Economics 9708/14 May/June 2025: question paper and mark scheme

Question

What is a common criticism of economics? A It fails to establish theories of economic behaviour. B It is unable to construct models of how an economy might work. C It lacks the ability to use and apply mathematics. D It is very difficult to undertake laboratory experiments in economics.

Question

What is an essential requirement for a market economy to be able to allocate its resources? A freedom of entry and exit B private ownership of property C many buyers and sellers D perfect product knowledge

Question

Under which conditions are free market forces most likely to allocate resources efficiently in an economy? the number of certain types of good needed by consumers in the economy demerit goods merit goods public goods A a few a few a few B many many a few C none many none D none none none

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What does a production possibility curve show? A the actual demand in an economy given its existing resources B the maximum output an economy can achieve using existing resources C the maximum output an economy can ever achieve D the minimum combinations of output an economy can achieve

Question

A city built a new stadium to host the World Athletics championships. The city authorities also ensured clean air by closing factories and making their workers unemployed during the championships. Which part of this is an example of non-rival consumption? A The improved air quality also benefited those who did not have to pay for it. B The private costs and external costs were borne by the city authorities. C The stadium could be used after the championships. D The unemployed factory workers were entitled to free tickets to the stadium.

Question

Along which axis can the market demand curve be aggregated from individual demand curves? A both the horizontal and the vertical axis B the horizontal axis only C the horizontal or the vertical axis but not both D the vertical axis only

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In the diagram, D1 is the initial demand curve for student places at universities. fees D2 D1 O student places What could cause the demand curve to shift to D2? A a decrease in student fees for universities B a decrease in the level of youth unemployment C an increase in graduate earnings compared with non-graduate earnings D higher A Level grades demanded for university entrance

Question

A survey into the market for good X found that it is an inferior good and a close substitute for good Y. Which values for the income elasticity of demand for good X and its cross elasticity of demand with respect to the price of good Y would support this? cross elasticity of demand income elasticity of for good X with respect to demand for good X the price of good Y A –1.2 –0.9 B –1.2 +0.9 C +1.2 –0.9 D +1.2 +0.9

Question

What is the likely nature of the price elasticity of supply of a crop such as rice? A highly elastic in both the short and the long run as rice is an essential product B highly elastic in the short run and more inelastic in the long run as production methods improve C highly inelastic in both the short and the long run as the land area of a country is fixed D highly inelastic in the short run and more elastic in the long run as it takes time to plant rice

Question

The price of laptop computers falls. The price of which product is likely to rise as a result? A desktop computers B carrying cases for laptop computers C monitors for desktop computers D workstation tables for desktop computers

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Assuming normal demand and supply for a product, what will definitely increase consumer surplus? A a shift in the demand curve to the left B a shift in the demand curve to the right C a shift in the supply curve to the left D a shift in the supply curve to the right

Question

A government in a market economy decides to subsidise the provision of the internet in remote parts of a country. What is the most likely reason for doing this? A to decrease provision of a demerit good B to increase provision of a merit good C to provide a public good D to reduce negative externalities

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Who is intended to benefit from an agricultural buffer stock scheme during periods of plentiful harvests? A consumers of food B growers of food C processors of food D taxpayers

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A government decides to increase indirect taxes, abolish the agricultural subsidy and lower the income level at which tax becomes payable. What would be the most likely consequence of these changes? A a decrease in cost-push inflation B an increase in income inequality C an increase in the balance of payments deficit D an increase in the budget deficit nominal GDP × price index in base year

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What can be calculated using the formula ? price index in current year A gross national income B real gross domestic product C net domestic income D net domestic product

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What is always regarded as a cause, rather than a consequence, of a change in the circular flow of income? A a decrease in government tax revenue B an increase in consumption spending C an increase in savings D an increase in the value of exports

Question

The table shows some data for an economy. government national investment exports savings imports taxation expenditure income ($ million) ($ million) ($ million) ($ million) ($ million) ($ million) ($ million) 200 100 50 125 62.5 62.5 600 200 100 50 150 75 75 700 200 100 50 175 87.5 87.5 800 200 100 50 200 100 100 900 What is the equilibrium level of national income? A $600 million B $700 million C $800 million D $900 million

Question

The diagram shows an economy’s aggregate demand curve. price L level M AD O output What explains the downward movement from L to M along the AD curve? A an increase in tariffs leading to decreased imports B a decrease in taxes on firms, causing an increase in short-run aggregate supply C an increase in consumer confidence, prompting higher spending on local goods as well as imports D a slow-down in economic activity, resulting in decreased investment spending

Question

Long-run aggregate supply (AS) in an economy can be represented diagrammatically in different ways. For which AS curve would a long-term fall in aggregate demand always be likely to result in the level of employment remaining unchanged? A B AS price price level level AS O real Y O real Y C D AS AS price price level level O real Y O real Y

Question

If a country is suffering from deflation, what would be the best policy to reflate the economy? A increase corporation tax B increase income tax C reduce interest rates D reduce spending on education

Question

What would be a positive effect on the growth of an economy in the short run, if the government reduced a direct tax on individual earnings? A Food prices would increase because of shortages. B Imports of luxury cars would increase to satisfy a change in demand. C Savings would increase because of additional disposable income. D The consumption of domestically produced goods would increase.

Question

What is not a monetary policy measure? A credit regulations for banks B interest rate changes C increased government subsidies D money supply changes

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The government has a macroeconomic objective of low unemployment. It has recently decreased interest rates. What may limit the effectiveness of this tool in achieving the objective of low unemployment? A a lack of productive capacity B excess demand in the economy C increased government spending on infrastructure D low levels of welfare benefits

Question

The table shows the ability of two countries, P and Q, to produce two goods, Y and Z. production of good Y production of good Z per person per person country P 1000 1600 country Q 1500 2000 Which statement is correct? A P has an absolute advantage in Z and Q has a comparative advantage in Y. B P has an absolute advantage in Z and Q has an absolute advantage in Y. C P has a comparative advantage in Y and Q has an absolute advantage in Z. D P has a comparative advantage in Z and Q has an absolute advantage in Y.

Question

A trading country can produce two goods, X and Y. It specialises completely in the production of good Y. What will be the opportunity cost to the country of consuming additional imports of good X? A the additional imports of good X B the increase in the resources required to produce good X C the reduction in the domestic consumption of good Y D the reduction in the resources available to produce good Y

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What are the terms of trade? A the difference in value between a country’s exports and imports B the rate at which one currency can be exchanged for another C the rate at which tariffs can legally be applied to exports and imports D the ratio of average export prices to average import prices

Question

An Australian family purchases a holiday to New Zealand and an Australian mining company sells coal to China. Four students, A, B, C and D, are asked where these transactions appear in the current account of Australia’s balance of payments. Which student is correct? holiday to coal to China New Zealand A service export good export B service export good import C service import good export D service import good import

Question

A government believes its current account deficit will be beneficial in the long run. What is the most likely reason for this? A Immigration has increased. B It imports capital goods. C It exports raw materials. D It reduces unemployment.

Question

A country has a freely floating exchange rate. In which circumstance is it most likely to appreciate? A A competitor trading country experiences a fall in the value of its currency. B Increased administrative burdens are placed on companies within this country wishing to buy imports. C There is a fall in demand for its exports. D There is a fall in the level of its rate of interest.

Question

A country has a current account deficit. What would be classified as a protectionist measure to restore the current account to equilibrium? A allow the exchange rate to appreciate B increase income tax C increase import tariffs D increase the rate of interest