Economics 9708/31 May/June 2025: question paper and mark scheme

Question

What is the equi-marginal principle? As consumption of a product increases, the satisfaction from consumption of the product A decreases by an equal amount. Consumers maximise utility where their marginal valuation for each product consumed is the B same. C The total satisfaction received by consumers from consumption of a product is constant. The marginal utility derived by consumers from the consumption of one more unit of a product D is constant.

Question

The diagram shows the cost and revenue curves for a natural monopoly. price P1 P2 AC P3 MC MR AR O Q1 Q2 Q3 quantity Which statement is correct? A P2 and Q2 will achieve both allocative efficiency and productive efficiency. B P2 and Q1 will achieve productive efficiency but not allocative efficiency. C P3 and Q3 will achieve allocative efficiency but not productive efficiency. D P3 and Q3 will achieve both allocative efficiency and productive efficiency.

Question

What would not affect the budget line of an individual consumer? A the individual’s preference for various goods B the level of income tax C the money prices of goods D the incomes earned by the individual

Question

The diagram shows the marginal private costs (MPC) and marginal private benefits (MPB) of a product. Consumers initially estimate that marginal private costs are at MPC1 and marginal private benefits are at MPB1. $ MPC2 P3 P2 MPC1 P1 P4 MPB2 MPB1 O Q2 Q3 Q4 Q1 quantity What is the impact on the market demand for the product if the consumer realises they have underestimated the MPC of buying the product but not the MPB? A The consumer underconsumes the product by Q1Q2. B The consumer underconsumes the product by Q1Q3. C The consumer overconsumes the product by Q1Q3. D The consumer overconsumes the product by Q1Q4.

Question

What is an internal economy of scale? A efficient local transport networks B improved access to spare parts as a result of industry growth C lower risks from supplying a wider range of customers D the training of skilled labour at a college financed by local firms

Question

The diagram shows the costs and revenue for a monopoly. Which level of output would produce only a normal profit? $ MC AC AR O A B C D quantity MR

Question

Which combination of statements about small firms and large firms is most likely to be correct? small firms large firms A are more common in face high barriers to exit manufacturing than in services B are more numerous do not experience than large firms diseconomies of scale C can do well when each item may arise from internal produced is different growth or mergers D cannot have any monopoly power cannot earn supernormal profits

Question

Good X is a popular product that creates a negative externality when it is consumed. The government wants to reduce the consumption of good X significantly. Under which circumstances is the government most likely to meet its aim? price elasticity government of demand for policy good X A subsidy more than 1 B subsidy less than 1 C indirect tax more than 1 D indirect tax less than 1

Question

A government introduces tradeable pollution permits to reduce pollution. What is an advantage of this scheme? A It allows consumers to determine the optimum pollution level. B It can provide rewards for firms that reduce pollution. C It enables the government to raise revenue from the resale of permits. D It uses the market system with no administrative costs.

Question

To reduce traffic congestion, a government built a new highway. A majority of the citizens were opposed to this. Some citizens responded by switching from public transport to private cars. This caused car journeys to take even longer. What can be concluded about government failure in this case? A It occurred because the government‘s opportunity costs were not considered. B It occurred because the wishes of the majority of citizens were ignored. C It occurred because the result was unintended. D It occurred from over-reliance on the market system.

Question

What could result in an individual being caught in the poverty trap if their income increases? A national minimum wage is changed B benefits payments are means-tested C subsidised housing payments for low-income earners are increased D the income level at which income tax is first paid is increased

Question

The diagram shows the impact on the labour market of the introduction of a national minimum wage (MW). wage rate supply X Y Z MW demand O labour What do the distances XY and YZ represent? XY YZ A increase in employed workers existing workers made redundant B existing workers made redundant unemployed new entrants C existing workers made redundant increase in employed workers D unemployed new entrants existing workers made redundant

Question

What is an example of ‘nudge’ theory as applied to the prevention of tax evasion? A employing an extensive administration to ensure detection of evasion B imposing heavy penalties on those who do evade tax C providing information to taxpayers about the undesirable effects of tax evasion D requiring employers to inform the tax authorities of workers’ pay

Question

The diagrams show the demand for and supply of labour. S wage S wage wage rate rate rate S 1 3 4 2 D D D O quantity of labour O quantity of labour O quantity of labour Which two areas represent economic rent? A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4

Question

In an economy with no government sector or foreign trade, the marginal propensity to consume is 0.6. If the equilibrium level of national income is $10 000 million and the full employment level of national income is $15 000 million, by how much would investment have to increase to achieve full employment? A $1666 million B $2000 million C $3012 million D $5000 million

Question

What is a definition of hysteresis unemployment? people who become temporarily unemployed because it takes a short period of time to find a A job after they leave school people who become unemployed when there is a recession but who will find employment as B the economy comes out of recession people who become unemployed for a long period of time due to a loss of job skills and work C experience while unemployed people who become unemployed when established firms close and new firms are created as D technology advances

Question

An economy has a positive output gap. What is happening to economic growth and the general price level? economic growth general price level A above trend growth rate falling B above trend growth rate rising C below trend growth rate falling D below trend growth rate rising

Question

What is a factor affecting the occupational mobility of labour? A education and training B immigration controls C price of housing D transport infrastructure

Question

A country’s government decides to set artificially low interest rates. What describes a negative consequence to this country of this policy? A a higher rate of consumer price inflation B a rapid growth in gross domestic product C an increase in investment by manufacturers and real estate developers D a reduction in borrowing by consumers

Question

According to the quantity theory of money, which combination would result in the general level of prices remaining unchanged? total number of velocity of money supply transactions circulation A remains unchanged remains unchanged rises by 3% B rises by 3% remains unchanged rises by 3% C rises by 3% rises by 3% remains unchanged D rises by 3% rises by 3% rises by 3%

Question

A government increases its inflation rate target from 3% to 5%. What is a likely reason for this? A to increase economic sustainability B to increase saving C to reduce a balance of payments deficit D to reduce unemployment

Question

What would be a macroeconomic policy objective for a government in a developed economy? A to improve sustainability B to provide public goods C to reduce the power of trade unions D to subsidise the electricity supply industry

Question

An economy is at its natural rate of unemployment. Under which circumstances will an increase in government spending aimed at reducing unemployment be most likely to conflict with a government’s objective of low inflation? A if inflationary expectations are unchanged B if inflationary expectations fall C if labour productivity increases D if labour supply increases

Question

An economy imports a large proportion of its raw materials. Its exchange rate depreciates. What is the impact on the external and internal value of money? external value internal value of money of money A rises rises B rises falls C falls rises D falls falls

Question

A country’s government imposes a tariff on steel imports. What is the likely impact of this tariff on this country’s economy? A It will make this country’s steel exports more price competitive. B It will lead to productive inefficiency in this country’s steel industry. C There will be an improvement in this country’s terms of trade. D There will be a decrease in producer surplus for this country’s steel producers.

Question

Which measurement is not included in the calculation of the Human Development Index? A average years of schooling B Gross National Income per capita C infant mortality rate D life expectancy at birth

Question

The diagram shows the impact of a revaluation of a country’s exchange rate on the current account of the balance of payments. current account of the balance of payments O time The table gives the price elasticity of demand for imports, PEDM, and the price elasticity of demand for exports, PEDX, in both the short run and the long run. Which combination of short run and long run elasticities will give the shape shown in the diagram? short run long run PEDM PEDX PEDM PEDX A 0.2 0.2 0.4 0.4 B 0.4 0.4 0.8 0.8 C 0.8 0.8 1.2 1.2 D 1.2 1.2 1.6 1.6

Question

What is not a function of the International Monetary Fund (IMF)? A to encourage exchange rate stability B to provide financial assistance for a country with failed economic policies C to provide funds for a water purifying plant in a developing country D to provide loans for countries following a natural disaster

Question

The diagram shows the effect of trade creation if a tariff is removed. domestic supply price world supply P1 (with tariff) v w x y P2 world supply (without tariff) domestic demand O Q3 Q1 Q2 Q4 quantity Which areas show the total net gain to the domestic economy? A v, w, x and y B v, w and x only C w and x only D w and y only

Question

What is most likely to prevent a developing country from achieving economic development? increased allocation of resources to production of goods that have a high income elasticity of A demand B increased government legislation for the protection of employment C increased tax allowances on firms investing in research and development the decision of developed countries to increase quotas for goods produced by developing D countries