Economics 9708/33 October/November 2021: question paper and mark scheme

Question

The diagram shows the private and social marginal costs and benefits of a demerit good. What is the socially optimal level of output? MSC cost benefit MPC MPB MSB O A BC D output

Question

Why are public goods an example of market failure? A Producers undervalue the benefits of a public good. B Public goods have high fixed costs of production. C The non-excludability of a public good leads to the free rider problem. D When a public good is consumed by one person, it is not available to others.

Question

A government plans to build a new railway line. One proposed route will pass close to residential areas causing increased noise levels. An alternative shorter route will pass through a nature reserve causing environmental damage but saves travel time for rail users. In using cost–benefit analysis, which combination shows what should be included as private cost (PC) and what should be included as external costs (EC)? the cost of building the increased the railway line noise levels A EC PC B EC EC C PC EC D PC PC

Question

What is held constant when deriving an individual consumer’s downward-sloping demand curve for a product? A marginal utility B the consumer’s income C the price of the product D total utility

Question

The diagram shows an individual’s total utility curve as different quantities of a good are consumed. At which level of consumption does the individual’s marginal utility become zero? total utility O A B C D units consumed

Question

The diagrams show changes in a consumer’s budget line (BL) for two goods. The government increases the price of both goods by imposing a sales tax of 25%. Which diagram shows the effect of this tax? A B good Y good Y BL2 BL2 BL1 BL1 O O good X good X C D good Y good Y BL2 BL1 BL1 BL2 O O good X good X

Question

A consumer demands two goods, X and Y. The consumer’s initial equilibrium is at R and final equilibrium at T. The indifference curve diagram shows the effect of a fall in the price of good X and the resulting income and substitution effects. good Y M M” T R S I2 I1 O N N” N’ good X What can be concluded from the diagram about the nature of good X and the nature of its relationship with good Y? relationship between nature of good X good X and good Y A inferior complements B inferior substitutes C normal complements D normal substitutes

Question

A perfectly competitive firm is producing a level of output where average cost is lower than marginal cost. What are the effects on these costs if output increases by one unit? average cost marginal cost A falls falls B falls rises C rises falls D rises rises

Question

What is most likely to pose a threat to the survival of small local bread producers? A an increase in the cost per minute of television advertising B a switch in consumer preferences to cheaper mass-produced bread C diseconomies of scale in the process of bread production D increased congestion on road networks

Question

Firms in a market advertise their products with different brand names. Some make more profit than others in the short run but all make normal profit in the long run. Which market structure is this? A perfect competition B monopolistic competition C oligopoly D monopoly

Question

The diagram shows the marginal cost (MC), marginal revenue (MR), average revenue (AR) and average total cost (ATC) curves of a profit-maximising firm in an oligopolistic market. cost and price MC P ATC C MR AR O Q1 quantity What is the reason why the oligopolist would not want to increase their price above P? A Demand is relatively elastic, meaning the firm would see a reduction in total revenue. B Demand is relatively elastic, meaning the firm would see an increase in total revenue. C Demand is relatively inelastic, meaning the firm would see a reduction in total revenue. D Demand is relatively inelastic, meaning the firm would see an increase in total revenue.

Question

The diagram shows the cost and revenue curves for a firm in an imperfectly competitive market. What is the revenue maximising output of the firm? price MC AC $ MR AR O AB C D quantity

Question

Governments introduce different policies to achieve a more efficient use of energy. Which policy is least likely to achieve this objective? A a limit to the amount by which energy prices can increase B an increase in the tax on energy usage C energy pricing policies that reflect the full social costs of energy use D subsidies to suppliers of products designed to save energy

Question

A report in the UK suggests that means-tested benefits (benefits that are paid depending on income) should be introduced for benefit payments to the elderly and that any money saved should be used to pay means-tested benefits to young adults. This is because some elderly people now have high levels of real income. Which outcome is most likely? A Equality amongst young adults will decrease. B Equality amongst the elderly will decrease. C Intergenerational equality will increase. D There will be an increase in transfer payments.

Question

What is defined as ‘the payment made to a factor of production over and above that necessary to keep the factor in its present use’? A economic rent B normal profit C opportunity cost D transfer earnings

Question

As the number of workers employed by a firm increases, the marginal product of labour decreases but remains positive. What happens to the firm’s total output? A It stops increasing. B It increases at a constant rate. C It increases at a falling rate. D It increases at a rising rate.

Question

What will cause the supply curve of labour in a particular industry to shift to the left? A a fall in demand for the industry’s product B a greater use of machinery in the production of the industry’s output C a rise in wages paid in similar occupations in other industries D a weakening of trade union influence in the industry

Question

What does an output gap show? A the difference between actual output and long-run potential output B the difference between actual output and output when labour is fully employed C the difference between the maximum output in a boom and the minimum output in a recession D the difference between the minimum output in a boom and the maximum output in a recession

Question

GNP per head in a country has increased by 10% over the past 5 years. What is not a valid reason to doubt whether average living standards have also risen by the same amount? A The distribution of income may have changed considerably over the period. B The general price level is likely to have changed over the period. C The size of the population may have changed over the period. D The workforce may have produced greater output by working for more hours per week.

Question

The Human Development Index is a measure of economic development. What is included in this index? child mortality GNI per capita life expectancy mean years per thousand at $PPP at birth of schooling population A B C D

Question

What would increase structural unemployment in the manufacturing sector of the US? A Asian exporters of manufactured goods to the US experience a fall in labour costs per unit of output. B Tariffs on Asian manufacturing imports increase. C The percentage of US manufacturing employees belonging to a trade union falls. D The US dollar's real effective exchange rate against the Asian currencies falls.

Question

Governments have a range of policy options available to them to reduce unemployment. Which statement is correct? A A government cannot reduce seasonal unemployment. B Changing interest rates is the best way a government can reduce the natural rate of unemployment. C Changing the exchange rate will not reduce demand-deficient unemployment. D Supply-side policies can be used by a government to reduce frictional unemployment.

Question

What is not considered to be an injection into the circular flow of income of an economy? A a rise in exports of financial services B firms investing in new production techniques C increased government spending on health services D spending on hotels and entertainment by tourists visiting another country

Question

The table shows the nominal GDP growth rate and annual inflation rate in four countries, W, X, Y and Z. nominal GDP annual inflation growth rate (%) rate (%) W 2.1 1.9 X –1.6 8.9 Y 4.1 5.8 Z –2.0 16.4 What can be concluded from the table? A W experienced the highest rate of real economic growth. B X and Z experienced deflation. C Y experienced the greatest rise in the standard of living. D Z experienced the greatest growth in public debt.

Question

What identifies net injections into a country’s circular flow of income? I>S X<M G<T A yes no no B yes no yes C no yes no D no yes yes

Question

In a closed economy with no government there is an equilibrium level of national income of $1000 billion. The households always spend 80% of the income they receive. If full employment occurs when national income is $1200 billion, by how much must aggregate demand initially change to close the economy’s deflationary gap? A –$200 billion B –$40 billion C +$40 billion D +$200 billion

Question

According to Keynesians, the demand for money is negatively correlated with the interest rate. Which motive for holding money best accounts for this relationship? A income motive B precautionary motive C speculative motive D transactionary motive

Question

The diagram shows aggregate demand (AD) and aggregate supply (AS). There is a change from AD1 to AD2 and from AS1 to AS2. AS1 AS2 price level AD2 AD1 O Y1 Y2 Y3 Y4 national income As a result, the equilibrium level of national income changes from: A Y1 to Y3. B Y1 to Y4. C Y2 to Y3. D Y2 to Y4.

Question

The table gives an economy’s unemployment rate and inflation rate for a five-year period. unemployment year inflation rate % rate % 2010 7.6 2.6 2011 6.2 1.6 2012 5.8 1.8 2013 5.9 2.0 2014 5.8 2.0 Which change between consecutive years was in agreement with the Phillips curve analysis? A 2010–2011 B 2011–2012 C 2012–2013 D 2013–2014

Question

The Consumer Prices Index (CPI) fell by 3% in a year. Unemployment was regarded as unacceptably high. Which combination of policies would a government be most likely to adopt in such circumstances? A an appreciation of the currency, together with an increase in the rate of interest B increased government expenditure on education, together with an increase in taxes to pay for it C increased indirect taxes, together with a depreciation in the exchange rate D reduced income taxes, together with a cut in the rate of interest