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ECONOMICS- 9708/32 February- 2023
Paper 3 A Level Multiple Choice 1 hour 15 minutes
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 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.
● Any rough working should be done on this question paper.
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1.The transport authority in a city is considering building an underground railway to reduce
traffic congestion on the roads.
Which combination would represent an external cost and an external benefit of the use of this
railway
external cost external benefit
A compensation is paid to businesses dis- foreign tourists pay to use the railway
placed by construction work
B nearby residents suffer noise there are fewer admissions to hospi-
from passing trains tal as air quality improves
C overtime payments are made to workers productivity increases as employees
to finish building the railway on time
arrive at work more punctually
reduced traffic means there are fewer
D motorists spend less on fuel
road improvements needed
2. The diagram shows the marginal private benefit (MPB), the marginal private cost (MPC) and the
marginal social cost (MSC) of a firm producing chemicals. In a free market, price is at P1.
Which quantity measures the overproduction of chemicals resulting in the negative production
externality?
A Q1,Q2 B Q1,Q3 C Q2,Q3 D Q3,Q4
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3.The points in the diagram represent different combinations of good X and good Y.
An individual prefers more of both goods to fewer, but would prefer not to give up even a
single unit of X to obtain additional units of Y. How would she rank (in descending order of
preference) the combinations shown in the diagram?
A KLMN B LNKM C MKNL D NMLK
4 The diagram shows a consumer’s initial budget line is GH and a set of indifference curves
IC1, IC2 and IC3 for goods R and S. The original equilibrium for the consumer is point X.
The inflation rate is rising faster than money incomes. What will be the most likely new
equilibrium for the consumer if all real income is spent?
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5. The diagram shows an individual’s budget lines and indifference curves. The initial budget line is
JL. There is then an increase in the price of good Y.
Which distance represents the substitution effect of the increase in price of good Y?
A LK B SR C TS D TR
6. In which type of market structure are commercial banks usually found?
A perfect competition, because they all link their interest rates to that of the central bank
B perfect competition, because they offer identical products and services
C monopolistic competition, because a competitive market prevents them making excess
profits
D oligopoly, because they are affected by the actions of other banks
7. The marginal cost curve of a firm passes through the lowest point of the firm’s
A average fixed cost curve.
B average variable cost curve.
C marginal revenue curve.
D total cost curve.
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8. What would definitely be abnormal profits?
A the extra revenue received from the sale of a farmer’s land to a house-building firm
B the extra revenue received by a firm from an unexpectedly large increase in demand
C the total revenue from the sale of a firm’s products in excess of the total variable costs of
the firm
D the total revenue in excess of total costs of the firm above the minimum needed to keep
the firm in business in the long run
9. The list provides characteristics of the market in which firm X operates.
● Firms in the market spend a lot of money on advertising.
● Firms in the market experience a high level of uncertainty.
● Start-up costs for new firms entering the market are relatively high.
● The largest five firms in the market control 85% of total sales.
In which market structure is firm X operating?
A monopoly
B monopolistic competition
C oligopoly
D perfect competition
10. As firm X grows in size, it specialises in a narrower range of products.
Which economies of scale will the firm be less able to benefit from?
A financial
B marketing
C risk-bearing
D technical
11. Which government policy is intended to correct ‘market failure’?
A guaranteed minimum prices for farmers producing certain agricultural products
B imposition of taxes on factories releasing pollutants into rivers
C rent controls on housing occupied by low income individuals
D the provision of free books for children of poorer households
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12. The following schedule gives information about a firm’s costs.
Total Variable Cost $6400
Average Fixed Cost $20
Average Total Cost $100
Which output would be consistent with these costs?
A 32 units B 50 units C 64 units D 80 units
13. The diagram illustrates a monopsony labour market in which the government has
imposed a minimum wage.
What is the difference between the wage the monopsonist wishes to pay and the wage
received by labour?
A W1W3 B W1W2 C W2W3 D W2W4
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14.A fashion model is paid $500 000 a year. If the next best paid job he could get is as a
teacher at $100 000 a year, what are his transfer earnings and his economic rent?
transfer earnings economic rent
$ $
A zero 400 000
B 100 000 400 000
C 400 000 zero
D 400 000 100 000
15.A firm operates under perfect competition in both product and factor markets with
labour as the only variable factor input. In the diagram, the line JK shows the relationship
between the marginal physical product of labour and the hours worked.
When the marginal revenue of the product is $1.60, the firm uses 3000 hours of labour.
What is the hourly wage?
A $0.40 B $2.40 C $5.60 D $6.40
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16. The diagram shows the relative position of two countries X and Y on a Kuznets curve
What does the diagram indicate?
A Country X collects more income tax than country Y.
B Country X has a higher national income than country Y.
C Country Y has less income inequality than country X.
D Country Y is less economically developed than country X.
17. Which government measure is most likely to encourage faster and more sustainable
economic growth in a country?
A subsidies to firms using recycled materials in production
B grants for the exploration and exploitation of new oil deposits
C increased spending on environmental education in schools
D tougher legislative controls on emissions of air and water pollution
18. Which statement about National Income accounting is correct when Gross Domestic
Product (GDP) is converted into Net National Income (NNI)?
A An allowance for depreciation has to be made, because the NNI does not include output
that replaces capital that has been used up.
B Both GDP and NNI have to be calculated by the incomes method, because that is what
NNI is measuring.
C Double counting is not a problem if the conversion uses the output method, but it is
when using the expenditure method.
D The value of exports needs to be added, because exports generate income for citizens.
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19. A government implements three economic policies.
1 lower income tax
2 higher indirect taxation on alcohol to reduce consumption
3 higher spending on infrastructure
Which policies represent forms of government macro economic policy?
A 1 and 3 B 2 and 3 C 2 only D 3 only
20. The Measure of Economic Welfare (MEW) is often regarded as a better measure of
economic welfare than Gross Domestic Product (GDP) per head.
What is additionally included in the calculation for MEW?
A the cost of paid work
B the cost of producing armaments
C the estimated cost of damage to the environment
D the negative impact on the shadow economy
21. The chart provides information about employment rates, as a percentage of total
employment, in the primary, secondary and tertiary sector of four countries. What is most
likely to represent the most economically developed country?
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22. What describes the multiplier process, as it operates within a closed economy with no
government sector?
A Changes in National Income determine the level of investment.
B The level of consumption depends on the level of National Income.
C The levels of consumption and investment together determine the level of National
Income.
D When investment changes, there will be a greater change in equilibrium National Income
23. What would be an increase in leakages or withdrawals from the circular flow of
income?
A increase in government spending on anti-smoking campaigns
B increase in spending on imports of luxury cars
C increase in spending on transfer payments
D increase in wages paid to government employees
24. Which statement would both Keynesian and Monetarist schools of thought accept?
A High inflation and high unemployment are undesirable in a properly-functioning
economy.
B Increased government spending on investment projects will always crowd out private
investment.
C The best way for an economy to get out of a recession is for the government to increase
its expenditure.
D The most effective way to reduce inflation is for the government to exercise tight control
over the money supply.
25. A developing country receiving foreign financial aid is most likely to experience
economic growth in the long run if it uses the money to:
A boost welfare benefits for the poorest households.
B pay for imports of capital goods.
C reduce environmental pollution.
D reduce income tax for all households.
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26.The Multidimensional Poverty Index uses benchmarks to measure the severity of
poverty. Which country suffers most from deprivation in health and living standards
compared with deprivation of education?
27.The diagram shows a closed economy in which the full employment level of income is YF.
Which distance measures the deflationary gap?
A JK B JL C NYF D MYF
28. Which policy is most likely to lead to a reduction in the natural rate of unemployment?
A an increase in government expenditure on goods and services
B an increase in government expenditure on training schemes to address skill shortages
C an increase in the period when the unemployed are eligible for welfare benefits
D an increase in the minimum wage
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29.What is most likely to increase if an economy enters a negative output gap?
A business confidence
B economic growth rate
C inflation rate
D unemployment rate
30.What may lead to a reduction in bank lending in a country?
A an increase in commercial banks’ balances with the central bank
B an increase in the liquidity ratios operated by the country’s commercial banks
C an increase in the monetary base of the country
D an increase in the volume of liquid assets held by the country’s commercial banks
(Total=30)
