Economics 9708/32 February/March 2019: question paper and mark scheme

Question

A project has a social cost of $100 million, a private cost of $40 million and an external benefit of $20 million. Its net social value is zero. What can be concluded about the project? A External cost is greater than external benefit. B Private cost is greater than external cost. C Private cost is greater than private benefit. D Social cost is greater than social benefit.

Question

The diagram shows the cost and revenue curves for a firm. At which price does allocative efficiency occur? price MC AC A B C D MR AR O quantity

Question

A government is considering improving the rail links in its country. It also has to choose one of four high-speed routes. The benefits and costs of each route are shown below. Which route should be chosen? private benefits external benefits private costs external costs $bn $bn $bn $bn A 14 20 0.4 0.1 B 16 22 1.6 0.4 C 18 12 0.2 1 D 20 18 2 4

Question

The table shows the total utility gained by a consumer as they consume more apples. apples total utility consumed 0 0 1 10 2 18 3 24 4 28 5 30 6 30 At which level of consumption would the marginal utility be zero? A 1 B 4 C 5 D 6

Question

In the indifference curve diagram point M is the consumer’s initial equilibrium, JK and JL are budget lines and MN is the substitution effect of a fall in the price of good X. If good X is a Giffen good, which point will be the consumer’s new equilibrium point after the fall in the price of good X? good Y J A B C D M N I O K L good X

Question

Selina has an income of $100 and buys food and drink. The price of a unit of food is $2 while the price of a unit of drink is $1. Which combination of spending would suggest that Selina wants to save some of her income? food (units) drink (units) A 20 50 B 30 40 C 40 20 D 50 10

Question

The diagram shows a profit-maximising monopolist. cost, revenue MC AC R S T U O MR AR output What would be the change in price if this monopolist changed from profit maximisation to revenue maximisation? A R to S B R to T C U to S D U to T

Question

The goal of firm X is to make a minimum acceptable level of profit. What does this describe? A profit maximisation B profit satisficing C revenue maximisation D sales maximisation

Question

A monopoly firm makes only normal profit in the long run. What is most likely to explain this? A The firm has decreasing long-run average costs. B The firm is a public company with numerous shareholders. C The firm is owned by a small number of financial institutions. D The market in this industry is highly contestable.

Question

The diagram shows the average fixed cost (AFC), average variable cost (AVC) and average total cost (ATC) curves faced by three firms X, Y and Z. DX, DY and DZ are the three respective demand curves. All three firms seek to make a profit. ATC DZ price, ATC cost AFC AVC DY DZ AVC DX DY AFC DX O quantity Which statement is not correct? A Firm X will choose not to produce at all. B Firm Y is likely to operate in the long run but not in the short run. C Firm Y is likely to operate in the short run but not in the long run. D Firm Z will operate in both the short run and the long run.

Question

When a firm increases all its inputs fourfold, its output increases threefold. What does this illustrate? A decreasing marginal costs B decreasing returns to scale C economies of scale D the law of diminishing returns

Question

What represents the transfer earnings of the factor enterprise? A excess profit B normal profit C return on capital D start-up costs

Question

A country has a negative income tax. The curve NT in the diagram shows the country’s initial tax schedule. + NT1 tax NT O income – A change in the tax rate causes the schedule to shift to NT1. How will this affect work incentives and the after-tax distribution of income? work distribution incentives of income A strengthen more equal B strengthen less equal C weaken less equal D weaken more equal

Question

In which labour market diagram is the economic rent of workers greatest? A B wage wage SL W* SL W* MRPL MRPL O L* O L* labour labour C D SL wage wage SL W* W* MRPL MRPL O L* O L* labour labour

Question

Which statement about government intervention is correct? A Government failure may result from policies that have unintended side effects. B Governments cannot identify the existence of inefficiency. C Inefficient government policies mean that the market system will be better at resource allocation. D Market failure means that government action will necessarily improve the situation.

Question

The government introduces a minimum wage above the equilibrium market wage rate. How will this affect low-paid workers according to marginal revenue product (MRP) theory? A All those initially in employment will receive the new guaranteed minimum wage. B Fewer of those not already in employment will enter the labour force. C There will be an increase in the number of low-paid workers in employment. D Some low-paid workers will lose their job.

Question

The diagram shows the market for a good that creates a negative externality in production and no positive externalities. The current level of consumption is OQ1. S4 price Z S3 Y S2=MSC=MPC+MEC P4 P3 S1=MPC X P2 W P1 V D=MPB=MSB O Q4 Q3 Q2 Q1 quantity The government decides to tax producers of the good. Which size of tax on producers would result in a socially efficient allocation of resources? A VW B VX C VY D VZ

Question

The diagram shows a production possibility frontier, PPF1. The economy is initially at point X. If the economy achieves actual economic growth but not potential growth, what would the final position be? capital PPF2 goods PPF1 D C B X A O consumer goods

Question

The information in the table is taken from a country’s national income accounts. $ million consumer expenditure 250 investment expenditure 100 government expenditure 150 exports 100 imports 150 taxes 80 subsidies 40 What is the value of national income at factor cost in $ million? A 410 B 450 C 500 D 550

Question

Which source of income is not included in measuring real GDP? A pension paid to retired people B profits made by firms C rent paid to landlords D wages paid to nurses

Question

Which adjustments to real GNP per head might make it a more reliable indicator when comparing standards of living in different countries? A adjustments to allow for differences in the level of government spending in different countries B adjustments to allow for differences in the rates of inflation in different countries C adjustments to allow for differences in the size of the hidden economy in different countries D adjustments to allow for differences in the value of exports from different countries

Question

What does the Kuznets curve represent? A changes in income inequality over time B changes in the Human Development Index over time C changes in the Multidimensional Poverty Index over time D the inverse of a Lorenz curve

Question

In an open economy with a government sector, the marginal propensity to import is 0.3, the marginal propensity to tax is 0.3 and the marginal propensity to save is 0.2. What is the value of the multiplier? A 1.25 B 2 C 2.5 D 5

Question

The information in the table is taken from a country’s national income accounts. $ million national income 600 consumer spending 400 investment spending 80 government spending on goods and services 100 exports 140 What is the value of imports in $ million? A 100 B 120 C 140 D 240

Question

The central bank of a country creates cash to purchase government bonds from the commercial banks. What is this called? A liquidity preference B quantitative easing C supply-side policy D the transmissions mechanism

Question

Which row shows characteristics of a fast-growing emerging economy? household GDP per head birth rate saving ratio A falling falling rising B falling rising falling C rising falling rising D rising rising falling

Question

Which policy is likely to increase unemployment? A an increase in retraining facilities B a significant increase in indirect taxes C the imposition of selective import controls D an increase in the public sector deficit

Question

A government in a developed economy wishes to reduce cyclical unemployment. Which policy is likely to be most effective? A decrease government expenditure and increase income tax B decrease its budget deficit C increase government expenditure and decrease income tax D increase its budget surplus

Question

An economy adopts an expansionary monetary policy to boost employment. A result of this policy is that the consumer price index rises at an accelerating rate. Which curve could represent this? A Kuznets curve B Laffer curve C Lorenz curve D Phillips curve

Question

In country X the government aims to protect jobs. Which policy is most likely to succeed? A decrease restrictions on immigrant labour B decrease subsidies to domestic producers C increase general tariffs on imports D remove quotas on imports