarginal fall in the price compact discs D reducing the level of tariffs A amarginal technological progress D fall in thesocial price of video recorders benefits equal marginal social costs.40 C $2. B Rival producers may react with trade protection measures. Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   S 12 28 Why is a balance of payments deficit a potential problem for an economy with a fixed exchange rate? price P A Domestic money supply will increase. D O number of spaces The economy’s short-run standard of living will be reduced. reasonable holders. A improvement in transport systems A a decrease in his current income S2 B instability A survey in willinternational be neededexchange to find outrates the amount users are willing to pay. C the number of firms in the O Nindustry quantity of $ D Social benefits exceed private costs. Which statement relating to the proposal is normative? Permission reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. of the University of Cambridge C 2005 Motorists © UCLES D   with lower incomes will not9708/01/O/N/05 be able to afford to use the roads. D A Private benefits exceed private costs. which is itself a department journey times. on of thethe movement resources S3 C an increase in his current income D the introduction of tariffs Thewidespread price charged for parking spaces must be OP. Every A to Bus passengers will benefit at the expense of motorists. B S1 B a decrease in interest rates C restrictions The capacity car parkof will need to be expanded. C price the depletion resources D awill reallocation of resources What be the price when the quantity demanded is 20 000 units? 3 A $2. B Motorists with higher incomes will be prepared to pay the charge in return for reduced University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES). A the equilibrium price of the product B Private benefits exceed social benefits. quantity demanded is 4000 units.00 A government proposes to introduce a road congestion charge which would require private motorists to pay a toll for road use. but if any items requiring clearance have unwittingly been included.     The managers decide to rely on the price mechanism to allocate parking spaces at the hospital 2 most 29 In the effectively. M P O B reducing subsidies to domestic industriesgood Y in excess of social costs. The proposal will be unfair to motorists who have no alternative means of transport.

The exchange rate appreciated.6 21 The table refers to a particular country.1 merit 1995good 48.0 D 2000 9 an increase in subsidies to wheat farmers 11.1 2005 4. subsidise the good set a minimum level of output C D The It was at its lowest at the end of the period.2001 18 A government wishes to encourage the2002 consumption 4. B balance of payments worsened. confine access to at certain age groups tax output B C The It was at its highest the start of the period. C It is non-excludable. Difficult   MCQs  from  2003  to  2009   D There is rivalry in its use. The government sets a maximum price of OP.7   8. It was at its lowest at the start of the period.6 of a merit good and reduce the consumption of a demerit good. index of import index of export 2003 4.8 A impose a minimum the public sector Which statement about the price level is correct? B increase advertising on the benefits of put legal controls on output Which statement about the period 1995 to 2005 is correct? A It fell theover goodthe first half of the period.9 prices prices year Which policy should it adopt towards each=good? (2000 100) (2000 = 100) 2004 6. 25 What is most likely to cause demand-pull inflation? © UCLES 2006 9708/01/M/J/06 22 What will improve Cuba’s current account balance immediately? A an increase in indirect taxes A a Cuban buying sports equipment produced in the US B an increase in interest rates B a US resident investing in property in Cuba C a reduction in direct taxes C a US multi-national company building a new factory in Cuba D a reduction in the money supply D Cubans working in the US sending money to their relatives in Cuba   26 What might explain an increase in the volume of a country’s imports? 23 What will cause an immediate rise in the size of a country’s labour force? A an appreciation of the country’s exchange rate A an increase in the birth rate B an increase in the country’s tariffs B an increase in the age of retirement C a recession in the country C an increase in the school leaving age D a rise in the country’s rate of income tax D an increase in the number of redundancies   [Turn over   12   . A balance of trade improved.B It causes external cost. S P price D O 10 quantity 24 The percentage forthe a country's Whattable couldshows causethe theyear-on-year maximum price to have anchanges impact on market? consumer price index from 1999 to 2005. A an increased wheat harvest year % change B a fall in the price of rice C an advertising campaign for bread 1999 18.0 good 2005price 122.4 produce only in 120.5 demerit 57. By:  Ali  Anwerzada   17 The diagram illustrates a market for wheat. C D D The terms of trade worsened.

  depreciated depreciated AD it$12-11 B $11-10of C $10-9 D $9-8 C examines the desirability government economic policy.6 D D an increase the price substitutetogood The supply ofinfree goodsofisa sufficient satisfy all demand at zero price. how is this likely to affect domestic inflation and the rate? 6 exchange The diagram shows the demand curve for good X. 4 Which of money Which characteristic describes product R? is essential. income elasticity of demand It must be legal tender. 1.7 a decrease costs of producing X Free goods in arelabour non-excludable.3 A capital goods D private production $ exchange rate against £ product X 2002 2003 2004 B consumer surplus price quantity demanded $ of the $ against the £ and € during this period? What happened toborrowing the exchange rate C government 3 12 $ exchange rate 11 against € 250 450 10 if InAeconomics a statement is positive appreciated appreciated 500 9 600 appreciated A B it assumes current economicdepreciated conditions remain unchanged. Product R is an inferior good with no close substitutes. if it is to be used as a medium of exchange? A B It must be durable. inflation exchange rate A increase appreciate B increase C decrease depreciate price appreciate D decrease depreciate M N D   2 and Euros (€) which exchanged for one pound 28 2The diagram shows the numberOof US dollarsquantity ($) Nov   006   1 27   sterling (£) between 2002 and 2004. 1. Y and Z. 8 650 depreciated appreciated B C it concerns the factual outcomes of an economic action.   8 D it is based upon the opinion of an economic adviser. 3 In the absence of any offsetting factors. © UCLES 2006   9708/01/O/N/06 [Turn over market supply 13   price $ demand from X demand from Y demand from Z 7 3300 3300 3300 3300 8 3100 2900 3100 6200 .8 $ per £ A Consumers’ a change in consumer tastes favour of Xsame at all levels of demand. in which price range is in demand for product X inelastic? What present in a mixed but not € pera £planned economy? 1. D positive positive © UCLES 2006 5 The table shows the demand from each firm and the market supply. X. C C a decrease thefree demand The demandinfor goodsfor is X infinite. negative positive positive value. A valuation of free in goods is the B B 1. It is also a complement to product S.Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   11 27 Increased international competition leads to a worsening in a country’s current account balance. Whatare could cause a movement along the curve from M to N? Why there no markets for free goods? 1.5   1.4economy From is the table below. D B It must have intrinsic negative C negative negative 9708/01/M/J/06 [Turn over The market demand for a product is made up of the demand from three firms. cross elasticity of demand with respect to product S C A It must be limited in supply.

2 D There is a high price elasticity of demand for its exports.7 C The demand for its imports is price-inelastic.0 to –0. C if there is spare capacity. A 0.8 to –1.A –41 13 28 B 44 12 25 C –32 –5 –37 Difficult  MCQs  from  2003  to  2009   D –15 –17 By:  Ali  Anwerzada   4 28 Turkey can produce a good but also imports some of the good from Egypt.7 8     A manufacturer’s ability to increase supply in the short run will be greater A if labour is immobile. D –1.3 B The government has implemented expansionary fiscal policies. of the external value of a country’s rate 10 % hecircumstances 30 interest In which of rose the to following will only devaluation currency have the greatest beneficial effects on its balance of trade? Within what range is his interest elasticity of demand for loans? A There is full employment in the country. D if unemployment is low. When the decided to borrow $4000. S $ price of £ P2 P1 D2 D1 O © UCLES 2006 Q1 Q2 9708/01/O/N/06 quantity of £s What will increase the $ price of the £ to OP2? A a large capital inflow into the UK B a large deficit on the UK current account C a reduction in interest rates in the UK D 4 a speculative sale of £s in the foreign exchange market   7 A businessman had intended to borrow $5000 at 8 % per year for house purchase.4 to –0. The Turkish currency depreciates against the Egyptian currency. B –0. B if the product is perishable. How might this affect production of this good in Egypt and in Turkey? production in Egypt production in Turkey A decrease decrease B decrease increase C increase decrease D increase increase 11   29 The diagram shows the supply and demand for pounds sterling (£) in the foreign exchange market with the initial US dollar ($) price of the £ being OP1. C –0.3 to –1. 14   .

25 2000 Which combination likely to result from demand-pull inflation? B quotas What happens to labour productivity of the workers in the two companies? balance of trade subsidies company X A D tariffs worsening AB falls improving profits C company risingY rises rising risesof trade increasedfalls 21 ABcountry’s terms from the base year value of 100 to 120 in the following year.Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   8 19 The diagram shows the amounts of wheat and clothing that can be produced in countries X and Y with a given quantity of resources. year 2 –87 0 country Y 12 200   23 Company X reduces its workers from 250 to 200 and as a result its output decreases from 5000 4800 method units perofday. C Country X has a comparative advantage in wheat and an absolute advantage in clothing. C The value of exported goods has fallen. 15   28 According to the Purchasing Power Parity theory. D Transfers into the country have increased.) A an increase consumer saving B increased 10 % decreased 10 % B C an increase interest rates Which country had in a 20 higher of unchanged inflation in year 2 than year 3? increased % rate C D an increase in labour productivity unchanged decreased % country year 2 index year 3 20 index an increase in taxes on imports D A 100 115 B 110 132   27 In which situation must a country’s balance of trade in goods and services improve? 120 C 144 A D Export orders rise more than import 130 150orders. B The difference between the value of exported and imported services has increased. 20 toWhich protection would a government be most likely to use to increase the country’s 10 exports? Company Y increases its workers from 800 to 1000 and as a result its output increases from A exchange control to 2200 units perisday. units of wheat 50 visibles invisibles income transfers year 1 –72 84 –24 46 –31000 –44 units of clothing What can be concluded about the changes between year 1 and year 2? What does the diagram indicate about the production of these two commodities? A Income has moved from a net inflow to a net outflow. B Both countries have a comparative advantage in the production of clothing. A Both countries have an absolute advantage in the production of clothing. 100 country9X 22 The table shows the balance for four items in a country’s current account for two years. D Export volumes rise more than import volumes. C worsening falling C rises rises D behaviour improving falling Which of export prices and import prices would have caused this? D falls falls export prices import prices   26 What would be likely to increase inflation in an economy? 10 % prices increased 10 %countries for years 2 and 3. 24 TheAtable decreased shows the retail index for four (Year 1 index = 100infor all countries. D Country Y has both an absolute and a comparative advantage in clothing. © UCLES 2007   9708/01/M/J/07 C Export revenues rise more than import revenues. what determines the rate of exchange between © UCLES 2007 9708/01/M/J/07 [Turn over two countries? . B Export prices rise more than import prices.

An increase in the of inflation AB elastic demand andrate elastic supply will lead inevitably to an increase in unemployment. Company mergers meant InBthe 20th century there were fewer firms.Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   11 30 A country with a freely floating exchange rate has a persistent deficit on the current account of its balance of payments. Which policy can be used to correct this disequilibrium? A devalue the currency B increase government spending C increase tax rates D reduce tariffs on imports   Nov  2007   1 2 Some people are shipwrecked on a tropical island and allocate their time between gathering coconuts and fishing. they operated on larger sites and they had more automated machinery C robots. rise fall and D rise rise How is this change most likely to have affected the relative employment of factors of production in the industry? 11 The number of passenger journeys per week by train on a certain route is shown by the demand relative use decreased relative use curve in increased the diagram. Which diagram represents the production possibility curve of this community? 0 9 2 0 fish coconuts coconuts coconuts coconuts D C B A fish 4 0 fish 0 fish   The government imposes a sales tax to reduce consumption of good X. this will lead to higher inflation. 10 Jam honey are substitutes honey B when what to include in athe cost benefit analysis Other thingsdeciding being equal. what will be result of an increase in the price of jam? when making normative statements to advise the government price of honey price of beeswax D when studying the effect of a price rise on demand A fall fall C 4 fall the nature of a typical rise car assembly plant changed. Which is a normative statement? With which combination of price elasticity of demand and price elasticity of supply will this have the A greatest Inflationeffect? can be reduced only by increasing the level of unemployment. Each individual is equally productive in collecting coconuts or catching fish. BC elastic demand and inelastic supply If unemployment is reduced CD inelastic demand and elastic below supplya certain level. 3 D inelastic demand and inelastic supply In which situation would an economist assume ceteris paribus?   A and when calculating the retail and prices indexand beeswax are in joint supply. Unemployment is more harmful than inflation. © UCLES 2007   A capital and enterprise 9708/01/M/J/07 labour and land B enterprise and labour land and capital C land and capital enterprise and V labour D labour and land fare P W capital and enterpriseT U 16   demand .

the be farepossible is OP. Which statement is correct for the three-year period? 20 What would be an economic benefit to a country of imposing a tariff on imported goods? Which statement is correct for the three-year period? A The price level rose by 12 %. than 12 %. V P 7 T W U 18 Brazil and Colombia attempt to control the supply of coffee in the world market to help stabilise demand their incomes. Whatmust would beterms likelyoftotrade decrease inflationchange? in an economy? 2126 When the of a country 26 What would be likely to decrease inflation in an economy? an increase in consumer AA when the volume of exportsspending falls and the volume of imports rises A an increase in consumer spending B an increase in employment B when the total value of exports falls and the total value of imports rises B an increase in employment an increase in labour productivity CC when the balance of trade moves from deficit to surplus C an increase in labour productivity D an increase in taxes on imports D when the average price of exports rises and the average price of imports falls D an increase in taxes on imports       27 A UK resident buys shares in a Spanish company. D The real value of money rose by more than 12 %. C It would put pressure on foreign suppliers to reduce their prices. fare What condition is essential for this to stabilise their incomes effectively? O R S A There must be large firms in the industry. A The The price price level level rose rose by B by 12 more B It would make the country’s exports more competitive. C The real value of money rose by 12 %. C The real value of money rose by 12 %. number of journeys / week BInitially It must to store the reduced coffee and stocks when necessary. C Other countries must supply a significant percentage of the total market. A VUT B PWTV C VRST D URST   19 Country X has a comparative advantage in producing wheat and country Y in producing cars. 25 A country experienced an annual inflation rate of 4 % for three successive years. 25 DA country experienced an annual rate of 4 % cost for three successive years. 27 A UK resident buys shares in a Spanish company. What is a valid reason for this behaviour? A The exchange rate lies within the countries’ opportunity cost ratios. but it is then by release PW. © UCLES 2007 C 9708/01/O/N/07 Trade is based on absolute rather than comparative advantage. What will be the immediate and subsequent effects on the UK’s balance of payments? What will be the immediate and subsequent effects on the UK’s balance of payments?   A A B B C immediate effect effect onimmediate financial account on financial account credit credit credit credit debit subsequent effect subsequent effect on current account on current account credit credit debit debit credit 17   . B The price level rose by more than 12 %. the countries choose not to specialise and trade. 9 9 Transport costs are high relativeinflation to the opportunity differences between the countries. B There is immobility of factors of production between the countries. %. However. A It would increase global productivity. D The real value of money rose by more than 12 %. Which area measures the amount spent on the extra journeys resulting from the lower fare? D The demand for the product must be elastic.B fall rise C rise fall Difficult   D MCQs  from   rise 2003  to  2009   rise By:  Ali  Anwerzada   11 The number of passenger journeys per week by train on a certain route is shown by the demand curve in the diagram. D It would reduce the prices paid by consumers for imported goods.

D4 price P2 Which site would be chosen? D3 P1 D2 18   . D increase uncertain © UCLES 2007     9708/01/O/N/07 S 16 The government has to choose the best one of four possible sites to locate a port.   15 An increase in tuition fees paid by students has no effect on the number of students entering higher education. much production too and too D For nuts it is zero. P4 The benefits and costs of each P3 site are shown in $m in the table.50? A buy £10 billion sterling B buy £20 billion sterling C sell £10 billion sterling 6 D sell £20 billionpolicy sterling 13 Which government might limit the rationing function of the price mechanism?   A the imposition of tariffs on imported consumer 4 goods June  2008   8   B the levy of indirect taxes at varying rates on different goods The table shows how an individual’s consumption of cola and nuts varies with income. from100 society’s view.5 price of £ in US$ 2. 9 What would increase the price elasticity of supply of a firm’s products? What be theineffect on theofprivate ratestocks of return obtained A a will decrease the period time that can be kept by students from higher education and on the social rate of return to society as a whole? B a decrease in the time that it takes to produce the products private rate of return social rate of return C an increase in the cost of capital goods employed by the firm decrease increase D A an increase in the level of employment in the area B decrease uncertain increase increase 10 InCthe diagram. too and too little production B C For little colaconsumption it is greater than too and 1. if 4the market price1for a product does not reflect the negative externalities in its production? Which about income elasticity demand over the range of income shown is true? A toostatement much consumption and too much of production A B For much cola itconsumption is less than 1.0 D 0 20 25 30 quantity of £s (billions) What must the UK government do to achieve an exchange rate of £1 = US$2. C the payment of subsidies to food producers income ($)for rented colahousing (cans) the setting of maximum prices D 50 2 nuts (packets) 0 14 What will be the result. the supply curve shows the number of spaces in a car park and the demand curve shows the demand for spaces on four different days. too little production C D For little nutsconsumption it is greater than 1.Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   11 30 The diagram shows the market for £ sterling which is in equilibrium. S 2.

B living halved. © UCLES 2008     9708/01/M/J/08 19   . D The purchasing power of money halved. C a receipt of interest from abroad B The cost standard of living halved. 21 A government removes the tariff on a product. primary B Unemployment stayed constant. C   23 The chart shows changes in 6 employment by sector for a country between 2000 and 2006. 24 A country’s Consumer Price Index increased from 100 to 200 over a five-year period. C a reduction of XW C There Employment serviceinindustries D was noinchange the total increased.investment from abroad DC aThe receipt ofoffunds for %.Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   8 20 When would the sale of cheap exports definitely be classed as dumping? A if the exports were produced profitably at a low price in the exporting country B if the exports were the result of a surplus caused by favourable weather conditions if the exports were the result of improved technology that led to capital-intensive production 9 D if the exports were the result of government subsidies to producers that made loss-making 9 23 Thesales chartprofitable shows changes in employment by sector for a country between 2000 and 2006. 6 4 What will be the change in domestic production? 4 2 D % change in 2 0 employment % change in 0 P employment –2 price P1 –2 P2 –4 S domestic supply tertiary tertiary primary secondary primary secondary world supply with tariff world supply without tariff –4 –6 domestic demand O –6V W X Y Z Which statement about the period 2000 to 2006 must be true for this country? quantity Which statement about the 2000 to 2006 must be true forsector. BB aUnemployment reduction of XVstayed constant. living felllong-term by 50 %. 22 Which item is recorded in the financial account of a country’s balance of payments? 24 A country’s Consumer Price Index increased from 100 to 200 over a five-year period. C The cost of living fell by 50 D The purchasing power of money halved. D a reduction of ZY D There was no change in the total working population. C Employment in service industries increased. What can be deduced from this? A a receipt of a gift of cash from abroad What can be deduced from this? A The economy experienced creeping inflation. this country? A The primary sector lostperiod more workers than the secondary AA aThe reduction of sector WV lost more workers than the secondary sector. B a receipt of a subsidy from abroad A The The standard economy of experienced creeping inflation. working population.

5 0 D 1 2 3price 6 WP2 WP1 O 1. as Bolivia could increase its exports of gas and oil income income definitely unfavourable. mainly to improve its balance of payments position.5 –4 4 1. 11 The diagram shows a country’s domestic supply of. for which goods is the consumer’s income elasticity of D an increase in visits to Australia C the balance of tourist trade demand greater than 1. 10 The table shows changes in a consumer’s expenditure on various goods when his income What impact would on000. the balance of payments of Bolivia? increases from $20 this 000have to $24 definitely favourable. as Bolivia itself would use the gas ($) and oil produced ($) A B C D   30 A country has a current account deficit.Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   11 27 In 2004. Y and Z 29 The table shows observations of the exchange rate of an economy and its current account June  balance 2009   over six years. and demand for. exchange rate current account balance year (US dollars per unit (billions of US dollars) of domestic currency) 2. B purchasing power parity What are the resulting changes in domestic consumption and exports? C the J-curve effect domestic consumption trade-weighted exchange rates quantity of exports D A OX to OZ OY to OX B OX to OZ OY to OZ C OY to OW YX to WZ D OY to OW YX to OZ   © UCLES 2008     © UCLES 2009     9708/01/M/J/08 [Turn over 9708/01/M/J/09 [Turn over 20   Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Bolivia encouraged investment by foreign 5 firms in order to exploit its oil and gas resources.0?in goods   D balance of trade services A the W only B Zinonly C W and Z only D W.5 –3 5 1. Every .5 –5 1. when international demand for oil was high.0 –3 S 1. W 100 96 28 What is most likely to cause Australia’s exchange rate to depreciate? Which component of its current balance will be made X account100 100 less favourable as a direct result of an increase Australia’s for imports aA decision by theincentral bankdemand to increase interest rates? Y 200 224 B net an increase in Australia’s A investment income interest rate Z 200 248 C net an increase in demand for Australia’s exports B current transfers Assuming all else remains unchanged. a commodity that it both consumes and exports. as there would be inflows andspent outflowsamount of currency on good on good 12 zero.5 W Y Which concept does the data in the table illustrate? quantity X +3 Z A exchange rate appreciation The world price changes from WP1 to WP2. as the foreign would transfer profits out of the country $24 000: $20 companies 000: good amount spent uncertain.

quantity of oil inflation balance trade C aA reduction free trade has internal tradeofbarriers. D The government must act to correct any disequilibrium. D1D1 and S1S1 are the initial demand and supply curves of the pound sterling (£) S1S1 are the initial demand and supply curves of the pound sterling (£) 28 In D1D1 andmarket. foreign exchange on the foreign exchange market. quantity of oil demanded C inarea unemployment inflation balance of trade demanded D increased A free trade area has noin external trade barriers. What effect is this likely to have on the prices paid for these goods by Japanese consumers and on the revenues received by Malaysian producers? M change in prices paid change in revenues R by Japanese received by Malaysian consumers producers quantity of A decrease good X uncertain B decrease increase decrease 11 D increase uncertain 11 N O 26 A developed country has a price-inelasticquantity demandoffor oil. © UCLES 2009 9708/01/M/J/09 D an increase in the number of redundancies 28 In the diagram. is likelyof to result in the developed A specialisation ina the production of good Xcountry to inflation. 9   20 Japan introduces import quotas on consumer durables imported from Malaysia. However. all of which it imports. Y all of which it imports. The oil-producing countries decide to provide more oil to the market. onthe thediagram. C There would be a surplus on the market and farmers’ incomes would fall.Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   8 18 The market price of an agricultural commodity was so low that the government fixed a minimum price for it above the market equilibrium price. These goods 19 In thea diagram. 23 What cause an immediate in the size a country’s labour force? A Exchange rate changes will correct any deficit or surplus. BC an increase in the age of retirement The current account is balanced by the capital and financial accounts. B One country’s deficit is matched by another’s surplus. its balance of trade and theincreased oilhappen demanded? the quantity of oil demanded? B international A customs union B tradehas a common external tariff. D There would be a surplus on the market but the change in farmers’ incomes would be uncertain. AB an increase in the birthisrate One country’s deficit matched by another’s surplus. The oil-producing good 26 Acountries developed country has a price-inelastic decide to provide more oil to thedemand market. its balance of trade and AWhat Aquantity customs union has aascommon currency. 21 What Which statement about economic integration is quantities correct? of X and Y indicated by point R? might enable the country to consume the What is likely to happen as a result in the developed country to inflation. D specialisation theimproves production of good Y rises A less likely A less likely improves rises B less likely worsens rises B 2000 aless likely export prices worsens 22 Since country’s have increased onrises average by 50 % and its import prices by C more likely improves falls 25 %. D2 D D1 2 D1   price of S2 S2 S 1 S1       21   . C The current account is balanced by the capital and financial accounts. for oil. possibility curve of a country that has a comparative advantage in the production of good Y. the government did not buy any of the commodity itself. What would happen as a result? A There would be an equilibrium in the market but the change in farmers’ incomes would be uncertain. B There would be a shortage on the market and farmers’ incomes would rise. D The government must act to correct C an increase in the school-leaving age any disequilibrium. is theof production have high priceMN elasticity demand. C more likely improves falls D more likely worsens falls What figure for the country’s (2000 = 100)? D is the current more likely worsens terms of tradefalls C increase A 75 B 83 C 120 D 125 27 Why is it that a country’s balance of payments must always balance? 27 Why is it that a country’s balance of payments must always balance? A will Exchange rate changes rise will correct anyof deficit or surplus.

reduction in the quantitythe demanded as this maximises benefit of making trips. downward-sloping demand Cambridgeproduct.in Egypt for EGP 100. Which type of elasticity would best achieve this aim? © UCLES 2009 A 9708/01/M/J/09 What must be the outcome of this higher price? high price elasticity of supply anprice increase in theoffactors B A low elasticity supplyemployed in the industry an increase in producer’s revenue C B unitary price elasticity of supply a reduction in theprice quantity demanded D C perfectly inelastic elasticity of supply D 5   a reduction in the demand for substitutes A government wishes to impose a tax on a good so that the consumer and not the producer pays the tax increase. B marginal benefit A change in market conditions causes a reduction in supply. 4 most A change in market conditions causes a reduction in supply. of the tax increase. Every reasonable effort has been made by the publisher (UCLES) trace copyright holders. C costs. C B a One. Cambridge Assessment is the brand name of University of whichSyndicate has a (UCLES). which has a downward-sloping 0 1demand 2 curve. 3 4 number of trips What must be the outcome of this higher price? 4 tripsinwill person make? in the industry A How anmany increase thethe factors employed as each extra trip revenue reduces marginal benefit. This results in a higher price for the University of Cambridge International Examinations is part of the Cambridge Assessment Group. 0 1 2 3 4 number of trips 3 How many trips will the person make? A None. as all trips have a positive marginal benefit. Assuming that the dollar price remains unchanged.5 C 0. 9708/12/O/N/09 [Turn over most © UCLES 2009 of   Which type of elasticity would best achieve this aim? A high price elasticity of supply B low price elasticity of supply 22   . benefits ($) 0. D Three. the 5 A government wishes to impose a totax on a good so but that the consumer and have notunwittingly the producer pays publisher will be pleased to make amends at the earliest possible opportunity.5 D 0. B A anNone. increase in producer’s as this maximises excess of marginal benefit over marginal cost. if any items requiring clearance been included. Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. what will be the price of the product in Egypt if the Egyptian pound appreciates to 4 EGP = 1 US$? Difficult   MCQs  from  B 2003   to  2009   A EGP 75 EGP 80 By:  Ali  Anwerzada   C EGP 120 D EGP 125 30 A country has a large current account deficit. marginal cost benefits Two. as all trips have a positive marginal benefit. as this maximises ($) the net benefit of making trips. One. 3 In which circumstance would such a measure reduce the deficit? 3 The diagram shows a person’s marginal costs and marginal benefits of making trips to the cinema.0 0. This results in a higher price for the product.0 B 0.0     Nov  2009   3 marginal benefit The diagram shows a person’s marginal costs and marginal benefits of making trips to the cinema. Its government decides to devalue its currency.5 marginal cost 1.0 0.5 costs. D C a Two. as this maximises the excess of marginal benefit over marginal cost. as each extra trip reduces marginal benefit. Local Examinations which is itself a department of thecurve. reduction in the demandthe fornet substitutes D   Three. University of Cambridge. price elasticity of price elasticity of demand for exports demand for imports A 0.

B ORWY D +0. Which area represents the revenue received by the government from the tax? 9 C A –0. C It raises it by $4.6. X and Y. C No one can be prevented from consuming a good if they are willing and able to pay the market price. 1 St 10 price of good X quantity demandedW R price price of good Y U Q quantity P demanded T St X 2 50 10 S 40 20 30 80 60 D The value of cross elasticity of demand S for good X with respect to the price of good Y lies between O Y Z quantity A –1. D The allocation of goods is determined by consumers’ wealth. B It ensures that suppliers cannot make excessive profits. are complementary goods. PQUT C PRWT QRWU D   The table shows the maximum price a consumer would be willing to pay for successive cans of fruit juice. having bought three cans. the consumer decides to buy a fourth.6. © UCLES B 2009 It lowers it by $2.3. cans first second third fourth fifth price ($) 14 10 6 4 3 The price of a can of fruit juice is $4 and. Column 1 of the table below shows the original market situation at timeupon period 1 and column 2 shows theInsituation following increase the A specific tax is placed each bottle of perfume sold. D It raises it by $34.7 and –2. the diagram. good before StSY. t the supply curve after tax. 9708/12/O/N/09   10 What is generally considered to be one of the advantages of using the price mechanism as a rationing device? A It ensures that goods are allocated in accordance with the needs of consumers.8. SS isanthe supply in curve price oftax.3 and –0.3 and +0. B –0. © UCLES 2009   9708/12/O/N/09 [Turn over 23   . How does buying the fourth can affect his consumer surplus? A It leaves it unchanged.8 and –1.B football tickets and light bulbs C motor cycles and telephone calls Difficult   MCQs   from   2003  to  2009   D motor cycles only By:  Ali  Anwerzada   7 8 5 Two goods.

Social costs are greater than the social benefits. D O quantity cost of a cost of a carthe journey What will be the outcome car in market for this product? journey There will be an equilibrium price and output. 9708/12/O/N/09 Private costsare aregreater greaterthan thanthe thesocial external benefits. which decision and reasoning about flood defences is correct? According to cost-benefit analysis. © UCLES 2009 © UCLES 2009 © UCLES 2009       9708/12/O/N/09 9708/12/O/N/09 24   . Difficult  MCQs  from  2003  to  2009   By:  Ali  Anwerzada   P1 S 66 11 The The demand demand curve curve in in the the diagram shows the relationship between the number of car journeys 11 price diagram shows the relationship between the number of car journeys and the cost of a car journey. a reduction in correct petrol prices Fruit also grown. D self interest D self interest 19 A government has been protecting its domestic car industry with a quota on imported cars. not build. BC CD Do Build. and as follows. A a reduction in car tax A a reduction in car tax B a reduction in petrol prices 18 B A country has the climate for growing tea. A D D O number of car journeys There will be a surplus of the product. Howbenefits will this change affect the price of cars and the level of consumer choice? costs benefits $m $m costs benefits price of cars level of choice $m $m private 450 260 A decrease decrease private 450 260 external 60 190 B decrease increase external 60 190 C increase decrease According to cost-benefit analysis. river. Social are greater than benefits. AB Build. which is produced very cheaply and exported. Privatebenefits costs are greater than theprivate external benefits. C aisreduction in public transport prices C a reduction in public transport prices D the tolls on motorways Fruit canintroduction be sold at aof higher price than tea so some of the land used for tea is switched to fruit. O number of car journeys C There will be higher than expected profits. It then 13 removes The government considering flood defences alongcar a producers. External benefits are greater than external costs. B price controls B C price Therecontrols will be an opportunity cost of the loss of the tea production. It has calculated the costs the quotaisand replaces building it with a subsidy to domestic 13 The is considering building flood defences along a river. C rising profits C D rising There profits will be production in line with absolute advantage. which decision and reasoning about flood defences is correct? D increase increase decision reasoning decision reasoning A Build. but this costs more as the climate is not as suitable. Social benefits areare greater than private benefits. Do Do not not build. Social costs benefits. A falling prices A prices B falling There will be an increase in the imports of tea. D the introduction of tolls on motorways B What will definitely happen as a result? 12 What would cause a failure of the market mechanism’s rationing function? 12 What wouldwill cause failure of in the market mechanism’s rationing function? A There be ana increase specialisation by the country. External benefits greater than external costs. build. and the cost of a car journey. The supply and demand conditions for this product are shown. What would cause the demand curve to shift to the left? What would cause the demand curve to shift to the left? D There will be shortages of this product.17 The government places a maximum price P1 on an agricultural product. D Do not build. Build. It has calculated the costs and government benefits as follows.