Economics 9708/32 May/June 2020: question paper and mark scheme

Question

What is an example of a negative externality? A Lower profit due to increased competition from new firms entering the market. B Reduced government funding for a museum. C The increase in noise levels from aircraft due to the expansion of a large city airport. D The increase in production costs due to an increase in the cost of importing raw materials.

Question

The diagram shows a firm operating in monopolistic competition. At which point is the firm allocatively efficient? revenue MC AC / costs A B C MR AR O D output

Question

The amount of training undertaken in a mixed economy is not socially optimal. What could explain this? A Experienced educators are a scarce resource. B In a mixed economy training is a public good. C The individual’s benefit from training is less than the benefit to society. D Training is a large variable cost for firms.

Question

Four bus companies control more than two-thirds of the market in a country. Critics claim that these companies fix prices on some routes to maximise revenue whilst lowering prices on other routes to stop smaller competitors entering the market. Which anti-competitive practices are these companies accused of? A collusion and limit pricing B collusion and price leadership C limit pricing and price discrimination D price leadership and x-inefficiency

Question

On a diagram the slope of a consumer’s budget line becomes steeper. What can definitely be concluded from this? A The consumer’s income has fallen. B The consumer’s income has risen. C The price has decreased for the product on the horizontal axis. D The price has increased for the product on the horizontal axis.

Question

The diagram shows two indifference curves and two budget lines for goods X and Y. good Y Y H F G IC2 IC1 O X1 X2 good X The consumer’s initial position is at point F. The consumer’s preferred final position becomes point H. What does the movement from F to G represent? A the income effect of a price fall for X B the price effect of a price change for X C the substitution effect of a price fall for X D the substitution effect of a price rise for X

Question

The table shows the total costs at different levels of output for a firm producing chairs. output total cost (chairs) ($) 0 50 1 60 2 64 3 77 4 94 5 114 What is the average variable cost when output is 4 chairs? A $11 B $17 C $44 D $23.50

Question

At which level of output will a firm achieve the aim of sales maximisation? A where AC = AR B where AC = MC C where MC = AR D where MR = zero

Question

In market economies firms can operate under monopolistic competition. Which feature is not typical of this type of market? A non-price competition through advertising B price leadership with few large firms C promotion of differentiated products D unrestricted entry results in long-run normal profit

Question

When will the ‘principal-agent’ problem occur? A when managers are not allowed to become shareholders B when members of a cartel collude to gain higher profit C when one firm dominates the market D when owners have different objectives to managers

Question

Which feature of oligopoly is being assumed when the demand curve for an individual firm is as shown? price D D O quantity A price discrimination B price leadership by the dominant firm C interdependence between firms D collusion between firms

Question

The table provides data on the number and value of mergers in Europe and North America between 2014 and 2017. Europe North America year number value (euro) number value (US dollar) 2014 17 000 980 billion 14 000 2289 billion 2015 15 500 1161 billion 14 500 2533 billion 2016 18 100 1003 billion 15 100 1858 billion 2017 18 000 980 billion 18 500 1822 billion What can be deduced from the table? A The average value of a merger in Europe was higher in 2017 than 2014. B The difference in the number of mergers in Europe and North America was the same in 2014 and 2016. C The value of mergers each year in US dollars was always lower in Europe. D The number of mergers each year was always higher in Europe.

Question

Charities distribute plastic bags to households that householders can fill with clothes they no longer want. The charities then collect them and sell the clothes to raise funds. Only one charity leaves a note thanking the householder for the donation. What best describes this charity’s approach? A game theory B monopoly behaviour C non-price competition D nudge theory

Question

What could prevent a market failure? A barriers to entry B building regulations C growth of firms D persuasive advertising

Question

When will a society have achieved an equitable distribution of income? A when all individuals have equal job opportunities B when all workers are paid the same wages C when the incomes within the society are equally distributed D when the society believes that the distribution of income is fair 16 ‘The addition to revenue which results from employing one additional unit of a factor of production, while the quantities of all other factors of production remain constant’. What does this define? A marginal factor cost B marginal revenue C marginal revenue product D the law of diminishing returns

Question

In the question paper above.

Question

The alternative to work is to have leisure time. The diagram shows a worker’s decision of how many hours of labour to supply. Z real wage rate supply of labour Y X O hours of labour What happens between Y and Z? A Extra leisure is preferred to work. B Extra work is preferred to leisure. C The job now requires more specific skills. D The price elasticity of supply for the final product has become more inelastic.

Question

By moving from rural areas to large urban areas to work, how might economic migrants create benefits in both areas in developing countries? rural areas urban areas A by improving land ownership systems by becoming better educated B by receiving financial help from urban workers by providing necessary labour C by reducing population pressure on resources by living in informal settlements D by solving unemployment problems by obtaining loans from moneylenders

Question

Which change is most likely to increase both economic growth and economic development in the long run? A a decrease in the saving ratio B an increase in investment in human capital C the depletion of non-renewable resources D the greater use of compulsory overtime working of labour

Question

The table gives population data from the United Nations. low-income lower-middle- upper-middle- high-income countries income countries income countries countries rate of population change (% per year) 2.7 1.5 0.8 0.5 life expectancy (years) 61 67 74 80 death rate (per 1000 population) 9 8 7 8 under-5 mortality (per 1000 live births) 90 59 18 6 As countries move from low income to high income, which indicator shows a value that does not represent the expected trend? A the rate of population change in upper-middle-income countries B the life expectancy in high-income countries C the death rate in high-income countries D the under-5 mortality in upper-middle-income countries

Question

The diagram shows selected US labour statistics from 2001 to 2013. 300 65 net new jobs 200 64 employed as a monthly average percentage of 100 63 (thousands) population aged 0 62 16 and over –100 61 –200 60 –300 59 –400 58 –500 2001 03 05 07 09 11 2013 year What can be concluded from the diagram? A Between 2004 and 2005, when the number of net new jobs was rising, the percentage employed increased. B Employed as a percentage of the population aged 16 and over declined continuously. C The natural rate of unemployment was achieved only in 2008. D The number of employed workers rose in all except four years.

Question

What indicates that a developing country is becoming less dependent on foreign aid? A It gains foreign currency by exporting a range of raw materials, and uses this to import machinery from developed economies. B It has to change its economic structure in order to qualify for a bailout loan from the World Bank. C Its balance of payments goes into deficit when it has to start paying interest on loans taken out with foreign banks. D Its local firms go out of business after a foreign multinational sets up in the country.

Question

How must GDP at market prices (producer prices) be adjusted to find GDP at factor cost? A by adding exports and deducting imports B by adding net property income and deducting transfer payments C by adding profits and deducting income taxes D by adding subsidies and deducting indirect taxes

Question

The diagram shows the equilibrium levels of national income in a closed economy with no government, at two levels of investment, I1 and I2. saving / S investment X I2 I1 T Y O U Z national income Which ratio gives the value of the multiplier? TX UZ UZ XY A B C D UZ TX XY UZ

Question

An upward shift of the curve relating consumption to national income could be caused by A a reduction in taxation. B an increase in investment. C an increase in national income. D an increase in savings.

Question

Which combination of changes is most likely to result in an increase in the demand for money? income price interest level level rate A fall fall rise B fall rise fall C rise fall rise D rise rise fall

Question

In 1936 Keynes explained how economic policy can be used to increase aggregate demand and prevent an economic depression. Which policy supports Keynes’ theory? A Central banks should raise interest rates and decrease liquidity. B Governments should increase expenditure and decrease taxation. C Governments should encourage consumer savings rather than expenditure. D Trading policy should prevent the free movement of capital.

Question

A central bank increases the money supply in an attempt to stimulate investment and growth when the economy is in recession. When might this policy be ineffective? A if the economy is in the liquidity trap B if the economy is in the poverty trap C if the Marshall-Lerner condition does not hold D if the value of the multiplier is very low

Question

Which statement describes what the Phillips curve shows? A An inverse relationship exists between inflation and unemployment. B As employment increases the balance of payments deteriorates. C Economic growth and employment have a positive relationship. D It is possible to achieve low inflation and high economic growth at the same time.

Question

To stimulate economic growth the government increases the size of its budget deficit and funds this by increasing the money supply. What is most likely to reduce the effectiveness of these measures in achieving their aim? A a floating exchange rate B a high marginal propensity to import C a low marginal propensity to save D an interest-inelastic demand for money