Economics 9708/32 February/March 2023: question paper and mark scheme

Question

Utility theory is based on the assumption of the ‘rational consumer’. What is necessary to act as a ‘rational consumer’? choice is access to addictive independent complete behaviour of other information consumers A no yes yes B yes no no C yes yes no D yes no yes

Question

The price of good S is $6 and the price of good T is $8. A consumer’s marginal utility for each good is shown. marginal utility marginal utility units of good S of good T 1 36 32 2 24 22 3 18 20 4 9 18 5 0 9 If this consumer wants to maximise total utility, which combination of goods would they consume? good S good T A 1 1 B 2 1 C 3 4 D 5 5

Question

The diagram shows the effect of a price change on an individual consumer’s equilibrium, moving from E1 to E2. good Y F E2 E1 I2 I1 O G H good X What can be deduced from the diagram about the price change, the substitution effect and the income effect? substitution price change income effect effect A price of X falls positive positive B price of X falls positive negative C price of Y rises negative positive D price of Y rises negative negative

Question

What is likely to help create dynamic efficiency? A Entry barriers are reduced to increase competition in the market. B Firms are legally bound to produce where price equals marginal cost. C Taxes on profits are raised to encourage firms to produce where price equals average cost. D Taxes on retained profits are reduced to encourage investment in new technology.

Question

At which level of output is sales maximisation achieved consistent with earning normal profit? MC cost or price AC $ MR AR O A BC D quantity

Question

What is achieved in monopolistic competition in the long run? allocative supernormal efficiency profit A no no B no yes C yes no D yes yes

Question

The world’s largest pharmaceutical companies developed and distributed an effective vaccine to combat a dangerous virus. What can be associated with this vaccine programme? A demerit good and negative production externality B imperfect competition and positive consumption externality C perfect competition and negative consumption externality D public good and negative production externality

Question

A landlord owns a house which is rented to tenants. The tenants are required to pay the electricity and water bills. The landlord is required to decorate and repair damage to the house and its gardens. What is not an example of the principal-agent problem? A The tenants forget to switch off a tap when filling a bath and water overflows, damaging the floor. B The tenants have a party and their guests cause damage to the interior of the house. C The tenants leave the lights and the TV on when they go out for an evening meal. D The tenants park their car in the garden, damaging the grass and the surrounding hedge.

Question

The result of a cost-benefit analysis of a proposed government road-building project is that there will be a positive net social benefit of $50 million. Why might the government not proceed with the project? A The project would not be profitable for a private firm. B The project would cause negative externalities. C There is limited capital available for government projects. D There would be more who lost than gained.

Question

If the marginal cost of a good is lower than its price, allocative efficiency has not been achieved. What is likely to remedy this situation? production of price of the good the good A decrease decrease B decrease increase C increase decrease D increase increase

Question

The diagram shows an industry’s demand for and supply of labour. wage rate S W0 D O X Y Z number of workers Initially, the labour market is in equilibrium. The government introduces a minimum wage of OW0. What will be the effect on the level of employment in the industry? A a decrease equal to XY B a decrease equal to XZ C an increase equal to XY D an increase equal to YZ

Question

The diagram shows the supply curve of labour for two separate markets, X and Y. X wage rate Y O quantity of labour What explains the difference in the gradients of the labour supply curves? A Market X has a higher marginal revenue product per worker than Y. B Market X has a higher percentage of its labour belonging to a trade union than Y. C Market X has higher labour costs as a percentage of total costs than X. D Market X has more specific skills and training requirements than Y.

Question

The table shows the main characteristics of employment in two occupations. occupation X occupation Y average annual wage $100 000 $60 000 number of weeks of annual leave 5 weeks 10 weeks average length of working week 48 hours 44 hours job security low high length of training course to obtain job qualification 1 year 2 years What can definitely be deduced from the table? A Those employed in occupation Y attach greater importance to job security. B Those employed in occupation X attach less importance to leisure activities. C There will be more competition for places on training courses to enter occupation X than occupation Y. D Occupation Y has more non-pecuniary advantages than occupation X.

Question

Which changes in direct and indirect tax are likely to increase the inequality in the distribution of income in a developed economy? direct taxes indirect taxes A fall fall B fall rise C rise fall D rise remain constant

Question

A government wishes to reduce the use of cars in cities. Which policy should be used? A a decrease in parking charges B lowering tax on petrol (gasoline) C restricting cycling D subsidising public transport

Question

In a country, the top 20% of earners pay 45% in income tax and 25% on sales taxes, and receive 5% in cash benefits. What is the percentage of disposable income for this group? A 30% B 55% C 60% D 80%

Question

Which combination of circumstances is most likely to lead to an increase in a country’s budget deficit? government total GDP unemployment spending A decreases rises decreases B decreases rises no change C increases falls increases D increases falls no change

Question

Which statement applies to a central bank and to a commercial bank? central commercial bank bank A issues bank notes yes yes B lender of the last resort yes yes C maximises profit no yes D receives deposits directly no yes from the government

Question

What is most likely to be the biggest contribution to sustainable economic growth in a developed economy? A a movement of people from rural to urban areas B an increase in technical training C an increase in the size of the population D rising consumer credit levels

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

What does the accelerator principle state? A Consumption is a function of the rate of change of income. B Income is a function of the rate of change of investment. C Investment is a function of the rate of change of income. D Investment is a function of the rate of interest.

Question

Which government aim is least likely to be achieved using macroeconomic monetary policy measures? A low unemployment level B more equal income distribution C stable exchange rate D steady price level

Question

A government adopts an expansionary fiscal policy to increase the economic growth rate. Which other main macroeconomic aims is this policy most likely to help? full stable current account employment price level surplus A B C D

Question

Country X decides to devalue its currency to eliminate a balance of payments deficit. Why might devaluation have a positive effect on its macroeconomy? A Competitive pricing of exports may create employment potential in country X. B Foreign importers may depreciate their own currencies and reduce any advantage gained by country X. C Inelastic demand for imported raw materials may lead to cost inflation in country X. D Loss of import duties by country X may reduce government backing for trade promotion.

Question

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

Question

Which additional components may be included when measuring economic development that are not included in measures of economic growth? changes in level of real income the distribution poverty per capita of GDP A no no yes B no yes no C yes yes no D yes yes yes

Question

Which curve is shown in the diagram? income inequality O income per capita A Kuznets curve B Laffer curve C Lorenz curve D Phillips curve

Question

Which indicator is least likely to be used when measuring the comparative economic development of an economy? A mean years of schooling B average life expectancy at birth C level of real GNP per head D size of population

Question

What is an example of an expenditure-switching policy? A an increase in income tax rates B an increase in interest rates C an increase in tariff rates D an increase in the supply of money

Question

Labour from low-income countries often migrates to high-income countries and finds jobs. How would such a movement of labour be likely to affect the economic growth and the pressure on wage rises in the high-income country? pressure on economic growth wage rises A decrease decrease B decrease increase C increase decrease D increase increase