UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Subsidiary Level and Advanced Level ECONOMICS

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1 UNIVERSITY F MRIGE INTERNTINL EXMINTINS General ertificate of Education dvanced Subsidiary Level and dvanced Level ENMIS 9708/01 Paper 1 Multiple hoice (ore) ctober/november 2004 dditional Materials: Multiple hoice nswer Sheet Soft clean eraser Soft pencil (type or H is recommended) 1 hour RE THESE INSTRUTINS FIRST Write in soft pencil. o not use staples, paper clips, highlighters, glue or correction fluid. Write your name, entre number and candidate number on the answer sheet in the spaces provided unless this has been done for you. There are thirty questions on this paper. nswer all questions. For each question there are four possible answers,,, and. hoose the one you consider correct and record your choice in soft pencil on the separate answer sheet. Read the instructions on the answer sheet very carefully. Each correct answer will score one mark. mark will not be deducted for a wrong answer. ny rough working should be done in this booklet. I04 11_9708_01/3RP ULES 2004 This document consists of 10 printed pages and 2 blank pages. [Turn over

2 1 In a market economy, what is the basis for determining the allocation of factors of production? 2 the market share of companies the needs of the country the pattern of consumers spending the wealth of entrepreneurs 2 The diagram shows two production possibility curves (EF and GH), before and after technological progress has taken place. G consumer goods E X Y M F H capital goods fter technological progress has taken place, what is the opportunity cost in capital goods of producing X consumer goods? MH H M YF 3 What is meant by ceteris paribus in economic analysis? normative approach is being adopted. The effect of a change of one variable is being considered in isolation. ne good has to be sacrificed to obtain more of another. ne factor of production is fixed. 4 octors should be paid highly because they have to undertake a long period of training. What can be concluded about this statement? It is a normative statement because high pay does not always result from lengthy training. It is a normative statement because it expresses an opinion. It is a positive statement because doctors do have to train for a long period. It is a positive statement because greater skill results in higher pay. ULES /01//N/04

3 5 What ensures that demand for a product is effective? 3 The consumer must be in the private sector of the economy. The consumer must have sufficient income to buy the product. The consumer must receive consumer surplus. The consumer must want to buy the product. 6 What would cause the demand for holiday accommodation in Mauritius to shift to the left? a fall in the exchange value of the Mauritian rupee poor holiday weather in Mauritius relaxation in planning controls on hotel construction in Mauritius removal of sales tax on hotel accommodation in Mauritius 7 The demand for a commodity has unitary elasticity. Which diagram shows the relationship between total expenditure on the commodity and its? total expenditure total expenditure total expenditure total expenditure 8 The cross-elasticity of demand between two goods will be higher the greater the difference in between the two goods. the greater the income elasticities of demand for the two goods. the greater the elasticities of demand for the two goods. the more they are regarded as similar by consumers. ULES /01//N/04 [Turn over

4 9 The diagram shows four different straight line supply curves. 4 S 1 S 2 S 3 S 4 quantity What can be concluded from the diagram? S 1 has unitary elasticity. S 2 has zero elasticity. S 3 has a constant elasticity. S 4 has infinite elasticity. 10 The table refers to exports of sugar from Jamaica in 1999 and exports of sugar (tonnes) export earnings from sugar (US$ millions) What can be deduced from the data? The demand for sugar is -elastic. The income elasticity of demand for sugar is negative. The of sugar in US$ fell between 1999 and The supply of sugar is -elastic. 11 ssume that rice is a substitute for potatoes. If there is a decrease in the supply of potatoes, what is likely to happen to the market for rice in the short run? emand will decrease and the will decrease. emand will increase and the will increase. Supply will decrease and the will increase. Supply will increase and the will decrease. ULES /01//N/04

5 12 In the diagram, point X shows the equilibrium and quantity for a fruit drink. The government announces that the ingredients used in the drink can be harmful. 5 Which point,,, or, is most likely to represent the new equilibrium after consumers hear this announcement? 1 S 2 0 S 0 S 1 per litre 2 S 2 X 1 S 0 0 S 1 2 quantity (litres per period) 13 The table shows observations of a competitive market in equilibrium in two periods. period market quantity traded 1 50 cents units 2 60 cents units What could explain the change from period 1 to period 2? an increase in the of a complement an increase in the of a substitute the imposition of an indirect tax on suppliers the imposition of a minimum of 60 cents by a government 14 Which combination shows examples of the private and external costs of the particular activity? activity private cost external cost car journeys traffic police costs labour mobility foreign holidays crowded beaches airport taxes jet flights night flight disturbance landing fees pop concerts admission charges noise intrusion ULES /01//N/04 [Turn over

6 6 15 The government has to choose the best one of four possible sites to locate a port. The costs and benefits of each site are shown in $m in the table. Which site would be chosen? site private costs external costs private benefits external benefits Why do governments often subsidise the cost of entrance to museums? Museums are a pure public good. Social benefits are less than social costs. Social benefits exceed private benefits. Social costs exceed private costs. 17 The diagram shows the market for spectacles. Initially the market equilibrium is P and quantity Q 3 is bought and sold. S P X P P M Q 1 Q 2 Q 3 Q 4 Q 5 quantity The government then sets both a maximum spectacle of P X and a minimum of P M. What effect will these measures have on the market for spectacles? create a shortage of spectacles equal to Q 1 Q 5 create a surplus of spectacles equal to Q 2 Q 4 create a surplus of spectacles equal to Q 3 Q 4 leave the quantity bought and sold unchanged ULES /01//N/04

7 7 18 In which situation will it be necessary to use an alternative to the mechanism to allocate a good between consumers? The quantity of the good available is fixed. Producers of the good receive a subsidy. The government imposes a specific tax on the good. The government sets a maximum below the equilibrium. 19 The diagram shows production possibility curves for two countries, X and Y. good country Y country X good What can be deduced from the diagram? oth countries can benefit by specialisation. ountry X has a higher opportunity cost than Y in producing good. ountry Y has a comparative advantage in both goods. Trade between X and Y will not take place. 20 n argument against trade protection is that it will increase competition for domestic industries. domestic levels. the current account deficit. opportunities for domestic infant industries. 21 What is present in a customs union but not in a free trade area? a common monetary system a common external tariff with the rest of the world a common system of taxation the free movement of all goods, services and factors of production ULES /01//N/04 [Turn over

8 22 In which situation must the terms of trade be moving in a country s favour? 8 Its import s are rising at a slower rate than its export s. There is a fall in both its import and its export s. There is an increase in its official reserves. The volume of its exports is increasing more than the volume of its imports. 23 The graph shows the unemployment rates for the UK, US and Japan for 2000 and unemployment rate (%) UK US Japan year What can be concluded from the graph? Each economy experienced a rising trend of unemployment. Japan went from the lowest to the highest number of unemployed. There was a trend towards more similar unemployment rates. The UK had a higher number of unemployed than the US. 24 The table shows the indices and weights for three commodity groups that are included in the calculation of a country's consumer index. commodity group index weight X Y Z 80 2 y how much has the cost of living increased since the base year? 52 % 60 % 152 % 520 % ULES /01//N/04

9 25 The figures show the consumer index (PI) of a country. (1971 = 100) 9 PI What can be deduced from the data? There was hyperinflation between 1971 and The rate of inflation rose in The rate of inflation in 1999 was 4 %. The country experienced inflation in the three years down to the end of What is the most likely consequence of an increase in a country s balance of payments deficit? an increase in the foreign value of the currency of the country an increase in the level of income within the country a reduction in the quantity of money within the country a reduction in unemployment within the country 27 Which factor determines the purchasing power parity of a currency? relative costs of living relative rates of interest the volume of trade creation the visible balance of payments 28 Which is most likely to cause country X s exchange rate to depreciate? an increase in country X s demand for imports an increase in country X s interest rate an increase in foreign demand for country X s exports an increase in tourist visits to country X ULES /01//N/04 [Turn over

10 10 29 depreciation of the exchange rate of the pound sterling against the US dollar from 1 : $1.50 to 1 : $1.00 must mean that the pound will be undervalued. US imports from the UK will become more expensive. UK imports from the US will become cheaper. dollars will become more expensive in terms of pounds. 30 Which policy would reduce a balance of payments deficit on the current account in the short run? a reduction in government subsidies to exporters a reduction in the rate of interest a rise in direct taxation incentives to attract foreign capital ULES /01//N/04

11 11 LNK PGE 9708/01//N/04

12 12 LNK PGE Every reasonable effort has been made to trace all copyright holders. The publishers would be pleased to hear from anyone whose rights we have unwittingly infringed. University of ambridge International Examinations is part of the University of ambridge Local Examinations Syndicate (ULES), which is itself a department of the University of ambridge. 9708/01//N/04

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Subsidiary Level and Advanced Level

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Subsidiary Level and Advanced Level UNIVERSITY F MRIGE INTERNTINL EXMINTINS General ertificate of Education dvanced Subsidiary Level and dvanced Level ENMIS 9708/12 Paper 1 Multiple hoice (ore) May/June 2012 1 hour *8789534142* dditional