Cambridge International AS & A Level

ECONOMICS 9708/31
Paper 3 Multiple Choice May/June 2020
1 hour 15 minutes

You must answer on the multiple choice answer sheet.

*4970713074*

You will need: Multiple choice answer sheet

Soft clean eraser
Soft pencil (type B or HB is recommended)

INSTRUCTIONS
• 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 multiple choice answer sheet.
• Follow the instructions on the multiple choice answer sheet.
• Write in soft pencil.
• Write your name, centre number and candidate number on the multiple choice answer sheet in the
spaces provided unless this has been done for you.
• Do not use correction fluid.
• Do not write on any bar codes.
• You may use a calculator.

INFORMATION
• The total mark for this paper is 30.
• Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
• Any rough working should be done on this question paper.

This document has 12 pages. Blank pages are indicated.

IB20 06_9708_31/3RP
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1 A medical team in a refugee camp provides vaccinations for children to prevent an outbreak of an
infectious disease.

Why would this be described as a positive externality?

A Additional benefit might be gained as the disease no longer spreads.

B Any kind of medical help will improve the condition of the children.
C No action would be taken unless the medical team intervened.
D The social benefits of vaccination are less than the social costs.

2 The diagram shows the average cost curves for a firm.

costs and
revenue actual average
production costs
X
potential average
Y production costs

O output

If a firm moved from point X to Y, what is most likely to happen to the productive efficiency and
x-inefficiency of this firm?

productive
x-inefficiency
efficiency

A decreases decreases
B decreases increases
C increases decreases
D increases increases

3 An economist undertakes a cost-benefit analysis of the pollution resulting from a manufacturing

process.

Which judgement is most likely to guide any recommendation about the appropriate level of
manufacturing output?

A that the marginal social cost of manufacturing equals the marginal social benefit
B that the marginal cost of pollution is zero
C that the total revenue of manufacturing equals the total cost
D that the total benefit of pollution is maximised

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4 An individual consumes goods X and Y. The marginal utility of good X is positive and falling. The
consumer is at the point where the ratio of the marginal utility of the two goods is equal to the
ratio of their prices.

What can be concluded from this information?

A the consumer will continue to consume additional units of X until marginal utility is zero
B the consumer will purchase more of X if the price of Y rises
C total utility will be negative on the additional unit of X consumed
D total utility will be rising at an increasing rate on the additional unit of X consumed

5 To analyse a consumer’s preferences, an indifference curve represents possible combinations of

goods X and Y.

The diagram shows a consumer’s indifference curve for good X and good Y.

units of
good Y I

E
F
G

O
units of
good X

What can be concluded from the diagram?

A Point E is the most desirable combination.

B Point F is less desirable than point G.
C Point G is the least desirable combination.
D Points E, F and G are equally desirable combinations.

6 In the short run, a firm produces an extra unit of output.

Which of the firm’s production costs will change?

A fixed cost only

B fixed cost and variable cost
C variable cost only
D variable cost and total cost

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7 The diagram shows the cost curves of a firm operating in a perfectly competitive market.

Below which price will the firm shut down in the short run?

price MC

AC
A
B AVC

O output

8 The table shows a firm’s total and marginal costs.

output total cost ($) marginal cost ($)

1 340 40
2 375 35
3 400 25
4 435 35
5 475 40

What is the average fixed cost of producing 6 units?

A $50 B $60 C $180 D $300

9 An electronics firm, which began as a semiconductor firm making simple memory chips, has used
continuous research and investment to emerge as an industry leader. In addition, it has applied
its research in semiconductors to enter other markets including televisions and mobile phones.

What has taken place?

A external growth and diversification

B external growth and sales revenue maximisation
C internal growth and diversification
D internal growth and sales revenue maximisation

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10 Which diagram shows a monopolistically competitive firm in long-run equilibrium?

A B

revenue MC revenue MC
/ cost AC / cost AC

MR AR MR AR
O Qe output O Qe output

C D

revenue MC revenue MC
/ cost AC / cost AC

MR AR MR AR
O Qe output O Qe output

11 When will a cartel find it most difficult to fix the market price of its product?

proportion of firms in
barriers of entry
the industry that are
into the industry
members of the cartel

A high high
B high low
C low high
D low low

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12 The diagram shows the cost and revenue curves of a monopoly.

cost, MC
revenue AC

MR AR

O X
output

What is the firm’s objective if it produces output OX?

A to achieve normal profit

B to maximise profit
C to maximise total revenue
D to minimise average cost

13 Which policy is not designed to correct a market failure?

A government provision of healthcare

B price controls on large firms
C regulations to limit smoke pollution
D removing import quotas

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14 A chemical firm produces toxic fumes that impose costs on society. The diagram shows the free
market equilibrium of the firm’s product at P1Q1.

price
MSC
MPC
X
P2
P1
Y

MPB
O Q2 Q1
quantity

The government imposes a tax on the firm of XY.

How would this improve resource allocation?

A It will internalise the external benefit.

B It will internalise the external cost.
C It will internalise the private benefit.
D It will internalise the private cost.

15 The level of benefit paid to an individual receiving a means-tested benefit depends on the
individual’s

A age.
B family size.
C income.
D qualifications.

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16 The diagram shows two Lorenz curves.

100
percentage
of income

L1
L2

0 100
percentage
of population

If the Lorenz curve shifts from L1 to L2, what is least likely to have caused this?

A Capital gains tax has been reduced.

B Income tax has been made more progressive.
C Inheritance tax has been reduced.
D The tax-free allowance has been decreased for everyone.

17 A firm is operating in a perfectly competitive market.

Why does the marginal revenue product of a factor of production employed by the firm fall as
more of the factor is employed?

A Its average revenue falls.

B Its marginal physical product falls.
C Its marginal revenue falls.
D The supply price of the factor rises.

18 Labour from developing countries often migrates to developed countries and finds jobs.

How would such a movement of labour be likely to affect the economic growth and the pressure
on wage rises in the developed country?

economic growth pressure on wage rises

A decrease decrease
B decrease increase
C increase decrease
D increase increase

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19 The African Union consists of 55 developing countries. They agree to adopt a free-trade model to
boost trade between member countries.

In theory what do free-trade models tend to ignore?

A absolute advantage in terms of lower factor inputs in production

B allocation of resources where comparative cost advantage is greatest
C the international division of labour and differences in opportunity cost ratios
D transport costs and inefficiencies in the handling of goods and services

20 Young workers find it especially difficult to get a job during an economic recession. A government
introduces a transfer payment for those seeking work and provides information on vacancies.

What should be a positive outcome of this policy for those seeking work?

A Firms no longer need to advertise jobs because there are few vacancies.
B No production of goods or services is required for a transfer payment.
C Obtaining information on jobs available makes the labour market more perfect.
D Students will leave their studies to join the workforce at an earlier age.

21 The diagram shows the annual percentage (%) change in employment and output in the UK
private sector between 2000 and 2012.

4 output 10

2 5

0 0
employment output
employment
–2 –5

–4 –10

–6 –15
2000 02 04 06 08 10 2012
year

In which year did labour productivity increase the most?

A 2003 B 2007 C 2009 D 2012

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22 The table shows the levels of consumption expenditure and savings for given family incomes.

disposable consumption
savings
family income expenditure
($)
($) ($)

2000 2150 –150

3000 3100 –100
4000 4000 0
5000 4850 150
6000 5650 350
7000 6380 620

Over the range of disposable income shown, as income rises the marginal propensity to consume

A falls and then rises.

B falls continuously.
C rises and then falls.
D rises continuously.

23 During a year, a country’s national income in money terms increased by 3%, prices increased by
4% and total population increased by 1%.

What was the approximate change in real income per head?

A a decrease of 1%
B a decrease of 2%
C an increase of 2%
D an increase of 3%

24 What does the accelerator principle explain?

A how changes in consumption lead to changes in income

B how changes in income lead to changes in consumption
C how changes in income lead to changes in investment
D how changes in investment lead to changes in income

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25 An individual’s demand curve for an active money balance will move to the left if there is an
increase in the

A frequency of income payments.

B general price level.
C individual’s income.
D rate of interest.

26 A country’s central bank buys government securities from the private sector.

What is the most likely effect on long-term interest rates and the money supply?

long-term money
interest rates supply

A decrease decrease
B decrease increase
C increase decrease
D increase increase

27 What belief do Keynesians and Monetarists share?

A Expectations rapidly adapt to changing circumstances.

B Fiscal policy is the most effective economic policy.
C There is need for individual choice expressed through the market.
D The velocity of circulation of money is stable.

28 Which statement is most likely to be made by an economist from the Keynesian school?

A Any deviation from full employment will only be temporary.

B Free markets will always lead to an efficient economic outcome.
C Market imperfections can lead the economy to remain below full capacity for a considerable
time.
D The role of expansionary fiscal policy is likely to be limited.

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29 The US government has been using a policy of quantitative easing to increase economic growth.

What is the most likely effect of this policy on the internal and external value of the US dollar?

internal value external value

A decrease decrease
B decrease increase
C increase increase
D increase decrease

30 In 2018 the US imposed a tariff on steel imports.

What is the likely impact of this tariff on the US economy?

A It will make US steel exports more price competitive.

B It will lead to productive inefficiency in the US steel industry.
C There will be a deterioration in the US’s terms of trade.
D There will be a decrease in producer surplus for US steel producers.

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