Cambridge International AS & A Level: Economics 9708/11

Cambridge International AS & A Level
ECONOMICS 9708/11
Paper 1 Multiple Choice October/November 2020
1 hour
You must answer on the multiple choice answer sheet.

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• 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 multiple choice answer sheet.
• Follow the instructions on the multiple choice answer sheet.
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spaces provided unless this has been done for you.
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INFORMATION
• The total mark for this paper is 30.
• Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
• Any rough working should be done on this question paper.
This document has 12 pages. Blank pages are indicated.
IB20 11_9708_11/3RP
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2
1 The diagram shows an economy’s production possibility curve.
1000 :L
802 210
consumer
800
-
r 1000 :
goods
0
÷
10 20 50
capital goods
It has been employing its resources in the ratio of 80% consumer goods production and 20%
capital goods production.
¥
0
What will be the result if it decides to double its output of capital goods?
A a gain of 20 capital goods

B a gain of 40 capital goods
① C
D
a loss of 200 consumer goods
a loss of 600 consumer goods
= 20×10=200
2 O
Which comment relating to the introduction of charges for previously free medical treatment is
normative?
A Fewer people will be able to afford treatment.
O
B O
It will be unfair on lower income groups.
goe greater
C Richer citizens will pay the higher charges.
±-
medium cgxc
D Workers’ health and productivity will fall. account
unit of
standard 9ᵈYᵈʰᵈ#Y
"""
3 Which characteristic of money is the most important if it is to function as a medium of exchange?
g
A acceptable
B divisible
C durable
D portable
4 What is not a characteristic of a planned economy?
A Consumers have limited influence on what is produced.

market
free
①
B Profit is the motive for increasing output.
C Resources are owned by the government.
D There is limited competition in the market.
© UCLES 2020 9708/11/O/N/20

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ECONOMICS 9708/12
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IB20 11_9708_12/RP
ECONOMICS 9708/11
1 hour
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IB20 11_9708_11/3RP
2
1 The diagram shows an economy’s production possibility curve.
1000
consumer
goods
0
50
capital goods
It has been employing its resources in the ratio of 80% consumer goods production and 20%
capital goods production.
What will be the result if it decides to double its output of capital goods?
A a gain of 20 capital goods

B a gain of 40 capital goods
C a loss of 200 consumer goods
D a loss of 600 consumer goods
2 Which comment relating to the introduction of charges for previously free medical treatment is
normative?
A Fewer people will be able to afford treatment.

B It will be unfair on lower income groups.
C Richer citizens will pay the higher charges.
D Workers’ health and productivity will fall.
3 Which characteristic of money is the most important if it is to function as a medium of exchange?
A acceptable
B divisible
C durable
D portable
4 What is not a characteristic of a planned economy?
A Consumers have limited influence on what is produced.

B Profit is the motive for increasing output.
C Resources are owned by the government.
D There is limited competition in the market.
© UCLES 2020 9708/11/O/N/20

3
5 Good X is a substitute for good Y and a complement to good Z.
What would happen after a fall in the price of good X?
A Only the demand for X will rise.

B Demand for X, Y and Z will rise.
OC Demand for Y will fall and for Z will rise.

D Demand for Y will rise and for Z will fall.
6 The table shows how an individual’s weekly consumption of biscuits and coffee varies with
income.
income ($) biscuits (packs) coffee (cups)
100 0 5
150 5 10
Which statement about the income elasticity of demand over the range of income shown is true?
Q
A For biscuits it is greater than 1.
PED-osaii-inwme.ch#gedemond
1*00-0=2%71
B For biscuits it is zero.
Demanding GOOD
@ 0%)thei
-
=
C For coffee it is less than 1. inelastic income teeing

✗
,
÷
D For coffee it is unitary. ,,
7 The diagram shows four supply curves.
W X
price
Y
O quantity
Which statement about the price elasticity of these supply curves is correct?
rise
A W has elasticity of 0 that willIno
rise as price rises.
-
B X has elasticity greater than 1 that will be constant as price rises.

Haste
◦
C Y has elasticity greater than 1 that will fall as price rises.
- _
d-E. doigaoinainngangscang
D Z has elasticity of 0 that is constant as quantity rises.
© UCLES 2020 9708/11/O/N/20 [Turn over

4
8 The diagram shows the market for a good with an initial equilibrium price of $10. The demand for
the good increases by 40 units at every price causing the equilibrium price to rise to $12.
24
price
$ 20
S1
12
↑ F
10
; D2
i D1
0 80 100 120 140

quantity
What is the value of the producer surplus after the price increase?
A $500 0
B $720 C $1000 D $1440
9 The equation for the quantity demanded (QD) for a product is QD = 400 – 20P where P = price in
dollars. The quantity supplied (QS) is given by QS = 100 + 40P.
What change will occur if the price rises from $5 to $6? $5 :Qp=QS=
300 →
equilibria
} surplus
A the market will move from equilibrium to shortage
$6 : QD = 280 Qs > Q,
0
B @
the market will move from equilibrium to surplus
Qs = 340
C the market will move from shortage to surplus
D the market will move from surplus to shortage
10 A farmer divides his land between growing two crops – wheat and oats. To increase production of
one he must reduce production of the other.
What would cause the farmer to increase his supply of wheat?
A A subsidy is given for the production of oats.

B A unit tax is imposed on the production of wheat.
C There is an increase in wages for all farm workers.
00
D There is improved efficiency in the harvesting of wheat.
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5
11 What would cause the demand curve for vegetables to shift from D1 to D2 as shown?
S
price
P2
P1
Demand↑
as Income ↑
D1 D2
O Q1 Q2
quantity
A a change in supply from Q1 to Q2

B a poor harvest due to unfavourable weather
C a price change from P1 to P2
O
D an increase in real incomes
12 The demand curve for new cars in a country shifted to the left.
Which change could have caused such a shift? D ↓

A an increase in real disposable income → D↑
0
B an increase in the cost of borrowing
C an increase in the price of new cars
D an increase in the price of train travel
-
D↑
AS
13 What is correct about market
-
supply?
A Market supply can increase only when all individual firms increase their output.
B Market supply is effective when consumers have sufficient income to buy the good.
0 O the supply of all individual firms.

C Market supply is the result of aggregating
-
D Market supply of an inferior good falls as price increases.
14 Which statement best describes a transfer payment?
A It is a loan from the government to help firms.

economic activity. uekveoeeble
B It is a payment to individuals not linked to@
O -
group
C It is the redistribution of income from government to individuals for work done.
D It is the redistribution of income from households to firms for goods purchased.

6
15 The diagram shows the impact of a unit tax imposed by a government on a good. The original
supply curve is S1 and the supply curve after the unit tax is S2.
price
S2
$
S1
consumer
share
80
"
70
#µ 60
50
10×100=1000 D
0 100 120
quantity
0
What would be the amount of tax paid by the consumer?
A $500 0
B $1000 C $1500 D $2400
16 The diagram shows the demand and supply curves for healthcare in a private market.
supply
price
demand
bor
O Q eaiiphan
quantity
↳" """
° ①
What would happen if the government provides the same amount of healthcare free of charge?
A Healthcare will become a public good.

B Healthcare will no longer have external benefits.
C There will be over-consumption of healthcare.
g
D There will need tog
be rationing.
17 A good is provided by the government. Consumption by one person does not affect the amount of
the good available for others.
Which type of good must this be?
A complementary good
B merit good
C private good
0
D public good
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7
18 A government imposes an income tax on individuals. The first $100 000 of earned income is
5000J
taxed at a rate of 20%, and all further earned income above $100 000 is taxed at a marginal rate
of 50%.
50% ✗ 100000 =
2000£
×t::%-?
Which statement is not valid? 20% ✗ 100000 =
A The average income tax rate is 20% at an income of $80 000 and 35% at an income of
$200 000. ✓
B The tax is a direct tax for incomes above $100 000. e. ◦ -35%
C The tax is a proportional tax for incomes between $20 000 and $40 000.
D The tax is regressive when incomes change from below to above $100 000.
giamgiatn :
19 @
Agricultural economies have faced a deterioration in their terms of trade.
What might have contributed to this?
A falling exchange rates of agricultural economies

B falling productivity in agricultural production
C increasing productivity in manufacturing economies
D the high income elasticity of demand for foodstuffs
20 The table shows the output of rice and cotton for countries X and Y.
units of output of units of output of

rice per year cotton per year
✓ 1: 1
country X 5000 g 5000
country Y 4000 ✓ 2000 2 it
Each country divides its resources equally between the production of rice and cotton.
cost
%is
Based upon the law of comparative advantage, which statement is correct?
A Country X has the higher opportunity cost in producing cotton.
① lower opportunity cost in producing rice. 4000 give up only

B Country Y has the @
2000
C Country X should produce both goods as the opportunity cost is the same.→ de CA
kota.ndu.org
.
D Country Y should produce both goods as it has an absolute advantage in both.

8
21 An economy is represented by the AD / AS diagram, which is initially in macroeconomic

equilibrium.
AS
price
level
AD
O real output
- → ↓ D↓→ output
Which change will definitely result in a rise in real output?
A a fall in personal taxation and a fall in government expenditure

↓
B a rise in consumption and a rise in the cost of raw materials
0C a rise in export revenues and a fall in import expenditure

-
D a rise in government expenditure and a fall in investment
22 The data shows the consumer prices index (CPI) and an index of money wages in an economy
during four years.
year 1 2 3 4
CPI 100 102 105 110

→ Ist"↑ 5,105=4.7
index of money wages 100 102 107 110 3: 107=2.8
⊖
Which statement is not correct? 25/102--4.9
\
A Inflation was at its greatest between years 3 and 4.
B Real wages remained constant between years 1 and 2.
00 C Real wages rose between years 3 and 4.

giain
D The rate of inflation increased over the whole period.
© UCLES 2020 9708/11/O/N/20

9
0-0-0
23 A country has a deficit of $300 million on the current account of its balance of payments. It
devalues its currency in an attempt to reduce the deficit.
Which row is consistent with the idea that the J-curve operates in the short run but the
O
Marshall-Lerner condition is satisfied in the long run? -
tujaerueeggect
-
short-run deficit long-run deficit

($ million) ($ million)
]→,agµeD✗•Es<
A
B
200
200
100
400
I
①C 600 rise 100 decrease
cart adapt
D 600 400 banotaei consumer
↳
24 A family takes a holiday abroad. Four students are asked to show where the cost of the
accommodation would be recorded in the current account of the balance of payments of the
-
country visited.
-
O gnu.ied-cde-oi.AM
"
Which student is correct?
séthu tiene
trade in goods trade in services export / credit import / debit
A
=
B
0 0
8
C
D

10
25 The diagram shows the imposition of a tariff on imports.
domestic supply
price
P2 U T world supply after tariff

P1 KHAM ↑ world supply before tariff
P Q R S
O
1
Q1 Q2 Q3 Q4
, domestic demand
output
Which set of values is correct?
imports imports
tax revenue
before tariff after tariff
A OQ4 OQ3 PUTS

B OQ4 OQ3 QUTR
-
C Q1Q4 Q2Q3 PUTS
◦
D Q1Q4 Q2Q3 QUTR
o
26 When is a deficit on the current account of the balance of payments likely to worsen?
-
o
A when a government adopts a deflationary macroeconomic policy
ⁿ*
B when a government subsidises exports "" "
{ ②
C °
when prices of essential imported raw materials increase significantly
D when tariffs are placed on imported products with a wide range of domestic substitutes
€
• 27 A government with a floating exchange rate wishes to encourage a rise in the international value
0
of its currency. - _
What should it do?
A lower the level of domestic interest rates

B reduce the amount of foreign currency available to its citizens
C reduce subsidies to its exporters
D :
remove trade barriers on imports
© UCLES 2020 9708/11/O/N/20

11
o
28 Greece had an unemployment rate of over 20% in 2016.
-
Which combination of policies would be best for the Greek government to try to reduce
unemployment? ↳" "*↑ → Investment ↑
_
monetary policy
,↓government 0 profit ↓ tax
wing expenditure tax
0 A decrease interest rates increase✓ decrease

-
B
\ decrease interest rates decrease increase
C increase interest rates increase
✓ increase
\
D increase interest rates decrease decrease
29 The diagram shows the relationship between the income tax rate and tax revenue.
tax
X
revenue
O
→Y
Z
income tax
rate (%)
Which statement is correct?
A G- ↑
A tax rate cut from Y to Z will cause tax revenue to decrease.
8- B
C
D
At tax rates below Z a tax rate cut will cause tax revenue to increase.
→
The greater the rate of tax increases beyond Z, the smaller will be the tax revenue
generated.
-
_
Tax revenue will always increase as the rate of income tax increases.
☐ =w×e
nd
O
30 What would be classified as a supply-side policy measure?
OA O
a law to reduce the power
-
of trade unions
B
C
a reduction in the government’s fiscal deficit
-
an open market sale of securities

fiscal
D the imposition of a tariff on imported goods
© UCLES 2020 9708/11/O/N/20

12
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Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.
© UCLES 2020 9708/11/O/N/20

2
1 The diagram shows a production possibility curve.
good X
O
good Y
What can be deduced from the shape of this curve?
A decreasing marginal returns to consumption

B decreasing opportunity costs of consumption
C increasing opportunity costs of production
D increasing returns to scale
2 Which statement is correct?
A Private goods are both non-rival and non-excludable.

B Private goods are only provided by the private sector.
C Public goods are both non-rival and non-excludable.
D Public goods do not incur opportunity costs.
3 Below are two statements.
1 A rise in the price of rice is the best way to give farmers in South-East Asia higher
living standards.
2 A rise in the price of rice will lead to a fall in demand.
Which row correctly describes these two statements?
1 2
A normative normative
B normative positive
C positive normative
D positive positive
© UCLES 2020 9708/12/O/N/20

3
4 What is a characteristic of money but not a function of money?
A medium of exchange
B portability
C standard of deferred payment
D store of value
5 In the UK, attempts to encourage people to change from road to rail travel by the introduction of a
system of road pricing were forecast to have little effect because ‘people like using their cars too
much’.
How would this forecast be explained?
A The price elasticity of demand for cars is high.

B The price elasticity of demand for petrol is high.
C The price elasticity of demand for rail travel is low.
D The price elasticity of demand for car travel is low.
6 The diagram shows the demand curve for a product with unitary price elasticity.
price
D
O
quantity
What will happen with such a curve?
A A fall in price will bring about an increase in total expenditure on the product.
B A fall in price will bring about an increase in sales but a fall in total expenditure on the
product.
C As the price rises, total expenditure on the product will stay the same.
D As the price rises, total expenditure on the product will rise and then fall.

4
7 The diagram shows the market supply and demand for a good.
price $ supply
T
U V
demand
O
quantity
Which area represents producer surplus?
A S+T B T C U D U+V
8 Vanilla is an important ingredient in the production of ice cream. Between 2011 and 2018 the
price of vanilla increased from about US$100 per kg to nearly US$600 per kg. The diagram
shows the market demand for and supply of ice cream. The original equilibrium is X.
Which point illustrates the effect of this price rise on the market for ice cream?
S2
price of
ice cream D
S1
C
B
P X D3
A
D1
D2
O Q
quantity of
ice cream
© UCLES 2020 9708/12/O/N/20

5
9 A government reduces income tax but at the same time raises the rate of sales tax (VAT).
What are the likely effects on the demand and supply of a normal good?
demand supply
A decreases decreases
B decreases increases
C increases decreases
D increases increases
10 An increase in the popularity of air conditioning units has resulted in their price increasing by
20%. In response to this the quantity supplied increased by 30%.
What can be concluded from this?
A price elasticity of supply = 0

B price elasticity of supply < 1
C price elasticity of supply = 1
D price elasticity of supply > 1
11 Which change does not have an immediate effect on the position of the demand curve for a
product?
A a fall in the price of a complementary product

B a range of new products entering the market
C a rise in the labour costs of its production
D an increase in the price of a substitute product
12 When demand for a good falls, its price falls.
What is the function of the price fall?
A to eliminate shortages
B to reduce consumer surplus
C to send a signal to producers
D to stimulate a further fall in demand

6
13 A firm estimates that the price elasticity of supply of its product is 0.4.
Should the firm be concerned by this figure?
A No, as it implies that the firm will be able to raise revenue by raising price.
B No, as it suggests there are few substitutes for the product.
C Yes, as it means that demand for its product is increasing at a slow rate.
D Yes, as it shows that the firm is not able to adjust supply easily when demand changes.
14 A government decides to privatise a state-owned company.
What should the government do to try to ensure that this will result in an improvement in
efficiency?
A allocate vouchers to all citizens entitling them to a share in the ownership of the company
B encourage competition
C impose a maximum profit margin
D increase business tax rates
15 The graph shows an individual’s income before and after the deduction of income tax.
45°
17 500
income
after tax
($)
10 000
0
0 10 000 20 000
income
before tax
($)
What is the marginal percentage rate of tax between $0 and $10 000, and between $10 000 and
$20 000?
$0–$10 000 $10 000–$20 000
A 0% 12.5%
B 0% 25.0%
C 1% 12.5%
D 1% 25.0%
© UCLES 2020 9708/12/O/N/20

7
16 In year 1, in the market for a good represented in the diagram, the initial demand and supply
conditions are shown by D1 and S1, and the government has set a maximum price of OP2.
price
S1
P1
P2
P3
D2
D1
O Q1 Q2 Q3 Q4 Q5 quantity
In year 2, demand increases to D2, but there are no other changes to the conditions of supply or
to the maximum price.
Which row accurately shows the price and quantity in the market in each year?
year 1 year 2
price quantity price quantity
A OP2 OQ1 OP1 OQ4

B OP2 OQ3 OP2 OQ5
C OP3 OQ2 OP1 OQ4
D OP3 OQ2 OP2 OQ3
17 What is necessary for an action to be classed as a transfer payment?
A It must include a cash payment.

B It must involve a banking transaction.
C It must originate from government activity.
D It must relate to a non-productive activity.

8
18 The market for good X is in equilibrium. The government introduces a subsidy to the producers of
good X.
Under which conditions will the total expenditure by the government on the subsidy be the
greatest?
price elasticity of price elasticity of

demand for good X supply for good X
A <1 <1
B <1 >1
C >1 <1
D >1 >1
19 Under which combination of circumstances will a policy of increasing the money supply be
most effective at moving an economy out of recession?
circumstance one circumstance two
A depreciating exchange rate global financial crisis

B high nominal interest rates appreciating exchange rate
C low aggregate demand inflation rate above the target level
D low nominal interest rates no spare capacity available
20 In which economic context is the term ‘protectionism’ usually applied?
A the protection of consumers against excessive prices

B the protection of employees against exploitation by multinational companies
C the protection of local producers against foreign competitors
D the protection of the foreign exchange rate against currency speculators
21 What is most likely to cause a rise in a country’s exchange rate?
A a fall in its direct taxes

B a fall in its export orders
C a rise in its interest rates
D a rise in its imports
© UCLES 2020 9708/12/O/N/20

9
22 The table shows an approximate summary of the current account of the balance of payments for
Thailand.
Bank of Thailand
current account
(millions of US dollars)
April 2018
1 exports 18 990
2 imports 18 715
3 trade balance 275
net services, primary income
4 1130
and secondary income
What is the current account balance, in millions of US dollars?
A –855 B 1405 C 1680 D 39 110
23 The diagram shows the production possibility curves for two economies using all resources.
Country X can produce 10 million cars or 20 million bicycles and country Y can produce 20 million
cars or 40 million bicycles.
cars 20
(millions)
10
X Y
0 20 40
bicycles
(millions)
Which statement is correct about country X and country Y according to the theory of comparative
advantage?
A Country X and country Y would not gain from free trade.

B Country X has a lower opportunity cost ratio in producing cars and bicycles than country Y.
C Country X has an absolute advantage over country Y in the production of both goods.
D Country Y will have a faster rate of economic growth than country X.

10
24 A country has a balance of payments deficit. It devalues its currency.
Which combination leads to a reduction in its balance of payments deficit in the long run?
price elasticity of price elasticity of

demand for exports demand for imports
A less than 0.5 less than 0.5

B less than 1 zero (0)
C more than 0.5 more than 0.5
D zero (0) less than 1
25 The diagram shows aggregate demand curves AD1 and AD2 and an aggregate supply curve AS1.
AS1
price
level
AD2
AD1
O
real output
What could cause the shift in the aggregate demand curve from AD1 to AD2?
A a rise in the interest rates

B a rise in output per worker
C a rise in the budget deficit
D a rise in the value of the exchange rate
26 The government of an open economy with an overvalued currency decides to abandon its fixed
exchange rate in favour of a floating exchange rate.
Which macroeconomic policy aim is least likely to be met because of this change?
A a low inflation rate

B a low level of unemployment
C a reduced balance of payments deficit
D a sustainable rate of economic growth
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11
27 Devaluation always has the effect of
A decreasing the price of imports.

B decreasing the value of imports.
C worsening the balance of payments.
D worsening the terms of trade.
28 A government uses monetary policy and fiscal policy to solve a problem of deflation.
Which policy combination is likely to be the most successful?
monetary policy fiscal policy
A increasing interest rates contractionary

B increasing interest rates expansionary
C reducing interest rates contractionary
D reducing interest rates expansionary
29 A government reduces its expenditure on workplace training, increases the level of indirect taxes,
and reduces the rate of interest it pays on government debt.
How would these government macroeconomic policies be categorised?
supply-side fiscal monetary
A con con exp key

B exp con con con = contractionary
C con exp exp exp = expansionary
D exp exp con
30 What represents the total of aggregate demand in a closed economy?
A C+I+G
B C+I+G+X
C C + I + G + (X – M)
D C – (S + T)
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12
BLANK PAGE
© UCLES 2020 9708/12/O/N/20

3
5 Good X is a substitute for good Y and a complement to good Z.
What would happen after aO

fall in the price of good X? ↑DgorZ
-
-
A Only the demand for X will rise. ↓D gory
B Demand for X, Y and Z will rise.
0
C Demand for Y will fall and for Z will rise.
D Demand for Y will rise and for Z will fall.
6 The table shows how an individual’s weekly consumption of biscuits and coffee varies with
income.
income ($) biscuits (packs) coffee (cups)
100 0 5
150 5
2 10
Which statement about the income elasticity of demand over the range of income shown is true?
0
A For biscuits it is greater than 1.
B For biscuits it is zero.
C For coffee it is less than 1.
D For coffee it is unitary.
7 The diagram shows four supply curves.
W X
price
-
- -
- - - - - -
- -
Y
,
I Z
§ -
- - -
!
, 1
I
i. I
O quantity
÷-
Which statement about the price elasticity of these supply curves is correct?
A W has elasticity of 0 that will rise as price rises.

B X has elasticity greater than 1 that will be constant as price rises.
① ⊖
C Y has elasticity greater than 1 that will fall as price rises. PES > 1 changing
D Z has elasticity of 0 that is constant as quantity rises.

4
8 The diagram shows the market for a good with an initial equilibrium price of $10. The demand for
the good increases by 40 units at every price causing the equilibrium price to rise to $12.
24
price
$ 20
S1
12
↑
•
%I
10
: D2
D1
0 80 100 120 140

quantity
0
What is the value of the producer surplus after the price increase? 12×1-220=720
A $500
0
B $720 C $1000 D $1440
9 The equation for the quantity demanded (QD) for a product is QD = 400 – 20P where P = price in
dollars. The quantity supplied (QS) is given by QS = 100 + 40P.
What change will occur if the price rises from $5 to $6? $5 :

QD ≥ 400-100=300
A the market will move from equilibrium to shortage QS =
200
0 0 to surplus
B the market will move from equilibrium
C
-
the market will move from shortage to surplus $6 : QD :

280
QS = 340
D the market will move from surplus to shortage
one he must reduce production of the other.

-
O
10 A farmer divides his land between growing two crops – wheat and oats. To increase production of
o
What would cause the farmer to increase his supply of wheat?
A A subsidy is given for the production of oats.

B A unit tax is imposed on the production of wheat.
C There is an increase in wages for all farm workers.
0 0
D There is improved efficiency in the harvesting of wheat.
-
© UCLES 2020 9708/11/O/N/20

5
11 What would cause the demand curve for vegetables to shift from D1 to D2 as shown?
S
price
P2
P1 ↑
D↑ → Income
→
D1 D2
O Q1 Q2
quantity
A a change in supply from Q1 to Q2

B a poor harvest due to unfavourable weather
C a price change from P1 to P2
0
D an increase in real incomes
12 The demand curve for new cars in a country shifted to the left. D↓
Which change could have caused such a shift?0
A an increase in real disposable income ☐ ↑
[O
B
C
D
an increase in the cost of borrowing
an increase in the price of new cars
an increase in the price of train travel
O
13 What is correct about market supply?
A Market supply can increase only when all individual firms increase their output.
B Market supply is effective when consumers have sufficient income to buy the good.
O
C Market supply is the result of aggregating the supply of all individual firms.
D Market supply of an inferior good falls as price increases.
14 Which statement best describes a transfer payment?

-
A It is a loan from the government to help firms.
O
B It is a payment to individuals not linked to economic activity.
C It is the redistribution of income from government to individuals for work done.
D It is the redistribution of income from households to firms for goods purchased.

6
15 The diagram shows the impact of a unit tax imposed by a government on a good. The original
supply curve is S1 and the supply curve after the unit tax is S2.
price
lost to producers
S2
$
S1
a
80
10×100=1000
1°C 70
60
50
#•
D
0 100 120
quantity
What would be the amount of tax paid by the consumer?
A $500
0
B $1000 C $1500 D $2400
16 The diagram shows the demand and supply curves for healthcare in a private market.
supply
price
demand
O Q
quantity
-0
What would happen if the government provides the same amount of healthcare free of charge?
\
A Healthcare will become a public good.
B Healthcare will no longer have external benefits.
-
✗
C There will be over-consumption of healthcare.
◦
D There will need to be rationing.
o_0
17 A good is provided by the government. Consumption by one person does not affect the amount of
the good available for others. - -
Which type of good must this be?
A complementary good
B merit good
C private good
O
D public good
© UCLES 2020 9708/11/O/N/20

7
18 A government imposes an income tax on individuals. The first $100 000 of earned income is
①
taxed at a rate of 20%, and all further earned income above $100 000 is taxed at a marginal rate
①
of 50%.
20%+10016=20000
Which statement is not valid? 50% ✗
100 275000£
①
A The average income tax rate is 20% at an income of $80 000 and 35% at an income of
$200 000. 70000
200000=35%0 :
B The tax is a direct tax for incomes above $100 000.

C The tax is a proportional tax for incomes between $20 000 and $40 000.
D The tax is regressive when incomes change from below to above $100 000.
ñngiañrgiatri.
O
19 Agricultural economies have faced a deterioration in their terms of trade.
What might have contributed to this?
OA
-
falling exchange rates of agricultural economies
B falling productivity in agricultural production
C increasing productivity in manufacturing economies
D the high income elasticity of demand for foodstuffs
20 The table shows the output of rice and cotton for countries X and Y.
units of output of units of output of

rice per year cotton per year
country X 5000 5000

country Y 4000 2000
Each country divides its resources equally between the production of rice and cotton.
Based upon the law of comparative advantage, which statement is correct?
A Country X has the higher opportunity cost in producing cotton.

B Country Y has the lower opportunity cost in producing rice.
C Country X should produce both goods as the opportunity cost is the same.
D Country Y should produce both goods as it has an absolute advantage in both.

8
21 An economy is represented by the AD / AS diagram, which is initially in macroeconomic

equilibrium.
AS
price
level
AD
O real output
Which change will definitely result in a rise in real output?
A a fall in personal taxation and a fall in government expenditure

B a rise in consumption and a rise in the cost of raw materials
C a rise in export revenues and a fall in import expenditure
D a rise in government expenditure and a fall in investment
22 The data shows the consumer prices index (CPI) and an index of money wages in an economy
during four years.
year 1 2 3 4
CPI 100 102 105 110

index of money wages 100 102 107 110
Which statement is not correct?
A Inflation was at its greatest between years 3 and 4.

B Real wages remained constant between years 1 and 2.
C Real wages rose between years 3 and 4.
D The rate of inflation increased over the whole period.
© UCLES 2020 9708/11/O/N/20

9
23 A country has a deficit of $300 million on the current account of its balance of payments. It
devalues its currency in an attempt to reduce the deficit.
Which row is consistent with the idea that the J-curve operates in the short run but the
Marshall-Lerner condition is satisfied in the long run?
short-run deficit long-run deficit

($ million) ($ million)
A 200 100
B 200 400
C 600 100
D 600 400
24 A family takes a holiday abroad. Four students are asked to show where the cost of the
accommodation would be recorded in the current account of the balance of payments of the
country visited.
Which student is correct?
trade in goods trade in services export / credit import / debit
A
B
C
D

10
25 The diagram shows the imposition of a tariff on imports.
domestic supply
price
P2 U T world supply after tariff

P1 world supply before tariff
P Q R S
domestic demand
O Q1 Q2 Q3 Q4
output
Which set of values is correct?
imports imports
tax revenue
before tariff after tariff
A OQ4 OQ3 PUTS

B OQ4 OQ3 QUTR
C Q1Q4 Q2Q3 PUTS
D Q1Q4 Q2Q3 QUTR
26 When is a deficit on the current account of the balance of payments likely to worsen?
A when a government adopts a deflationary macroeconomic policy

B when a government subsidises exports
C when prices of essential imported raw materials increase significantly
D when tariffs are placed on imported products with a wide range of domestic substitutes
27 A government with a floating exchange rate wishes to encourage a rise in the international value
of its currency.
What should it do?
A lower the level of domestic interest rates

B reduce the amount of foreign currency available to its citizens
C reduce subsidies to its exporters
D remove trade barriers on imports
© UCLES 2020 9708/11/O/N/20

11
28 Greece had an unemployment rate of over 20% in 2016.
Which combination of policies would be best for the Greek government to try to reduce
unemployment?
government profit
monetary policy
expenditure tax
A decrease interest rates increase decrease

B decrease interest rates decrease increase
C increase interest rates increase increase
D increase interest rates decrease decrease
29 The diagram shows the relationship between the income tax rate and tax revenue.
tax
X
revenue
O Z Y
income tax
rate (%)
Which statement is correct?
A A tax rate cut from Y to Z will cause tax revenue to decrease.

B At tax rates below Z a tax rate cut will cause tax revenue to increase.
C The greater the rate of tax increases beyond Z, the smaller will be the tax revenue
generated.
D Tax revenue will always increase as the rate of income tax increases.
30 What would be classified as a supply-side policy measure?
A a law to reduce the power of trade unions

B a reduction in the government’s fiscal deficit
C an open market sale of securities
D the imposition of a tariff on imported goods
© UCLES 2020 9708/11/O/N/20

12
BLANK PAGE
© UCLES 2020 9708/11/O/N/20

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Cambridge International AS & A Level: Economics 9708/11

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Cambridge International AS & A Level

You must answer on the multiple choice answer sheet.

You will need: Multiple choice answer sheet

This document has 12 pages. Blank pages are indicated.

1 The diagram shows an economy’s production possibility curve.

A a gain of 20 capital goods

A Fewer people will be able to afford treatment.

3 Which characteristic of money is the most important if it is to function as a medium of exchange?

4 What is not a characteristic of a planned economy?

A Consumers have limited influence on what is produced.

© UCLES 2020 9708/11/O/N/20

You must answer on the multiple choice answer sheet.

This document has 12 pages. Blank pages are indicated.

You must answer on the multiple choice answer sheet.

This document has 12 pages. Blank pages are indicated.

1 The diagram shows an economy’s production possibility curve.

A a gain of 20 capital goods

A Fewer people will be able to afford treatment.

3 Which characteristic of money is the most important if it is to function as a medium of exchange?

4 What is not a characteristic of a planned economy?

A Consumers have limited influence on what is produced.

© UCLES 2020 9708/11/O/N/20

5 Good X is a substitute for good Y and a complement to good Z.

What would happen after a fall in the price of good X?

A Only the demand for X will rise.

OC Demand for Y will fall and for Z will rise.

income ($) biscuits (packs) coffee (cups)

C For coffee it is less than 1. inelastic income teeing

7 The diagram shows four supply curves.

B X has elasticity greater than 1 that will be constant as price rises.

© UCLES 2020 9708/11/O/N/20 [Turn over

0 80 100 120 140

What would cause the farmer to increase his supply of wheat?

A A subsidy is given for the production of oats.

© UCLES 2020 9708/11/O/N/20

A a change in supply from Q1 to Q2

Which change could have caused such a shift? D ↓

0 O the supply of all individual firms.

D Market supply of an inferior good falls as price increases.

14 Which statement best describes a transfer payment?

A It is a loan from the government to help firms.

© UCLES 2020 9708/11/O/N/20 [Turn over

A Healthcare will become a public good.

Which type of good must this be?

© UCLES 2020 9708/11/O/N/20

What might have contributed to this?

A falling exchange rates of agricultural economies

units of output of units of output of

A Country X has the higher opportunity cost in producing cotton.

① lower opportunity cost in producing rice. 4000 give up only

D Country Y should produce both goods as it has an absolute advantage in both.

© UCLES 2020 9708/11/O/N/20 [Turn over

21 An economy is represented by the AD / AS diagram, which is initially in macroeconomic

A a fall in personal taxation and a fall in government expenditure

B a rise in consumption and a rise in the cost of raw materials

0C a rise in export revenues and a fall in import expenditure

D a rise in government expenditure and a fall in investment

CPI 100 102 105 110

00 C Real wages rose between years 3 and 4.

© UCLES 2020 9708/11/O/N/20

short-run deficit long-run deficit

© UCLES 2020 9708/11/O/N/20 [Turn over

25 The diagram shows the imposition of a tariff on imports.