Cambridge International Examinations

Cambridge International Advanced Subsidiary and Advanced Level

ECONOMICS 9708/12
Paper 1 Multiple Choice May/June 2017
1 hour
Additional Materials: Multiple Choice Answer Sheet
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There are thirty questions on this paper. Answer all questions. For each question there are four possible
answers A, B, C and D.
Choose 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.

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Any rough working should be done in this booklet.

This document consists of 11 printed pages and 1 blank page.

IB17 06_9708_12/3RP
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1 Scarcity means that goods need to be rationed between competing consumers.

Which basis for rationing is the most likely to result in the most equal distribution of goods?

A consumer preference
B market price
C political decision
D seller preference

2 In which aspect is the planned economy likely to offer more than the market economy?

A competition
B incentive
C innovation
D security

3 Line XX is the production possibility curve (PPC) of a worker picking peas and beans in a 10 hour
working day.

Y
quantity of peas
picked per day

Y X
O
quantity of beans
picked per day

What would cause the workers PPC to shift to the line YY?

A a machine that increases the workers pea picking productivity only

B a new work schedule where the worker spends 6 hours per day picking peas and only
4 hours picking beans
C a reduction in working hours to 8 per day and a machine that increases the workers pea
picking productivity
D a reduction in working hours to 8 per day only

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4 Four students are given the following list of assets.

a three bedroom house

banknotes and coins in a purse

money in a bank savings account

shares in a public limited company

The students are asked to order the assets from the most liquid to the least liquid and the table
shows their choices.

Which student is correct?

most liquid least liquid

A notes and coins savings account shares house

B notes and coins savings account house shares

C notes and coins shares savings account house

D savings account notes and coins shares house

5 How would an economist establish the market demand curve for a private good?

A by adding consumer surplus to total expenditure

B by combining individual demand curves horizontally
C by combining the price elasticity of individual demands
D by multiplying price by quantity demanded

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6 D1 and S1 are the initial demand and supply curves for a normal product. They then change to D2
and S2.

price
of good X2
D2

X1
D1

S1 S2
O
quantity of good

Which pair of changes would result in the market equilibrium for the product changing from X1 to
X2?

A a fall in the price of a raw material used in the manufacturing and a decrease in the price of a
complementary good
B an increase in average consumer incomes and an increase in the level of an indirect tax
imposed
C an increase in the price elasticity of demand for the product and a fall in its price elasticity of
supply
D a rise in the population and an increase in the price of labour used in manufacturing

7 The table gives a set of price and cross-price elasticities for four commodities, W, X, Y and Z.

elasticity of demand
with respect for commodity
to price of
W X Y Z

W 0.3 0.5 +0.7 1.3

X 0.7 1.2 +0.8 +1.6
Y +1.3 +1.7 3.6 +0.8
Z 2.7 +2.6 +1.7 0.7

Which pairs of commodities are complements?

A W and X; W and Z
B W and Y; X and Y
C W and Z; X and Z
D X and Y; X and Z

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8 The price elasticity of demand for a product is constant and equal to unity.

Which curve in the diagram shows the relationship between total expenditure on the product and
its price?

A
total B
expenditure

D
O price

9 A bottle making business announced it had introduced a new production system. As a result the
quantity produced per week could be increased or reduced much more easily when the price of
bottles changed.

What term describes this change?

A a less elastic demand

B a less elastic supply
C a more elastic demand
D a more elastic supply

10 The supply function for a good can be written as Q = 2P + 10, where Q is the quantity supplied in
kilos and P is the price per kilo in dollars.

The price falls from $15 to $10 per kilo.

The value of price elasticity of supply for this price change lies in a range from
1 3 1 3
A 1
6
to 4
. B 8
to 2
. C 2
3
to 4
. D 1 41 to 1 21 .

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11 A local government is deciding whether to increase parking charges and provide more lanes for
bus use only.

One official said that the increase in parking charges should cause more bus travel.

A second official said that an increase in the frequency of bus services will not cause demand for
bus travel to rise.

Are these official statements correct or incorrect?

first statement second statement

A correct correct
B correct incorrect
C incorrect correct
D incorrect incorrect

12 What would prevent the operation of the market mechanisms rationing function?

A falling prices
B price controls
C rising profits
D self interest

13 The diagram shows the demand and supply curves for a good during a certain period. The
market price is shown by P and the quantity traded by point M.

supply
price
A

X
P

B
demand

O M
quantity

Which area indicates producer surplus?

A AXB B AXMO C AXP D PXB

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14 A specific tax is placed on the sale of bottles of lemonade. In the diagram, SS is the supply curve
before imposition of the tax and StSt is the supply curve after tax.

St
price D
W S

U
X
St
D
T

S
O
quantity

Which distance represents the specific tax on each bottle?

A UT B WT C WU D WX

15 A market is in equilibrium at point X. The government then subsidises both consumers and
producers by direct payments.

What will be the new equilibrium position?

S2 S1 S3
price
A

B
X C
D

D1 D2
O quantity

16 Which is a transfer payment?

A an annual allowance paid by an individual to a grandchild

B a one-off bonus paid to an employee for a special contribution to a firms profits
C a payment made by a parent to a regular child-minder
D the monthly salary of an employee of a local authority

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17 What is an example of direct public provision of goods and services?

A a charity hospital funded by public donations that offers free treatment to the rural poor
B a mobile government library that travels to rural villages offering access to books
C a pharmacy in a local shopping centre that provides treatment direct to the public
D a private school that offers free places to children of low income families

18 What would supporters of a nationalised public transport service expect to be the most likely
outcome from the privatisation of train and bus services?

A fewer destinations served by trains and buses

B lower fares
C more frequent services to all destinations
D more people employed in public transport services

19 The diagram shows a shift in the aggregate demand curve of an economy from AD1 to AD2.

price
level

AD2
AD1
O
real national
income

What could have caused this shift?

A an increase in expenditure on imports

B an increase in government tax rates
C an increase in the international trade deficit
D an increase in the money supply

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20 Which statement about changing price levels is correct?

A Anyone on a fixed income has rising real income during deflation.

B Government revenue from indirect taxes falls during inflation.
C Producers prefer deflation to inflation.
D Savers prefer index-linked savings when there is deflation rather than inflation.

21 Which combination of events is most likely to cause inflation?

exchange rate direct taxes money supply

A falling falling falling

B falling falling rising
C rising rising rising
D rising rising falling

22 The table gives information about the trade between Singapore and New Zealand during 2001,
the first year after they signed a free trade agreement. The values are given both in Singapore
dollars (S$) and New Zealand dollars (NZ$).

percentage change
S$ m NZ$ m
from 2000

Singapore exports to New Zealand 508 618 +20%

Singapore imports from New Zealand 331 403 17%

What can be concluded from the table?

A New Zealand gained more than Singapore from the trade agreement.
B New Zealands trade position with Singapore improved in 2001.
C Singapore had a trade surplus with New Zealand in 2001.
D The exchange rate in 2001 was approximately NZ$ 1 = S$ 1.2.

23 Country X conducts 60% of its trade with country Y and 40% of its trade with country Z. The initial
value of the trade weighted exchange rate index of country X is 100.

What will be its new trade weighted exchange rate index value if its currency rises in value by
20% against the currency of Y and falls by 10% against the currency of Z?

A 84 B 92 C 108 D 116

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24 In the diagram D1 and S1 are the initial supply and demand curves of the pound sterling () on the
foreign exchange markets.

D1 D2 S2
price of S1
(in $)

O
quantity of

What will cause the demand curve to shift to D2 and the supply curve to S2?

A a depreciation of the pound sterling

B a decrease in UK interest rates
C an increase in the price levels of other countries
D an increase in the level of UK import tariffs

25 A countrys terms of trade currently stands at 150 (base year 2000 = 100).

Since 2000 the average price the country has received for its exports has increased by 20%.

What has been the change in the average price it has paid for its imports?

A 25% B 20% C +20% D +25%

26 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 1800 2800

country Q 1500 2000

Which statement is correct?

A P has an absolute advantage in Y and Q has an absolute advantage in Z.

B P has an absolute advantage in Z and Q has a comparative advantage in Y.
C P has a comparative advantage in Y and Q has a comparative advantage in Z.
D P has a comparative advantage in Z and Q has an absolute advantage in Y.

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27 Which government policy could be considered as a protectionist policy?

A an imposition of controls on capital outflows from the economy

B foreign exchange intervention to prevent a devaluation of the countrys currency
C pollution charges imposed on domestic producers
D subsidies paid to domestic producers of a tradeable good

28 The government of a country plans to raise income tax rates. The initial equilibrium for the
country is represented by point X on the diagram.

Which new equilibrium point would an economist predict as the result?

price
level AS1

A AS2

X B
D
AD3

C AD1
AD2

O
real national income

29 What is an example of an expenditure-dampening policy?

A an increase in income tax rates

B an increase in the level of import tariffs
C an upward revaluation of the exchange rate
D the introduction of import quotas

30 An economy is currently operating close to its full employment level of national income.

Which combination of macro-economic policies would be most likely to have net deflationary
effects?

A a 10% cut in the standard rate of income tax and a 5% devaluation of the currency
B a 10% cut in the standard rate of income tax and a 5% revaluation of the currency
C a 10% rise in the standard rate of income tax and a 5% devaluation of the currency
D a 10% rise in the standard rate of income tax and a 5% revaluation of the currency

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UCLES 2017 9708/12/M/J/17